Employment in Luxembourg: The wage indexation system “must be revised”

“Wage indexation can aggravate the problem of inflation, which takes longer to come down,” analyzes Catherine MacLeod, senior economist at the Luxembourg office of the OECD. After the two wage indexations in 2022 (including one postponed to 2023), two others could take place next year (in addition to the postponed one) and some, like Mathias Cormann, Secretary General of the OECD, recommend to “revise the indexation system, in order to take better account of productivity”.

The Grand Duchy, one of the last countries to have such a tool, is surrounded by competitors, recalled Mathias Cormann last week when presenting the report on the country. If wages increase, it harms competitiveness.” He calls for “getting the means to improve the impact of the index”, because he knows this very sensitive subject. Nora Back, president of the OGBL, is also “scandalized that in times of crisis and after the tripartite, the OECD is careful to impose its way of thinking”. According to the trade unionist, the desire to adapt the index is “a pretext to dismantle it little by little. It would be the beginning of the end!”

Politicians questioned on the subject are walking on eggshells. “The index is part of Luxembourg’s DNA. It is a guarantor of social peace and stability, which also holds companies, ”notes Yuriko Backes (DP), Minister of Finance. The liberal recalls the recent adaptations, “thanks to the social model, which made it possible to compensate for an index”. According to her, an adjustment is possible, “in a calmer period and in consultation with the social partners”. His colleague from the Economy, Franz Fayot (LSAP), reminds us that the index “makes it possible to sustain jobs and keep experience in business, by retaining workers”.

This OECD recommendation found an attentive ear on the side of Michel Reckinger, President of the Union of Luxembourg Companies (UEL). “That’s what we’ve been saying for a long time,” he smiles. According to the representative of employers, it is “not useful to increase wages in a uniform way”. An employee who earns, for example, 3,000 euros per month needs it much more than one who earns 10,000 euros”.