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© 2023 International Monetary Fund
SIP/2023/015
IMF Selected Issues Paper
European Department
Wage Indexation and International Competitiveness in Belgium: An Uneasy Coexistence
Prepared by Andre Geis
Authorized for distribution by Mark Horton
March 2023
IMF Selected Issues Papers are prepared by IMF staff as background documentation for periodic consultations with member countries. It is based on the information available at the time it was completed on February 10, 2023. This paper is also published separately as IMF Country Report No 23/099.
ABSTRACT: Belgium is one of a small group of euro area countries that maintains indexation of wages to inflation as part of its wage setting framework. With intensified price pressures since late 2020 driving inflation to record levels, the tension between compensating workers for purchasing power losses while maintaining international competitiveness have again been highlighted. To improve the performance and viability of the current setup, several avenues of reform could be envisaged. In particular, the scope for excluding price increases in highly volatile components, like energy and food, from the indexation basis should be explored to less the need to restore competitiveness by prolonged periods of real wage restraint. Moreover, options to widen the flexibility of the indexation regime should be contemplated to alleviate the burden of firms at times of large and multiple shocks, thereby also preserving investment and employment. Finally, productivity trends should also be accounted for to capture deviations of labor costs between Belgium and its key export markets.
RECOMMENDED CITATION: Geis, Andre. Wage Indexation and International Competitiveness in Belgium: An Uneasy Coexistence. IMF Selected Issues Paper (SIP/2023/015). Washington, D.C.: International Monetary Fund.
| JEL Classification Numbers:E24, E25, E31, E61, E64, F16, J31, J32, J33, J52 |
| Keywords: inflation, price setting, collective bargaining, wage formation, wage setting, wage indexation, inflation indexation, international competitiveness |
| Author’s E-Mail Address: AGeis@imf.org |
| JEL Classification Numbers:E24, E25, E31, E61, E64, F16, J31, J32, J33, J52 |
| Keywords: inflation, price setting, collective bargaining, wage formation, wage setting, wage indexation, inflation indexation, international competitiveness |
| Author’s E-Mail Address: AGeis@imf.org |
Title Page
SELECTED ISSUES PAPERS
Wage Indexation and International Competitiveness in Belium: An Uneasy Coexistence
Belgium
Title Page
BELGIUM
SELECTED ISSUES
February 10, 2023
Approved By
European Department
Prepared By Andre Geis, Yu Ching Wong (both EUR) and Nate Vernon (FAD).
Contents
WAGE INDEXATION AND INTERNATIONAL COMPETITIVENESS IN BELGIUM: AN UNEASY COEXISTENCE
A. Introduction
B. A Burst of Inflation Explained: Blaming the Usual Suspects?
C. Wage Formation in Belgium: Getting the Best of Both Worlds?
D. Systemic Weaknesses of Wage Formation and Policy Recommendations
References