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Recommended indexation of wages in the private sector does not make sense
submited on 04.06.2008 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
submited on 04.06.2008 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
The schemes for indexation of wages are related to high risk of additional inflationary shocks, leading to inflationary spiral, which could after all turn out harmful to employment and competitiveness of a given economy.
Whereas the monetary authorities in the Euro area recommend avoiding inflation-based indexation of income, in Bulgaria for more than a month syndicates and discuss the recommended index for raising wages in the private sector in 2008. The idea of the index is to reflect the average annual inflation in the previous year, the growth in labor productivity, the competitiveness and the economic conjuncture.
The current arguments for the particular size (and the differentiation according to income) of the index, at which the wages in private companies must grow, are not that interesting from macroeconomic perspective. More interesting is the applying of dubious practice of the centralized negotiation of mechanism for increasing wages in the private sector, which would have to be entirely functioning of the market.
It is a fact that the economic dynamics and the current realities of the labor market suggest gradual wage growth. The marginal labor productivity is growing, and the intensive investing in production capacities in the last few years created opportunities for its further improvement. But this will continue to happen at different intensity in different sectors, which on the side preconditions opportunities for labor income growth.
In the same time the pressure for increasing wages is created also as a result of the forming disproportion between demand and supply of labor resource – business queries of NSI register steady growth in the number of enterprises, considering the lack in labor force as impediment before business activity.
The labor taxation is also a significant element of the total labor expenses and influences the behavior of the companies on the labor market.
All this suggests that the rapid growth of wages in the most common labor market segments will continue regardless of the negotiation of a particular recommended index. Despite the ambiguous effect on the real wage dynamics the negotiation of recommended index could reflect on the behavior of workers, inducing outcries for wage growth, which would not respond in realities to market realities. And this after all could lead to loss of competitiveness.
Whereas the monetary authorities in the Euro area recommend avoiding inflation-based indexation of income, in Bulgaria for more than a month syndicates and discuss the recommended index for raising wages in the private sector in 2008. The idea of the index is to reflect the average annual inflation in the previous year, the growth in labor productivity, the competitiveness and the economic conjuncture.
The current arguments for the particular size (and the differentiation according to income) of the index, at which the wages in private companies must grow, are not that interesting from macroeconomic perspective. More interesting is the applying of dubious practice of the centralized negotiation of mechanism for increasing wages in the private sector, which would have to be entirely functioning of the market.
It is a fact that the economic dynamics and the current realities of the labor market suggest gradual wage growth. The marginal labor productivity is growing, and the intensive investing in production capacities in the last few years created opportunities for its further improvement. But this will continue to happen at different intensity in different sectors, which on the side preconditions opportunities for labor income growth.
In the same time the pressure for increasing wages is created also as a result of the forming disproportion between demand and supply of labor resource – business queries of NSI register steady growth in the number of enterprises, considering the lack in labor force as impediment before business activity.
The labor taxation is also a significant element of the total labor expenses and influences the behavior of the companies on the labor market.
All this suggests that the rapid growth of wages in the most common labor market segments will continue regardless of the negotiation of a particular recommended index. Despite the ambiguous effect on the real wage dynamics the negotiation of recommended index could reflect on the behavior of workers, inducing outcries for wage growth, which would not respond in realities to market realities. And this after all could lead to loss of competitiveness.
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