“You now have a choice: either the “capped” index or the neutralization of oil products in the index”!

That was on April 27, 2010, and it wasn’t an ILRES survey, it was Minister of State Juncker lobbying the syndicates at the tripartite meeting. The unions didn’t fall for it and left it to Juncker to declare the negotiations a failure and put an end to them.

Just imagine: the unions would have agreed to neutralize the indexation of oil products! Given the current explosion in energy prices, the overall loss of purchasing power for the population would have been enormous.

When the tripartite failed again in early 2012, the OGBL president at the time, Jean-Claude Reding, made it clear that the prime minister was only trying to gut the indexation mechanism: “Juncker absolutely wants to do away with the index. Since 2006, he has constantly tried to limit the automatic adjustment of wages”. (Luxemburger Wort, 15.03.2012)

Yesterday is today. Since inflation accelerated in the second half of 2012, the political attacks on our indexation system have gained new momentum.

René Winkin, director of FEDIL, and Carlo Thelen, director general of the Chamber of Commerce, were the first to speak. Dressed in green, they pharisaically called for a “sustainable” shopping basket to exclude fossil energy products from the index.

Pharisaical because such a distortion of the purpose and meaning of the index not only opens the door to political manipulation against our indexation system, but also calls into question and fundamentally undermines the entire Luxembourg wage formation system. The OGBL’s response was swift:

“The OGBL categorically rejects a degenerate index. For households, energy consumption is not a question of will, but an existential necessity. Depending on the budget, the geographical location of living and working, the housing situation, etc., the potential for energy savings and the possibility of using public transport are limited. Sometimes even extremely limited. (OGBL News, 1/2022).

He adds: “Any suggestion that the population lacks the will to live ‘sustainably’ is completely misplaced and counterproductive. If we separate the energy savings or increased energy efficiency required by climate policy from the social issue and the increase in social inequalities, we undermine society’s drive to conserve natural resources and protect the climate”.

The OGBL is thwarting the plans of employers and politicians.

In March 2022, the tripartite turned into a tragedy. When the CGFP and LCGB gave in, the government imposed its demand to manipulate the index: not only the postponement of the July 2022 indexation installment to April 2023, but also an interval of at least 12 months between the payment of two indexation tranches.

The OGBL’s refusal to sign and its consequent resistance may not have prevented the postponement of the July tranche, but it did thwart the implementation of the limitation of the index to one tranche per year and thus prevented further manipulation of the index, which would most likely have resulted in the loss of at least one indexation tranche.

The Tripartite Agreement of September 2022 threw this part of the March Agreement into the wilderness and restored the normal index mechanism.

The OECD attacks the index.

On November 17, 2022, the OECD presented its economic report for Luxembourg and attacked our indexation mechanism. With its statements, the OECD revealed for the umpteenth time where its interests lie when it comes to the relationship between capital and labor:
“The wage indexation system risks fuelling already high inflation at a time of unprecedented price shocks and could damage long-term competitiveness. (…) The current period of high inflation has highlighted the risks inherent in the automatic wage indexation system. Wage indexation is likely to create a wage-price spiral, particularly in the current context of high inflation and a tight labor market (…)”.

The passages I’ve bolded reveal the slyness of the OECD’s statements. Many things “could be” without a shred of evidence that they are or will be.

For decades, opponents of our indexation system have claimed that the index would trigger a wage-price spiral that would jeopardize Luxembourg’s competitiveness.

They deliberately ignore the fact that STATEC has repeatedly found in its analyses that a wage-price spiral (“auto-ignition”) triggered by the indexation mechanism does not exist as such, at least not to any significant extent.

And if there’s another claim that has yet to be substantiated, it’s that the index would lead to a weakening of Luxembourg’s competitiveness in relation to other countries. And there is nothing to suggest that the current index adjustments will do anything to change this situation!

Our indexation system is a thorn in the side of the OECD. That is why it “recommends” that the Luxembourg government revise our indexation system downwards:

“Once the current period of high inflation has ended, the government, in consultation with the social partners, should reform the wage indexation mechanism to better guard against the resulting risks to productivity, employment and inflation”.

The OGBL calls on all parties contesting this fall’s general election to unequivocally reject the anti-employee “recommendations” of the OECD.

This also applies to the OECD’s position in support of the employers’ demand for a “capped index”.

Do you remember RTL’s headline on November 23: “51% for a capped index”?

At the request of RTL and Luxemburger Wort, the market and opinion research company ILRES had put the question “For or against?” to “A capped index – i.e. the index would only be paid up to a certain level of gross income and would no longer be available to everyone”.

To those politicians who, in the run-up to the next parliamentary elections, leave the door open to the discussion of a “capped” index, we recommend a closer analysis of the results of the ILRES institute: 58.47% of the 18-54 age group are against a “capped index”. RTL overlooked the fact that the “51% for” shown in the table is due to the “64.53% for” coming from the 55+ age group. Conclusion: The majority of the working population of voting age is against the manipulation of the index in the form of a “capped” index. And the younger the respondents, the stronger their opposition.

The “capped” index: the beginning of the end of the index!

The OGBL is categorically opposed to a capped index. In fact, far from leading to greater social justice, a so-called “cap” would have the opposite effect.

Worse, in addition to reducing the wage share in favor of corporate profits and shareholders, a “cap” on the index would be the beginning of the abandonment of the indexation system as a whole.

The mere fact that employers find the limitation of the indexation system in the form of a “cap” attractive, and that they advocate, propose and demand it, should be enough to warn all workers!

But when ministers or party politicians, who claim to defend social progress, become receptive to demagogic superficialities such as “The price of butter is the same for everyone. Why shouldn’t it be the same for the index?” and they start to wobble, then the trade union movement is faced with the urgent task of explaining what the index is and what it is not or cannot be.

Secondly, we must remember that in 2013, Jean-Claude Juncker promoted the capped index at the CSV Congress.

At the time, the proposal was rejected by the then Minister of the Economy and Deputy Prime Minister, Etienne Schneider: “It doesn’t help us, so my party won’t support it”.

In an interview on RTL radio, the leader of the LSAP parliamentary group, Lucien Lux, warned with prescience that “this type of measure would mean the end of automatic indexation in the medium term. It would then start with a ceiling of 2.5 times the minimum wage, which would then be systematically reduced until there was nothing left of the index”.

When it comes to indexation, it’s always worth repeating what it really is!

The then president of the OGBL, Jean-Claude Reding, also pointed out that “a capped index will mean that middle-income earners will receive less money. Those who can live on their dividends or bonuses will not be affected. I didn’t hear in Jean-Claude Juncker’s speech any mention of a cap on managers’ high incomes or rents. Nor is there any talk of taxing capital. The great mass of working people should get less. It’s all about slogans.

He continues: “When it comes to the index, it’s always worth repeating what it’s really about: it’s a wage policy instrument that maintains purchasing power. The index doesn’t change the gap between a low salary and a high salary. If we want more justice, we have to talk about tax policy. I have no sympathy for reopening the discussion about the index under the false pretext of fairness. (Tageblatt, 12.03.2013)

And so it is. In the face of the rising cost of living, the sliding wage scale, the “index”, aims to safeguard the value of all the wages that make up the wage scale. This adjustment of incomes, and in particular wages, is in fact nothing more than a time-delayed compensation for the increase in the prices of goods and services sold by companies to consumers.

In this context, it is worth mentioning that for workers not covered by a collective agreement, the index represents the only guaranteed increase in their wages (if we disregard the adjustment of the social minimum wage and any adjustment clauses in individual employment contracts).

Those who oppose a reduction in the wage share should distance themselves from the option of a capped index.

The index plays a very important role in the distribution of economic value added between capital and labor (primary distribution).

Without wage indexation, or in the case of index manipulation or limited wage indexation (e.g. by capping), the distribution of economic value added would shift in favor of capital. The wage share would decline.

From the foregoing, it is clear that automatic wage indexation must fulfill functions other than intervening in the relationship between wages, in the wage hierarchy.

In a context of inflation, the index restores the value of a given wage. It is not there to raise or lower one wage relative to another!

On the other hand, the formation of the wage hierarchy is the responsibility of the employer or the collective agreement, if there is one in the company or sector. And in the case of the social minimum wage, it is the responsibility of the legislator.

Are employers interested in the wage hierarchy? Or are they interested in lowering wages?

If employers want to defend a different wage hierarchy, it’s up to them!

And they should be at the forefront of proposing it in collective agreements. The OGBL will not be outdone when it comes to negotiating, in addition to linear increases, basic amounts, i.e. real increases in the form of an identical amount for everyone in the company or company sector, regardless of their individual wage classification.

This appeal is addressed, among others, to the Chamber of Commerce.

In its “30 flagship measures” for the parliamentary elections, the Chamber of Commerce launches a general attack on the index: an index capped at 1.5 times the median wage (i.e. from around 2 times the social minimum wage)!

The aim of this measure is “to give the current model a social and selective character and to reduce the resulting wage gaps”.

All this combined with the perfidious instrumentalization of the climate crisis (manipulation of the index basket by eliminating fossil fuel products) and the employer’s mantra: “at most one index bracket per year”.

Dear Mr. Thelen. If you are concerned about the “anti-social” nature of the wage hierarchy, instead of attacking the index, you should suggest to your friends in the employers’ association that, firstly, they introduce collective agreements everywhere and commit themselves to modernizing the law on collective agreements, and, secondly, that in the future they renounce real wage increases for the highest wage earners and distribute these earned wages to the lower wage classes.

Why have we heard NOTHING from you in this regard?

Or the former president of the Chamber of Commerce, Luc Frieden, who, after the restoration of the normal indexation mechanism at the fall tripartite, regretted “that we did not manage to make a structural reform, for example to limit the indexation to three times the minimum wage (…)” (RTL Radio, October 5, 2022).

Because, as already mentioned, for employers and some politicians it is not a question of increasing fairness in terms of wages and incomes, or of intervening in the wage hierarchy, but of limiting or dismantling our indexation system globally! And, consequently, to reduce the wage share in general.

The “capped” index has absolutely nothing to do with a “social index”; on the contrary, it deserves to be called an “employers’ index”, designed to reduce the total wage bill. And to lay the groundwork for the mutilation, even the abolition, of the entire indexation system.

There have been times when employers have taken a different view.

Let’s quote the Economic and Social Council of Luxembourg (CES), which, in its opinion of December 9, 1988, on “Indexation of salaries, pensions and social benefits”, stated the following

“The ESC unanimously considers that limiting indexation to incomes below a certain ceiling is not an alternative to the present system of wage indexation. Such a limit would run the risk of provoking a double negotiation of wage increases. What’s more, salaries above the ceiling could benefit from higher real increases than salaries below the ceiling”.

Management and some politicians have lost sight of the clear vision of the Economic and Social Council: giving less to some will not bring more to others, but even … less! And those who earn a lot, or even more, will find their individual way of negotiating to compensate for this loss if part of the index is abolished!

In fact, capping the index at 2, 3 or 4 times the legal minimum wage would in all likelihood not disadvantage high earners, who generally have greater bargaining power within the company.

They would be able to keep their sheep dry, while middle earners would not only no longer benefit from the full index, but would also have less bargaining power than those at the top of the wage scale to negotiate wage compensation.

Worse still. It should not be forgotten that the periodic adjustment of the minimum social wage and pensions is based on the observed evolution of the average wage.

A cap on the index would slow down the increase of the average wage and therefore have a negative effect on the revaluation of both the minimum social wage and the pension adjustments. Any limitation of wages by capping the index will result in a lower revaluation of low wages and pensions!

A “capped” index: an attack on the Luxembourg wage-setting model

Limiting the indexation mechanism in the form of a cap would have other serious effects and consequences. As the Economic and Social Council (CES) has pointed out: “Such a limitation would risk provoking a double negotiation of wage increases.

This would have serious consequences for the specific Luxembourg wage-setting model, which is based on three closely linked and inseparable pillars: the index mechanism, the collective bargaining system and the social minimum wage.

The explanatory memorandum to the 1975 draft law on the generalization of the sliding scale of wages and salaries illustrates this link between the index mechanism and the collective bargaining system and explains their respective missions:

“Compensation for price increases is very likely to influence wage negotiations anyway, and it is preferable that it be granted periodically in moderate doses rather than intervening abruptly. This allows collective bargaining to focus on the level of real wage increases, with positive results. Indexation also facilitates the conclusion of long-term agreements, which are considered to be a factor of stability, and in this and other ways contributes to making relations between employers and employees more harmonious”.

However, if the indexation mechanism were to be used only to a limited extent, the above prediction of the Economic and Social Council (Conseil économique et social) would come true.

Collective bargaining would no longer focus solely on actual wage increases, but would also include the adjustment of wages to inflation.

This would remove the advantage of the current system, namely the possibility of concluding long-term agreements and collective agreements “à la carte”, i.e. tailored to a single company.

The consequences are obvious: above a certain level of inflation, difficult and conflict-ridden negotiations are inevitable, which means that the advantage of the current collective bargaining system in Luxembourg, i.e. relatively conflict-free labor relations and few strike days, would be a thing of the past.

There are many examples of this situation in other countries.

Social peace as a factor of stability and an argument for the attractiveness of Luxembourg as a business location would undoubtedly have come to an end.

A cap on the index mechanism would undoubtedly upset the entire system of collective agreements.

In low-wage sectors, which would not be covered by the capped index, employer pressure against real wage increases would increase.

In these sectors, where the wage hierarchy is broad, the syndicates would have to negotiate inflation compensation for part of the workforce.

This means that diverging wage interests would create internal conflicts within companies, which would logically have a negative impact on the collective bargaining power of the unions.

And in industries with a higher overall wage structure, the conflict over inflation compensation would become a central bargaining issue.

It goes without saying that the current collective bargaining legislation is neither structurally nor procedurally suited to such a situation. It would have to be completely rewritten.

In particular, the current legal provisions on strike procedures and the so-called “peace obligation” would become obsolete.

Conclusion: Leave the index alone!

In conclusion, the demand to limit, i.e. to cap, the indexation system is deeply regressive from a social point of view.

For all workers, especially those in the lower and middle wage brackets, the idea of capping the index is a frontal attack on our proven wage-setting model, and aims to dismantle it in the medium to long term.

The OGBL is right to categorically reject such a manipulation of the index. In the interest of all Luxembourg workers.

The index is one of our most important social achievements.

It contributes significantly to social peace. It is a social, economic and political stabilizer and must therefore be consistently defended by all progressive forces.

André Roeltgen, Central Secretary