Workers in Europe demand higher wages as inflation soars

PARIS – The first mission of the European Central Bank is to contain inflation. But as the cost of everything from gas to food has reached record highs, bank workers join workers across Europe in demanding something rarely seen in recent years: a significant pay rise.

“It seems like a paradox, but the ECB does not protect its own staff against inflation,” said Carlos Bowles, an economist at the central bank and vice chairman of IPSO, an employee union. Workers are pushing for an increase of at least 5% to cope with a historic inflationary surge triggered by the end of pandemic lockdowns. The bank says it will not budge from an expected 1.3% increase.

It just won’t make up for the pain of inflation, said Bowles, whose union represents 20 percent of the bank’s employees. “Workers shouldn’t have to suffer the consequences when prices rise so much,” he said.

Inflation, relatively quiet for nearly a decade in Europe, has suddenly erupted in labor contract negotiations as a rise in prices that began in the spring runs through the economy and daily life.

From Spain to Sweden, workers and unions are increasingly demanding wages that keep pace with inflation, which last month reached 4.90%, a record for the euro zone.

Austrian steelworkers have secured a 3.6% pay rise for 2022. Irish employers have said they expect to have to raise wages by at least 3% next year. Workers at Tesco supermarkets in Britain won a 5.5% raise after threatening to strike around Christmas. And in Germany, where the European Central Bank is headquartered, the new government has raised the minimum wage by 25%, to 12 euros (about $ 13.60) an hour.

The recoveries follow a surge in anemic wage growth in Europe. Hourly wages fell for the first time in 10 years in the second quarter compared to the same period a year earlier, although economists say pandemic closures and job cuts make it difficult to paint a picture precise. In the decade before the pandemic, when inflation was low, wages in the euro area grew on average by 1.9% per year, according to Eurostat.

The increases are expected to be debated this week at meetings of the European Central Bank and the Bank of England. ECB policymakers have insisted for months that the surge in inflation is temporary, triggered by the reopening of the global economy, labor shortages in some industries and bottlenecks in the economy. the supply chain that cannot last forever. Energy prices, which jumped 27.4% in November from a year ago, are also expected to cool.

The ECB, which aims to keep annual inflation at 2%, has refrained from raising interest rates to slow price increases, arguing that when such a policy takes effect, inflation would have diminished on its own anyway.

“We expect this rise in inflation will not last,” ECB President Christine Lagarde said in a November interview with German daily FAZ, adding that it should start to fade as soon as possible. January.

In the United States, where the government announced on Friday that inflation jumped 6.8% during the year through November, the fastest pace in nearly 40 years, officials are not not so sure. During testimony in Congress last week, Federal Reserve Chairman Jerome H. Powell stopped using the word “transient” to describe the duration of high inflation. The Omicron variant of the coronavirus could worsen bottlenecks and drive up inflation, he said.

In Europe, unions are also agitated after many companies reported windfall profits and dividends despite the pandemic. Companies listed on the French CAC 40 stock index saw their margins increase by 35% on average in the first quarter of 2021, and half of them reported profits about 40% higher than in the same period a year earlier.

Workers say they did not take advantage of these gains and that inflation made matters worse by sharply reducing their purchasing power. Businesses, for their part, are reluctant to link wages to inflation – a policy that also makes the European Central Bank nervous.

Soaring energy costs have been “a shock to income,” said James Watson, chief economist at Business Europe, the world’s largest trade association. “But if you try to compensate by increasing wages, there is a risk that it will be unsustainable and that we will enter a wage-price spiral,” he said.

European policymakers are watching closely for any signs that companies are passing the cost of rising wages on to consumers. If this happens, it could create a dangerous race higher prices which could make inflation chronic.

For now, that seems unlikely, in part because wage negotiations have so far failed to result in disproportionate pay increases, said Holger Schmieding, chief economist at Berenberg Bank in London.

Negotiated wage increases have averaged about 2.5%, below the current rate of inflation. “Will wage increases be inflationary? Not really, ”he said. “The euro area is not at serious risk.”

But as rising prices continue to disrupt consumers, labor organizations should not relax. Gasoline prices recently hit € 2 per liter in parts of Europe, or over $ 8 per gallon. Higher transportation costs and supply chain bottlenecks also make supermarket staples more expensive.

Justine Negoce, cashier at France’s largest home improvement chain, joined an unprecedented company-wide walkout in Paris last month to demand a sharp raise as price hikes engulfed her modest salary.

After employees blocked warehouses for 10 days and protested in the cold, the company, Leroy Merlin, agreed to a 4% increase for its 23,000 employees in France, double the amount initially proposed by management. The company, owned by Adeo, Europe’s largest DIY chain, saw revenues climb more than 5% in 2020 to reach € 8 billion as confined consumers decorated their homes and people like Ms. Negoce worked on the front line to increase sales.

His net monthly salary will drop from € 1,250 to € 1,300 in January. The extra money will help offset a 25% increase in her two teenage children and husband’s grocery and gas bills – barely.

On a recent trip to the supermarket, her basket of basic foods, including rice, coffee, sugar and pasta, increased to € 103 instead of the € 70 to € 80 she paid earlier. some months. Refueling now costs € 75 instead of € 60. And even with her husband’s modest salary, she said, the couple will still be in the red at the end of the month.

“We are happy with the increase because every little bit counts,” said Ms. Negoce. “But things are still tight and we’ll have to count every penny.”

In a statement, Leroy Merlin said the deal preserves the purchasing power of employees and places their average wages for next year 15% above the French gross monthly minimum wage, which the government raised in October. by 2.2%.

Importantly, executives also agreed to return to the bargaining table in April if continued price hikes hurt employees.

At Sephora, the luxury cosmetics chain owned by LVMH Moët Hennessy Louis Vuitton, some unions are asking for a pay rise of around 10% from € 180 per month to compensate for what they say are stagnant or low wages for employees in France, many of whom earn the minimum wage or a few hundred euros more per month.

LVMH, which posted revenue of 44.2 billion euros in the first nine months of 2021, up 11% from 2019, increased salaries at Sephora by 0.5% this year and granted bonuses for casual work, said Jenny Urbina, representative of the General Confederation of Labor. , the union negotiates with the company.

Sephora proposed a monthly raise of € 30 for minimum wage workers and was not replacing many who quit, straining remaining employees, she said.

“When you work for a wealthy group like LVMH, no one should earn so little,” said Urbina, who said she was hired at the minimum wage 18 years ago and now earns € 1,879 per month before taxes. “Employees cannot live on one-off bonuses,” she added. “We want a salary increase to compensate for the low salaries. “

Sephora said in a statement that workers demanding higher wages were in the minority, and that “the question of the purchasing power of our employees has always been at the heart” of the concerns of the company.

At the European Central Bank, employee concerns about purchasing power have persisted despite the bank’s forecast that inflation will subside.

A central bank spokeswoman said the 1.3% wage increase slated for 2022 is a calculation based on wages paid to national central banks and will not change.

But with inflation in Germany at 6 percent, employees at the Frankfurt-based bank will take a big hit, Bowles said.

“It is not in the mindset of ECB staff to go on strike,” he said. “But even if you have a good salary, you don’t want to see it go down 4%. “

Léontine Welsh contributed to the report from Paris.

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