Collective bargaining in a climate of high inflation: The role of indexation mechanisms

After a long period of price stability, inflation has made a remarkable comeback in the EU. In the aftermath of the COVID-19 pandemic, the energy crisis spurred by Russia’s war of aggression against Ukraine and the disruption of the international supply chain, among other factors, have driven up the prices of commodities and goods. While nominal wages picked up in 2021 and 2022, real wage growth has remained below inflation, affecting mainly low-income groups. Even though EU institutions expect inflation to slowly decline by 2025, many collective bargaining rounds have barely been able to keep up with the rapid increase in prices in 2022. Consequently, trade unions’ demands for compensation and pay increases in collectively agreed wages put pressure on some sectors. Updating minimum wages (in line with the directive on adequate minimum wages) plays a key role in protecting the purchasing power of low wages. With wages not keeping up with inflation rates, tensions may resurface in social dialogue and collective bargaining over the coming years.