The economy runs like a madman and the business world is crying out for staff, normally a good recipe for hefty pay increases. But they are not forthcoming, inflation is even higher. How is that possible?
Labor Markets and Minimum Wage
We would make some progress. Both the economy and the tax plans of Rutte III would give ordinary citizens a big boost. All those purchases that we could afford would drive the economy and business even further.
But despite the economic boom of recent years, wages are rising less rapidly than inflation.
In the first quarter, salaries rose on average 2.2 percent compared to the same period in 2018. But the money depreciation increased by 2.5 percent, so on balance, we fell 0.3 percent on average. And it looks like that gap is widening. In April, collective labor agreement wages rose 2.3 percent on an annual basis and prices 2.9 percent.
The Central Planning Bureau hints that the forecasts for this year and 2020 will be adjusted next month. The calculators predicted a purchasing power increase of 1.6 percent so far, but with a four-month drop, it seems to be no longer an issue.
This has to do with the government’s tax measures: especially the VAT increase and higher energy tax. Prime Minister Rutte promised to compensate for the extra costs for citizens, but that is not how the consumer works. He sees higher prices, reads about higher costs and adjusts his purchasing behavior accordingly.
Savings interest and pensions
Other issues, such as the pension crisis, with funds that have no longer indexed for years and are even in danger of having to shorten, also play a role in this. The inability of political and social partners to find a solution for this – let alone one that is easy on the citizen – makes older consumers especially cautious. The psychological and financial impact of the low-interest rates, the moderate stock market climate and the tense housing market also play a role.
This reluctance could already be deduced from consumer confidence. It has been in the red since February with the likely consequence that we are all keeping our hands on the bill, which is dampening economic growth.
It is striking that our wages rise so moderately in times of economic boom. Yesterday it became clear that the number of vacancies has risen to a record level and that the number of vacancies is constantly increasing among employees who want to change jobs. Companies could influence that by simply offering more wages to switchers and newcomers.
Where are the trade unions?
But society is changing in that regard: wages and status are not, as before, the main motivation for changing jobs. People in their twenties and thirties, with the tech industry at the forefront, are increasingly counting other issues. Such as company policy, location, working atmosphere, a balance between work and leisure, the secondary employment conditions. Many traditional companies are not well aware of this and therefore miss the battle on the labor market.
Moreover, with their waning supporters, the unions are increasingly less successful in keeping wage increases in line with profit increases at companies. Politics, with the middle-right signature of the past cabinets, also plays a cautious role in this.
This development is ominous because there are strong signals that we are heading for the next crisis. Then many companies will not even be able to offer employees financially anymore and consumers will only fall back.