In Luxembourg, all wages/salaries and pensions are regularly adapted to changes in the selling prices of consumer products. This mechanism is called the ‘system of automatic indexation of salaries and wages to the cost of living’ or even the ‘sliding wage scale’ or ‘index’.
Preserving the purchasing power
The idea behind this important social conquest of the 20th century is to preserve the purchasing power of employees. The first price index, together with an indexation clause for wages/salaries and pensions of railway workers and civil servants, was introduced in 1921. The index was based on a basket of 19 items of consumption deemed to be used by a household of five persons. In 1948, this basket was expanded to 36 products; today it covers some 8,000 goods and services grouped into 255 categories.
The indexing system was gradually extended to other categories of income recipients before being generalised by the Law of 27 May 1975. From that year, all wages and salaries in the private and public sectors, as well as pensions and apprenticeship allowances, were subject to the rule of indexation, with each tranche amounting to 2.5%.
Social stability thanks to the index
At European or even global level, the indexation of wages/salaries has become a rarity. Within the European Union, the Grand Duchy is the only country, together with Belgium, to have a mechanism for the adaptation of wages to inflation. And in Luxembourg too, the mechanism is regularly at the centre of a struggle between trade unions and employers' organisations. The former are determined to maintain the system in the interest of employees' purchasing power, whilst the latter see it as curbing the competitiveness of businesses.
However, in public opinion, the index remains a valuable asset, a tool that is considered to be a guarantor of social stability.