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Despite employers’ demands to abolish the costly and unproductive inflation-based wage indexation system – the automatic cost-of living allowance slapped on salaries – trade unions have once again found solace in the Labour Ministry’s appeal to employers not to cut salaries. And this, because the Ministry estimates that a rate of deflation will remain, at least until the end of the first half of the year.
Surely, if wages covered by the collective labour agreements are to go up whenever there is inflation, they should also come down when there is deflation.
But seeing as the main beneficiaries of the CoLA are not the ordinary labourers and working class, but the privileged civil servants, bank employees and those at semi-government utilities, keeping their salaries intact has no significant impact on the economy whatsoever.
With unemployment at 12.2% and the poverty rate at EUR 8,640 (calculated on the basis of 60% of the average wage), the seventh lowest in the EU, keeping the CoLA rate on some salaries is pointless and serves no real purpose, apart from pandering to the trade unions. The reasons are two – possibly because of the presidential elections coming up in 13 months’ time or the government might need the support of civil servants if a referendum takes place in summer in relation to the Cyprus problem.
But back in 2004, when the same fear-mongering tactic was used to get the civil servants to reject the peace plan, having been told that they would all lose their jobs and the central bank would be abolished, who can guarantee that these same public employees (whose salaries are paid by taxes collected from the rest of the labour force) will support such a calling?
Cyprus is the last Eurozone member to maintain such a mediaeval system as the CoLA, a curse for any business that will never have salaries based on productivity, simply because this is a measure than cannot be applied to the public sector.
As long as this obstacle remains, salaries will continue to grow and quite soon we will see ridiculous payrolls as on the eve of the 2013 crisis, when public sector wage increases were frozen and promotions put on hold.
With market forces and the laws of demand and supply determining pay in other countries, those economies will continue to enjoy healthy growth rates, not artificial ones as in Cyprus, based on smart accounting methods where the pulse of the ‘real’ economy is not taken into consideration.
