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Raising wages in times of inflation: an insoluble equation?

From VSEs to large groups, from transport to trade and energy… A bit everywhere in France, companies are experiencing strike movements with always the same demand: that of wages. This Monday, it is the turn of the truckers to mobilize. From the start of the day, the demonstrators began blockades in around twenty sites in France. A little earlier in June, it was the staff of Roissy airport who stopped working to obtain better remuneration. On July 6, it will be the employees of the SNCF who will make their voices heard, the unions having called for a national strike. Examples abound… In France, as in Europe like the United Kingdom which has experienced the biggest strike of its railway workers for 30 years.

Wage pressure is mounting as inflation spikes. In May, it peaked at 8.1% year on year in the euro zone. And if in France, the figures are lower, they also reach a record for the country: 5.2% in May.

Purchasing power package: Macron at an impasse

However, it would be wrong to say that wages have not increased. According to a study conducted by the Banque de France on salary increases negotiated for 2022, they vary on average between 2.5% and 3.5% depending on the sector, compared to 1% since 2014. In the automotive sector, the revaluation even reached 4.5% in 2022. As for the catering sector, the workers obtained, after several weeks of negotiations, an average increase of the entire salary grid of 16.33% and a salary minimum greater than 5% of the minimum wage. But these revaluations remain on the whole well below the rise in prices which affects purchasing power.

When upgrading rhymes with negotiation

In France, nothing obliges an employer to increase the wages of its employees. ” A negotiation on the remuneration between the employee and the employer is obligatory according to a certain periodicity, for example annually”explains Eric Rocheblave, a social law lawyer who adds, however, that “ it is not because we negotiate that we reach an agreement resulting in an increase in remuneration”.

However, the law sets the minimum wage. Remuneration cannot go below the SMIC and each time the State increases it, the company must apply an identical increase. There are also contractual provisions. These are the agreements negotiated at the level of each professional branch on a national scale by the social partners making it possible to define the terms of the collective agreement with in particular a conventional minimum wage. Last provision, the contractual one, that is to say the salary agreed between the employee and the company at the time of hiring and which appears on the employment contract.

Beyond this legal framework, there is no automaticity in salary increases”, concludes Maître Rocheblave. ” So, to weigh in these negotiations, strikes are one of the weapons of the employees”, he notes. This was particularly the case in the 1960s and 1970s, which were also marked by high inflation and major mobilizations for wage increases. ” What is surprising is to see that we are returning to situations that we had not known for 50 or 60 years”notes Marion Fontaine, professor of history at Science Po. With the difference that at the time, “ the unions were more powerful, therefore more followed and more able to call for general mobilization”she specifies, recalling in particular that in ” May 68, the mobilization so worried French employers that they agreed to give in on a certain number of points”.

Business failures and inflationary spiral

The situation seems all the more inextricable as companies are also suffering the impact of inflation, in particular that of energy and raw materials, which are increasing their production costs. “When there are wage pressures at a time when companies are generating a lot of productivity gains, the mobilization of all or part of these gains to increase wages finds strong justification. But in the current situation, these strike movements are explained by the rise in prices which affects purchasing power. However, this is an inflation of the prices of our imports. There is no productivity gain”, emphasizes Gilbert Cette, professor of economics at Neoma Business School. According to him, raising wages would raise a “ risk on the financial situation of companies which will no longer be able to invest, will have slowed growth and will be in difficulty in the face of international competition leading to layoffs”.

Another risk underlined by the professor of economics: that of installing France in an inflationary spiral. Also called the “price-wage loop” or “Phillips curve”, this phenomenon occurs when rising wages fuel rising prices. More concretely, companies increase the remuneration of their employees, which increases their production costs. An additional charge that they are then forced to pass on to their selling prices so as not to reduce their margins too much. Prices are therefore on the rise again and reduce the gain in purchasing power obtained by employees thanks to the wage increase. This is particularly what happened in the 1970s after the two oil shocks which caused inflation to jump. So much so that in 1983, when the risk of an inflationary spiral loomed again, the government of Pierre Mauroy took the decision to prohibit the indexation of wages to inflation. A provision included in the monetary and financial code and the labor code.

Raising wages to fight inflation: the risk that the cure will make the disease worse

But is the equation combining wage increases and inflation insoluble? Other mechanisms make it possible to meet the needs of wage enhancement for employees without increasing the cost of labor », advances Maître Rocheblave. Employees can thus benefit from benefits such as bonuses or tax exemption for certain forms of remuneration such as overtime”. This is for example the case of the “Macron bonus”, an exceptional purchasing power bonus that companies, who so wish, can pay to their employees. Set up in 2019 in response to the movement of “yellow vests” and renewed in 2021, it is exempt from taxes and social contributions and can go up to 1,000 euros (2,000 euros in certain cases). In his program for the presidential election, Emmanuel Macron even proposed raising his ceiling to 6,000 euros, subject to a profit-sharing contract. This tripling of the premium should be part of the bill on purchasing power presented at the beginning of July.

It is in this sense that the Minister of the Economy, Bruno Le Maire, has encouraged companies to increase the remuneration of their employees. Some companies will be able to raise wages. They have to. Others have less leeway. For them, there is an effective instrument which is the Macron bonus. It is an instrument which must be massively employed”, he said, at the end of May. “The response to inflation must be equitably shared, it cannot rely solely on the state,” he pointed out.

Reversal of the balance of power

The error would be to think that the State will solve the problem alone. Part of the solution lies in the negotiation between social partners”, abounds Marie Fontaine. ” There comes a time when, if you are an airline and all your staff go on strike during the summer, the situation is no longer tenable”she predicted. “You can tell yourself that you are not going to give in to requests for salary increases. But if the balance of power is against you, you will have to start collective negotiations”, concludes the historian. And according to her, the unemployment rate has continued to fall in recent months (7.3% in the first quarter of 2022, according to INSEE) leading to a lack of labor in many catering and hotel sectors, sales and transport, shifts this balance of power in favor of employees. ” Everything also depends on the duration of inflation and whether the rise in prices takes hold in a structural way”she nevertheless indicates, drawing a parallel with the strikes of 1970 when the return of mass unemployment and a drop in inflation had got the better of the social movement.