Nothing illustrates the cowardly populism of the government more than the decision to re-introduce the automatic indexing of wages, also known as CoLA, from the beginning of 2018. What is worse, it also has the support of the Chamber of Commerce and the employers’ federation Oev, which for years highlighted its negative effects on the economy’s competitiveness.
The measure was suspended after the economy’s collapse in 2013 in all sectors and we thought we had seen the end of it. CoLA was a mechanism that fuelled inflation as it pushed up wages without corresponding increases in productivity. It was a six-monthly pay rise at times when the cost of living index was rising over and above the annual pay increases, which was indefensible from an economics point of view as its only effect was inflationary.
The few developed countries in which wages were adjusted in line with the cost of living index scrapped the practice decades ago because of its inflationary nature so for many years Cyprus was the only country with this irrational measure because it was a ‘workers’ conquest’. It did not matter that it pushed up the cost of living, steadily eroded competitiveness and ensured the continuous increase of the public wage-bill. Nor does it seem to matter there is not a single economist that supports the measure. It is enough that ignorant union bosses have decreed it a blessing and no party would dare say a word against it.
The measure has been changed significantly by labour minister Zeta Emilianidou – 50 per cent of the rise in the cost of living index would be incorporated in wages every year (instead of every 6 months) on condition that there was growth in the second and third quarter of the previous year. It might not have much of an effect on wages so why have it anyway? This was the opportunity for the government to scrap it, citing the host of economic arguments against it. With presidential elections only seven months away and with Pasydy having already secured CoLA for civil servants from 2018 it was naïve to think the government would have taken a stand.
It sufficed to minimise its effect, thus satisfying the unions ahead of elections. As for the employers’ organisations, their complicity in the re-introduction of the measure was pathetic. Surely they could have cited the impending introduction of the national health scheme Gesy, which would automatically increase the wage costs of businesses by 2.5 per cent as a strong argument against CoLA. But it appears they are more concerned with helping the president’s bid for re-election than defending the interests not only of their members but also of the economy.