As expected, rising prices have sparked a new bout of calls by unions for the full restoration of the Cost of Living Allowance, by which wages are automatically adjusted every six months in line with the cost of living index. This economically unorthodox measure had been scrapped in 2013, when the economy went into recession, but was re-introduced in modified form in 2018 (its calculation was changed and wages were adjusted once a year) for a transitional period of four years.
The transitional period is now over and the unions want the old Cola restored in full, because in times of rising prices, according to the unions’ myth, it maintains the purchasing power of wages. Anyone with the most basic understanding of economics, which union bosses have shown they do not have, knows that Cola does nothing of the sort. Instead, it puts an economy on a path of constantly rising prices that erode the economy’s competitiveness, have a negative effect on the trade balance and guarantees the growth of the public payroll among other things.
Most significantly, the objective of maintaining the purchasing power of wages is not achieved in real terms. For example, when a business is faced with a higher monthly wage bill, because of Cola, it will increase the price of its goods or services, to cover its higher costs, which will be passed on to the consumer. This will lead to higher Cola the next time wages are adjusted, in what becomes a vicious cycle of rising prices that would make Cyprus much more expensive as a tourist resort than rival destinations.
What union bosses and their party cheerleaders never seem to consider is that the rising prices, fuelled by the so-called ‘blessing’ of Cola, make poorer the lowest income earners, whose wages are not automatically adjusted, because they are not covered by a collective agreement. Even if they were, on low wages, Cola would be translated into a small rise that does not maintain their purchasing power.
The main beneficiaries of Cola are entitled, fat cars of the public sector and semi-governmental organisations, who are on big salaries and are the workers’ group in least need of protection from rising prices. They are the reason the idiocy of Cola was re-introduced in 2018, with the unions of the private sector tagging along. President Anastasiades, solely interested in his re-election, agreed to its re-introduction instead of taking a hard line against it. And now the unions want it returned in its old, harmful, form.
Sadly, no politician dares take a stand for fear of alienating the unions and being accused of siding with business. Nobody dares to point out that Cola does not exist in any EU country because it does much more harm than good to an economy, a view shared by all top economists. In Cyprus, however, conventional economic thinking is banned because union bosses know better.