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Inflation Puts Wages Pressure on Global Employers

Record high inflation due to the pandemic and the Russia-Ukraine war continues to create wage pressure for global employers. Companies in Europe and Asia have responded with pay raises and bonuses to offset the impact while unions are leveraging strikes and other collective activities to pressure for more. However, continuous wage indexation could create an entrenched “wage-price feedback loop” and further aggravate the inflation problem.

Europe’s Cost of Living Crisis

As inflation hits 9.4%, the UK government approved wage increases for public sector employees such as police officers and healthcare workers as well as hospital porters and maintenance staff. The pay increases for the public sector averages around 4.5% but this is meeting resistance from unions who assert that the increases need to be on par with inflation to address the surging energy bills and the cost-of-living crisis.  A contact from the GMB union which represents over 460,000 workers citing “An offer below inflation is a cut by another name. Recruitment and retention problems are now severe across the public sector and Ministers are failing to invest in the services that the economic recovery needs.”

UK companies are taking more aggressive actions with pay increases. PwC announced that 70% of their employees would receive at least a 7% increase and that overall pay has increased 9.1% in line with inflation as of May. The company is investing £120 million towards pay increases as well as an extra £138 million in bonuses.

Many employers are awarding a smaller percentage in salary increases but including lump-sum payments and increasing the frequency in which payments are made.

In France, the automaker Stellantis has found creative ways outside of wage increases to address the problem for their workforce. They have offered one-time payments of up to €1,400 for most employees excluding the top 20% highest paid workers. In addition, they have accelerated 2023 salary negotiation discussions with the union to December and have offered employees the opportunity to convert three days off awarded for overtime into cash. Stellantis management is considering relief alternatives for their Italian workforce as the union representing this group proposes salary increases of over 8%.   

The European Central Bank, which rejected the request for inflation-linked pay rises in May has been closely monitoring the signs of indexation which has become more common in parts of Europe and South America.

UAE & Asia’s Response

Outside Europe, many countries seem to be taking a more conservative reaction to the inflation ­concerns. A recent Mercer survey indicates that only 16% of UAE companies have offered a pay raise or bonus to offset the 5.6% inflation, a mild number compared to a lot of other countries.

33% of Asia Pacific companies are conducting off-cycle wage reviews, market adjustments and one-time payments to cope with slowing growth and rising inflation, according to another Mercer survey.

Outlook: As inflation continues to persist, global employers are caught between a tight labor market and uncertain profit margins, and a workforce with changed expectations. Besides providing inflation-linked wage increases, companies should consider other monetary awards such as discretionary bonuses and discounts on purchases as well and continue to focus on how to improve an employees’ work experience by offering increased work-life balance, flexibility and up-skilling.

Published on: October 7, 2022

Authors: Wenchao Dong

Topics: COVID-19 Employer Issues, Global

Wenchao Dong

Director, Global Affairs, HR Policy Association

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Contact Wenchao Dong LinkedIn

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