The FINANCIAL — With the robust inflation of on average 15-30% of consumer products this year, salaries haven’t increased in any of the state sector jobs in Georgia.
“Salaries aren’t indexed to inflation in Georgia (they don’t increase in line with inflation),” said an official letter of the Ministry Of Finance of Georgia (MOF), sent to The FINANCIAL in response to the inquiry.
“During the last 4 months, none of the state sector employees were given any pay increase. As a matter of fact salary increase depends on upright economic growth, en masse,” said the Ministry.
In addition to the abovementioned factors the budget of 2011 envisages a substantial cut in administrative expenditures and bureaucrat expenses whilst distributing these resources in different prioritized sectors.
According to the FINANCIAL, none of the private companies in Georgia fix/index their employee salaries to inflation either.
Salaries don’t get indexed to inflation even at the leading banks.
“Notwithstanding the salary indexation to inflation at TBC, employees usually get their salaries increased in accordance with the evaluation of their work, a so-called bonus system, as well as when promoting them to higher positions. The situation before the crisis was a bit different when salaries were growing at TBC, and in general it depends on the work of the system (economy) in total,” Nino Gachchiladze, HR Manager at TBC, told The FINANCIAL.
The abrupt increase in the prices of consumer products has led to a rise in the subsistence level from 128 up to 140.9 GEL this year. The subsistence level is calculated based on 40 types of product prices. The increase in the subsistence level still isn’t adequate according to the inflation rate.
As Economic Expert Levan Kalandadze told The FINANCIAL, salary increase is always a matter of dispute among parties (employer-employee) in both the state and private sectors in Georgia.
“Salaries in general do not increase in Georgia in private and especially in state sector jobs (except for bonuses that employees get in the case of positive evaluation of work). To maintain the purchasing power of consumers it is preferred that salaries be indexed to inflation. The latter largely depends on the negotiations between parties: Employer-employee. Legislation doesn’t regulate pay increases unless it’s the subject of employer contract conditions. But if pay increases were subject to inflation then employees would be more protected against such outburst inflation such as what’s been seen in Georgia this year,” said Kalandadze.
“The Georgian Government’s decision, of this year, about budget expenditure cuts aimed at diminishing administrative expenses, is also aimed at decreasing consumers’ purchasing power taking into account such robust inflation on consumer products this year (15-30%). Hence the state should envisage such cases when planning the budget,” said Kalandadze.
“Every developed country’s government takes into account the inflation level when planning their budget. And there are many private companies overseas who index their employee’s salaries to inflation. If it wasn’t so then it’s very easy to imagine in a time of 12% inflation, CPP decreasing by 12% and being followed by demonstrations which is often the case abroad,” Kalandadze told The FINANCIAL.
“ The private sector is more attractive for employees in case their salaries increase annually/semi-annually depending on a contract or oral agreement between parties. Therefore it’s better for newly accepted employees to negotiate pay increases and terms of the increase,” said Kalandadze.
The wage/salary indexation system differs across countries although the majority of highly developed countries index their salaries with inflation.
As the European Foundation for Improvement of living and working conditions states in its 2010 statement:
Some EU Member States apply a system of ‘automatic’ wage adjustment procedures – also known as ‘wage indexation’. Systems of wage indexation, where some form of general index prescribes the development of employees’ wages, are currently in place in four EU countries: Belgium, Cyprus, Luxembourg and Malta. Adjustment is based on currency inflation and aims to maintain wage levels, despite long-term increases in the cost of living.
It is mandatory for all employers to adjust wages according to the index. While opt-out clauses in sectoral agreements exist, these are rarely used.
Following a decision by the European Council based on Eurostat data, the salaries of EU employees are adjusted annually. The adjustment takes account of both the average salary developments of national civil servants in a sample of eight Member States – namely, Belgium, France, Germany, Italy, Luxembourg, the Netherlands, Spain and the UK – and of the cost of living at the place of employment. As this measure is applied retrospectively, wage developments in the national public services apply to EU employees, with a time lag of one year.
Wage indexation systems can be sustainable and profitable in the long term in countries where inflation levels are rather low and steady (Aizenman, 2008). Proponents of wage indexation also highlight that it can often foster wage moderation, therefore avoiding inflationary tendencies. This is supported by the example of Belgium, where inflation rates have been comparatively low over the last decade. Furthermore, wage indexation is seen as a measure for ensuring industrial relations peace, as it potentially reduces the number of strikes related to wage negotiations – says the report.
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