What is and how does the income pact work, the recipe that the Government tries to combat inflation

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Inflation, for the moment, seems to have no ceiling, and all the measures that the Government has launched to try to stop its escalation have not worked beyond a few weeks. The gasoline subsidy, for example, managed to reduce slightly during the months of April and May, but in June it has suffered a sharp rebound that puts the Spanish economy in check again, as we explained in Xataka.

For this reason, the Minister of Economic Affairs, Nadia Calviño, has decided resume negotiations with employers and unions to try to reach an income pact that will put a stop once and for all to the accelerated escalation of prices that we have been experiencing since the war in Ukraine began.

What is? The lease agreement is a agreement between representatives of workers and employers by which both parties agree to share the cost of inflation equitably with the aim of curbing the rise in prices. For this, it is established that the negotiation will be carried out without disputes, since these harm the economy at a time when costs are skyrocketing.

In this commitment, the theory says that workers accept more moderate wage increases than would be required by inflation and take into account business margins, while employers agree to slightly raise wages, maintain jobs and follow a moderate path of price increase that does not completely compensate for the increase in the cost of labor and production.

How does it reduce inflation? By agreeing that each group will bear part of the costs of inflation, the rent of agreements seeks at first to moderate the price scale and, as the weeks go by, stabilize it.

This mechanism would avoid entering into an inflationary spiral in which rising prices lead workers to demand a salary increase to compensate for the loss of their purchasing power, which in turn leads employers, once they yield to pressure from professionals, to raise prices to maintain their profit margins, and start all over again.

disagreement. This is what Calviño is going to try to achieve today, who will not have it easy if we take into account that the negotiations to reach an income pact already failed previously, in April, because the positions of the unions and the employers were very far apart. At that time, the trade union centrals withdrew from the talks because they considered that no serious proposals had been put on the table.

One of the main points of disagreement was the Salary review clause linked to the Consumer Price Index (CPI) in collective agreements, that is, that the agreed increase in salaries is variable depending on the aforementioned economic indicator. The unions considered it essential to include it and the employers said that they were not willing to accept it.

Likewise, businessmen consider that civil servants and pensioners should also enter into the distribution of the costs of inflation, something to which the Government, for the time being, has not been willing, especially with regard to pensions.

close postures. In what unions and employers did agree more is in the percentage of salary increase. The representatives of the workers proposed an increase in salaries of 8% spread over three years (3.5% in 2022, 2.5% in 2023 and 2% in 2024), numbers similar to those proposed by the employers. But the former added that, in addition, the aforementioned salary guarantee clause should be included, which the latter rejected.

Image | Erik McLean

Inflation, for the moment, seems to have no ceiling, and all the measures that the Government has launched to try…

Inflation, for the moment, seems to have no ceiling, and all the measures that the Government has launched to try…

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