After an indexation of wages in October 2021, a further increase of 2.5% is on the horizon for spring 2022. Photo: Shutterstock.

After an indexation of wages in October 2021, a further increase of 2.5% is on the horizon for spring 2022. Photo: Shutterstock.

The spring of 2022 should see a 2.5% increase in income for employees in Luxembourg. Some companies have already calculated the cost of this measure and have varying opinions on it.

The next automatic indexation is due to take place in the second quarter of this year, Statec said on Wednesday. All wages and salaries in Luxembourg are expected to increase by 2.5%, and a second indexation cannot be ruled out by the end of the year.

As a result of that, companies will see their salary expenses rise. Meanwhile the previous indexation triggered last October cost €800m, according to data from business associations organisation UEL.

With 220 employees, Munhowen has a payroll of €12m euros per year. The indexation will cost the subsidiary of the national brewery €300,000. “These are extremely important impacts”, commented its managing director, Frédéric de Radiguès. “I hope that there will be some wage moderation. If not, we will be feeding an inflationary spiral, and I fear that it will not stop any time soon,” he said.

It must be said that the company is currently facing several challenges after a financial year 2020 that was deemed catastrophic. A fragile recovery of activities in the hotel and catering industry in the face of health restrictions, the rise in energy and packaging costs, as well as fuel costs, were among the most impactful developments.

At the beginning of the year, the company had already raised its prices by an average of 3.5%, but its director believes that its margin is being cut back because of the significant increase in costs. “If we were to have two indexations this year, I fear that we would have to increase our prices significantly,” says Radiguès.

Imposed margins

For the family-owned SME Smets, the next wage indexation should cost €81,000, according to the calculations of its CFO, Laurent Beaudoint. However, the company, which specialises in the sale of clothing and luxury goods, is pleased with the wage increase: “Firstly, the indexation protects the purchasing power of our employees. Secondly, it is an essential guarantee of a good social climate in companies,” he says.

Laurent Beaudoint (left) welcomes the wage increase. The Smets family business is now run by Bertrand Smets (right). (Photo: Smets)

Laurent Beaudoint (left) welcomes the wage increase. The Smets family business is now run by Bertrand Smets (right). (Photo: Smets)

The company employs 75 people in three locations. Faced with this increase in costs on an annual wage bill of €3.25m, it has little room for manoeuvre in passing on the increase, since the brands determine the selling prices of the articles.

But in recent months, many luxury houses have raised their prices, and the Luxembourg retailer has naturally followed the guidelines. "Buying less but better reinforces the legitimacy and desirability of luxury," says Beaudoint.

Selling more or eating into fixed costs?

The Ernster bookstore chain estimates the cost of the next indexation bracket at nearly €87,000. “This indexation is very appropriate for low salaries, but I think it should be capped for the higher salaries in the country", says Paul Ernster, administrative and financial director of the company.

Like Smets, Ernster does not have control over the sales price of products, which is largely in the hands of the publishers. “We can therefore only accept this indexation by increasing turnover or by saving on our fixed costs, for example by reducing staff or by working more efficiently,” says the director.

The automatic wage indexation expected in the second quarter of this year should bring the Luxembourg social minimum wage to €2,313.37 for an unskilled worker and to €2,776.06 for a skilled worker.

This story was first published in French on . It has been translated and edited for Delano.