Amid debates over the Cost-of-Living Allowance (CoLA), the Council of Economy and Competitiveness (SOAK) is recommending a different wage-setting framework between employers and unions, one that systematically factors in productivity, inflation and overall competitiveness. In a statement, SOAK argues that wage formation should be anchored to productivity gains and must not erode Cyprus’s competitive position.
Not a Mandatory, One-Size-Fits-All Mechanism
Council president Demetris Georgiades told Politis that wage bargaining should reflect parameters such as productivity and competitiveness, rather than rely on a blanket, compulsory mechanism. Asked about “CoLA for all,” he said no mechanism should be universal or mandatory, given sectoral, regional and individual differences. Collective agreements, he noted, are often beneficial for both workers and employers -where they are, parties will willingly opt in.
Protecting Purchasing Power, Without Losing Competitiveness
SOAK’s proposal says safeguarding real incomes implies adjusting nominal wages, either via inflation or targeted social-policy measures, at least for low earners who are disproportionately hit by price rises. At the same time, nominal wage growth should mirror productivity gains. To preserve competitiveness, wages should not grow faster than productivity, so that Cypriot goods and services remain competitive in international markets. Tracking can be done with indicators such as wages, unit labour costs and real effective exchange rates.
What International Experience Shows
Automatic, inflation-only formulas like CoLA can function in “normal” periods, the Council notes. But during shocks and high-inflation episodes, tensions emerge between such mechanisms and competitiveness. Historically in Cyprus, the coexistence of CoLA and high inflation was offset by tight monetary policy, an instrument no longer available nationally after euro adoption.
A Shared, Data-Driven Framework
SOAK urges employers and unions to agree a more rational institutional framework, grounded in reliable data and good practice. The Council proposes an independent Wage & Productivity Observatory to compute and publish the parameters used in wage talks. The body would bring together public authorities, social partners and research institutions focused on economic policy. Its remit could also cover inequality and youth talent outflows (brain drain), especially during periods of prolonged wage stagnation.
For SOAK, the aim is balance: protect workers’ purchasing power and labour’s share of GDP, while maintaining -ideally improving- Cyprus’s competitiveness. If the social partners need help codifying such a framework, the government can step in to support or, if necessary, to intervene.