Public wage and pension indexation in the euro area: an overview

All contributing authors: Cristina Checherita Westphal, João Domingues Semeano, Elena Ahonen, Pierrick Stinglhamber, Stefan Van Parys, Johannes Clemens, Katri Urke, Orsolya Soosaar, Maria Vergou, Maria Flevotomou, David Staunton, Jorge Martínez-Pagés, Aris Avgousti, Gintare Zelionkaite, Olivier Delobbe, Florian Henne, Baiba Brusbārde, John Farrugia, Juergen Attard, Fabrizio Renzi, Marco Savegnago, Doris Prammer, Lukas Reiss, Gerard Eijsink, Jip Italianer, Maria Manuel Campos, Andreja Strojan Kastelec, Barbora Palášthyová, Vratislav Pisca, Jarkko Kivistö.

If the responses of wages – both private and public – and of pensions to an increase in inflation lead to second-round effects, this can make an inflationary shock more persistent, especially in the presence of automatic wage and pension indexation. This occasional paper presents an overview of the indexation schemes and other  mechanisms for setting public wages and pensions across the euro area countries. It concludes that price indexation of public wages is relatively limited in the euro area,  while public pensions are overwhelmingly automatically indexed, either fully or partially, to prices and wages.

Keywords: Fiscal policy; Wages, Compensation, and Labor Costs; Social Security and Public Pensions; Inflation
JEL codes: E62, J3, H55, E3