Banque de France Bulletin no. 245: Article 6 Wage negotiations in a context of rising inflation

By Baudry Laurent, Gautier Erwan, Tarrieu Sylvie

Thematic: Politique monétaire et inflation

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The resurgence of inflation has changed the context in which wage talks are being conducted within industries and firms. The pass-through of price rises to wages (and vice-versa) is a key challenge for monetary policy and is being closely monitored. An analysis of thousands of industry and firm-level wage agreements in France shows a significant rise in negotiated wages between the end of 2020 and start of 2023. At the industry level, the rises have been fuelled by the upward revisions to the national minimum wage (NMW) in 2022. At the individual firm level, the negotiated pay rises for 2023 average 4.4% (compared with 2.8% in 2022 and 1.4% in 2021), which in many cases will be boosted by the prime de partage de la valeur (PPV – value-sharing bonus). These results are not indicative of a wage-price spiral, and are in line with the Banque de France’s projections for a gradual decline in inflation in 2023 and a return towards the Eurosystem’s 2% target by end-2024 to end-2025.

Consumer prices have risen sharply since the end of 2021: in annual average terms, inflation reached 5.2% in 2022 according to the Consumer Price Index (CPI) compiled by INSEE, and has stood at around 6% year on year since the summer of 2022. It is nonetheless expected to decline over 2023 and to come back towards 2% by end 2024 to end 2025 (Banque de France, 2023).

Higher inflation is increasing demand for higher wages, especially given the historically low unemployment rate and the recruitment difficulties being experienced by many sectors. However, an automatic and uniform pass through of inflation to wages (as in the case of wage indexation) would contribute to persistent high inflation, which would be detrimental to the overall economy. In addition, an inflation shock stemming from higher imported prices, and especially from higher energy prices, such as that seen in 2021 22, acts as a regressive tax on national income which needs to be distributed fairly between households and firms.

In France, wages are negotiated or set at several levels. First, at the national level, the national minimum wage (NMW) sets a wage floor for all workers. Second, each bargaining industry negotiates wage floors for a set of representative job types, and these play a particularly important role for small enterprises. Last, at the individual firm level, and especially at large firms, union representatives and managers may sign collective wage agreements. Negotiations at all three levels generally take place annually. By analyzing the agreements signed in several hundred industries and more than a thousand firms between the end of 2020 and start of 2023, this article describes how the inflationary shock has been taken into account in collective wage bargaining.

The main findings are as follows:

• The NMW has protected the purchasing power of low paid workers as it is indexed to inflation. It has been revised upwards regularly since the end of 2021 by the cumulative rate of inflation.

• Many industry specific wage floors were also revised upwards fairly rapidly in 2022 following the rise in the NMW. However, while the latter was 6.6% higher than a year earlier at the start of 2023, the average rise in industry specific wage floors was just under 5%. …