As the cost of living rises in Switzerland some are calling for pay increases. Guy Parmelin, Switzerland’s economics and education minister, says it is the responsibility of unions to negotiate pay rises, reports RTS.
In an interview with the newspaper SonntagsBlick, Parmelin said it’s up to unions to negotiate wage rises. The government should not get involved in talks between unions and employers, he said. However, if required, the federal government could make adjustments to welfare for lower income households.
The Swiss Federation of Trade Unions reports that low wage earners are already feeling the crunch. Now the lowest paid 10% of employees are 60 francs worse off a month in real terms than they were in 2016, said the organisation.
In the year to the end of May 2022, consumers prices were 2.9% higher. The big drivers of rising costs are energy and some food items as the war in Ukraine has affected the supply of oil, gas, fertiliser and some foods such as wheat and sunflower oil.
Some expect energy prices to rise further as the EU tightens sanctions on the importation of energy from Russia.
So far inflation has been largely cost-push where supply constraints have pushed up the prices of inputs. Wages increases could add a demand-pull element to inflation. With no increases in supply, more money (from wage rises) chasing the same supply may just add further to inflation.
Another risk is built-in inflation. If unions and workers expect inflation and inflation-busting wage increases become routine there is a risk of a wage-price spiral, a situation where the wage rises themselves create inflation, which spirals higher and higher.
Ultimately, in the absence of solutions to relieve supply constraints a choice must be made between inflation and a tighter supply of money with higher interest rates. Inflation is felt most acutely by those on the lowest incomes, while higher interest rates are felt by those with loans or investments and jobs impacted by higher interest rates.