Inflation Drains Minimum Wage Gains in Greece, Prompting New Reform Plan

The Greek Ministry of Labor is set to implement a new minimum wage in 2028 based on a formula that takes into account productivity indices and inflation levels. Under the current system, inflation has been diminishing the impact of wage increases, as rising prices effectively reduce the purchasing power of any nominal wage growth.

The new model aims to address these issues by tying wage adjustments more closely to economic indicators, potentially offering a more sustainable method of wage calculation.

According to the government’s roadmap the minimum wage will reach 950 euros in 2027, translating to an average annual increase of 5% over the next three years. Since 2019, the minimum wage has increased by 180 euros gross, or 27.6%, rising from 650 to 830 euros.

However, data from a recent report by the Economic and Social Council of Greece (OKE), regarding the real increase in wages during these years, revealed that inflation erodes fixed incomes, like wages and pensions.

As the general price level rises, households need higher wages to afford the same goods and services. The adverse effect of inflation is more pronounced the lower the average wage is.

For example, despite the nominal minimum wage rising by 2% between 2020 and 2021, its actual purchasing power fell by approximately 3%. Similarly, despite a significant nominal minimum wage increase of 9.4% between 2022 and 2023, this resulted in a much smaller real gain in purchasing power (5.3%) for citizens.

These figures clearly show that the real wage increase from 2019 to 2023 was just 33.78 euros, even though the nominal wage rose by 130 euros. This indicates that inflation effectively “eroded” 100 euros of the increase.

In light of recent data, with the nominal wage now at 830 euros and the consumer price index at 119.76 (according to ELSTAT data from September), calculations show that the real wage as of September 2024 is 693 euros, meaning the actual minimum wage has yet to reach 700 euros.

Source: tovima.com