Salary Adaptations

Record inflation in Germany in recent months, peaking at 10.4% year-on-year in October, has strained annual wage negotiations and led to strikes in several sectors. 

Last May, state and local government employees in Germany received a gradual pay rise to compensate for inflation, following a collective bargaining agreement with the federal government.  Around 2.5 million state and local government employees will see their pay rise by 5.5%, or at least €340 a month, from March 2024. From June 2023, the tax-free inflation compensation of €3,000 will be paid in several instalments.

After failing to get full satisfaction for its demands, the German public service union Verdi is demanding another pay rise of between 12.5% and 18%, this time for the 1.2 million employees of the federal states (Länder).

There are two important elements to highlight in this new union demand and previous agreements. The first is the labour shortage. The German civil service has 300,000 vacancies that are not being filled. Several thousand civil servants are leaving their jobs in the big cities (Hamburg, Bremen, etc.) and moving to other regions where the cost of living is lower, and the jobs are better paid. There is a kind of “cannibalisation” of the public labour market, denounced by the trade unions, which leads to destructive competition between the federal government, the states, and the municipalities.

The second element is the lump-sum bonus of 3,000 euros, which is not taxable until 2024. The problem is that once this bonus expires, workers will suffer a de facto reduction in their income in nominal terms. Recognising this negative effect, the unions are trying to compensate by negotiating an equivalent pay rise of around €5,000 to stabilise nominal wages. From an economic point of view, the lump-sum bonus has a more negative impact on inflation than simple wage indexation.

In the current inflationary environment, it is important to understand that workers’ real incomes are based on the price level. Even when inflation is falling, price levels remain high.  This is an important lesson for those at the bottom of the ladder.  

This has clear implications for the evolution of salaries in the European civil service.  The Staff Regulations of officials of the European Union provide for a method of adjusting salaries each year to ensure that the purchasing power of European and national civil servants develops in parallel. This method is calculated on the basis of two components: the cost of living (inflation) in Belgium and Luxembourg and changes in the purchasing power of national civil servants in central government in a package of 10 EU countries representing 80% of EU GDP. Given Germany’s weight, the adjustment of European civil servants’ salaries should therefore benefit from the pay rises won by German trade unions.  

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The splendour and misery of public sector pay in the US and the EU

At the end of August, US President Joe Biden officially confirmed his intention to increase the pay of federal civil servants by 5.2% in 2024. This increase is made up of a general increase of 4.7% plus a local adjustment of plus or minus 0.5%. The latter varies according to the geographical area in which the federal employee is located. There are 54 localities, slightly more than the number of states. The adjustment is calculated by taking into account the difference in salary between the private and public sectors for equivalent positions. While this adjustment seems welcome in the context of overall inflation – and the measure has been well received by the trade unions representing federal employees – some feel that it is insufficient, as the public/private pay gap is estimated at 22.47%[1] by the Federal Salary Council[2].

This considerable difference is due to the fact that successive governments have been reluctant to use the Federal Employees Pay Comparability Act (FEPCA). Established in 1990, this law releases the funds needed to reduce the gap between federal and non-federal employees to 5%[3]. No government has used this tool, probably to save money, and today the estimated cost of implementing the FEPCA has risen to 19.2 billion dollars[4]. Biden is financing this increase in the same way as previous presidents: through an “alternative financing plan”. Even leaving aside the FEPCA, Biden’s plan is not the most ambitious, since two Democratic representatives, Congressman Gerry Connoly and Senator Brian Schatz, submitted a counter-proposal of 8.7%, which was not adopted. They nevertheless welcomed the increase announced by the American President.

On the other side of the Atlantic, the debate is quite different, with several media outlets crying foul over the “indecent pay rise for EU officials”[5]. Under the pen of Jean Quatremer, the newspaper Libération criticises a 13% increase over two years in the salaries of European civil servants, an amount whose calculation is hazardous. The article targets the method used to adjust salaries, which takes into account the purchasing power of civil servants in 10 Member States as well as inflation in Brussels and Luxembourg. As is often the case, European civil servants and their salaries are a prime target for critics of the European institutions. It should be remembered, as the media outlet “20 Minutes” and the European Commission[6] have done, that the method has only resulted in a 1.7% increase in salaries, with this increase taking effect in June 2023 with retroactive effect to 1 January 2023. What’s more, the method is just as likely to reduce the salaries of European civil servants, and this may well be the case in December.

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[1] Federal Salary Council, Level of Comparability Payments for January 2023 and Other Matters Pertaining to the Locality Pay Program, 14 Octobre 2022, p.4. URL: https://www.opm.gov/policy-data-oversight/pay-leave/pay-systems/general-schedule/federal-salary-council/recommendation21.pdf.

[2] Body responsible for providing recommendations on the local share of federal employees’ pay.

[3] Friedman, Drew. ‘How does locality pay actually work, and where did it come from?’, Federal News Netword, 5 janvier 2023. [En ligne], URL : https://federalnewsnetwork.com/pay/2023/01/how-does-locality-pay-actually-work-and-where-did-it-come-from/?readmore=1.

[4] Ibid.

[5] Quatremer, Jean. « L’indécente augmentation de salaire des fonctionnaires de l’UE », 19 juin 2023, [En ligne], URL : https://www.liberation.fr/international/europe/lindecente-augmentation-de-salaire-des-fonctionnaires-de-lue-20230619_YI5RON22ZRAGTFUC3QMZSOVNCU/.

[6] Jehanno, Emilie. « Commission européenne : Non, Ursula von der Leyen n’exige pas une augmentation de 15 % », 20 Minutes, 15 juin 2023.

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Adaptation 2022

REPORT FROM THE COMMISSION on the application of Annex XI to the Staff Regulations and Article 66a thereof (Recruitment needs, attractiveness, purchasing power, Method of salaries adaptation) April 2022

In adopting the EU’s budget for 2023, the Council issued a statement that gives cause for concern:

Point 3 of the declaration

The Council notes that the current method of automatic salary updates puts, in the current unprecedented inflationary environment, an unsustainable burden on administrative expenditure across all headings. According to the updated financial programming the increase of salaries foreseen in 2022 will result in significant additional financing needs in heading 7, not only in 2022 and 2023, but also in future years under the current Multiannual Financial Framework (MFF), exceeding the ceilings of this heading. Future salary increases higher than 2 % will further aggravate this situation. If no compensatory measures are taken, this development would require the mobilization of special instruments that would otherwise be available for financing unforeseen circumstances (such as the direct and indirect consequences of the war in Ukraine). In addition, the Commission and the ECB have repeatedly expressed concerns that automatic wage indexation in Member States could lead to second-round effects that could make an inflationary shock more persistent, which in turn could lead to a further deterioration of the economic and social situation within the EU.

In this context, the Council requests the Commission, in line with Article 241 TFEU and by the end of September 2022, to evaluate the effects and sustainability of the automatic salary update in an high inflation environment and to submit to it any appropriate proposals to alleviate the pressure for administrative expenditure. The elements to be considered in the Commission’s evaluation could include but should not be limited to:

• a one-off suspension of the annual update of the remuneration of officials and other servants, while acknowledging acquired rights;
• concrete measures to contain non-salary related spending, such as in the areas of energy consumption in buildings, mission costs or similar (in line with the MFF European Council conclusions);
• the size and duration of allowances;
• the adequacy of the tax system;
• the expansion and extension of the solidarity levy;
• the introduction of a new third mechanism into Annex XI of the Staff Regulation (in addition to the moderation clause and the exception clause) to duly take into account the specific conditions of a high inflation environment.

or any other appropriate measure in light of the situation in the Member States and the sustainability of the administrative spending in the MFF, in time for the European Parliament and the Council to examine and adopt them alongside the amending letter to the EU 2023 budget with the aim to adopt them before the end of 2022. Without prejudice to Commission’s evaluation, the Council recalls that the European Council in July 2020 concluded that there shall be no mid-term review of the 2021 – 2027 MFF

Make no mistake, the Method is under attack, but the Council’s intention is to call into question the whole economy of the Staff Regulations.

Adaptation 2021

Decision on the 2021 salary update (FR – Dec 2021)

Eurostat Report on the 2021 annual update of remuneration and pensions of EU officials (Oct 2021)
Digest : +1.9% (2.1% – 0.2%)  (NB: This is NOT a decision but a preparatory document)

The published real GDP decrease for the EU for 2020 is -5.9%. Although smaller than the negative GDP forecast which was used in the previous Annual Report (-8.3%), it nevertheless confirms that the magnitude of the decrease exceeds -3.0%. Consequently, no retroactive correction is required to the suspension of the specific indicator component of the annual update for July 2020.

Combining the -5.9% GDP movement established for 2020 with the +4.8% GDP forecast for 2021, it is apparent that the cumulative total is insufficient to reach the same level as before (i.e. 2019). On this basis, there will be no unwinding of the suspended 2020 payment as part of the 2021 annual update.

Adaptation 2020

Final decision: Pay adjustments: a slight increase despite the crisis (FR)

2020 salary and pension adjustment (FR)

Eurostat Report on the 2020 annual update of remuneration and pensions of EU officials

Adjustment of remuneration and pension contributions for EU staff for 2019

Adjustment of the remuneration of officials and servants of the European UnionAt this point, the figures are not known. Significant changes are still possible, which depend in particular on the recognition of increases in the salaries of German civil servants (+ 7% over 3 years). In any case, it can be estimated that the salary increase should be between 1% and 2%, at cruising speed, at first around 1.5% / 1.7%, according to U4U statistical service.2. Rate of contribution to the pension scheme of officials and servants of the European UnionGiven the decrease in the specific wage indicator in 2018, the adjustment of the pension contribution of civil servants and employees to the pension scheme may decrease slightly (more than the 0.25% trigger threshold) in 2019 This is the effect of the 2019 annual evaluation of the five-year actuarial valuation completed in 2018.The Commission will publish on 15 December 2019 the level of adjustment of the remuneration and of the rate of pension contribution to the scheme in the Official Journal of the EU. It will then be implemented by each institution on the payslip of officials and agents, with a possible recovery back from 1 July 2019.U4U will continue to inform you on the fly.

11/07/2019

Eurostat Report on the 2019 annual update of remuneration and pensions of EU officials with effect from 1 July 2019 : 2% (see page 12). This is a recommendation and not a final decision.

The Method: a success?

Report from the Commission to the EP on the Pay and Pension Adjustment Method: a successThis report from the Commission to the European Parliament on the EU Staff Pay and Pension Adjustment Method (Document COM (2018) 830 of 14 December 2018) concludes that the 2013 Method is an indisputable success of the European Commission and DG HR Services.This method introduced in the Staff Regulations on October 22, 2013, showed its effectiveness by preserving the parallelism of the evolution of the remuneration between European and national officials, between 2014 and 2018. It also allowed to set aside the recurring quarrel on this subject. between the legislative authority and the staff, which has been going on since 1972 and has led to numerous appeals to the EU court.The text stresses in particular that the adoption of an automatic crisis clause and a moderation clause, as well as the procedure for adopting the annual adjustment by means of a publication in the Official Journal of the EU have made it possible to provide an effective response to the difficulties of implementing the former methods.The legislative authority has been kept regularly informed by the Commission by means of annual reports which ensure the assessment of the quality of the data at the origin of the adaptation.This system of adjustment of pay and pensions has also successfully withstood the legal examination before the Union Courts in several individual cases brought against it. It also helped to avoid social tensions since no major strike took place in the institutions during this period.Finally, the text notes that there has been little difficulty in implementing the principle of purchasing power parity between EU employment places through the system of corrective coefficients.The validity of the new method ends in 2023. It will be renewed automatically, unless denounced by at least one of the signatories. The Commission is unlikely to do so, so any denunciation would be made by the Council. Let’s also note that in 2023 a report on pensions will also be published .However, U4U notes that:Luxembourg staff do not feel well treated by the adoption of a common index Brussels / Luxembourg, which serves as a basis 100, not taking into account some specificities in Luxembourg, especially for the cost of real estate. This is why U4U is exploring the possibility of a housing allowance that would offset part of the loss of purchasing power in Luxembourg. In addition, other sites (Ispra in particular) also claim an adjustment of the methodology of the correction coefficients.The loss of purchasing power between 2011 and 2014 will never be compensated, which mechanically reduced wages and pensions, impacting the attractiveness of the EU civil service.

20/05/2019