A 13% rise in the average real wage in Cyprus, when compared to the 2006–2012 average, has failed to offset the income redistribution that has taken place against salaried employment in recent years, according to a report published yesterday by the INEK PEO (Cyprus Labour Institute).
The report states that while the rise protects employees’ purchasing power and the improved minimum wage protects low-income earners, it only “slows down” the redistribution of income.
The 13% increase in the average real wage was partly driven by the rapid inflow of high-skilled foreign workers, whose labour compensation is high to very high, the report notes.
Cyprus is highlighted as one of only four European Union countries where the labour share of income is less than 50%. The report argues that significant increases in wage purchasing power are therefore “urgent and timely,” particularly because the Cypriot economy is demonstrating high performance compared to the other 26 EU member states.
According to the INEK PEO report, the improvement in labour cost competitiveness was only half reflected in prices, which favoured price competitiveness. The “remaining half was used to increase businesses’ profits,” it states.
The analysis of statistical data also reveals that the minimum wage paid in Cyprus is “dramatically smaller” than what is justified by the country’s GDP per capita and productivity level.
To match the country’s development level, the minimum wage should increase by 28%, and to match the productivity level, it should rise by 26%, the report adds.
INEK PEO further contends that inflation stems from businesses’ pursuit of maximum profits irrespective of changes in nominal wages. The claim that wage increases automatically lead to inflation is therefore “false,” because it ignores other factors involved in price formation, “particularly profit margins, which should not be considered given and undisputed,” the Institute argues.
Sotiroula Charalambous, the general secretary of the PEO trade union, backed the report’s findings, arguing that it “debunks the selective use of data” by employers’ organisations and the government, such as the increase in average wages.
She said the report “overturns the narrative that wage increases come at the expense of investment and the economy” and “records the significant shortfall in the minimum wage.”
“Economic upgrades and strong growth cannot continue to be the result of the undervaluation of labour,” Charalambous added, warning that this creates a “socially explosive mixture” and restricts the economy’s development potential.
She noted that “while the wage increases have created a level of resistance to the redistribution of income against salaried employment, this result does not offset the redistribution of income which is estimated as a structural shift of 7.2 percentage points away from the labour share in the business sector.”