THE CONTROVERSIAL inflation-linked Cost of Living Allowance (CoLA) that is added to salaries every six months is both necessary and unnecessary, University of Cyprus researchers say.
“CoLA is needed to prevent price cartels by producers to increase their profits at the expense of the standard of living of workers,” said the paper issued by the University’s Economics Research Centre (ERC).
“On the other hand when the market functions wholly competitively CoLA is both anachronistic and dangerous for the economy… and leads to the bankruptcy of enterprises that function with marginal profits.”
Employers want CoLA abolished because they say by having to increase wages in line with inflation every six months the cost to businesses increased and they in turn would be forced to pass on the increase in prices, which would further fuel inflation.
CoLA has been an institution in Cyprus for decades and despite several warnings from the Central Bank over its effects on the economy, no government has yet had the political courage to abolish it.
“How useful CoLA is to the worker and how dangerous it is to the economy is connected with other phenomena in the free market in Cyprus,” ERC said.
It said the opponents of CoLA should explain how they see the workers being protected from monopolistic behaviour, and its supporters needed to explain why businesses who do not participate in price-fixing cartels can be protected from bankruptcy because they are compelled by law to increase the wages of their employees along with the increases in other overheads.
As far as wages are concerned the ERC said figures did prove the argument that CoLA does not help where it is needed most; lower income groups, but in fact protects high wages.
It said that between 1997 and 2003, the lowest ten per cent of wage earners had seen only a six per cent growth in their wages in real terms compared to a 70 per cent growth in the top ten per cent of earners.
“This shows that CoLA benefits employees in high-wage jobs such as those in the public service and banks,’ ERC said.
“On the other hand the majority of workers in professions where wages they are relatively low such as unskilled workers, salesmen and clerks in small companies are not protected by CoLA.”
ERC suggested that to truly protect those in need of shelter from inflation, CoLA be added instead to pensions and other social benefits.
