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Margin for pay increases

Updated: 13.05.2019

The ‘margin for pay increases’ refers to the extent to which an entity can afford to increase wages and salaries without undermining competitiveness, resulting in job losses, for example. People also speak about the ‘margin of distribution’, which is a key term in collective agreement negotiations.

The video clip below breaks down the factors that make up the margin for pay increases, i.e. the margin of distribution.

When calculating the margin of distribution, the first thing to do is to compensate employees for inflation, i.e. the decrease in the value of money. On top of that, you then factor in growth in the productivity of work, which basically means how much more output has been produced for the employer per one hour of work.

The sum of these two is the margin of distribution, i.e. the margin for pay increases.

The concept works at a sectoral or, better still, macroeconomic level, but not in terms of individual companies. In terms of a company, it is more appropriate to speak about profitability.

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