Cost of living/Correction coefficient in Luxembourg

Our colleagues in Luxembourg are currently witnesses to a big discussion around the correction coefficients (CC) for our salaries and the potential introduction of an independent CC for Luxembourg. Currently, all existing CCs are benchmarked against the combination of the Belgium and Luxembourg costs of living. We would like to join that discussion and take the opportunity to explain the simplified[1] mechanisms behind the correction coefficients.

Changes to our salaries come mostly from two factors:

  1. The yearly salary update
  2. A correction coefficient (if you work outside Luxembourg and Brussels)

The yearly salary update

This update is calculated by Eurostat and ensures that our salaries follow the developments of civil servants’ salaries in (some) member states. Simply put, if national civil servants get 1% more in their net salaries (after taking account of inflation), we get 1% more in our net salaries one year later (again, after inflation). This principle, called “parallelism”, ensures that our salaries develop in parallel with the salaries in the member states.

The correction coefficient

Depending on your work place, prices are higher or lower, compared to Brussels. The correction coefficient (CC) ensures the same purchasing power: if your salary in Brussels allows you to buy 1000 apples, than you should be able to buy the same amount of apples in your duty station: not more, not less. In reality, the calculation is of course more complex. The principle is called “equality” (of purchasing power). We should stress that CCs go both way: if life in your EU duty station is cheaper, than you will get a lower salary: for example, colleagues in Sofia are currently receiving 55.2% of the corresponding salary in Brussels. Eurostat is responsible for the calculations.

Brussels as the base city does not need a CC, as the yearly salary update takes account of price changes in Brussels via the inflation rate. So far, this is all rather straightforward.

The special situation of Luxembourg

According to the staff regulations[2] and unlike any other non-Brussels duty station, Luxembourg does not have a CC. In order to take account of the inflation in Luxembourg, the reform of 2014 introduced the so-called “Joint Index”[3] to measure inflation in both Luxembourg and Brussels, by using the staff distribution of EU institutions between the two cities (80%-20%).

The bottom line for our colleagues in Luxembourg is however quite simple: they do not have a CC unlike every other duty station outside of Brussels.

There is one trade union in Luxembourg that has been strongly pushing for a CC in Luxembourg. To their credit, it must be said that the price level difference between Luxembourg and Brussels has been increasing rather dramatically. Whilst in the past Luxembourg was cheaper than Brussels, it is now estimated to be 10%-15% more expensive than Brussels. The reason is mostly housing. As Generation 2004 prides itself to provide arguments based on facts, you might wonder why we have been reluctant to push that strongly for a CC in Luxembourg. As is often the case, the situation is not as simple as often presented to you.

  1. In the past, Luxembourg was cheaper than Brussels. If you bought a housing property in Luxembourg in the good old days (i.e. before 2004), you could profit from low prices. By today, your property has risen dramatically in value. Adding a CC on top of that seems like giving more money to those who have been in the position of buying cheap property and gaining in wealth since then and at the same time are already earning salaries that many of us will never reach. (Just a small hint: ask the loudest proponents of a CC when they started working in Luxembourg.)
  2. Moreover, what about the bottom of the salary grid? A CC is a percentage of your salary, with no social components whatsoever. Assuming a CC of 10%, this would mean for the gross basic salaries a plus of
    • CA (FG I, step 1): 203 EUR.
    • AST/SC (Grade 1, step 1): 256 EUR
    • AST (Grade 3, step 1): 374 EUR
    • AD (Grade 5, step 1): 479 EUR
    • AD (Grade 14, step 1): 1455 EUR

It is obvious that the big profiteers of such a CC would be the higher grades. In other words, those  who earn so much that the current prices are not really a problem for them would profit the most – yet again, mostly staff recruited at higher grades before 2004. While this is in line with the big failures of the 2004 and 2014 reforms, namely making the newcomers pay and leaving the old-timers untouched, it goes against everything that Generation 2004 stands for.

If you have worked in the institutions before 2004, than you have acquired pension rights during that time. The difference compared to time of work after 2004 is that the old pension rights are linked to a correction coefficient for pensioners (see Annex XI, Article 3(5)b of the Staff Regulations). Once again, you should check carefully who will mostly profit from a CC for Luxembourg.

  1. The staff regulations are clear on the fact that Luxembourg does not have a CC. Introducing a CC for Luxembourg is only possible if we open the staff regulations. Just take a look at the last two deforms in 2004 and 2014 to see why you should worry about this: therefore, on one side, Generation 2004 would like to see some changes that would only be possible with an opening of the staff regulations, on the other we are well aware that Member States see every opening of the staff regulations as an opportunity to worsen again our working conditions.

Alternative solutions

As Generation 2004 is always striving for constructive solutions that benefit the many and not the few, instead of just giving more money to those who are already well off, we propose a couple of what we believe are better solutions:

Housing allowance: One possibility would be a housing allowance that would be a lump-sum amount or could also include a social component: those at the bottom could receive the maximum; the highest grades could receive nothing. The problem here is that this treats the symptoms rather than the source of the problem: the reason for the high costs of living in Luxembourg are the high rents and real estate prices, and the rents are high because the demand is so high. Fuelling more money into the market could result in even higher prices without tackling the problem itself. Still, it would mean an immediate solution.

Buildings managed by the Commission for its staff: While it seems strange that the Commission should invest in housing in a work place, it is not something you have never heard about: for example, in Ispra there is a number of accommodations owned by JRC and managed by OIB-Ispra.  As these accommodations exist already together with the relevant legal framework that could well be adapted to Luxembourg without the need to open the staff regulations.

Your proposal here

If you have further ideas, Generation 2004 looks forward to receiving your feedback. Maybe you have the solution that no one else has yet considered, so please contact us.

Given the huge importance this issue has for our colleagues, we will be soon organising a lunchtime conference on this topic on 8 October 2019. Further details will follow soon. If you have any questions, stay tuned and do not miss it!

[1] If you work in a duty station outside the EU, some rules are different for you. The main principles stay the same, though.

[2] Article 64: No correction coefficient shall be applicable in Belgium and Luxembourg, […]

[3] Before 2014, Eurostat calculated the “Brussels International Index”, which used prices from Belgium (mostly) and Brussels (some). Luxembourg was ignored for this old index.

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