How to Support Employees Amid Rising Inflation?
Prices for goods and services in Uzbekistan are rapidly increasing. In such times, the question becomes more pressing than ever: what should be done with employee wages? Should they be indexed or simply increased? By what percentage should wages be raised to support employees? However, before making a decision, it is important to understand that indexation and salary increases are not the same. Indexation is an attempt to maintain employees' purchasing power at the same level by compensating for inflation, while an increase is a step forward aimed at improving employees' working and living conditions, regardless of price growth. Let’s explore these terms in more detail to choose the most appropriate approach.
Salary indexation can be applied in both public and private companies. In the CIS countries, there are different approaches to regulating this issue at the legislative level.
In some countries, indexation is mandatory for both public and private enterprises. The legislative regulation of salary indexation in CIS countries is outlined below in a comparative table, showing where salary indexation is regulated by law.
Salary Indexation in Uzbekistan
In Uzbekistan, salary indexation is mainly carried out in public companies and is regulated by government bodies. In private companies, the decision to implement indexation is made individually, depending on the company's financial situation and policies. The table below provides data on salary indexation for public sector employees and inflation rates in Uzbekistan from 2020 to the first nine months of 2024.
As shown by the data, from 2020 to 2024, the minimum wage (MW) increased regularly, with the rate of increase in recent years varying from 7% to 12%. These measures aim to compensate for the rising cost of living due to inflation, which, according to official data, reached 10.5% in 2024 and 8.8% in 2023. At the same time, according to our research, measurements of the cost of the consumer basket show somewhat higher figures for the price growth of goods and services compared to official inflation. This suggests that the population may experience a more significant price increase than reflected in government data.
Data on the cost of the consumer basket (see the "Consumer Basket" section) suggest that private businesses and the entire population are facing a more pronounced rise in prices, requiring timely measures and flexibility in cost management approaches. When making decisions about salary indexation, companies should consider not only official state inflation data but also inflation reflecting changes in the consumer basket cost. This will help avoid losses in employees’ real wages and maintain their purchasing power amid rising prices.
So, how should salary indexation be calculated correctly?
Main Methods of Salary Indexation Calculation:
According to our research, in 46% of surveyed companies, indexation is not directly tied to inflation or the consumer basket but is based on internal financial results. The decision to increase salaries is made based on the company's profit, its employee motivation policies, and market conditions.
Salary indexation is an important tool for maintaining employees' purchasing power. The choice of indexation method depends on the specific conditions of the company, the level of inflation, and the cost of living.
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