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COLA To Be Linked to Productivity?

Cost of Living Allowance CyprusTalks between the Ministry of Labour, trade unions and the Cyprus Chamber of Commerce and Industry (CCCI) are set to start on the issue of the Cost of Living Allowance (CoLA), which is an automatic rise in salaries every six months in line with the inflation rate.

According to Phideas Pillides of the CCCI, the rise should be linked to productivity instead of being an automatic payment, he said in comments to state broadcaster.

Trade unions are not likely to agree to this, since they have long been used to all the perks of civil servants here. But as the economic crisis worsens, and the state is forced to cut its spending, the Ministry of Labour may have little choice but to cut CoLA out completely or take up the CCCI's idea.

CoLA has long been viewed by economists as a burden on state funds, and was frozen for two years by the House of Representatives as part of austerity measures aimed at keeping Cyprus out of an EU-IMF bailout. The IMF has said in the past that CoLA is an outdated and expensive form of employee compensation and has called for reform, particularly since inflation has been rising above 2 percent in the last year.

According to CYSTAT's March inflation report, it is currently at 3.4 percent. CoLA pushes up the average salary but the figures are distorted since practically speaking it is only the public sector which actually receives the increases. According to CYSTAT's figures for the fourth quarter of 2011, average monthly earnings of employees were €2.288 (men €2.483 and women €2.061). In comparison with the fourth quarter of 2010, that is an increase of 3,0%. The increase mainly reflects the payment of CoLA on the gross earnings of employees, 1,25% as from January 2011 and 1,39% as from July 2011, says CYSTAT.

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