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Belgium in the Ranks: labor market

Belgium is known for its highly skilled and multilingual workforce, geographical location and innovation clusters. But where does the country stand in comparison to other countries? In the first part of a new series, we take a look at Belgium’s labor market through the lens of the World Economic Forum’s Competitiveness Report 2015-2016 (WEF).

Belgium has a talented, multilingual and productive workforce. This is reflected in the country’s leading position in education – holding the fifth spot overall. Belgium continues to perform well in management and science schools. In fact, the quality of its management schools is second only to those in Switzerland. Nevertheless, Belgium’s availability of talent could be increased, as this is a point where the country ranks low.  

Labor flexibility and costs

While Belgium leads in quality of talent, the country lags behind when it comes to labor market flexibility, where it ranks 123rd in the WEF. The Michel Government has already taken its first steps to lower labor costs. The gradual reduction of employer social security contributions rate from 33% to 25% seems to be taking effect. Case in point: Belgium is no longer the country with the highest taxation of labor in Europe. Institut économique Molinari’s recent study shows that Belgium’s ‘tax liberation day’, the day of the year when employees have finished paying their taxes and start earning their full salary, fell nine days earlier this year than in previous years. The Belgian Government has also adopted pension reforms to help Belgium’s welfare system become more sustainable.

These reforms have been very welcome, but there is still room for improvement. For example, Belgium currently ranks 135th as to the effect of taxation on incentives to work. A good start to adjust labor costs is to accelerate the reduction of the social security contribution rate.

AmCham Belgium also recommends restructuring the automatic indexation of salaries, by applying the wage indexation to a fixed salary to protect lower-income households. Temporarily frozen by the Government, the automatic wage indexation regime as it stands today is detrimental to the Belgian economy and its competitiveness. It also hinders companies’ ability to motivate and reward employees with performance-based compensation.

Social charges are another area of significant competitive disadvantage, as there is no ceiling for social security contributions. The Chamber therefore recommends re-introducing a ceiling of €75,000 when calculating employer social security contributions. Capping social security is essential to attract high-profile positions to Belgium, and additionally, to make Belgium a more attractive location for headquarters and decision centers.

Finally, AmCham Belgium commends the Government’s recent positive proposed measures to adjust labor market flexibility. Administrative burdens and red tape impact companies’ costs and employment practices, and increasing flexibility for employees at work is beneficial for business. With only a few much-needed reforms to exploit the great potential in Belgium’s workforce, the country’s position in the WEF could drastically improve.