Pensions and minimum wage: real gains despite inflation

Nearly 30% increase in the purchasing power of those on the minimum pension and minimum wage.

A study by three Central Bank economists – Dr Valentina Antonaroli, Ian Borg, and Dr Aaron Grech – shows that, even taking inflation into account, the minimum pension and the minimum wage have increased sharply over the last decade.

The three economists have compared the change in nominal pensions and minimum wages with the increase in the prices of those goods and services that most affect the elderly and those on low incomes. This approach gives more importance to the prices of foodstuffs and medicines.

When one considers the benefits that the elderly qualify for, it turns out that over ten years there has been an increase of between 45% and 50% in their nominal value, with the biggest increase being for married pensioners. In contrast, pensioners on the highest pension saw a 28% increase in the same period. Considering inflation, there is still a 28% increase for those on a minimum pension with a married rate, a 22% increase for those on one minimum pension, and 7% for those on the maximum pension.

The study also looked at how those on the minimum wage have fared over time. A single person with two children saw an overall increase of 46% in their wage and in benefits between 2014 and 2023, while a married person had an increase of 31%. Removing inflation, this means that the purchasing power in the first case increased by 28% while in the second the improvement was 13%.

The study notes that, using official inflation measurements instead of these more rigorous measurements, the improvements in purchasing power would look more sustained. Considering this, the authors welcome the modification of the additional cost-of-living mechanism as it is now based on an inflation measure that is more relevant for those on low incomes. In fact, the Central Bank study closes by saying that “this should ensure that the effective purchasing power of retired and low-income households is better protected.”

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