In Luxembourg, all wages and welfare payments are regularly adjusted to inflation. This mechanism is called the "automatic index-linking of earnings to the cost of living", "salary escalation scale" or "index linking". Luxembourg is one of the few European Union countries with such a mechanism for adjusting salaries to match inflation.
STATEC (the National Statistics Agency) determines the consumer price index level each month, with a base of 100 for the year 2005.
If the average consumer price index rises or falls by 2.5% over the previous semester (the last 6 months) salaries are adjusted by the same proportion; either increasing to compensate employees for the loss of purchasing power due to inflation or decreasing.
To conduct a thorough calculation, STATEC uses a European methodology and compiles a sample of goods and services that is representative of household consumption. These goods and services, numbering approximately 8,000, are collected into 255 categories or aggregates (or index positions). A weighting coefficient, corresponding to the relative importance of households’ total spending, is then assigned to each aggregate. Since 1999, the list of these items and their weighting has been adjusted every year to take into account changing consumer spending habits.
Employers are obliged to apply the sliding wage scale.
The Labour and Mines Inspectorate is responsible for monitoring compliance with the sliding wage scale.