As of Thursday, 1 May 2025, a new level of the wage indexation scale will come into effect in Luxembourg. This will result in an automatic 2.5% increase in salaries, wages, and pensions for all eligible employees and beneficiaries. This long-awaited measure aims to offset the rising cost of living linked to inflation.
An indexation postponed several times
Initially expected in October 2024, this indexation was delayed due to the consumer price index (CPI) not having risen sufficiently. As of last March, the six-month price increase stood at just 1.3%, below the 1.79% threshold required to trigger the mechanism.
The previous adjustment took place in September 2023, meaning there will have been a gap of over a year and a half before the next indexation on 1 May 2025.
Also read: Luxembourg 2025: wage growth, tax relief, and much more
How does wage indexation work?
Indexation is an automatic mechanism designed to protect purchasing power against inflation. In practical terms, when consumer prices rise significantly, wages, pensions, and salaries are adjusted upwards to compensate for the loss in value.
This process ensures that workers’ real earnings do not decline over time. The effect will be visible on the May 2025 payslip, with a net increase in gross income.
Among the highest salaries in Europe
With this new indexation, Luxembourg strengthens its position among the countries with the highest salaries in the European Union. In 2022, the country ranked second, with a median gross hourly wage of €24.0, just behind Denmark (€29.8). In 2024, Luxembourg had the highest gross monthly minimum wage in the EU, at €2,570.93.
Moreover, Luxembourg currently has one of the lowest gender pay gaps in Europe, if not the world. In 2022, the hourly gender pay gap slightly favoured women, with a difference of -0.7%.
Luxembourg’s atypical gender pay gap is explained by several structural factors. On the one hand, the country has a high proportion of highly qualified employees in specialised sectors where women are well represented. On the other hand, Luxembourgish women are, on average, more highly educated than men, especially among the younger generations, which enables them to access better-paid positions, particularly in fields such as finance, healthcare, and education.
However, these figures should be interpreted with caution. The calculation is based solely on average gross hourly wages and does not take into account bonuses, part-time work, or differences in job roles. In terms of overall annual income, men remain overrepresented in the highest income brackets, which still creates a long-term real disparity to the detriment of women.
This new indexation is good news for employees: it helps safeguard their purchasing power in the face of inflation and ensures that their remuneration keeps pace with the cost of living. In the meantime, we remind you that you can already fill in your 2025 tax return, until December.
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