What is wage indexation in business studies

Answer 1

Wage indexation is a mechanism that is used to automatically adjust wages of employees based on changes in the cost of living or the inflation rate. It is a component of the compensation system that ensures that employees' wages keep up with the rising prices of goods and services over time. This adjustment can be made annually or at regular intervals, providing a certain level of protection against inflation and ensuring that employees maintain their purchasing power. Wage indexation is often used in industries or countries where inflation rates are high or unstable.