After a long national discussion, a major agreement has been reached in Cyprus to fully restore the Cost-of-Living Allowance (COLA). This system is designed to protect wages from inflation. However, a closer look shows that its effects are not the same for everyone. Following negotiations in November between the government, employer groups, and labour unions, President Nikos Christodoulides has praised the return of COLA as an important step for economic fairness. The government describes this as a key reform. It will gradually bring back full protection against the rising cost of living over the next two years, which is being presented as a win for average families facing financial pressure.
To understand this, it helps to know that the COLA system has a long history, dating back to the mid-1900s. It was created as an automatic way to adjust salaries so that workers' purchasing power would not be weakened by inflation. Despite its age, the system's reach today is quite limited. Recent analysis shows that only about 44% of workers in Cyprus will qualify for these automatic adjustments. This means roughly 227,000 people will get raises linked to inflation, while a much larger group of 288,000 employees will not receive this legal protection.
The way the revived COLA system works creates some unexpected results. Although politicians talk about helping low and middle-income workers, the reality is that high-level public officials and some unionized sectors will see the largest financial gains. This happens because the allowance is calculated as a percentage of a person's existing salary. Therefore, those who already earn more money will receive a larger cash increase. This effect can accidentally make the gap between higher and lower pay even wider.
A significant part of Cyprus' workforce is not covered by COLA at all. Freelancers, temporary staff, and many employees in private companies and small businesses do not have a legal right to inflation-adjusted pay unless their employer decides to offer it. This creates a two-tier labour market where some workers have automatic protection, while nearly three-fifths of the workforce are at risk of their wages buying less over time. For now, with inflation very low, this problem is less visible. However, economists expect the true impact of the restored COLA system will be felt during future periods of high inflation. While the current wage adjustments are small, the automatic feature will become very important when prices rise more sharply. This agreement aims to prevent conflicts during economic trouble, but it also makes different levels of protection a permanent feature, meaning the debate over COLA is likely to continue.