It’s a somewhat unprecedented occasion for Luxembourg: a united front of trade unions is calling for a demonstration against government policy on 28 June in order to show, as if it weren’t already evident, their continued opposition to reforms aimed at modernising and developing the country’s social and economic model. More specifically, the unions are protesting the alleged lack of social dialogue, proposed pension system reforms, extended Sunday trading hours in the retail sector, the liberalisation of shop opening times, the end of the energy price cap, and so on.
To hear them tell it, the Luxembourg social model is under threat. And in truth, it is. Indeed, today we are no longer able to guarantee the sustainability of our pension or healthcare systems. And yes, it is possible that our children will not enjoy the same level of prosperity we do, unless swift changes are made to the system of social protection.
But the weakening of our social model is not the consequence of recent government proposals. Rather, it stems from the slowdown of our economic model and a lack of bold structural reforms to reverse this dangerous trajectory. Luxembourg has been able to offer its citizens and households a very high standard of living – thanks in no small part to generous social benefits – because it has sustained a virtuous cycle: strong economic performance, supported over time by high productivity and competitiveness, generates ample tax revenues, which in turn fund the social model. We must keep repeating this: to redistribute wealth, one must first create it.
Today, however, that virtuous mechanism is faltering. Although the country recorded average annual growth of 3% between 1995 and 2023, current figures fall well short of that, with -0.7% in 2023, +1% in 2024 and a STATEC forecast of just +1% for 2025 (which has just been severely revised downwards, since growth for this year was estimated at 2.5% last autumn)[1] and +2% in 2026. The reasons behind this loss of momentum are clear: At a structural level, the environment is increasingly unfriendly to business, with overregulation, ever more complex procedures, rising energy prices, and higher production costs. Year after year, Luxembourg is losing the competitive advantages that once underpinned its success. This decline is reflected in global competitiveness rankings.
Competitiveness: Luxembourg in the “soft underbelly” of the IMD rankings
In the 2025 edition of the World Competitiveness Yearbook by IMD, Luxembourg is ranked only 20th.While this is three places higher than the 2024 ranking, it remains well below the positions the country enjoyed in the past. In 2015, Luxembourg ranked 6th, and until 2023 it was consistently in the top 15. Once regarded as one of the world’s most competitive economies, Luxembourg now seems stuck in the “soft underbelly” of the rankings.
This should be a wake-up call. The country’s disappointing economic performance is a major factor. While Luxembourg still boasts the highest GDP per capita in the index, it has been surpassed by Singapore in purchasing power parity for the first time since 2015, and lags behind its key competitors on other measures such as employment and price stability.
Public policy remains a relative strength, underpinned by prudent fiscal management. But the rankings also highlight major medium and long-term vulnerabilities concerning the financing of our pension system and a tax policy that is less and less attractive. Recent efforts to reduce the tax burden on companies and households are a welcome step in the right direction.
As far as business efficiency is concerned, the IMD rankings confirm that while our productivity continues to be high (Luxembourg remains at the top of the rankings), it is dangerously stagnant (61st in terms of productivity growth), and the country remains highly uncompetitive in terms of the availability of skilled labour (57th). This is a real emergency: if the country does not find new sources of productivity, it is doomed to see its competitiveness continue to decline.
Finally, in terms of infrastructure, Luxembourg remains in the middle of the rankings: solid in areas such as education and communication networks, but weaker in other major areas such as scientific and technological infrastructure, key factors for future productivity.
The need for urgent action
The IMD rankings highlight the many challenges Luxembourg’s economy faces. Highly specialised in sectors exposed to global competition (finance, steel, space, etc.), the country is also hampered by broader EU issues: overregulation (e.g. GDPR, CSRD, pay transparency directive), limited innovation, and energy prices up to four times higher than in some regions. In addition, past inaction on housing and spatial planning, combined with demographic pressures, is taking a toll.
But this ranking also highlights our strengths, in particular political stability, at a time when some major economies are facing situations of political instability that destroy any possibility of reform. Our tradition of effective social dialogue is another vital asset. In times of crisis, Luxembourg’s social partners have historically demonstrated a strong sense of responsibility. In calling for demonstrations on 28 June, the trade unions appear to be breaking with this tradition and turning a blind eye to the pressing reality.
At least four claims in the leaflet published by the trade union front that was distributed to every letterbox in the country deserve to be refuted.
“Your pension is in danger”
“Your pension is in danger!” says the trade union front in its leaflet. That’s correct, if we do nothing. According to the latest IGSS projections, the general pension scheme (excluding reserves) may tip out of balance as early as 2026, with reserves potentially exhausted in the 2040s. The only way to safeguard the pension system is not through the irresponsible status quo proposed by the unions, but through bold and far-reaching reform. As life expectancy rises, so too does the time spent in retirement without contributing and the period during which individuals receive benefits. The solidarity model is based on a balance between active contributors and beneficiaries. That balance grows more fragile when people live longer without working longer. In response, extending working life is no longer optional: it is essential. Many other options have been explored in recent months. Now, with the social partners, we must build an ambitious reform package to make the system sustainable.
“Your purchasing power is under attack”
“Your purchasing power is under attack”, the leaflet says, criticising the end of the energy price cap. But in 2025, the government allocated €171 million to limit electricity price increases to 30%, compared with 60% without aid. This policy transfers part of the energy cost from consumers to taxpayers, at a time when public finances are increasingly constrained. This is just one of a number of measures taken by the government to preserve household purchasing power, including through tax and social security measures. These initiatives have also helped to revitalise local trade and services. However, access to housing remains the key concern for many households. More ambitious measures are needed to stimulate private investment and boost construction.
“Your social protection could be unravelled”
“Your social protection could be unravelled”, say the unions, referring in particular to the demands made by companies regarding absenteeism. In 2023, according to figures provided by the IGSS, absenteeism due to illness represented a direct cost of €1.18 billion[2]. That figure does not include significant indirect costs, such as the need to replace absent staff and lost productivity. Tackling excessive or fraudulent sick leave is essential. This is not about “unravelling” social protection, but rather about preserving it by curbing behaviours that place it at risk.
“No more private and family life!”
“No more private and family life!” is in reference to the proposed amendment to the Labour Code, extending Sunday trading hours from 4 to 8 hours. Yet this change is supported by many of the workers affected (mainly cross-border commuters) due to reduced travel time and additional pay. In France, the Labour Code already permits full Sunday working in various sectors (hospitality, healthcare, museums, etc.). The aim of this reform is to modernise legislation and better reflect current economic realities. But it’s not enough. In fact, a paradigm shift may be needed: rather than banning Sunday working with exceptions in eleven sectors, we could instead allow it in principle while preserving existing rules on hours and pay.
Contrary to what the unions claim, this is not an attack on private and family life. On the contrary, it will help safeguard jobs by allowing Luxembourg companies, including industrial firms, to compete fairly with international rivals. The same logic applies to working time flexibility, which remains more rigid in Luxembourg than in many competing countries.
The headwinds the unions hope to stir on 28 June must not cause the government to change course. The responsibility for securing our collective prosperity and advancing our society rests with those elected to govern. To preserve our social model, we must make the economy more attractive and competitive through bold structural reforms. This is not about creating a rift between the 42,000 companies and 485,000 employees who keep our economy running on a daily basis. On the contrary, we must act together for the common good by putting economic renewal at the heart of our collective agenda. As John Maynard Keynes once put it: “The difficulty lies, not in the new ideas, but in escaping from old ones.”[3]
[1] See STATEC Economic Outlook 1-2025
[2] €824.9 million for absences of up to 13 weeks, paid by employers and the Employers’ Mutual Insurance Scheme, and €353.5 million for absences of more than 13 weeks, paid by the CNS.
[3] The General Theory of Employment, Interest and Money, Preface, John Maynard Keynes, 1936.