Introduction /

Key findings

The 2025 edition of the Labour Market and Wage Developments in Europe review examines how to best promote employment, quality jobs and competitiveness.

I. General labour market conditions in the EU and its Member States /

EU labour market slows as global pressures mount

After years of strong growth, the EU labour market has started to slow. In 2024, employment growth decreased to 0.8%, from 1.2% a year earlier (Figure 1). Amid rising global pressures, major restructuring events have occurred in key industries like automotive, telecommunications, electrical equipment and pharmaceuticals. Countries with large manufacturing sectors were hit hardest. Trade tensions are creating more uncertainty for the EU economy and employment.

Figure 1: Announced net job changes due to restructuring events compared to EU employment growth

Note Net job changes equal planned job reductions minus planned job creation, 3-quarters moving average. Q stands for quarter in e.g. 2024Q4 (= fourth quarter of 2024).

Source Own calculations based on European Restructuring Monitor (ERM) microdata and Labour Force Survey (LFS).

Figure 2: Structural shifts in employment - cumulative change since 2012 in percentage points for each group in the EU

Note Sectors and occupations are presented in six groups using LFS microdata, the Structure of Earning Statistics and the National Accounts. Classification is based on sectoral productivity growth over the last 20 years and current wage levels. Each sector-occupation pair is classified into high or low productivity growth (relative to the average) and into one of three wage groups (based on earnings terciles). This allows tracking of employment shifts across productivity and wage dimensions.

Source Own calculations based on LFS and Structure of Earnings Survey (SES).

Shift from manufacturing to services brings new challenges

As productivity in manufacturing slows, the EU economy is increasingly relying on the services sector to sustain productivity growth. Tackling low productivity growth requires faster technology adoption and a stronger focus on innovation and knowledge-driven activities, supported by a better use of workers’ skills. Since 2012, there has been a strong rise –by nearly one-third– in high-skilled, better-paid jobs in high-productivity growth sectors. Instead, the share of low-skilled, lower-paid jobs in manufacturing and retail have declined, often replaced by automation (Figure 2). However, not all workers are moving into better jobs. Nearly one-third of them are still active in low- to medium-wage jobs, in sectors like transport, hospitality and domestic services, which have experienced limited productivity gains over the last decades. The fact that many highly educated people are working in these jobs may signal an inefficient use of human capital.

II. Wages and labour costs developments in the EU and its Member States /

Wages are recovering, but not for everyone

Promoting adequate wages, a key component of job quality, remains high on the political agenda. One reason is that, although real wages bounced back in 2024 (+2.7%), they are still slightly below pre-COVID-19 levels, by 0.7% (Figure 3). Wage growth is being held back by low productivity growth, economic uncertainty and less tight labour markets.

Figure 3: Real wage changes compared with pre-pandemic levels (2019), 2024 and 2025

Note Real wages were computed using the harmonised index of consumer prices as a deflator. EA 20 = the 20 countries in the euro area. Data for 2025 reflects projections calculated on the basis of the Commission’s European Autumn 2024 Economic Forecasts

Source AMECO (annual macro-economic database of the European Commission's Directorate General for Economic and Financial Affair).

The situation of low-wage earners has improved but middle-class workers have become more vulnerable

On a positive note, the number of low-wage earners and people facing in-work poverty has decreased since the COVID-19 pandemic. But some middle-income workers have been increasingly struggling to afford some basic goods or services (Figure 4). Amid large price hikes, these workers have typically not benefitted from recent minimum wage increases or government support measures. The situation of middle-class workers has deteriorated in most higher-income Member States, where real wage recovered only slowly in 2024.

Figure 4: Average number of deprivation items for wage earners

Note Analysis takes only those individuals into account who report to be earning a wage in EU SILC data. For this graph the sample includes only single-person households working full-time. Member States are ranked according to their GDP per capita in PPS 2023.

Source Own calculations based on EU SILC and Eurostat [prc_ppp_ind].

Wage adequacy and productivity can reinforce each other – but this is not automatic

To raise wages and improve wage adequacy, enhancing productivity is essential, as it allows wages to grow without harming competitiveness. While competitiveness gains through cost-savings can help, they can also lead to low wages and job insecurity. Improving the quality of products and services – and thereby non-cost competitiveness – can help raise both wages and productivity (Figure 5). Yet, even a focus on non-cost competitiveness does not guarantee adequate wages for all groups of workers. Without the right complementary policies, wage inequality may still increase, for instance through job polarisation.

Figure 5: Non-cost competitiveness, real wages, and the wage distribution, 2012-2023

Note Non-cost competitiveness is approximated as the difference between changes in export market shares and cost competitiveness based on real effective exchange rates, assuming a price elasticity of exports equal to -1.25. The wage ratio is used to approximate the wage distribution. The higher the ratio the less even wages are distributed.

Source Eurostat, AMECO.

A balanced policy mix is essential to unlock the fair pay-competitiveness virtuous circle

To create a mutually reinforcing process between wage adequacy and competitiveness, the EU needs a balanced policy mix, tailored to national circumstances. This includes structural reforms to boost productivity, enhance non-cost competitiveness, upgrade skills, and facilitate job transitions. Recent EU policies, such as the Competitiveness Compass, the Minimum Wage Directive, the Union of Skills, are vital in this effort.

III. Job retention schemes in perspective: lessons learnt and insights for future policy. /

Well-designed job retention schemes can safeguard employment and income during downturns

Job retention schemes played a crucial role in protecting jobs and incomes during the COVID-19 pandemic. The widespread use of these schemes reflects not only their swift implementation by Member States, but also the crucial role of financing from the EU’s temporary Support to mitigate Unemployment Risks in an Emergency (SURE) instrument. As the EU economy faces elevated uncertainty, owing to geopolitical tensions and restructuring processes due to the green and digital transitions, Member States’ job retention schemes may once again prove essential to preserving employment. Lessons learnt from the implementation of such schemes during the pandemic, combined with insights from economic theory, can inform their design and deployment in response to future economic shocks.

Job retention schemes are best suited to deal with severe but temporary economic crises

Job retention schemes should support the most vulnerable firms and workers during short-term economic crises, while avoiding the preservation of jobs which are not viable in the long run. As economic conditions improve, these schemes should be gradually phased out to enable structural changes that can improve economic efficiency to take place. Permanent but flexible schemes can be particularly effective in this regard. Unlike ad hoc or emergency-only schemes, these can be activated rapidly at the onset of an economic crisis and adapted to address emerging challenges.

Lessons from the COVID-19 pandemic highlight the importance of striking the right balance between broad coverage and administrative requirements

Different design characteristics were reflected, together with different policy and crisis responses, in diverse companies’ participation in job retention schemes across the EU during the pandemic (Figure 6).

Figure 6: Take-up rates across the EU (average rates in 2020 Q2)
  • Netherlands: 30.55
  • Luxembourg: 28.98
  • Cyprus: 27.66
  • Croatia: 25.71
  • France: 23.55
  • Ireland: 21.30
  • Austria: 20.32
  • Malta: 19.78
  • Italy: 19.61
  • Belgium: 18.79
  • Slovakia: 16.27
  • Portugal: 14.88
  • Germany: 14.03
  • Spain: 13.91
  • Czechia: 13.90
  • Slovenia: 13.84
  • Estonia: 13.71
  • Romania: 10.91
  • Lithuania: 10.11
  • Denmark: 9.55
  • Sweden: 9.21
  • Greece: 7.26
  • Poland: 5.80
  • Latvia: 4.35
  • Bulgaria: 4.21
  • Finland: 3.55
  • Hungary: 2.58

Source Data are taken from Eurofound’s 2024 paper Weathering the crisis: How job retention schemes preserved employment and incomes during the pandemic.

Figure 7: Relationship between take-up rates (2020 Q2) and share of jobs saved (2020)

Source Eurofound (2024), Database on institutional features of job retention schemes in the European Union and Eurofound’s Weathering the Crisis: How job retention schemes preserved employment and incomes during the pandemic.

Participation rates are relevant because of their relationship with the number of jobs saved, already evident in 2020 (Figure 7). The experience of the pandemic shows that broad access for firms and workers to job retention schemes, combined with simplified administrative procedures, was correlated with higher participation rates and helped preserve employment in the medium term. By contrast, some conditionalities, such as mandatory training or dismissal bans, were associated with lower participation rates.

When used during restructuring, job retention schemes should be accompanied by active labour market policies

Recently, the use of job retention schemes has increased due to signs of a labour market slowdown, as well as structural shifts related to the green and digital transitions. These schemes, alongside company restructuring plans and targeted training interventions, can help workers to remain employed during companies’ restructuring and support their reskilling and upskilling. However, when companies cannot restart their business after restructuring, job retention schemes should be complemented with active labour market measures, such as training, tailored job search assistance and employment incentives.