Wages and labour costs developments in the EU and its Member States
Conclusions
Despite a rebound in real wages since the second half of 2023, some social effects of the high inflation period persist for low-income and lower middle-income households.
Many workers with lower, but also those with middle incomes have been severely affected. Financial distress among workers rose significantly between 2021 and February 2023 and remains at high levels, while material and social deprivation of workers also rose in 2022 and 2023. At the same time, in-work poverty continued to decrease slightly in 2023 (reflecting 2022 incomes) and is forecast to remain stable in relation to 2023 incomes, as in some countries middle-income households have suffered relatively more income losses than lower-income ones. In most Member states, the purchasing power of low-wage earners was supported by strong increases in statutory minimum wages. The part of national income allocated to wages (labour share) is expected to make up for most of its recent losses by 2025, but is forecast to remain slightly lower than in 2019.
Some scope for further wage increases exists in the current context, depending on country-specific circumstances, but higher productivity growth is also needed to sustain stronger wage growth in the future.
Recent wage dynamics appear to have been overall sustainable. Inflation expectations suggest that wage growth does not exacerbate inflationary pressures. Moreover, unit profits seem to currently act as a buffer that absorbs the inflationary pressure stemming from wages. At the same time, Member States face a different range of challenges when it comes to achieving fair wage levels, while preserving cost competitiveness. For instance, several countries, including in Southern Europe, experienced some gains in cost competitiveness over the past few years, and their wage growth has been below the benchmarks predicted by developments in the macroeconomic drivers of wages. They seem to have some remaining room for further wage increases to address persisting social challenges in the current context, including in terms of the material and social deprivation and financial distress of workers. By contrast, a number of other countries, particularly in central and eastern Europe, experienced competitiveness losses. To create room for higher wage growth in the EU in the medium-to-long term, addressing the long-standing weakness in productivity growth is key.
Policies need to ensure sustainable and fair increases in wages, in a macroeconomic context marked by high uncertainty and structural changes related to the twin transitions.
For the future, it is important to foster productivity, which enables wages to grow sustainably over time. Policies promoting upskilling and reskilling help improve the employment and wage prospects of workers, especially the low-skilled. Additionally, ensuring adequate minimum wage protection can help improve the situation of vulnerable workers. Well-functioning collective bargaining on wage setting can also contribute to supporting wage growth, while ensuring that productivity gains are shared in a socially fair manner.