Labour Market and Wage Developments in Europe 2024

Scars of the 2022-2023 high inflation period are still visible

Households’ purchasing power losses have been mitigated by recent wage developments, as well as by transfers and tax reductions, though the role of the latter has diminished recently.

The growth of real gross disposable household income (GDHI) started to decline at the beginning of 2022 and turned negative for most of the year, reflecting a drop in the real compensation of employees and real net property incomes. GDHI growth turned positive again at the beginning of 2023, mainly driven by a recovery in wage growth and an increase in net social benefits (see Graph 2.5). Direct transfers and tax policies (notably reductions and non-indexation of tax thresholds) were a major driver of real GDHI growth until the second quarter of 2023, following the introduction of support measures during the energy crisis. But since the second half of 2023, their contribution declined and turned negative, partly due to the withdrawal of these measures.

At the same time, the material and social deprivation of employees increased in both 2022 and 2023 despite the rebound in households’ purchasing power .

The share of individuals of material and social deprivation for employed people in the EU increased from 7.2 % in 2021 to 8.2 % in 2022 and 9.1 % in 2023. One reason is that lower-income households have been more affected by the increases in prices in energy and food, which represent a relatively higher share of their consumption basket. Most Member States experienced increases between 2022 and 2023, from 0.1 (Latvia) to 3.0 (Lithuania) pps but the rate continued to fall in Romania (-4.4 pps), Ireland (-1.8 pps), Greece (-1.4 pps), Cyprus (-1.3 pps), Croatia (-1.2 pps) and Estonia (-0.6 pps). In the latter group of Member States the rebound in real wages helped cushion the impact of high inflation on low-income households.

High financial distress also persists among employees, with large differences across Member States.

The proportion of workers reporting financial distress increased significantly, peaking at 15.5 % in February 2023 for the EU, 5 pps higher than in January 2022 and more than 3 pps higher than in the pre-pandemic period. It then stabilised at high levels, reaching 13.7 % in August 2024, even though real wages started to grow again in the second half of 2023. Between 2021 and August 2024, the reported financial distress for workers increased in all but six Member States (Graph 2.6). The largest increases were recorded in Estonia, Romania, Malta, Hungary and Greece (above 7 pps), followed by France and Denmark (4 to 7 pps). Five of these Member States experienced deep losses in real wages in 2022 and a weak or no rebound in 2023.

In-work poverty continued to decline, but in some countries this reflected deeper losses for middle-income households than for lower-income ones .

At the EU level, in-work poverty continued its long-term downward trend since 2015, standing at 8.3 % in 2023 (based on 2022 incomes) and is forecast to remain at 8.4 % in 2024 (based on 2023 incomes). At the level of Member States, the rate increased in 14 countries in 2023 (based on 2022 incomes), notably in Bulgaria, Luxembourg and Slovakia, pointing to a rise in the share of vulnerable workers (Graph 2.7). By contrast, in 12 countries in-work poverty diminished. This means that for these countries real median incomes tended to decline proportionally more than the incomes of the poorest, since in-work poverty is a relative measure that compares low incomes to median incomes. Indeed, most of these countries have experienced very high inflation and large drops in real wages. Therefore, the share of vulnerable workers may not have decreased as suggested by the fact that material and social deprivation and financial distress tended to increase in those countries (Graph 2.6). Overall, the analysis in this subsection shows that the impact of the high inflation on workers varied along the wage distribution, with important differences across Member States. Section 2.3.2 delves deeper into income dynamics for different income groups.

Vulnerabilities increased for low-wage earners and the middle-income groups

Wide parts of society have been affected by the decline in purchasing power, leading also to marked changes in the income distribution.

While on average income inequality in the EU has been overall stable , income variations by deciles over 2022-2023 (Table 2.1A in the annex) reveal a mixed picture. In 2022, lower and medium-income deciles were disproportionately affected in a majority of Member States, while in 2023 higher income deciles were affected to a greater extent (see Table 2.2A in the annex). These developments led to differentiated changes in the income distribution at the Member States level. Between 2021 and 2023 the lowest income deciles lost 0.3 pps or more in their share of national equivalised income in 15 Member States suggesting a rise in income inequality (see Graph 2.8) . Simultaneously, the share of national equivalised income increased for the lowest income deciles in 10 Member States – with the highest increases observed in Greece, Spain and Romania – hinting at a decrease in income inequality.

Support measures and minimum wage increases helped protect low-wage earners, though to different degrees across Member States.

Exceptional support measures put in place to protect households from the effects of high inflation tended to benefit the lower income deciles to a greater extent. In Member States in which less than 2 % of GDP was allocated to exceptional support measures, the lower income deciles lost more than other income deciles (Graph 2.8) . In other Member States, including Bulgaria, Germany and Poland, relatively larger support measures and significant increases in minimum wages supported low-wage earners’ real incomes relative to higher income deciles. Losses in real income for all income groups may not be fully recovered in the short term. It is therefore important to address the remaining social consequences of the decline in purchasing power, with particular attention to vulnerable low-income and lower middle-income households.

Statutory minimum wage increases broadly offset losses in purchasing power for minimum wage earners in most Member States.

Between January 2022 and July 2024 statutory minimum wages grew in nominal terms by more than 10 % in all Member States where such wages are in place . In real terms, they increased by more than 10 % in eight countries, and by 4 to 10 % in another six countries, while they declined in France by 1.3 % and by more than 3 % in Czechia and Slovakia (Graph 2.9). These minimum wage developments, associated with high labour shortages, probably contributed to higher increases in hourly wages in sectors where low-wage earners are more represented. During the high-inflation period in 2022-2023, lower-paying sectors such as wholesale and retail trade, transport, accommodation and food services or construction, have seen higher growth rates than other, on average higher paying sectors .

Although difficult to assess, non-compliance with minimum wage protection, either statutory or based on collective bargaining, may be a challenge in some Member States (see Box 2.2).

It is estimated that countries where minimum wages are closer to the average or median wage tend to have higher non-compliance . Also, young people, unskilled workers, women, workers in smaller firms, part-time workers, and those working in the services sectors may be particularly affected by non-compliance with existing minimum wage protection rules. Improving compliance would allow more workers to receive a higher remuneration in practice, in line with national minimum wage regulations.

Labour share developments have raised fairness concerns

In the last two decades the labour share, that is the part of national income allocated to employees as compensation, slightly declined, amid cyclical fluctuations .

The labour share dropped from 63.6 % in 2000 to 62.3 % in 2017, with part of the decrease over that period explained by Ireland, and then slightly increased to 62.8 % in 2019 . It increased further during the COVID-19 pandemic to 63.3 % in 2020 because of labour hoarding by firms and job-retention schemes adopted by governments. However, the labour share started to drop again to 61.6 % in 2022 with the gradual roll-back of these retention schemes and the witnessed decline in real wages. In parallel, the business profit share in the EU (and a majority of Member States) has remained above pre-pandemic levels in the last few quarters. It reached 46.2 % on average between the first quarter of 2023 and the first quarter of 2024, compared with 45.5 % in 2019 . These developments have raised questions on how to ensure a fair sharing of the burden of the remaining social challenges between companies and workers . Going forward, the labour share is expected to bounce back to 62.5 % in 2024, thanks to the mild rebound in real wages, and to remain stable in 2025. Although these wage dynamics will help to make up for most of the losses in the labour share in recent years, it is forecast to still remain slightly below its 2019 level in most Member States. For most Member States, the changes in the labour share between 2000 and 2017 have been mainly due to within-sector changes rather than shifts of economic activity between sectors.

Over the past few decades structural factors have put downward pressure on the labour share in Member States as well as other advanced economies and are also likely to affect it in the future .

Digital technologies as well as artificial intelligence can be important engines of job creation and productivity but may also lead to sectoral disruptions, job displacement and further polarisation in the workforce between low- and high-skilled employees . In addition, the ongoing shift of economic activity towards services and the development of alternative forms of work, such as platform work or remote working, can contribute to a further decline in unionisation rates and workers’ bargaining power, which may in turn weigh on the labour share . The possible future slowdown in globalisation could mitigate the decline in labour shares through less offshoring, although this depends on whether local jobs are sustainable in light of the growing competitive pressure from abroad.