Labour Market and Wage Developments in Europe 2024

Structural measures to support productivity and skills

Boosting wage growth through productivity gains requires a robust policy framework.

The weak productivity growth in the EU compared with other advanced economies constraints firms’ ability to increase wages . In this context, the report by Mario Draghi on The Future of European Competitiveness underscores the significance of this issue, highlighting that EU productivity is hindered by substantial gaps in high-tech specialisation, innovation, and investment, particularly when compared to the United States (see also Chapter 1) . A new industrial strategy to boost productivity and competitiveness should focus on accelerating technological and scientific innovation, diffusing digital technologies, improving the pipeline from innovation to commercialisation, and removing barriers that prevent innovative companies from growing and attracting finance . Moreover, a substantial increase in private and public investment, including in breakthrough innovation, is necessary to maximise productivity. Equally crucial are measures to facilitate the reallocation of workers towards more productive sectors and to up- and reskill workers, enabling them to adapt to structural changes in the economy. Moreover, well-functioning product and labour markets, both at the national level and in the single market, reduced regulatory burdens on EU firms, and sound fiscal and monetary policies are crucial for driving productivity growth . Boosting productivity growth, innovation and competitiveness should go hand in hand with achieving Europe’s ambitious climate target, including the transition towards climate neutrality, as also highlighted in the Clean Industrial Deal announced by President von der Leyen in her political guidelines for the next European Commission .

The ongoing transformations make well-designed education and skills policies even more important to empower workers to access better job and income opportunities.

These policies can help to boost productivity and competitiveness and are also key to help workers fully reap the gains from new employment opportunities and adapt to the twin transition and changing economic structures. In particular, policies that can boost the scope for wage increases through productivity gains include upskilling and reskilling of the workforce, strengthening life-long learning along with on-the-job training and strengthening the link between education and training curricula and firms’ needs (see also Chapter 1 and 3) . Labour reallocation and matching should also be supported, to make it easier for workers to move to companies that better fit their newly acquired skills. In this respect, effective public employment services, transferable social security and training rights and effective housing policies are key. Moreover, improving digital skills, including for the vulnerable, is essential to fully reap the benefits of the twin transition. Identifying future skill needs requires a coordinated strategy, accounting for both sectoral and regional aspects .

Ensuring fair and sustainable wage growth may require well-targeted complementary policies.

For instance, boosting productivity growth may widen the productivity and wage gaps among sectors and firms. In particular, the productivity gains from the twin transition are expected to most extensively benefit the already most productive firms, in the most technologically advanced countries . Furthermore, the automation and phasing-out of polluting technologies can lead to persistent wage losses for displaced workers . As a result, the twin transitions may need to be accompanied by measures to ensure well-functioning social protection systems and equal opportunities, address job polarisation and support the re-skilling and reallocation of workers. Moreover, tax and benefit systems that aim at reducing income inequalities should be designed in a way to preserve incentives to work and to re- and upskill, while being conducive to entrepreneurship and investment .

Minimum wage policies and collective bargaining are key to supporting vulnerable workers

Progress in implementing the European Pillar of Social Rights remains key to ensuring that vulnerable workers are not left behind.

This includes a set of policies, notably aiming to support quality employment (particularly with active labour market policies, and through education and training), as well as adequate minimum wages. In addition, it is important to foster a better enforcement of existing labour market rules, including minimum wage protection, and adapt these rules to evolving forms of work triggered by digitalisation. Moreover, well-functioning collective bargaining can help workers reap a fair share of benefits from productivity gains .

Although inflation has abated, ensuring adequate minimum wage protection continues to play a key role in supporting low-wage earners.

In the last 2 years, the increases in statutory minimum wages, where they exist, have mitigated the negative impact of high inflation on the purchasing power of low-wage earners. Minimum wage protection, whether provided for in national law or collective agreements, varies significantly across the EU, both in terms of purchasing power and relative to other wages within Member States. The EU Directive on adequate minimum wages, which should be transposed into national law by 15 November 2024, establishes a framework for the adequacy of statutory minimum wages and enhances the effective access of workers to rights to minimum wage protection . It also requires all Member States to take measures to increase collective bargaining coverage and to facilitate the exercise of the right to collective bargaining on wage-setting.

In addition, further steps to improve compliance with minimum wage protection could be warranted in some Member States.

Non-compliance with minimum wage protection appears to be a significant phenomenon in some Member States (Box 2.2). Enforcement should therefore be strengthened where needed, in line with the provisions of the directive on adequate minimum wages, inter alia by ensuring effective controls and field inspections, access to the right to redress and penalties. Moreover, effective policy measures to fight non-compliance should include cooperation with social partners, a combination of deterrence and preventive measures, as well as the improvement of data collection on non-compliance to evaluate the impact of enforcement policies.

Strengthening collective bargaining on wage setting can also be a major lever in raising real wages while contributing to a fairer sharing of productivity gains.

Collective bargaining enhances the negotiation power of workers, including those categories of workers that are left behind, and facilitates the identification of tailor-made solutions to sustain wage growth. Collective bargaining can also help support productivity growth and the fair distribution of these gains by balancing the interests of workers and firms in wage-setting negotiations, including at the sector or cross-industry level. Moreover, social dialogue can support the design of fair working conditions, training opportunities, unemployment benefits and active labour market policies in a balanced way . To this end, the directive on adequate minimum wages requires Member States to increase collective bargaining coverage and, for Member States with a coverage rate below 80 %, to provide a framework of enabling conditions for collective bargaining and to establish an action plan to progressively increase collective bargaining coverage.