Wages and labour costs developments in the EU and its Member States
Annex 2.1: Selected graphs
Graph A2.1.1: Growth in Real Gross Disposable Household Income (GDHI) and its main components, EU
Note:
The nominal GDHI is converted into real GDHI by deflating values using the deflator (price index) of household final consumption expenditure. Net transfers notably include net social benefits and taxes on income and wealth (negative contributions). GDHI = gross disposable household income; Q1 = first quarter; Q2 = second quarter; Q3 = third quarter; Q4 = fourth quarter.
Source:
European Commission calculations based on Eurostat, National Accounts [nasq_10_nf_tr and namq_10_gdp].
Graph A2.1.2: Average number of deprivation items for wage earners (all workers) across Member States
Note:
Analysis only takes those individuals into account who report to be earning a wage in EU SILC data. Member States are ranked according to their GDP per capita in PPS 2023.
Source:
Own calculations based on EU SILC microdata and Eurostat (prc_ppp_ind)
Graph A2.1.3: Change in number of deprivation items between 2019 and 2023, by wage quintile
Note:
Graph takes only those individuals into account who report to be earning a wage in the EU SILC data. Member States are ranked according to their GDP per capita in PPS 2023. Data for CZ and ES is missing for the 2nd and 3rd wage quintiles.
Source:
Own calculations based on EU SILC microdata and Eurostat (prc_ppp_ind)
Graph A2.1.4: Productivity, compensation and inequality in the EU and US
Source:
Eurostat, OECD.
Non-cost competitiveness
Non-cost competitiveness is a broad concept which encompasses different determinants of export performance. Non-cost competitiveness captures two broad categories (Xifre, 2021). First, there are elements of the economic environment of the exporting country that influence firms’ ability to produce and export, such as the business climate. Second, there are properties of the exported goods (or services), such as their quality, variety, innovation content, the reputation of the seller and the quality of the distribution networks and post-sales services (European Commission: Directorate- General for Economic and Financial Affairs, 2017). The literature has focused mainly on the quality of exports. When the quality of a product increases, price of the product (and hence the wages of the workers producing it) can rise without adversely affecting demand. By contrast, competition based on costs only imply that higher wages and prices would lower competitiveness and weigh on the demand for these products (unless the producer decreases its profit margins).
Measuring non-cost competitiveness is not straightforward and the literature has identified a number of ways to approximate export quality. Unlike prices and costs, non-price competitiveness is not directly observable and therefore has to be measured indirectly (European Commission: Directorate-General for Economic and Financial Affairs, 2017; Banque de France, 2019). For instance, non-cost competitiveness can be estimated by decomposing the change in export market shares into cost and non-cost components. This decomposition can be based on estimated price elasticities or regression analysis. The literature on international trade has also used unit value measures of exports to approximate non-cost competitiveness. Export unit values can serve as a proxy for the price of a product and are obtained by dividing export values by export quantities. However, the literature also points to important shortcomings of this indicator as prices can increase for other reasons than quality improvements (Keil, 2024; Xifre, 2023).
Non-cost competitiveness in this chapter is approximated as residual based on the evolution of export market sharesand real effective exchange rates (REER). The variation of the export market share is decomposed into changes in relative cost and non-cost competitiveness. The cost determinant is estimated as changes in real effective exchange rates based on unit labour costs multiplied by the price elasticity of exports. The price elasticity of exports is set at -1.25, broadly in line with estimates for EU countries found in the literature (Correa-Lopez, et al., 2012). However, the results do not change substantially by changes in the elasticiy in a range of plus/minus 20 %. Non-cost competitiveness is then computed as a residual, from the difference between the change in export market shares and its approximated cost-competitiveness component.