Wages and labour costs developments in the EU and its Member States
Policy implications
Boosting productivity growth and promoting adequate and fair wages at the same time requires a comprehensive policy effort. Ensuring that productivity, competitiveness and adequate wages go hand in hand requires a range of policies to promote notably non-cost competitiveness, innovation and investment, but also R&D investment, the availability of venture capital and enabling firms to scale up. This is also highlighted in the Competitiveness Compass and Draghi report . However, to ensure that productivity gains are also adequately reflected in the distribution of wages, as argued in section 2.4, additional structural policies are needed. This includes policies to enhance skills and facilitate job transitions and labour market reallocation, as well as measures that influence wage-setting – in particular policies related to minimum wages and collective bargaining.
Enhancing skills and labour market reallocation can improve wage adequacy over time
The Union of Skills emphasises the importance of promoting skills and quality jobs. The Commission launched the Union of Skills with the objective to ensure equal access to education, lifelong learning, and quality jobs for all, while focusing on skills creation and retention . The potential for higher wages can also motivate workers to gain further skills, notably those associated with raising wage premia . It is essential to ensure that skills are relevant to the labour market, notably by maintaining strong dialogue with the social partners and developing tools to anticipate changes in skills requirements (). Moreover, a Skills Portability Initiative is being developed to facilitate the recognition of skills acquired across EU Member States and outside the EU. Active Labour Market Policies can also facilitate access to quality jobs and jobseekers' access to training, upskilling and reskilling for those further away from the labour market. The Union of Skills and Competitiveness Compass also highlight that skills policies should align with and complement other initiatives to drive productivity, especially in areas like innovation, the development of new technologies, and fostering a robust business environment.
Early childhood education and care can contribute to both improving wage prospects for parents and providing more equal opportunities for children over the long run. The availability, accessibility and affordability of high-quality early childhood education and care facilitate parental employment, particularly for mothers, and can contribute to higher employment rates and address the gender pay gap, as underlined by the Council Recommendation on “High-Quality Early Childhood Education and Care Systems” . Early childhood education and care can also help to achieve higher educational attainment which translates into better job opportunities and higher wages in adulthood. Beyond, promoting work-life balance it can also facilitate parents’ employment, notably for women .
Moreover, smooth job-to-job transitions and an efficient allocation of the workforce enhance productivity and can improve wage adequacy. The mobility of workers across sectors or occupations, and locations can result in better job matches and a better allocation of human resources, boosting productivity and possibly wages. It can also facilitate the transition of workers (notably from middle-skill occupations) to emerging sectors, mitigating possible displacement effects linked to technological transitions. Several EU initiatives and funds aim at facilitating workforce transitions. The Recovery and Resilience Facility (RRF) aims to make the EU’s economies and societies more sustainable, resilient and prepared for the green and digital transitions. The European Social Fund Plus (ESF+) is the EU’s main instrument for investing in people, making it easier to invest in skills for Europe’s strategic sectors and emerging priorities. The European Regional Development Fund (ERDF), supports infrastructure, opportunities in the twin transition, skills development and cooperation across borders. It notably facilitates job transitions by supporting investments in regions undergoing economic and social changes. The European Globalisation Adjustment Fund for Displaced Workers currently provides individual support to workers or self-employed that were displaced due to restructuring . The Just Transition Fund and the Council Recommendation on ensuring a fair transition towards climate neutrality aim to support workers in the wake of possible adverse effects linked to the green transition on some workers .
Promoting adequate wages while protecting vulnerable workers is key
Effective wage-setting can also contribute to sustainable and adequate wage growth. Policies to boost productivity, and the structural policies discussed above to boost skills and workforce reallocation may not be enough to ensure adequate wages for all . One reason is that productivity enhancing policies may not benefit all workers equally and can adversely affect some workers (see Section 2.4). Therefore, an effective design of wage-setting mechanisms can support wage equality.
Enhancing the effective access of workers to minimum wage protection remains essentialto ensure fair and adequate wages for low-wage earners. In many Member States minimum wages are an important tool to help low-wage earners benefit equitably from productivity gains, as low-wage workers often have low bargaining power and may not be covered by collective bargaining. Minimum wages can also benefit a larger group of low-wage earners through their spillover effects across the income distribution . However, non-compliance with minimum wage regulation is widespread in the EU . This highlights the relevance of enhancing effective access of workers to rights to minimum wage protection provided in national law and/or collective agreements, which is one of the objectives of the EU Directive on adequate minimum wages . In turn, adequate minimum wages might also contribute to enhancing productivity, via a higher motivation of workers and incentives for firms to rely more on non-cost competitiveness (see section 2.4), as well as by boosting household consumption .
Strong and well-functioning collective bargaining is also conducive to fairer and adequate wages. There is evidence that high collective bargaining coverage is associated with higher wages and a lower share of low-wage workers . While higher productivity can create scope for higher wages, workers need sufficient bargaining power to reap the benefits of these gains. Over the last decades, the shift of the workforce from historically highly unionised sectors (e.g. mining, manufacturing) towards less unionised sectors (services), together with a decline in trade union membership linked to the rise of non-standard forms of work, has driven the overall negative trend of collective bargaining coverage in the EU.
Several initiatives at EU level are contributing or will contribute to strengthening collective bargaining. Promoting collective bargaining is one of the objectives of the EU Directive on adequate minimum wages . In addition, the Pact for European Social Dialogue establishes a framework with concrete actions to be taken by the Commission and social partners to strengthen social dialogue . In this context, the Commission also presented a Council Recommendation, setting out how EU countries can further strengthen social dialogue and collective bargaining at the national level, and issued a Communication on reinforcing and promoting social dialogue at the EU level . The Commission is developing a Quality Jobs Roadmap, together with social partners, aimed at supporting fair wages, high standards for health and safety, good working conditions, and fair job transitions for workers and self-employed, notably by increasing collective bargaining coverage .