Real wages are falling in Europe: Which countries have seen the biggest changes in wages?

 In 2022, inflation rates rocked the EU, reaching levels not seen in the previous four decades. Between 1997 and the end of 2021, the highest annual inflation in the EU was only 4.4 percent, as recorded in July 2008.

In October 2022, it reached 11.5 percent. After this peak, inflation began to decline, but in June 2023 it was still 6.4 percent in the EU.

The impact of COVID and the Russian invasion of Ukraine

According to the Organization for Economic Co-operation and Development (OECD) Employment Outlook 2023 Artificial Intelligence and the Labor Market, the COVID-19 crisis has been followed by a significant increase in prices.

Prices started to rise in 2021 due to the rapid rebound from the pandemic and related supply chain bottlenecks. In the course of 2022, the impact of Russia's war of aggression against Ukraine on energy prices pushed inflation up again.

Households are struggling to cope with the resulting cost of living crisis. Almost all EU member states have increased hourly wages in the past year, but the increase has been nominal.

In other words, inflation is not taken into account.

As of the first quarter of 2023, real hourly wages have fallen in 22 out of 24 countries in Europe over the past year. This means that nominal increases have been lower than inflation, which in turn has led to a decline in real wages.

Real hourly wages increased only in Belgium (2.9 percent) and the Netherlands (0.4 percent) between the first quarters of 2022 and 2023.

The decline in real wages during this period ranged from 0.8 percent in Luxembourg to 15.6 percent in Hungary.

The decline was notable in several EU countries, as real hourly wages fell by more than 5 percent. Hungary was followed by Latvia (-13.4 percent), the Czech Republic (-10.4 percent) and Sweden (-8.4 percent).

Real wages are falling in the UK, France and Germany

Real hourly wages also fell in France (1.8 percent), the United Kingdom (2.9 percent) and Germany (3.3 percent).

Nominal hourly wages rose in all 24 countries on the list at rates ranging from 0.6 percent in Finland to 13.6 percent in Lithuania.

Year-on-year growth in nominal hourly wages was 9.8 percent in Hungary, 6.1 percent in the United Kingdom and 4.2 percent in France.

All of these wage increases were evidently not enough, except in Belgium and the Netherlands, as the inflation rate was still higher than nominal wage growth.

The annual rate of inflation between the first quarters of 2022 and 2023 ranged from 3.2 percent in Switzerland to 25.4 percent in Hungary. In the entire EU, it was 9.4 percent in this period.

The Harmonized Index of Consumer Prices also increased in the period by 9 percent in the United Kingdom, 8.2 percent in Germany and 6 percent in France.

Real wages since the COVID pandemic

How have real wages changed in Europe since the start of the COVID-19 pandemic?

Real wages are currently below pre-pandemic levels in most countries, despite recent growth in nominal wages. OECD data shows that real hourly wages fell between the last quarters of 2019 and 2022 in most OECD countries in Europe.

Cumulative change in real hourly wages between Q4 2019 and Q4 2022

The cumulative change in real hourly wages over the three years ranged from -9.6 percent in Estonia to 7.1 percent in Lithuania. Real wages fell in 18 out of 25 countries during this period.

Real hourly wages rose by 1.9 percent in Great Britain, followed by France (1.5 percent). In Germany, they fell by 3.2 percent.

Low-wage industries fared relatively better

While real wages have been falling overall, workers in low-wage industries have often fared relatively better, the OECD report said.

The change between the first quarters of 2022 and 2023 showed that real wages fared better in low-wage industries than in high-wage industries in 13 of the 23 countries with data available in Europe.

Greece is a great example of this. Real wages in low-wage industries rose 5.1 percent, while they fell 2.9 percent.

This change was also better in this group than in medium-paid industries in 14 countries.

However, this is not a very strong pattern, as changes in high-wage industries are slightly better than changes in low-wage industries in some countries, such as Italy, Portugal, UK.

Industries are aggregated into three broad groups.

Low-paying industries: accommodation and food services, administrative and support services, arts, entertainment and recreation, wholesale and retail trade

Medium-paid industries: Transport and storage, manufacturing, other services, real estate, construction

High-paying industries: Health and social care, education, professional activities, information and communication, finance and insurance

In the developing economic environment of Europe, the issue of real wages has come to the fore. This article will delve into real wage fluctuations in various European countries and highlight those that have seen substantial changes. By examining the factors influencing these shifts, we aim to provide a comprehensive understanding of the current state of wages in Europe.

Understanding Real Wages:

Real wages adjusted for inflation provide a clearer picture of purchasing power and the real value of earnings. Analyzing these numbers can reveal the economic reality workers are dealing with and whether their income is actually rising or falling over time.

Identification of countries with significant changes:

In this article, we delve into European countries where real wages have seen significant shifts. By analyzing data from recent years, we draw attention to countries that have experienced substantial increases or decreases in salaries. This information can help us understand the dynamics at play within each country's economy.

Factors affecting salary changes:

Different factors contribute to real wage fluctuations in different European countries. Economic growth, the rate of inflation, changes in the labor market and shifts in sectors play a key role. By examining these factors alongside wage trends, we can better understand the underlying reasons for changes in wages.

Implications for workers and economies:

Understanding changes in real wages has implications for both individuals and the economy as a whole. These shifts directly affect workers' purchasing power, living standards, and overall financial well-being. On a larger scale, wage trends can affect consumer spending, economic stability, and policy decisions.

Policy Answers:

Governments and politicians often respond to shifts in real wages through a variety of measures, such as minimum wage adjustments, labor market reforms, and inflation control. By analyzing how different countries deal with these problems, we gain insight into the effectiveness of different policy approaches.

This article provides a comprehensive analysis of real wage trends in Europe, focusing on countries that have experienced significant fluctuations. By understanding the factors influencing these changes, we gain insight into the economic dynamics of each nation. As Europe continues to navigate the complexities of its economic environment, tracking and understanding these wage shifts remains critical for policymakers, businesses and individuals alike.

The remarkable shift in real wages has recently caught the attention of economists and workers across Europe. As the cost of living rises and economic dynamics evolve, many countries in the region have seen significant changes in salaries. In this article, we delve into the intricacies of this phenomenon and highlight the European countries that have seen the most significant changes in their pay structures.

Understanding real wages and their decline:

Real wages, which take into account inflation and reflect the purchasing power of individuals, are falling in several European countries. This decline can be attributed to a complex interplay of factors, including economic shifts, technological advances and global market trends. As a result, workers face problems in maintaining their standard of living and livelihood.

Identifying countries with the most notable changes:

While the decline in real wages is a common problem across Europe, some countries have borne the brunt of this phenomenon more than others. By analyzing wage data over the past decade, we have identified the countries that have seen the most significant changes in wages. By examining key indicators and economic indicators, we gain insight into the forces shaping these changes.

Factors affecting salary changes:

To understand the drivers of these significant shifts in real wages, we delve into the various factors at play. From automation and digitization affecting job roles to changes in industry composition and global economic conditions, a number of elements are contributing to the evolving pay landscape. We shed light on the interrelationships of these factors and their impact on wages.

Implications for workers and economies:

The fall in real wages has far-reaching consequences for both individual workers and the wider economies of Europe. As workers face reduced purchasing power, their quality of life and overall financial stability are at stake. In addition, economies may face challenges related to consumer spending, economic growth, and income inequality. We examine the ripple effects of this trend and discuss potential strategies to mitigate its effects.

Navigation in the future:

While the decline in real wages poses significant challenges, it also calls for innovative solutions. Policy makers, businesses and employees alike are forced to adapt to this changing environment. We delve into potential measures that could be taken to prevent real wages from falling and create a fairer and more sustainable economic environment.

As Europe witnesses a shift in real wages, it becomes imperative to understand the nuances of this evolving phenomenon. By examining the countries that have experienced the most significant changes in wages and understanding the drivers, we can formulate informed strategies to address the challenges posed by falling real wages. This article offers a comprehensive survey of the situation and serves as a valuable resource for individuals seeking insight into Europe's changing economic dynamics.