The state of real wages in Europe is a complex and multifaceted issue, with a myriad of factors influencing the trajectory of wages across the continent. The COVID-19 pandemic, the Russia-Ukraine war, soaring energy prices, and record inflation have all contributed to a challenging economic environment, with real wages falling in a third of European countries analyzed over the five years to early 2026. This article delves into the key findings and explores the underlying causes, offering a comprehensive analysis of this critical economic indicator.
The Impact of the Cost-of-Living Crisis
The 2022-2023 cost-of-living crisis has had a profound effect on real wages, with Andrea Bassanini, editor of the OECD Employment Outlook, noting that negotiated wages have taken time to recover and have not fully restored purchasing power. This is particularly evident in Italy, where real wages fell by a staggering 6.1%, with employers delaying new agreements and trade unions facing weakened bargaining positions. Michele Bavaro highlights the historical delays in contract renewals as a significant factor, while Richard Grieveson and Meryem Gökten point to weak productivity, subdued economic growth, and slow nominal wage adjustments.
Outliers and Contrasting Trends
The article identifies Turkey as a significant outlier, with real wage growth of 78.6% despite an inflation rate of 32% in mid-2026. Grieveson and Gökten argue that this growth is a recovery from a low starting point in 2021 and is driven by double minimum wage hikes, largely election-driven. In contrast, Hungary stands out with the highest growth in the EU at 29.8%, attributed to structural labor shortages, government wage policies, and a post-inflation catch-up process. Péter Virovácz emphasizes the combined effects of labor-market tightness, aggressive minimum wage policy, and workers' efforts to restore purchasing power.
Eurozone and Major Economies
Within the eurozone, Lithuania recorded the strongest real wage growth at 14.8%, while no other country saw a double-digit increase. Latvia, Slovenia, Portugal, Greece, and Luxembourg also experienced positive growth, with Latvia at 7.4%, Slovenia at 6.6%, Portugal at 5.6%, Greece at 4.7%, and Luxembourg at 4.1%. Among Europe's five largest economies, the UK led with an increase of 3.6%, while Germany and France saw minimal growth at 0.9% and 0.1%, respectively. Italy and Spain experienced declines of 6.1% and 2%, respectively.
Factors Influencing Real Wage Growth
Ronald Janssen highlights the acceleration of inflation in 2021-2022 in the eurozone, noting that subsequent collective bargaining rounds tried to restore purchasing power. However, job insecurity concerns and economic stagnation have hampered workers' bargaining power. Bassanini points to the growth of statutory minimum wages, which have been higher than inflation in Germany and the UK, and about the same as inflation in France and Spain. Grieveson and Gökten emphasize the UK's flexible wage-setting system and recruitment difficulties, allowing nominal pay to respond more rapidly to inflation.
Conclusion and Future Implications
The article concludes by emphasizing the complex interplay of factors influencing real wage growth in Europe. The cost-of-living crisis, outliers like Turkey and Hungary, and the varying impacts on major economies highlight the need for nuanced understanding and policy responses. As Europe navigates the challenges of the post-pandemic era, the trajectory of real wages will continue to be a critical indicator of economic health and social well-being.
