Wage developments in Europe during the crisis

On 8 January, DG Employment published Employment and Social Developments in Europe 2012. Chapter 5 of the report is "Wage developments in the European Union during a severe economic downturn" and provides a broad range of data that will be up for discussion at the tripartite meeting on wage trends on 1 February 2013.

The report examines changes in wages, productivity and labour costs during a pre-crisis period (2001-2007) and for the years 2008-2011 that cover the crisis period for most EU Member States, although for some that crisis is still far from over.

The report found a wide range in the trends in compensation per employee and labour costs although with some convergence of labour costs as a result of the crisis.

Real wages

Germany saw a decline in real wages in the years leading up to the crisis while the lowest increases were recorded in Portugal (0.5%) and Italy (1.9%). The gains in Greece between 2001 and 2007 (12.1% - the median increase) were completely wiped out in 2008-2011 leaving Greece (-1.4%) and Italy (-1.2%) along with Germany (-3.1%) as the three countries showing a fall in real wages in the period 2001-2011.

Real unit labour costs

During the 2001-2007 period most Member States recorded a fall in real unit labour costs, reflecting the fact that productivity was rising faster than wages. This was reversed in many cases during the 2008-2011 period but still showed an average 2.8% decline for the EU 27 between 2001 and 2011.

Inequality

While the report found that the degree of income inequality more or less stable for the period between 2005 and 2011, it did indicate an increase in wage polarization. This was explained by a hollowing out of the economy with the decline in manufacturing and other middle-level jobs, leading to a sharper contrast between the low and high paid.

The report also found a small decrease on average in the gender pay gap although overall still a large gap of over 16%.

Minimum wages

The trend in minimum wages was for them to maintain their purchasing power while the report indicates that there is weak evidence for any negative effect of minimum wages on employment. It also points out that minimum wages are important to help sustain aggregate demand and also "boost wage equality by maintaining an adequate living standard for the most vulnerable workers."

Productivity

The question of productivity is a particularly controversial one in relation to the public sector and public services. The report claims to provide data on productivity trends in the public services and even refers to developments in Ireland where it notes employment trends involving a switch from industry to "sectors with relative low productivity levels, such as public service." In a separate section the report concedes that "productivity by persons employed in the public services sector is difficult to measure because gross value added in this sector is often unpriced and public services are often consumed collectively."

Cautious conclusions

Overall this chapter of the report is cautious about any conclusions that can be drawn about wage and labour cost trends and finishes by stating that "more research is needed to derive firm policy conclusions."