Wage developments in the euro area: Increasingly unequal?

17-07-2015

In the wake of the crisis, gross wages in the euro area fell by 3.1% in 2009. They started to grow again, by 2.0%, in 2011 and the European Commission forecasts an increase of trend growth to 3.5% for 2016. Net earnings are only increasing slightly, however. Convergence in wage levels in the euro area remains static. Income inequality has increased in two thirds of EU countries since 2006, specifically for low-wage earners. In the euro area, inequality increased in ten Member States: Luxembourg, Slovenia, Greece, France, Italy, Estonia, Austria, Slovakia, Cyprus and Spain (in ascending order). After decreasing levels of inequality in previous years, the euro area is now back to 2004 levels. Being the biggest share of labour costs, the structure and development of earnings are important features of labour markets. Within a monetary union much of the pressure to (re-)gain competitiveness is shifted onto labour markets, and thus real wage developments. Yet nominal wage rigidities, increased by a low inflation environment, may increase unemployment and foster cross-country heterogeneity. The European Parliament is stimulating the debate with the aim of formulating better social and employment policy. The EP's own initiative report on the economic governance framework of June 2015 also focused on how to strengthen the social dimension.

In the wake of the crisis, gross wages in the euro area fell by 3.1% in 2009. They started to grow again, by 2.0%, in 2011 and the European Commission forecasts an increase of trend growth to 3.5% for 2016. Net earnings are only increasing slightly, however. Convergence in wage levels in the euro area remains static. Income inequality has increased in two thirds of EU countries since 2006, specifically for low-wage earners. In the euro area, inequality increased in ten Member States: Luxembourg, Slovenia, Greece, France, Italy, Estonia, Austria, Slovakia, Cyprus and Spain (in ascending order). After decreasing levels of inequality in previous years, the euro area is now back to 2004 levels. Being the biggest share of labour costs, the structure and development of earnings are important features of labour markets. Within a monetary union much of the pressure to (re-)gain competitiveness is shifted onto labour markets, and thus real wage developments. Yet nominal wage rigidities, increased by a low inflation environment, may increase unemployment and foster cross-country heterogeneity. The European Parliament is stimulating the debate with the aim of formulating better social and employment policy. The EP's own initiative report on the economic governance framework of June 2015 also focused on how to strengthen the social dimension.