real wage expectation rise growing salary Europe prediction 2017

Europe is stagnating, real wages are growing only in CEE countries. Why?

Compensation and benefitsSalaries in segment

Over the last seven years, employees in the new member states have seen the biggest improvement of their earnings compared to the rest of the EU. Since the financial crisis, the purchasing power and living standards of former Eastern Bloc countries have enjoyed the biggest increase. This indicator is best seen in real wages, which show the purchasing power of wages, i.e. the amount of goods and services you can actually buy with your wage in your country.

real wage definition nominal wage costs purchasing power paylab salary

According to the German WSI institute (Wirtshafts- und Sozialwissenschaftliches Institut) and the Hans-Böckler-Stiftung foundation, Bulgaria has made the biggest leap in real wage growth of all the former Eastern Bloc countries that are now EU members. The foundation analysed data from the European Central Bank and the European Commission.

Purchasing power and living standards in CEE are improving

Since 2010, real wages in Bulgaria have risen by more than half (55.8%). The runner up is Latvia with a 31% increase and Lithuania with a one-quarter increase in real wages. Countries with a significant, more than 10% real wage growth in the past seven years, include Poland, Romania, Estonia, Sweden, and Slovakia. The former Eastern Bloc countries have also made more significant progress in growth of labour productivity compared to older EU countries.

Almost all EU countries in the CEE region have gradually reduced unemployment. The biggest decrease in unemployment can be observed over the last four years in Croatia, Slovakia, Bulgaria, and Poland. The only CEE country that has been unsuccessful in reducing unemployment is Estonia.

In the EU, however, there are also countries where real wages have not increased – on the contrary, in some countries real wages have declined.  Employees can actually afford less than in the past for their pay. The worst situation is now in Greece, where real wages have fallen by almost 23%. Cyprus, Portugal, Croatia, Spain, and Italy have also seen a substantial decrease. All these countries have high, double-digit unemployment rates.

Paylab real wages Europe CEE countries growing stagnation

In which countries are real wages expected to grow in 2017?

Wages in the EU are generally sluggish, but a slight recovery in new member states can be expected. Different salary growth rates are also confirmed by, which has been monitoring CEE salaries for several years via a network of local salary portals. According to Paylab’s data, overall wages in the Czech Republic, for instance, have risen by 12% over the last three years, while only by 1% in Finland.

According to the forecast by the WSI institute and the Hans-Böckler-Stiftung foundation, the CEE region will have the biggest real wage growth in the EU in 2017, too. The most significant real wage increase is expected in Romania – by as much as 8.3%. Other countries with positive forecasts are Hungary (+4%), Latvia (+3.7%), Bulgaria (+3.6%), and Slovakia (+2.5%).

Faster real wage growth in the CEE region is also related to the fact that wages in these countries have been low for a long time, and are gradually catching up with the rest of the EU. But they are still significantly lower than in Western Europe. These countries have also attracted many new investors in recent years, leading to new jobs and lower unemployment. In terms of the regional labour market – employers are beginning to face a shortage of qualified labour in certain sectors. This also improves the bargaining position of employees, as they are more sought after than in the past.

Regarding forecasts, many experts wonder why real wages are not growing faster in the Eurozone countries, especially now that their economies are picking up. The Eurozone recovery has not yet been reflected in higher salaries for employees.

Ferdinando Giugliano, who writes about the European economy for Bloomberg, states in his article that the most widespread reason why wage growth in the Eurozone is so slow is that the economy is far from recovery. Average unemployment in the euro area, although declining, remains at 9.3%, well above pre-crisis levels. Another reason, according to Giugliano, is the low inflation rate, which has languished in recent years. Employees and trade unions have therefore lost the argument for regularly increasing wages to compensate for inflation.

The international Paylab salary portal recommends that employees regularly compare their salary levels with other employees in the same position in the region, as the value of a job position also depends on supply and demand in the local labour market. Some jobs are more attractive in the market, so their wages are developing faster than others. Paylab has prepared a video for employees with tips on when it’s time to negotiate their salary.

Communication and Market Research Specialist with focus on Compensation & Benefits