One-Third of Analyzed European Nations See Real Wages Remain Below 2021 Levels

A combination of the COVID-19 pandemic, the Russian invasion of Ukraine, volatile energy costs, and record inflation has placed significant downward pressure on wages across Europe, driving up living costs for millions of households.

According to the OECD Employment Outlook 2026, which examines 27 European nations, real wages—adjusted for inflation—declined in nine of the analyzed countries between the first quarter of 2021 and early 2026.

The lingering impact of the 2022–2023 cost-of-living crisis

“Even in the first quarter of 2026, real wages continued to feel the effects of the 2022-2023 cost-of-living crisis,” Andrea Bassanini, editor of the OECD Employment Outlook, told Euronews Business.

“Because sectoral collective agreements are typically staggered rather than renewed annually, negotiated wages have been slow to recover and have yet to fully rebound,” Bassanini noted, while adding that statutory minimum wages have generally kept pace with inflation.

Italy experiences significant real wage erosion

Italy saw the most substantial decline, with real wages falling by 6.1%. Ronald Janssen, former chief economist at the European Trade Union Confederation (ETUC), attributed this to employers systematically delaying new agreements and a weakening bargaining position for unions.

Michele Bavaro, an economist at Italy’s Scuola Normale Superiore, noted that prolonged delays in contract renewals hindered the recovery of nominal wages following inflationary spikes. Additionally, researchers Richard Grieveson and Merym Gökten from the Vienna Institute for International Economic Studies (wiiw) cited low productivity, stagnant economic growth, and slow nominal wage adjustments as contributing factors in Italy.

Other notable declines include Czechia (5.8%), Sweden (4.8%), Denmark (2.1%), and Spain (2%). The eurozone average saw a decline of 1.8% over the same period. Slovakia, Finland, Ireland, and Switzerland also recorded minor declines ranging from 0.7% to 1.4%.

Inflation and job insecurity concerns

Regarding the eurozone’s inflation acceleration during 2021-2022, Janssen noted that while subsequent bargaining rounds attempted to restore purchasing power, workers’ leverage was limited by job insecurity. This insecurity stemmed from stagnant economic growth and fears of de-industrialization driven by global competition and shifting trade dynamics.

In contrast, real wages remained stable in Belgium, while France and Estonia saw marginal increases of just 0.1%.

Turkey: A major outlier

Turkey represents a significant statistical outlier, reporting a 78.6% increase in real wages despite a 32% inflation rate in mid-2026. However, Grieveson and Gökten cautioned that this figure might overstate actual improvements in living standards, noting that the rise reflects a recovery from the depressed wage levels seen after the 2018 currency crisis.

They attributed much of the 2022-2023 surge to dual minimum wage hikes, which were largely driven by election cycles. Since the 2023 elections, adjustments have returned to an annual schedule and have generally lagged behind inflation. The researchers also noted ongoing debates regarding the reliability of official Turkish inflation data.

Hungary leads EU growth

Hungary recorded the second-highest growth at 29.8%, acting as another outlier within the EU. Poland followed with a 16.5% rise. Notably, the top three growth performers are all located outside the eurozone.

Péter Virovácz, chief economist at ING, explained that Hungary’s performance stems from a mix of structural labor shortages, government wage policies, and a post-inflation catch-up process rather than sudden productivity surges.

Within the eurozone, Lithuania led with 14.8% growth. Other significant increases were recorded in Latvia (7.4%), Slovenia (6.6%), Portugal (5.6%), Greece (4.7%), and Luxembourg (4.1%).

Performance of major economies

Among Europe’s five largest economies, the UK led with a 3.6% increase. Real wages grew by less than 1% in both Germany (0.9%) and France (0.1%), while Italy and Spain saw declines of 6.1% and 2%, respectively.

Bassanini observed that government decisions to set statutory minimum wages higher than inflation in Germany and the UK helped stabilize wages. Grieveson and Gökten added that the UK’s flexible wage-setting system and persistent recruitment needs allowed nominal pay to adjust to inflation more rapidly than in many eurozone nations.

The report notes that the Q1 2026 data predates a recent surge in energy prices following recent geopolitical tensions in the Middle East.

Source link