In the wake of the COVID-19 pandemic, Russia's invasion of Ukraine, and soaring energy prices, real wages in Europe have been under significant pressure. According to the OECD Employment Outlook 2026, real wages fell in a third of the European countries analyzed over the five years to early 2026, with Italy experiencing the steepest decline at 6.1%. This trend is particularly concerning, as it reflects the broader economic challenges faced by millions of European households. In my opinion, the impact of these global events on wages highlights the fragility of the European economy and the need for robust policies to support workers and businesses alike.
One of the key factors contributing to the decline in real wages is the acceleration of inflation in 2021-2022 in the eurozone. While subsequent collective bargaining rounds attempted to restore purchasing power, workers and trade unions faced significant challenges due to job insecurity concerns, fears of de-industrialization, and the impact of the tariff war. This context underscores the importance of flexible wage-setting systems and the need for proactive measures to address inflation and support economic growth.
Turkey stands out as a significant outlier, recording the highest real wage growth at 78.6% despite an inflation rate of 32% in mid-2026. This achievement is notable, but it also raises questions about the reliability of Turkey's inflation data. In contrast, Hungary ranks second at 29.8% and is an outlier within the EU, with Poland following closely behind at 16.5%. These countries' strong real wage growth reflects a combination of structural labor shortages, government wage policies, and a post-inflation catch-up process.
Within the eurozone, Lithuania recorded the strongest real wage growth at 14.8%, followed by Latvia (7.4%), Slovenia (6.6%), Portugal (5.6%), Greece (4.7%), and Luxembourg (4.1%). These figures highlight the diversity of wage trends across the eurozone and the need for tailored policies to address regional disparities. In contrast, the UK led real wage growth among Europe's five largest economies, with an increase of 3.6%, while Germany and France experienced modest increases of 0.9% and 0.1%, respectively.
The decline in real wages in Europe has broader implications for the region's economic outlook. It underscores the need for proactive measures to address inflation, support economic growth, and protect workers' purchasing power. In my view, the OECD Employment Outlook 2026 provides valuable insights into the challenges facing European workers and businesses, and it is crucial to take action to ensure a more resilient and equitable economic future for all.
