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Real Wages in Europe

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164 views3 pages

Real Wages in Europe

Uploaded by

alyasin.ics
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Real wages are down in Europe: Which countries have seen the biggest

changes in salaries?

Real wages fell in most European countries after record-high inflation eroded most of the
nominal wage growth. Which countries are worst impacted? In 2022, inflation rates rocked
the EU, reaching levels not seen before in the previous four decades. Between 1997 and late
2021 in the EU, the highest annual inflation was only 4.4 per cent, as recorded in July 2008.

Impact of COVID and Russia’s invasion of Ukraine

According to the Organisation for Economic Co-operation and Development's (OECD)


Employment Outlook 2023 Artificial Intelligence and the Labour Market report, the COVID-
19 crisis was followed by a significant surge in prices. Prices began to increase in 2021 due
to the rapid rebound from the pandemic and related supply chain bottlenecks. Then, over the
course of 2022, the impact on energy prices of Russia’s war of aggression against Ukraine
pushed inflation upwards again.

Annual inflation in the EU - (January 2019-June 2023) Table 1

Jan July Jan July Jan July Jan July Jan July
2019 2019 2020 2020 2021 2021 2022 2022 2023 2023
1.0 2.0 1.1 1.0 2.0 2.1 1.0 2.0 6.1 11.0

Annual inflation rate (Q1 2023) Table 2

Hungary Poland Czeckia Sweden UK Italy Germany Belgium France Switzerland


25.4 17 16.4 11.4 9.0 8.9 8.2 7.1 6 3.2

Real wages since the COVID pandemic

How have real wages in Europe changed since the beginning of the COVID-19 pandemic?

Real wages are currently below pre-pandemic levels in most countries, despite the recent
nominal wage growth. The OECD data shows that the real hourly wages between the last
quarters of 2019 and 2022 decreased in most countries in Europe.

Cumulative change in real hourly wages between Q4 2019 and Q1 2023

Households are struggling to cope with the resulting cost-of-living crisis. Almost all EU
member states have increased the hourly wage in the last year, but that increase has been in
nominal terms. In other words, inflation is not taken into account.

As of the first quarter of 2023, real hourly wages had decreased in 22 countries out of 24 in
Europe over the last year. That means that the nominal increases were less than inflation,
consequently leading to a fall in real wages.The real hourly wage increased only in Belgium

© Mark Johnson,
InThinking www.thinkib.net/Economics 1
(2.9 per cent) and the Netherlands (0.4 per cent) between the first quarters of 2022 and
2023.

Real wages are down in the UK, France and Germany

Real hourly wages also fell in France (1.8 per cent), the UK (2.9 per cent) and Germany (3.3
per cent). Nominal hourly wages increased in all 24 countries on the list by rates varying
from 0.6 per cent in Finland to 13.6 per cent in Lithuania.

Change in nominal hourly wages between Q1 2022 and Q1 2023: Table 3

Hungary Sweden Italy Denmark Germany UK France Switzerland Belgium


-15.6 -8.4 -7.3 -4.4 -3.3 -2.9 -1.8 -1.4 2.9

Low-paying industries fared relatively better

While real wages are falling overall, workers in low-paying industries have often fared
relatively better, the OECD report found. Change between the first quarters of 2022 and
2023 demonstrated real wages performed better in low-paying industries than in high-pay
industries in 13 countries out of 23 with data available in Europe.

Greece is an excellent example of this. Real wage in low-paying industries increased 5.1 per
cent whereas they fell 2.9 per cent within middle and high -paying industries in 14 countries.

Original article accessed at: Euronews

Questions

a. Define the following terms:

i. inflation (line 1) [2]

ii. nominal wage (line 1) [2]

b. Calcuate the average rate of inflation across the 10 European nations in table 2 and the
average level of real wages in table 3. [3]

c. Explain using an appropriate diagram the impact of the 'supply chain bottlenecks and
higher energy prices from Russia’s war of aggression against Ukraine' on the level of
inflation throughout the European continent (paragraph 2) [4]

d. Explain why the 'the rapid rebound from the pandemic and related supply chain
bottlenecks' created inflationary pressures in 2021. [2]

e. Identify two possible reasons why real wages might be falling between Q1 2022 and Q1
2023 (table 3) [4]

© Mark Johnson,
InThinking www.thinkib.net/Economics 2
f. Explain using an appropriate diagram the impact of lower real wages on European
economies. [4]

g. Provide two reasons why 'workers in low-paying industries have often fared relatively
better than in high-pay industries in 13 countries out of 23'. Paragraph 7 [4]

h. Using the passage and your knowledge of economics, discuss the effectiveness of supply
side policies in raising real wage levels. [15 marks]

© Mark Johnson,
InThinking www.thinkib.net/Economics 3

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