(Tiper Stock Exchange) – Wage growth in coming quarters to be ‘very strong relative to trends’. This was stated by the European Central Bank (ECB) in an Economic Bulletin which analyzes wage trends and their determinants since the beginning of the pandemic. The expectation of strong wage growth is based on robustness of labor marketswhich so far have not been substantially affected by the economic slowdown, the increase in national minimum wages and some recovery between wages and high inflation rates.
“Beyond the short term, the expected economic slowdown in the euro area and the uncertainty about the economic outlook are likely to exert downward pressures on wage growth”, it is underlined.
Frankfurt economists acknowledge that the COVID-19 pandemic and government measures to cushion its impact have caused a exceptionally high volatility in indicators of wage growth, which makes it more difficult to assess their development. Analyzing the volatility of the past two years, the levels of key wage indicators – such as compensation per employee and hourly wages – are currently slightly higher than those implied by long-term pre-pandemic trends.
Looking at the pandemic-related distortions in wage measures, which have varied widely across sectors, the ECB says there are signs of stronger wage growth in the service sectors. “Wages are above pre-pandemic levels mainly in those service sectors that have recently registered severe manpower shortages“, reads the document.
taking into account theimpact of inflationHowever, real consumer wages are now “significantly lower than before the pandemic”. Indeed, nominal wages have increased at a slower pace than the consumer price index, resulting in a decrease in the purchasing power of wageswhich was approximately 3.6 percent below the level in the fourth quarter of 2022 in the second quarter of 2022. In the period starting in the fourth quarter of 2019 through the second quarter of 2022, employees experienced a quarterly reduction average of their real wage level before the pandemic of around 0.5%.
The further losses in real wages expected in the coming months will “increasingly be perceived by consumers as one loss of purchasing power compared to before the pandemic“, reads the Bulletin. This, according to the ECB, could increase the pressure on unions to demand higher wage increases in the next round of negotiations, especially in sectors with lower wages.
However, “purchasing power losses are only one of the factors influencing the wage demands of trade unions: The rigidity of the labor market and the current economic situation are also likely to play a central role”, it highlights.
(Photo: Photo by Mathieu Stern on Unsplash)