Euro Area Wage Growth Moderates, But Remains Elevated Amid Productivity Concerns – Recent data from teh European Central bank (ECB) indicates a cooling in wage growth across the Eurozone, though levels remain considerably above pre-pandemic trends. This growth comes as policymakers closely monitor the interplay between wages, inflation, and productivity, seeking to avoid a wage-price spiral.
The ECB’s analysis, detailed in several recent publications, highlights a complex picture. While nominal wage growth has begun to decelerate from its peak in 2023, real wage growth – adjusted for inflation – is still positive, albeit unevenly distributed.This positive real wage growth is a key factor supporting household consumption, according to a January 2025 Economic Bulletin focus article by Baumann, Caprari, Koharkov, and Kouvavas, which examines the role of household perceptions in consumption patterns.
A May 6, 2024, ECB Blog post explores the persistent question of productivity growth, suggesting that a prolonged period of “low for long” productivity might potentially be contributing to inflationary pressures.The authors note that weak productivity gains make it more difficult to absorb wage increases without impacting prices. This aligns with findings from Bodnár, Gonçalves, Górnick, and Coester (2022), who analyzed wage developments and their determinants since the start of the COVID-19 pandemic, identifying factors influencing wage pressures.
The ECB is actively tracking wage developments through its Wage Tracker, launched in December 2024, as detailed by Bates, Botelho, Holton, Roca I llevadot, and Stanislao. This tracker provides a thorough overview of wage trends across the Euro area, offering insights into both negotiated and actual wage growth. The tracker’s data is crucial for understanding the dynamics of wage setting in different sectors and countries.
Further analysis in the April 2024 Economic Bulletin, by Consolo and Foroni, examines the drivers of employment growth post-pandemic, revealing a model-based perspective on labor market dynamics. Simultaneously, Hahn and Renault (2024) investigated profit indicators for inflation analysis, emphasizing the importance of considering total costs, not just unit labor costs, when assessing inflationary risks. Bates, bodnár, Healy, and Roca I Llevadot (2025) provide further insight into wage developments during and after the high inflation period, noting the lagged effects of past inflation on current wage negotiations.
Looking Ahead: The ECB’s ongoing monitoring of wages, productivity, and inflation will be critical in guiding future monetary policy decisions. The central bank aims to return inflation to its 2% target while supporting sustainable economic growth and employment. The interplay between these factors, notably the evolution of productivity, will be a key determinant of the Euro area’s economic outlook in the coming months and years.
