Pay growth is accelerating across six leading eurozone economies including Germany and France, according to a new wage tracker based on real-time data from online job postings.
The median wage cited in adverts was 5.2 per cent higher at the end of October than a year earlier — up from annual growth of 4.2 per cent in June and more than three times the average of 1.5 per cent for 2019, the first year analysed by the tracker, a collaboration between the Central Bank of Ireland (CBI) and job search website Indeed.
Reamonn Lydon, a CBI economist, and Pawel Adrjan, economist at Indeed, pointed to “extraordinarily high” wage growth in Germany, where posted wages in October were 7.1 per cent higher than a year earlier. Wage growth in France was 4.7 per cent over the same period.
As workers seek to offset soaring food and energy costs, the European Central Bank is on the lookout for signs of bigger pay rises that could prolong high inflation. Eurozone inflation hit a record 10.7 per cent last month and the central bank fears that a 1970s-style “wage-price spiral” will develop if workers and companies come to expect double-digit inflation.
Wage growth has been more modest in the eurozone than in the US and UK, where unemployment rates are lower and post-pandemic labour shortages more acute. But the ECB expects growth in average wages to pick up from 4 per cent in 2022 to 4.8 per cent in 2023, reflecting tight labour markets, rising minimum wages in some countries and compensation for rising costs exacerbated by Russia’s war in Ukraine.
Fabio Panetta, one of the most dovish ECB board members, said last week that wage pressures were so far contained but that the central bank, which has raised interest rates by a record 200 basis points over its last three meetings, needed to be “extremely vigilant”.
Paul Hollingsworth, chief European economist at BNP Paribas, said that while there was little evidence yet of a wage-price spiral, “we can’t say that the risk has passed” and hawks at the ECB would be alert to any signs of high inflation starting to drive wage- and price-setting. He added that a trend of rising industrial action suggested there had been “a shift in bargaining power towards workers”.
The tracker is more timely than the latest Eurostat data, which showed second-quarter hourly labour costs rose 4.0 per cent in the eurozone compared with the year-ago period. It is less comprehensive, as the proportion of adverts that cite pay varies between countries. But because the tracker reflects new hiring it is able to capture turning points in the labour market more swiftly than the ECB’s measure of negotiated wages — which covers collective bargaining agreements that take months to thrash out.
France and Germany have raised the minimum wage several times over the past year and offered employers tax breaks for one-off payments to help staff cope with rising living costs. Unions have also been increasingly assertive on pay, with industrial action shutting down oil refineries in France last month and Germany’s IG Metall beginning warning strikes as it seeks an 8 per cent wage rise for almost 4mn workers.
The new tracker points to wage growth of 4 per cent in Ireland and Italy, 3.9 per cent in Spain and 3.8 per cent in the Netherlands — although all have similar inflation rates to Germany’s, implying a bigger drop in living standards. Growth in posted wages in the UK, where vacancy rates are higher, has been above 6 per cent since June.
Lydon said the data showed the biggest acceleration in pay had been this summer, but that pressures were broadening across countries and sectors and appeared increasingly driven by inflation rather than labour shortages. Although growth in posted wages was highest in areas such as food preparation and driving, where employers have struggled to recruit, it was now above 3 per cent in more than 60 per cent of occupational categories.
But the researchers also said there were early signs of wage growth plateauing or starting to slow as the economic outlook worsens in some eurozone countries.
Lydon said this slowdown was more visible in higher-paid sectors such as IT and finance, where employers were making a long-term investment when they hired and might be more sensitive to economic uncertainty, and in human resources.