Key facts
- Real wages declined in nine of 27 European countries analyzed between Q1 2021 and Q1 2026.
- Italy experienced the largest real wage decline at 6.1%, attributed to delayed contract renewals and weakened union bargaining power.
- Turkey recorded the highest real wage growth at 78.6%, partly due to recovery from a 2018 currency crisis and election-driven minimum wage hikes.
- Hungary ranked second with 29.8% real wage growth, driven by labor shortages and government policies.
- The UK led real wage growth among Europe's five largest economies with a 3.6% increase.
Real wages, which account for inflation, have declined in a third of European countries analyzed over the five years to early 2026, according to the OECD Employment Outlook 2026. Factors such as COVID-19, the war in Ukraine, soaring energy prices, and record inflation have pressured wages across the continent, impacting millions of households.
Italy recorded the largest decline, with real wages falling by 6.1%. Economists attributed this to employers systematically delaying new agreements and a weakening bargaining position for trade unions, alongside historically long delays in contract renewals that slowed nominal wage recovery after inflation surged. Weak productivity and subdued economic growth also contributed.
Other countries experiencing real wage declines include Czechia (5.8%), Sweden (4.8%), Denmark (2.1%), and Spain (2%). The eurozone as a whole saw an 1.8% decline. Slight decreases were also observed in Slovakia, Finland, Ireland, and Switzerland.
Ronald Janssen highlighted the acceleration of inflation in 2021-2022 and noted that while subsequent collective bargaining aimed to restore purchasing power, workers' bargaining power was hampered by job insecurity concerns, fears of de-industrialisation due to Chinese competition, and a US-led tariff war impacting European exports.
In contrast, Turkey emerged as a significant outlier with the highest real wage growth at 78.6%, though this is partly a recovery from a low base following the 2018 currency crisis. Double minimum wage hikes, largely election-driven, were a primary driver in 2022-2023. Hungary followed with 29.8% growth, attributed to labor shortages, government policies, and post-inflation catch-up. Poland saw a 16.5% rise.
Within the eurozone, Lithuania led with 14.8% real wage growth. Among Europe's five largest economies, the UK saw the strongest growth at 3.6%, benefiting from government decisions to increase statutory minimum wages above inflation and a more flexible wage-setting system. Germany and France experienced minimal growth of 0.9% and 0.1%, respectively.