Slow wage bargaining leaves a third of Europe poorer since 2021

Real wages in the eurozone fell by 1.8% between the first quarters of 2021 and 2026, leaving workers in a third of the 27 European countries tracked by the OECD Employment Outlook 2026 poorer than they were five years ago. The data shows that the purchasing power damage inflicted by the 2022-2023 cost-of-living crisis remains deeply embedded in the continent's largest economies.

The core problem for European businesses and workers is the architecture of wage-setting. "As sectoral collective agreement renewals do not take place every year and are usually staggered, negotiated wages have taken much time to recover, and did not do it completely," said Andrea Bassanini, editor of the OECD Employment Outlook. "Real wages were still affected by the cost-of-living crisis of 2022-2023 even in Q1 2026."

This sluggish adjustment was exacerbated by broader macroeconomic anxieties. Workers and trade unions saw their bargaining power weakened by "fears of de-industrialisation because of Chinese competition and a US-led tariff war undermining access to a major European export market," according to Ronald Janssen, former chief economist at the European Trade Union Confederation.

Italy suffered the steepest decline across the continent, with real wages dropping 6.1%. Economists point to a toxic mix of weak productivity, subdued growth, and "historically long delays in renewing contracts," according to Michele Bavaro of Italy’s Scuola Normale Superiore. Employers systematically delaying new agreements further eroded union leverage. Czechia and Sweden also posted significant declines of 5.8% and 4.8%, respectively.

Among Europe’s major economies, the UK stood out with a 3.6% increase. Analysts from the Vienna Institute for International Economic Studies attributed this to Britain’s comparatively flexible wage-setting system and persistent recruitment difficulties, which allowed nominal pay to respond faster to inflation. In the eurozone, Lithuania led with 14.8% growth, while Germany and France barely scraped positive territory at 0.9% and 0.1%.

Statutory minimum wages provided a crucial floor in several major markets. "A first important factor is the growth of statutory minimum wages, which have been higher than inflation by government decision in both Germany and the UK and about the same as inflation in France and Spain," Bassanini noted.

The headline growth figures were heavily skewed by outliers outside the currency union. Hungary recorded 29.8% growth, driven by structural labour shortages and aggressive government policy rather than productivity gains. Turkey recorded a staggering 78.6% jump, though analysts warned this "overstates the increase in living standards" due to a low post-2018 crisis baseline and election-driven minimum wage hikes.

The OECD figures, capturing the first quarter of 2026, do not yet reflect the latest shock to European household budgets. The recent surge in energy prices, triggered by joint US-Israeli attacks on Iran and Tehran's response, threatens to further strain the purchasing power that collective bargaining has so far failed to restore.