The Organisation for Economic Co-operation and Development (OECD) projects that real wages—pay adjusted for inflation—will fall in Italy, Spain, France and the United Kingdom between the first quarters of 2026 and 2027, while Germany is expected to record growth. The findings, published in the OECD's Employment Outlook 2026, highlight a widening divergence across Europe's largest economies.
In Italy and Spain, real wages are expected to remain below their early 2026 levels until at least the end of 2027. The report attributes the declines to geopolitical uncertainties and a temporary spike in energy costs, which it says could weaken labour markets and push inflation higher, thereby depressing wages.
“In the future, geopolitical uncertainties and a time-limited increase in energy costs may significantly weaken labour markets while exerting further upward pressure on inflation, which likely will depress wages,” the report states. It adds that the projections assume the disruptions from the conflict in the Middle East are “sizeable but limited to a relatively short period of time.”
Alexandre Georgieff, an OECD economist and co-author of the report, explained that differences in projected real wage growth stem from varying outlooks for inflation, unemployment and labour market slack across countries.
Italy faces the steepest decline
Italy is projected to experience the largest drop among the five economies, with real wages falling 1.9% below their early 2026 level by the third quarter of that year. A slow recovery is expected, but by the end of 2027 real wages are still projected to be 0.6% below their starting point. Italy's annual inflation rate was estimated at 4.1% in September.
“In Italy, high energy costs are expected to wipe out recent real wage gains, reflecting the country's heavy dependence on imported oil and gas,” Georgieff told Euronews Business. “Its recovery in 2027 is expected to be limited because few collective wage agreements are due for renewal that year and slack remains in the labour market.”
Spain sees no recovery
Spain's decline is smaller but more persistent. Real wages are projected to slip 0.4% in the third quarter of 2026 and 0.7% in the fourth, then remain at that level throughout 2027. By the end of 2027, Spain is projected to have the largest cumulative decline among the five, at 0.7% below its early 2026 level.
Georgieff noted that Spain is expected to see strong job creation but continues to face high inflation, largely driven by energy prices. Prices in Spain were estimated to be 5% higher in September compared with a year earlier. Italy and Spain are the only two countries where real wages are projected to remain below their early 2026 levels at the end of 2027.
UK falls sharply, then recovers
The United Kingdom is projected to see the second-largest drop, with real wages falling 0.6% in the second quarter of 2026 and 1.5% in the third, bottoming out at 1.6% below the first-quarter level in the fourth. The recovery is quicker: the decline narrows to 1.1% in the first quarter of 2027 and 0.4% in the second, before real wages move above their early 2026 level, ending 2027 up 1%.
With annual inflation rising to 3.1% in August, pay remains under pressure. Charles Cotton, senior reward and performance adviser at the Chartered Institute of Personnel and Development (CIPD), said: “The outlook for real pay growth in the UK remains challenging. The UK is particularly exposed to energy price volatility as a result of the conflict in the Middle East. This means inflation is expected to remain higher for longer than in comparable European economies into 2027.”
Cotton added that the CIPD's Labour Market Outlook suggests employers are becoming increasingly cautious about future pay awards, constrained by rising employment costs—including higher employer National Insurance contributions and minimum wage increases—as well as wider cost pressures such as higher supplier costs.
France sees a smaller decline
France reaches its lowest point earlier, with real wages projected to fall 0.5% in the second quarter of 2026. The gap then narrows, with real wages returning to their first-quarter 2026 level in the second quarter of 2027 and ending 2027 just 0.1% higher. September's estimated annual inflation rate of 3.4% was below the eurozone's 3.8%.
“In France, inflation remains relatively low thanks to nuclear power, but wages are expected to adjust only slowly as unemployment continues to rise,” Georgieff said.
Germany stands out
Germany is the only country among the five where real wages are projected to rise throughout the period, despite annual inflation reaching an estimated 3.3% in September. The gain is modest at first—0.1% in the second quarter of 2026 and 0.5% by the end of the year—but accelerates in 2027, with real wages projected to be 1.1% higher by the second quarter and 1.7% higher by the fourth, the strongest result among the five.
Georgieff attributed Germany's positive outlook to a comparatively tight labour market, with skilled labour shortages and better unemployment prospects, as well as a large debt-financed fiscal expansion supporting activity.
Enzo Weber, a professor at the Institute for Employment Research (IAB), noted that real wages in Germany were particularly weak in the early 2020s due to surging inflation. “Afterwards, nominal wages started to catch up, supported by collective wage bargaining. What we see at the moment is still driven by this development,” he told Euronews Business.
The OECD's projections underscore how energy dependence, labour market conditions and fiscal policy are shaping the purchasing power of workers across Europe. As Italy and Czechia urge the EU to ease carbon rules amid the energy crisis, the strain on household incomes is likely to remain a central political issue. Meanwhile, Italy's decision to drop its fuel duty discount reflects the difficult trade-offs governments face. In Spain, the delay of the Verifactu e-invoicing system offers some relief to small businesses, but the broader wage picture remains bleak.
