Five years after the onset of the COVID-19 pandemic, real wages in a third of European countries analysed by the OECD remain below their early-2021 levels. The OECD Employment Outlook 2026, covering 27 European states, shows that the cost-of-living crisis of 2022–2023 continues to weigh on workers' purchasing power across the continent.
Between the first quarters of 2021 and 2026, real wages — adjusted for inflation — declined in nine countries. The eurozone as a whole saw a cumulative drop of 1.8%. The disparities are stark, reflecting differences in wage-setting mechanisms, productivity, and government policies.
Italy records the steepest decline
Italy suffered the largest real wage fall, at 6.1%. Ronald Janssen, former chief economist at the European Trade Union Confederation (ETUC) and the Trade Union Advisory Committee (TUAC), attributed this to employers systematically delaying new collective agreements and the weakening bargaining position of trade unions. Michele Bavaro, an economist at Italy's Scuola Normale Superiore, noted that historically long delays in contract renewals slowed the recovery of nominal wages after inflation surged. Richard Grieveson and Meryem Gökten from the Vienna Institute for International Economic Studies (wiiw) also pointed to weak productivity, subdued economic growth, and relatively slow nominal wage adjustment in Italy.
Czechia and Sweden followed with declines of 5.8% and 4.8%, respectively. Denmark and Spain saw real wages fall by 2.1% and 2%. Smaller drops occurred in Slovakia (1.4%), Finland (1.2%), Ireland (1.1%), and Switzerland (0.7%).
Inflation and job insecurity hamper recovery
Andrea Bassanini, editor of the OECD Employment Outlook, explained that sectoral collective agreement renewals are staggered and do not happen annually, delaying the pass-through of negotiated wage increases. Statutory minimum wages, however, have largely kept pace with prices.
Janssen highlighted that the acceleration of inflation in 2021–2022 in the eurozone, followed by collective bargaining rounds aimed at restoring purchasing power, was undermined by job insecurity. “Workers and trade unions saw their bargaining power hampered by the job insecurity concerns resulting from several years of stagnating economic growth, fears of de-industrialisation because of Chinese competition and a US-led tariff war undermining access to a major European export market,” he told Euronews Business.
In Belgium, real wages were unchanged. France and Estonia recorded marginal increases of just 0.1%.
Turkey and Hungary lead real wage growth
Turkey stands out as the most significant outlier, with real wage growth of 78.6% despite an inflation rate of 32% in mid-2026. Grieveson and Gökten cautioned that this figure overstates improvements in living standards, as real wages started from a depressed level after the 2018 currency crisis. The sharp increase in 2022–2023 was driven by double minimum wage hikes, largely election-driven. After the 2023 elections, adjustments returned to once a year and have since stayed below inflation. They also questioned the reliability of Turkey's official inflation data, citing opposition allegations of manipulation.
Within the EU, Hungary recorded the highest real wage growth at 29.8%. Péter Virovácz, chief economist at ING, said this reflects structural labour shortages, government wage policies, and a post-inflation catch-up process, rather than a surge in productivity. Poland followed with 16.5% growth. All three top performers are outside the euro area.
Among eurozone members, Lithuania posted the strongest real wage growth at 14.8%. Other notable increases include Latvia (7.4%), Slovenia (6.6%), Portugal (5.6%), Greece (4.7%), and Luxembourg (4.1%).
Major economies diverge
Among Europe's five largest economies, the UK led with real wage growth of 3.6%. Germany and France saw modest increases of 0.9% and 0.1%, respectively. Italy recorded the steepest fall, while Spain declined by 2%. Bassanini noted that statutory minimum wage increases, driven by government decisions, were higher than inflation in Germany and the UK, and roughly matched inflation in France and Spain. Grieveson and Gökten added that the UK's flexible wage-setting system and persistent recruitment difficulties allowed nominal pay to respond more rapidly to inflation than in several eurozone economies.
The OECD report notes that its first-quarter 2026 figures predate the recent surge in energy prices following joint US-Israeli attacks on Iran and Tehran's response, which could further pressure wages. For context, the transatlantic jobs divergence shows US hiring slumping while eurozone unemployment remains at a record low, a dynamic that may influence future wage negotiations.
