A wealth of jobs, but poor wages: Europe in 2023

The number of people employed in Europe has reached a record high. The unemployment rate (6.2 percent) is at its lowest and youth unemployment, though higher, has also decreased.

But don't open the champagne just yet.

The inflation rate has taken a toll on the purchasing power of families. As companies have refused to ensure wages keep up with the cost of living, per capita income has declined. Among lower-income households, one-in-four families currently experiences financial stress.

That's a 13 percent increase in a single year. Additionally, due to soaring energy prices this winter, nearly one in ten Europeans struggled to keep their homes warm.

The main explanation, as this WSI report shows, is the sudden surge in inflation compounded by lagging wage increases.

When adjusted for inflation, wages in the EU dropped by approximately four percent in 2022. Even in Belgium, with its automatic wage indexation, wages lost 2.8 percent of their purchasing power.

So, there are plenty of jobs, but the wages are insufficient.

Oddly enough, the demand on labour is high. Currently, there are a record number of job vacancies for every job seeker. In a market characterised by high demand and low supply, one would expect wages to rise. However, that is evidently not happening.

One of the reasons for this can be found in another report, by the OECD. According to their findings, labour markets in many countries are malfunctioning due to excessive corporate power. Workers with specific skills often have limited choices when it comes to choosing their employer.

According to the study, 16 percent of the workers in Europe are in such a situation. Some occupations are more effected than others. As such, roughly half of the printing workers and health professionals have little to no choice of employer.

And even if workers have choice between different employers, the use of non-compete agreements, effectively prevents workers from working for competing companies after they leave their employer. While data is scarce, the existing studies show that these agreements or clauses are widely used.

Just as consumers suffer when only one company dominates a particular product market, employees suffer when they cannot truly choose between multiple employers. In this case, employers can keep wages low because employees have no other options.

Therefore, wages must be increased, but the current European labour market does not provide a solution.

What is the alternative, then?

It lies in social dialogue and negotiations. Both the EU and the OECD agree that wages should not solely rely on market forces but should primarily be regulated. The best regulation comes from negotiations between the two parties with skin in the game.

For each sector, collective bargaining agreements should be established between employers and trade unions. Only through this approach can the current (relatively) positive labour market be transformed into social progress, instead of collective impoverishment as seems to be the case now.

On a positive note, the EU just passed a directive on adequate minimum wages which envisages a strengthening of (sectoral) collective bargaining. It sets the target for 80 percent of workers to benefit from collectively bargained conditions across all member states, well above the current performance of many of them.

The inflation crisis and the consequences in terms of financial distress should be a further wake-up call for the EU member states to take this task seriously and get moving.