UK one of two EU states where real pay falls as economy grows

The economic context for union negotiators across the European Union improved slightly in 2013, as more countries returned to growth. Final figures for 2013 are not yet available. However, the latest forecast for the year, produced by European Commission in November, shows that 18 of the 28 EU member states are expected to grow in 2103, compared with just 14 whose economies grew in 2012.

This improvement is reflected in the extent to which pay is now moving ahead of prices, after three years in which pay lagged behind.

The latest available national figures, set out in the table, show that there were 17 EU states where real pay increased in 2013, compared with just 12 in 2012. (These figures are based on 27 states, as there are no 2013 figures for Luxembourg.) In 2011, when the figures were calculated on a slightly different basis, only nine out of 25 countries for which information was available showed an increase in real pay; in 2010 it was 10 out of 25.

The gap between pay and prices for 2013 cannot yet be measured precisely, as in most countries pay figures for the full year have not yet been published, while inflation figures for January to December 2013 are now available. However, comparing the average price increase over the whole of 2013, with the latest available pay or earnings figures (generally for the third quarter of the year), as the table does, gives a reasonable indication of the trend.

Countries with increasing real pay

These figures show that the largest real pay increases — at around 5% — are in the three Baltic states of Estonia, Lithuania and Latvia, whose economies are again growing strongly, after falling dramatically as a result of the financial and economic crisis. The Latvian economy, for example, which contracted by 17.7% in 2009, is forecast to grow by 4.0% in 2013.

However, there has also been real pay growth of around or slightly above 2% in Poland, Sweden, Bulgaria and Hungary, whose economies have not had such a roller-coaster ride.

More significant, in terms of their population are the group of seven countries, where real pay has gone up by between 0.7% and 1.0%. They include the EU’s largest economy, Germany, where real pay grew by 1.0%, as well as France (0.7%), Belgium (1.0%), Slovakia (1.0%), Romania (0.8%), Portugal (0.7%) and Finland (0.7%).

The other countries showing a small increase in real pay in 2013 are Austria (0.3%), Denmark (0.3%) and Italy (0.2%).

In Malta, real pay has remained static, despite forecast growth of 1.8%.

Countries with declining real real pay

Most of the nine countries showing a decline in real pay in 2013 are also countries, whose economies are expected to contract over the year. They include three of the countries most severely affected by the crisis: Greece, where real pay fell by 6.8% and where the economy is expected to contract by 4.0% in 2013; Cyprus, where the banking crisis is expected to lead to a 8.7% drop in output in 2013 and real pay fell by 1.3%, and Spain, where the Commission forecasts a 1.3% contraction of the economy in 2013 and real pay fell by 0.8%.

Other countries where falls in real pay go hand in hand with forecast economic contraction are: the Czech Republic — forecast output down 1.0%, real pay down 0.1%; the Netherlands — output down 1.0%, real pay down 1.2%; Croatia — output down 0.7%, real pay down 1.4%; and Slovenia — output down 2.7%, real pay down 1.5%.

However, there are two countries where real pay has fallen, despite the fact that their economies are expected to grow. They are: Ireland, where the economy is forecast to grow by 0.3% and real pay has fallen by 2.9%; and the UK, where despite the European Commission forecasting growth of 1.3%, real pay fell by 2.1%. Indeed the UK has the worst performance in terms of real pay of any EU state other than Greece and Ireland.

Falling inflation

Changes in real pay are result from both changes in pay and by inflation, and the figures for 2013 are affected by the fact that, in most countries, inflation fell compared with 2012. The two exceptions are Romania, where inflation increased from 3.3% in 2012 to 4.0% in 2013, and the Netherlands, where inflation remained stuck at 2.5% for both years.

Against this background of falling inflation, it is perhaps not surprising that in most countries — the main exceptions are the three Baltic states — pay increases, while still above inflation, were smaller in 2013 than 2012.

Germany

In Germany, for example the official figures show a year-on-year increase in collectively bargained pay of 2.5% in the third quarter of 2013, as compared with a 3.0% in the same period of 2012. This is despite the fact that the biggest bargaining group in Germany, covering some 3.7 million metalworkers reached a settlement in May 2013, which provided a 3.4% increase from July. However, as the commentary on the figures from the Germany statistical office points out: “There were significant differences in the average pay increases in manufacturing.” In the chemical industry, for example, there was no increase in basic pay in 2013, as negotiators signed an agreement providing a 4.5% increase in summer 2012, which runs for 19 months until the start of 2014.

Nevertheless, after several years of below inflation deals, German union negotiators can again, as in 2012, look back at a year when agreements brought clear increases in real pay. As Reinhard Bispinck, the pay expert at the WSI research arm of the DGB union confederation, has noted, the increase in consumer prices over the year has been very modest with the result that, “over the year as a whole we can count on an increase of collectively bargained pay of a solid one per cent.”

Sweden

The pattern in Sweden is similar. The 2013 agreements in much of manufacturing which provide an increase worth 6.8% over three years, with a guaranteed 2.0% increase in minimum rates in April 2013 and April 2014 and 2.2% in April 2015, provide lower percentage increases than the agreements signed at the end of 2011, which provided a 3.0% increase over 14 months (worth 2.6% annualised). However, the fact that annual inflation in Sweden has fallen from 0.9% on average in 2012 to zero in 2013 means that the real pay increase is greater.

The economies of Germany and Sweden are performing reasonably well. In Italy, the situation is different, with the economy forecast to shrink by 1.8% in 2013. However, here too falling inflation, down from 3.0% in 2012 to 1.0% in 2013, has meant that there has been a rise in real pay, despite the fact that nominal pay increases fell slightly – from 1.5% in 2012 to 1.4% in 2013.

Italy

Unfortunately not all Italian workers have benefitted equally from this real rise in pay. While the private sector has seen hourly negotiated wages rise by 1.7% between November 2012 and November 2013, public sector employees have had no rise at all. Indeed public sector pay has been frozen in Italy since 2010.

France

In France too, it was the fall in inflation – halved from 2.0% in 2012 to 0.9% in 2013 – which has been decisive in increasing real pay. The average nominal pay increase fell from 2.2% in 2012, when it was boosted by higher than legally required rise in the national minimum wage, to 1.6% last year.

Netherlands

The Netherlands is an exception to the pattern of lower nominal pay rises but even lower inflation producing an increase in real pay. In 2012 and 2013 both pay increases (at 1.3%) and inflation (at 2.5%) were unchanged, meaning that real pay fell by 1.2% in both years. In the autumn of 2012, the FNV, the largest union confederation in the Netherlands, fixed a pay increase target of 2.5% for 2013 arguing that “wage moderation is now counterproductive”. However, with the economy contracting — output is forecast to fall by 1.0% in 2013 — union negotiators were unable to achieve this.

Spain

In Spain, another country where is expected to fall — by 4.0% in 2013 — unions signed a three-year pay pact at the start of 2012, guaranteeing moderate pay increases. This provided for a 0.6% increase in 2013, exactly the figure reached.

Looking ahead

Looking to the future, the Commission’s forecast of stronger economic growth in most EU states in 2014 should provide an improved context for negotiators. With inflation expected to remain low, the staged increases already in place for some agreements such as a 2.2% increase in May 2014 for the Germany metalworking industry and 2.0% increase in April in manufacturing in Sweden seem to guarantee real pay increases for the workers covered by them.

However, while the period of real pay cuts in most countries seems to be coming to an end, there are still major differences between countries and there is also a very long way to go before the ground lost in the years immediately after the crisis is made up.