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Labour market and wages: report shows sustained strong performance notwithstanding growth slowdow

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This year’s report on Labour Market and Wage Developments in Europe assesses the situation and prospects for the EU labour market, in an economic context characterised by persistently high inflation and unfading uncertainty.







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Key findings of the report, which was published by Commission services today, include:


Jobs and labour market


  • Even though economic growth started to weaken from the second half of 2022 in the wake of Russia’s war of aggression against Ukraine and the ensuing energy crisis, the EU labour market has been extremely resilient.
  • The unemployment rate stabilised at a record-low level of about 6%, while employment continued expanding at an annual rate of 2% in the first half of 2023, with many businesses continuing to report labour shortages.
  • While some differences in employment growth are visible across sectors – with the more energy-intensive industries recording lower job creation – the sharp rise in energy prices did not translate into increased job destruction.
  • This overall good performance is remarkable, as the unemployment rate tends to rise when GDP growth is positive but weak. This can be explained by the still very tight labour market conditions: a further weakening of labour demand is not expected to lead to a significant increase in unemployment, as employers would first withdraw unfilled vacancies before resorting to dismissing workers.
  • Employment growth has been supported by an increasing labour supply, with labour market participation resuming its long-term rising trend after a temporary contraction during the COVID‑19 pandemic. An important contribution to increased participation has come from women and older workers, as well as EU mobile citizens and non-EU nationals. This puts the EU on track to achieve one of the headline targets of the European Pillar of Social Rights, that of having 78% of the working age population in employment by 2030.


Wage developments


  • Despite being robust, wage growth has not been sufficient to compensate for high inflation. Growth in nominal compensation per employee reached 6% in the second quarter of 2023 (compared to the same quarter of 2022), which corresponds to a decrease of 0.8% in real terms.
  • Real wage losses since the end of 2021 have been weighing on households’ purchasing power and have affected their social situation. Both workers’ rate of financial distress and material and social deprivation have increased sizeably.
  • At the same time, in half of the Member States where they exist, statutory minimum wage policies have succeeded protecting the purchasing power of minimum-wage earners over the period from January 2022 to July 2023.
  • Looking ahead, while real wages are still expected to decrease in 2023, moderate long-term inflation expectations and the resilience of businesses’ profit margins in some sectors suggest that there is room to further increase wages, while remaining vigilant about second-round effects on inflation.


Working time


  • Finally, this year the report delves into the working time dynamics, examining working time preferences and evaluating the effects of working time policies.
  • Working time in EU Member States has been gradually decreasing, with an acceleration during the COVID‑19 pandemic. Between 2008 and 2022, the average weekly hours worked decreased in the EU by 2%, while average annual hours decreased by 5%.
  • On average, women, younger and older workers tend to work shorter weekly hours, while self-employed people, better educated workers and people with migrant backgrounds tend to work longer hours.
  • Working time can have important implications for workers’ wellbeing, as those working longer hours tend to report more job strain compared to other workers.
  • The report uncovers a growing mismatch between workers’ preferences and their actual hours worked. On average, people would like to work fewer hours overall, and the difference between actual and preferred hours has more than doubled since 2015, resulting in a growing incidence of overemployment.
  • At the same time, involuntary part-time workers – who are mostly women – typically prefer to work longer hours.
  • The gender gap in working hours has been narrowing but remains significant, especially in countries lacking robust care services and without policies geared towards the full-time integration of women into the workforce. 
  • The report shows that working time reduction policies can reduce working time mismatches and improve workers’ well-being, hourly productivity and pay. However, their impact on employment rates and broader economic effects remain ambiguous.


Background


The Labour Market and Wage Developments in Europe report published by the Directorate-General for Employment, Social Affairs and Inclusion (DG EMPL) analyses the labour market from a macroeconomic perspective. It studies recent employment and wage developments, looking at the euro area and the EU as a whole.


The Commission will come forward with an update of its projections on economic indicators, including unemployment, in the EU in the upcoming Autumn Economic Forecast.



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