The average real wage increase for European workers fell from 3.6% in 2007 to 1.3% in 2008, according to new data published by Eurofound’s European Industrial Relations Observatory (EIRO). The annual update on pay developments in Europe 2008 recorded sizeable differences between EU Member States, with the rate of real increase falling sharply, and the nominal rate dropping only slightly. Wide differences emerge, however, between the various groups of countries within the EU, in terms of the level of real wage increases, with a broad east-west split.

Collective bargaining remains one of the primary tools for setting pay levels in Europe. The new report, which covers pay developments in the 27 EU Member States (EU27) and Norway in 2008, found the average collectively agreed nominal pay increase in the EU as a whole fell from 7.0% in 2007 to 6.6% in 2008. Nominal increases in the EU15 are at much lower levels than in the EU as a whole, with the average pay rise standing at 3.2% in 2007 and 3.8% in 2008. In the 12 new EU Member States (NMS12), the average rate of nominal increase is considerably higher, at 11.6% in 2007 and 10.1% in 2008. However, the difference in pay increases between the EU15 and the NMS12 narrowed from 2007 to 2008 – average pay rises in the NMS12 were 3.6 times higher than in EU15 in 2007 and 2.7 times higher in 2008.

When the sharp inflation increases across the EU27 in 2008 are taken into account, the rate of real increase is seen to have fallen from 3.6% in 2007 to 1.3% in 2008. This decline in real pay increases of 2.3 percentage points compares with a decrease of only 0.4 percentage points in nominal pay increases. In the EU15, the average real pay increase stood at 1.0% in 2007 and fell to 0.3% in 2008 – and at 1.3% and 0.5% respectively, if Norway is included. In the NMS12, the average real pay increase was considerably higher than in the EU15, at 6.9% in 2007 and 2.4% in 2008.

In terms of trends in real pay rises, the rate of increase, following the average trend, fell between 2007 and 2008 in all but four countries: Germany, Greece, Hungary and the Netherlands. The rate of increase declined most sharply in Estonia, Latvia and Romania. The exceptions were Germany, Greece, Hungary and the Netherlands, where the rate of increase rose.

The report also examines collectively-agreed pay increases in three selected sectors (metalworking, banking, and local government), current wage rates and minimum wage increases, increases in average earnings, and the extent of the gender pay gap across all countries.