Wages and labour costs
From Statistics Explained
- Data from July 2013. Most recent data: Further Eurostat information, Main tables and Database. Planned article update: March 2014.
This article compares and contrasts figures on wages and labour costs (employers’ expenditure on personnel) in the European Union (EU) Member States and in EU candidate and European Free Trade Association (EFTA) countries.
The level and structure of wages and labour costs are important macroeconomic indicators used by policymakers, employers and trade unions to assess labour market supply and demand conditions.
Main statistical findings
In 2011, mean (average) gross annual earnings of full-time employees in enterprises employing 10 employees or more were highest among the EU Member States in Denmark (EUR 60 002), followed by Luxembourg (EUR 50 545), the Netherlands (EUR 46 287) and Belgium (EUR 46 636). On the other hand, the lowest mean gross annual earnings were registered in Bulgaria (EUR 4 668), followed by Romania (EUR 6 146), Lithuania (EUR 7 425), Latvia (EUR 8 923) and Poland (EUR 9 702) — see Table 1.
In 2010, median gross hourly earnings showed a more or less similar ranking (as for mean gross annual earnings) across the EU Member States (see Figure 1), with the highest median hourly earnings (EUR 24.97) in Denmark and the lowest (EUR 1.52) in Bulgaria. The median gross hourly earnings in the EU was registered at EUR 11.93, whereas in the euro area this was recorded at EUR 13.23.
The proportion of low wage earners in the EU was 17.0 %, and was highest among the EU Member States in Latvia (27.8 %) and Lithuania (27.2 %), while less than 8.0 % of full-time and part-time employees classified as low wage earners in Sweden, Finland, France, Belgium and Denmark (see Figure 2).
Gender pay gap
Despite some progress, there remains an important gender pay gap, the difference between average earnings of men and women in the EU-27. For the EU-27 as a whole, women were paid, on average, 16.2 % less than men in 2011. The smallest differences in average pay between the sexes were found in Slovenia, Poland, Italy, and Luxembourg (at less than 9.0 % difference). The biggest gender pay gaps were identified in Estonia (27.3 %), Austria (23.7 %) and Germany (22.2 %). Various effects may contribute to these gender pay gaps, such as: differences in labour force participation rates, differences in the occupations and activities that tend to be male- or female-dominated, differences in the degrees to which men and women work on a part-time basis, as well as the attitudes of personnel departments within private and public bodies towards career development and unpaid/maternity leave.
Net earnings and tax burden
Information relating to the tax wedge measures the burden of tax and social security contributions relative to labour cost – within Figure 5 this information is provided in relation to low wage earners. The tax wedge for the EU-27 was 39.6 % in 2011. The highest tax burdens on low wage earners in 2012 were recorded in Belgium, Hungary, France, Germany, Italy, Austria, Romania (2011), Latvia (2011) and Sweden (all above 40.0 %). On the other hand, the lowest tax burdens for low wage earners were recorded in Cyprus (11.9 %, in 2007) and Malta (18.6 % in 2011); Ireland, the United Kingdom and Luxembourg were the only Member States to report a tax burden for low wage earners that was less than 30.0 %.
Among the EU Member States, there was no distinct pattern to the development of the tax wedge for low wage earners over the period from 2006 to 2011 (see Table 2) — with the tax burden rising in 12 Member States, falling in 10 and remaining unchanged in four. The largest reductions were recorded in Sweden and Poland with a drop of 5.2 percentage points and 4.4 percentage points respectively. On the other hand, the tax wedge rose at a relatively fast pace in Bulgaria (up by 2.1 percentage points) and Italy (2.0 percentage points), while there were increases in the range of 1.9 to 1.0 percentage points in Hungary, Latvia, Romania, Estonia, Greece and France.
The other three indicators presented in Table 2 provide information on the proportion of gross earnings that is ‘taxed away’ (higher tax rates and social security contributions and/or reduction or loss of benefits) when people return to employment or move from lower to higher incomes. The overall figures for the EU-27 show that there was a slight increase between 2006 and 2011 in the incentive for low wage earners who were married (one earner) with children to seek higher incomes, as a lower proportion of their earnings would be ‘taxed away’; there was no change in the proportion of earnings that would be ‘taxed away’ when a single person without children earned a higher income. The proportion of income ‘taxed away’ when an unemployed person moved into employment also fell slightly between 2006 and 2011.
Average hourly labour costs (see Figure 6) and the structure of labour costs (see Figure 7) varied widely across the EU Member States in 2012. Hourly labour costs in the business economy ranged from EUR 41.90 in Sweden, EUR 40.50 in Belgium and EUR 39.20 in Denmark, to EUR 3.70 in Bulgaria. Note that these figures cover not only wages and salaries (gross earnings) as well as social contributions paid by the employer but also vocational training costs, taxes and other expenditure paid by the employer less subsidies received by the enterprise.
As shown in Figure 7, there were also significant differences within the distribution of labour costs (wages and salaries vis-à-vis employers' social contributions and other labour costs paid by the employer). Malta had the highest proportion of labour costs allocated to wages and salaries (91.1 %), well ahead of the next highest share in Denmark (87.2 %). At the other end of the ranking, Sweden, France and Belgium all reported just over two thirds of total labour costs attributed to wages and salaries. Consequently, these three countries recorded the highest share (of total) labour costs allocated to employers' social contributions and other labour costs paid by employers, at more than 30.0 %.
Data sources and availability
Gross earnings are the largest part of labour costs – information is provided on average (mean) annual gross earnings. The main definitions for earnings are provided in Regulation 1738/2005 of 21 October 2005. Gross earnings cover remuneration in cash paid directly by the employer, before tax deductions and social security contributions payable by wage earners and retained by the employer. All bonuses, regardless of whether they are regularly paid (such as 13th or 14th month pay, holiday bonuses, profit-sharing, allowances for leave not taken, occasional commissions, etc.) are included. The information is presented for full-time employees working in the business economy (NACE Rev. 2 Sections B to N). The statistical unit is the enterprise or local unit. The population consists of all units, although it is generally limited to enterprises with at least 10 employees for most countries.
Data on median earnings are based on gross hourly earnings, and represent the median earnings of all employees (full-time and part-time, but excluding apprentices) working in enterprises with 10 or more employees and in all sectors of the economy except agriculture, fishing, public administration, private households and extra-territorial organisations. Low wage earners are those employees that earn less than two thirds of the national median gross hourly earnings.
Gender pay gap
The gender pay gap, in its unadjusted form, is defined as the difference between average gross hourly earnings of male paid employees and female paid employees, expressed as a percentage of average gross hourly earnings of male paid employees. The methodology for the compilation of this indicator has recently changed and is now based on data collected from the Structure of earnings survey (SES), rather than on non-harmonised sources (as was previously the case).
According to the new methodology, the indicator concerning the unadjusted gender pay gap covers all employees (there are no restrictions for age and hours worked) of enterprises (with at least 10 employees) within industry, construction and services (as covered by NACE Rev. 2 Sections B to S excluding O). Some countries, also provide information for NACE Rev. 2 Section O (public administration and defence; compulsory social security) although this is not obligatory. Information is also available with an analysis according to the economic sector (public or private), working time (full-time or part-time) and age of employees.
Net earnings and tax rates
Net earnings are derived from gross earnings and represent the part of remuneration that employees can actually keep to spend or save. Compared with gross earnings, net earnings do not include social security contributions and taxes, but do include family allowances.
Tax rate indicators (tax wedge on labour costs, unemployment trap and low wage trap) aim to monitor work attractiveness. The tax wedge on labour costs is defined as income tax on gross wage earnings plus employee and employer social security contributions, expressed as a percentage of total labour costs. This indicator is compiled for single people without children earning 67 % of the average earnings of a worker in the business economy (NACE Rev. 2 Sections B to N). The unemployment trap measures the proportion of gross earnings that is ‘taxed away’ by higher tax and social security contributions and the withdrawal of unemployment and other benefits when an unemployed person moves into employment; it is defined as the difference between gross earnings and the increase of net income when moving from unemployment to employment, expressed as a percentage of gross earnings. This indicator is compiled for single persons without children earning 67 % of the average earnings of a worker in the business economy (NACE Rev. 2 Sections B to N). The low wage trap measures the proportion (as a percentage) of gross earnings which is ‘taxed away’ through the combined effects of income taxes, social security contributions, and any withdrawal of benefits when gross earnings increase from 33 % to 67 % of the average earnings of a worker in the business economy (NACE Rev. 2 Sections B to N). This indicator is compiled for single persons without children and also for single-earner couples with two children between 6 and 11 years old.
Labour costs encompass employee compensation (including wages, salaries in cash and in kind, employers’ social security contributions), vocational training costs, and other expenditure (such as recruitment costs, expenditure on work clothes, and employment taxes regarded as labour costs minus any subsidies received). These labour cost components and their elements are defined in Regulation 1737/2005 of 21 October 2005. Data relate to two core indicators:
- average hourly labour costs, defined as total labour costs divided by the corresponding number of hours worked;
- the structure of labour costs (wages and salaries; employers’ social security contributions; other labour costs), expressed as a percentage of total labour costs.
The structure and development of labour costs and earnings are important features of any labour market, reflecting labour supply from individuals and labour demand by enterprises.
Policymakers have focused on tackling poverty and social exclusion through encouraging people (back) into work. However, the group of ‘low wage workers’ or the ‘working poor’ has entered policy debates: indeed, the wide disparity in earnings within the EU has left some 12.1 % of employed persons at-risk-of-poverty or social exclusion and therefore facing considerable difficulties in order to maintain a set of minimum living standards.
Some underlying factors that may, at least in part, explain gender pay gaps include sectoral and occupational segregation, education and training, awareness and transparency, as well as direct discrimination. Gender pay gaps also reflect other inequalities – in particular, women’s disproportionate share of family responsibilities and associated difficulties of reconciling work with private life. Many women work part-time or under atypical contracts: although this permits them to remain in the labour market while managing family responsibilities, it can have a negative impact on their pay, career development, promotion prospects and pensions.
The EU seeks to promote equal opportunities implying progressive elimination of the gender pay gap. Article 157(1) of the Treaty on the functioning of the European Union (TFEU) sets out the principle of equal pay for male and female workers for equal work or work of equal value, and Article 157(3) provides the legal basis for legislation on the equal treatment of men and women in employment matters. The strategy for equality between women and men (2010-2015) was adopted by the European Commission in September 2010. This builds on the experience of a roadmap (COM(2006) 92 final) that was developed for the period 2006-2010 and aims to be a comprehensive framework which will commit the European Commission to promote gender equality in all of its policies. The strategy highlights the contribution of gender equality to economic growth and sustainable development, and supports the implementation of the gender equality dimension of the Europe 2020 strategy. With this in mind, the EU launched equal pay day on 5 March 2011. This date was chosen for a particular reason, as in order to match the average annual earnings of a man, a woman would need to work slightly more than two additional months (through to 5 March of the following year) in order to receive the same amount of pay as a man.
- Earnings statistics
- Gender pay gap statistics
- Hourly labour costs
- Labour cost structural statistics
- Labour cost at regional level
- Labour cost index - recent trends
- Labour market policy interventions
- Labour markets at regional level - Earnings at a regional level
- Minimum wage statistics
- Regional labour market disparities
Further Eurostat information
- Labour market statistics - Pocketbook 2011 edition
- Labour market statistics - Pocketbook 2010 edition
- In 2010, 17% of employees in the EU were low-wage earners — Statistics in Focus, issue number 48/2012
- Earnings (t_earn), see:
- Average gross annual earnings in industry and services, by gender (tps00175)
- Gender pay gap in unadjusted form (tsdsc340)
- Labour costs (t_lc), see:
- Labour cost index (teilm100)
- Labor cost index by NACE Rev. 2 - percentage change Q/Q-1 (teilm120)
- Labour cost index by NACE Rev. 2 - percentage change Q/Q-4 (teilm130)
- Labour cost index by NACE Rev. 2 - Index (2008 =100) (teilm140)
- Total wages and salaries (tps00113)
- Social security and other labour costs paid by employer (tps00114)
- Labour costs annual data - NACE Rev. 2 (tps00173)
Methodology / Metadata
- Gross earnings - annual data (ESMS metadata file - earn_gross_esms)
- Labour cost index (ESMS metadata file - lci_esms)
- Labour cost survey (ESMS metadata file - lcs_esms)
- Labour costs annual data (ESMS metadata file - lcan_esms)
- Net earnings and tax rates (ESMS metadata file - earn_net_esms)
Source data for tables and figures (MS Excel)
- International Labour Organisation - Global Wage Report 2012-13
- International Labour Organisation - Wages and income
- OECD - Employment - Labour Statistics