Wages and labour costs

From Statistics Explained

Data from March 2014. Most recent data: Further Eurostat information, Main tables and Database. Planned update: March 2015.
Labour cost components
Figure 1: Hourly labour costs, 2013 (1)
(EUR) - Source: Eurostat (lc_lci_lev)
Figure 2: Median gross hourly earnings, all employees
(excluding apprentices), 2010 (1) - Source: Eurostat (earn_ses_pub2s)
Figure 3: Low-wage earners — employees
(excluding apprentices) earning less than two thirds of the median gross hourly earnings, 2006 and 2010 (1)
(% of employees) - Source: Eurostat (earn_ses_pub1s)
Figure 4: Gender pay gap, 2012 (1)
(% difference between average gross hourly earnings of male and female employees, as % of male gross earnings, unadjusted form) - Source: Eurostat (tsdsc340)
Table 1: Annual net earnings, 2012
(EUR) - Source: Eurostat (earn_nt_net)
Figure 5: Tax rate on low-wage earners — tax wedge on labour cost, 2012 (1)
(%) - Source: Eurostat (earn_nt_taxwedge)
Table 2: Tax rate indicators on low wage earners, 2005 and 2012
(%) - Source: Eurostat (earn_nt_taxwedge), (earn_nt_unemtrp) and (earn_nt_lowwtrp)

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.

Labour plays a major role in the functioning of an economy. From the point of view of businesses, it represents a cost (labour costs) that includes not only the wages and salaries paid to employees but also non-wage costs, mainly social contributions payable by the employer. Thus, it is a key determinant of business competitiveness, although this is also influenced by the cost of capital (for example interests on loans and dividends on equity) and non-price elements such as innovation and the brand / products positioning on the market.

As far as employees are concerned, the compensation received for their work, more commonly called wages or earnings, generally represents their main source of income and therefore has a major impact on their ability to spend or save. Whereas gross wages / earnings include the social contributions payable by the employee, net earnings are calculated after deduction of these contributions and any amounts which are due to government, such as income taxes. As the amount of taxes generally depends on the situation of the household in terms of income and composition, net earnings are calculated for several typical household situations.

The diagram above summarises the relation between net earnings, gross earnings / wages and labour costs.

Main statistical findings

Labour costs

The average hourly labour cost in the EU-28 was estimated at EUR 23.70 in 2013 and at EUR 28.20 in the euro area (EA-18). However, this average masks significant differences between EU Member States, with hourly labour costs ranging between EUR 3.70 and EUR 40.10 (Figure 1).

Labour costs are made up of costs for wages and salaries plus non-wage costs such as employers’ social contributions. The share of non-wage costs for the whole economy was 23.7% in the EU-28, while it was 25.9 % in the euro area. The share of non-wage costs also varies substantially across EU Member States. The highest shares of non-wage costs for the whole economy were in Sweden (33.3 %), France (32.4 %), Lithuania (28.5%), Italy (28.1 %) Belgium and Slovakia (both 27.4 %). The lowest shares of non-wage costs for the whole economy were recorded for Malta (8.0 %), Denmark (12.4 %), Luxembourg (13.4 %), Ireland (13.8 %), Slovenia (14.7 %), the United Kingdom (15.3 %), Croatia (15.4 %) and Bulgaria (15.8 %).

Gross wages / earnings

Median earnings

Gross earnings are the largest part of labour costs. Among EU countries, the highest median gross hourly earnings in October 2010 were recorded in Denmark (EUR 25.00), followed by Ireland (EUR 18.30) and Luxembourg (EUR 17.80) — see Figure 2. The lowest were recorded in Bulgaria (EUR 1.50), Romania (EUR 2.00), Lithuania (EUR 2.70) and Latvia (EUR 2.90). The median gross hourly earnings of the EU Member State with the highest value was 16 times as high as the hourly earnings of the Member State with the lowest value when expressed in euros; when expressed in purchasing power standards (PPS) — which account for price level differences between countries — the ratio was 5 to 1.

Low-wage earners

Low-wage earners are defined as those employees earning two thirds or less of the national median gross hourly earnings in a particular country.

In 2010, 17.0 % of employees were low wage earners in the EU-27, whereas the proportion was 14.8 % in the euro area (EA-17). The countries with the highest proportions of low-wage earners were Latvia (27.8 %) and Lithuania (27.2 %), while Sweden (2.5 %), Finland (5.9%), France (6.1 %), Belgium (6.4 %) and Denmark (7.7 %) had the lowest proportions. Compared with 2006, the last reference year available for the same data collection, the share of low-wage earners remained relatively stable, having gone up 0.2 percentage points in the EU-27 and 0.4 percentage points in the euro area (Figure 3).

Between 2006 and 2010, the proportion of low-wage earners increased most notably in Malta (+3.9 percentage points) and Bulgaria (+3.1 percentage points) while the largest decreases were recorded in Portugal (-4.6 percentage points), Latvia (-3.1 percentage points), Greece (-2.9 percentage points), Hungary and Slovenia (both -2.1 percentage points).

Gender pay gap

Despite some convergence, there remains a substantial difference between the average earnings of men and women in the EU, a concept commonly known as the gender pay gap. In 2012, in the EU-28 as a whole, women were paid, on average, 16.4 % less than men. The smallest differences in average pay between the sexes were found in Slovenia, Malta, Poland, Italy, Luxembourg and Romania (less than 10.0 % difference). The biggest gender pay gaps were identified in Estonia (30.0 %), Austria (23.4 %), Germany (22.4 %) and the Czech Republic (22.0 %) — see Figure 4.

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 and/or maternity leave. 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 often 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.

Net earnings and tax burden

Net earnings

Information on net earnings complements gross earnings data with respect to disposable earnings, in other words after the deduction of income taxes and employee's social security contributions from the gross amounts and the addition of family allowances, in the case of households with children. Family allowances are cash transfers paid in respect of dependent children.

In 2012, the net earnings of a single person without children, earning 100 % of the average earnings of a worker in the business economy, ranged from EUR 3 598 in Bulgaria to EUR 37 020 in Luxembourg. The same two countries recorded the lowest (EUR 4 028) and the highest (EUR 49 955) average net earnings respectively for a married couple with a single earner and two children (Table 1).

In the case when both parties of a married couple work (both earning 100 % of an average worker’s earnings), Luxembourg recorded the highest annual net earnings, EUR 83 368 when the couple had two children and EUR 75 846 when the couple had no children; Bulgaria recorded the lowest net earnings EUR 7 197, irrespective of whether the couple had two children or not.

Tax wedge

Information relating to the tax wedge measures the burden of tax and social security contributions relative to labour cost. This information is provided in relation to low wage earners. The tax wedge for the EU-27 was 39.9 % in 2012. The highest tax burdens on low-wage earners in 2012 were recorded in Belgium, Hungary, France, Germany, Italy, Austria, Latvia, Romania and Sweden (all above 40.0 %). On the other hand, the lowest tax burdens for low-wage earners were recorded in Malta, Ireland, the United Kingdom and Luxembourg (below 30.0 %) as well as in Cyprus (latest data from 2007).

Among the EU Member States, there was no distinct pattern with regard to the development of the tax wedge for low-wage earners over the period from 2005 to 2012 (see Table 2) — with the tax burden rising in fourteen Member States, falling in eleven and remaining unchanged in two ( Croatia not available). The largest reductions were recorded in the Netherlands (-8 percentage points) and Sweden (-6 percentage points).

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 proportion of income ‘taxed away’ when an unemployed person moved into employment fell slightly (-0.5 percentage points) in the EU-27 between 2005 and 2012. The biggest drops were recorded in Sweden (-15 percentage points) and Lithuania (-14 percentage points) whereas Hungary and the Czech Republic recorded increases of 17 and 14 percentage points respectively.

The overall figures for the EU-27 show that there was a slight increase (1 percentage point) between 2005 and 2012 in the disincentive for low wage earners who were single with no children to seek higher incomes, as a higher proportion of their earnings would be ‘taxed away’. There was however no change in the EU-27 average for a single-earner married couple with two children, but there were quite different developments among the Member States. The highest increase (45 percentage points) in the proportion of earnings that would be ‘taxed away’ for a single-earner married couple with two children was recorded in the Czech Republic whereas Poland recorded a decrease of 48 percentage points.

Data sources and availability

Labour costs

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.

Labour cost statistics constitute a hierarchical system of multi-annual, yearly and quarterly statistics, designed to provide a comprehensive and detailed picture of the level, structure and short-term development of labour costs in the different sectors of economic activity in the EU and certain other countries. All statistics are based on a harmonised definition of labour costs. The labour cost levels are based on the latest labour cost survey (currently 2008) and an extrapolation based on the quarterly labour cost index. The labour cost survey is a four-yearly survey that collects levels of labour costs at a very detailed level. For the purpose of extrapolating with the labour cost index, data are only used at an aggregated level. The quarterly labour cost index (a Euroindicator) measures the cost pressure arising from the labour production factor. The data covered in the labour cost index collection relate to total average hourly labour costs and to two labour cost categories: wages and salaries; employers' social security contributions plus taxes paid minus subsidies received by the employer. Data — also disaggregated by economic activity — are available for the EU aggregates and EU Member States (NACE Rev. 2 Sections B to S), in working day and seasonally adjusted form. The labour cost index data are given in the form of index numbers (the current reference year is 2008) and of annual and quarterly growth rates (comparisons with the previous quarter, or the same quarter of the previous year).

Gross wages / earnings

The main definitions for earnings are provided in Regulation 1738/2005 of 21 October 2005. Data come from the four-yearly structure of earnings survey (SES) whose latest vintage dates back to October 2010. Gross earnings cover monetary remuneration 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, and so on) are included.

Data on median earnings are based on gross hourly 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. The median earning is the value such that half of the population earns less than this value and the other half earns more.

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 is benchmarked on data collected from the structure of earnings survey (SES), which is revised every four years when SES data becomes available. The SES is based on Regulation 1738/2005 of 21 October 2005.

According to the 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 between the public and private sectors, by working time (full-time or part-time) and based on the age of employees.

Net earnings and tax burden

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.

Context

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.

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 2006–10 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 the first European 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.

See also

Further Eurostat information

Publications

Main tables

Gender pay gap in unadjusted form (tsdsc340)
Labour cost index (teilm100)
Labor cost index in NACE Rev. 2 - percentage change Q/Q-1 (teilm120)
Labour cost index in NACE Rev. 2 - percentage change Q/Q-4 (teilm130)
Labour cost index in NACE Rev. 2 - Index (2008=100) (teilm140)
Labour cost levels (lc_lci_lev)

Database

Dedicated section

Methodology / Metadata

Source data for tables and figures (MS Excel)

External links


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