Wages and labour costs

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Data from November 2011, most recent data: Further Eurostat information, Main tables and Database.

This article compares and contrasts figures on wages and labour costs in the European Union (EU), the latter being generally defined as employers’ expenditure on personnel.

Table 1: Earnings in the business economy (average gross annual earnings of full-time employees), 2000-2010 (1)
(EUR) - Source: Eurostat (earn_gr_nace2) and (earn_gr_nace)
Figure 1: Median gross annual earnings of full-time employees, 2006 (1)
(EUR) - Source: Eurostat (earn_ses_adeci)
Figure 2: Low wage earners - full-time employees earning less than two thirds of the median gross annual earnings, 2006 (1)
(% of employees) - Source: Eurostat (earn_ses_adeci)
Figure 3: Gender pay gap, 2009 (1) (% difference between average gross hourly earnings of male and female employees, as % of male gross earnings, unadjusted form) - Source: Eurostat (tsiem040)
Figure 4: Minimum wage, as of 1 July 2011 (1)
(EUR per month) - Source: Eurostat (earn_mw_cur)
Figure 5: Tax rate on low wage earners - tax wedge on labour cost, 2010
(%) - Source: Eurostat (tsiem050), OECD, Commission services
Table 2: Tax rate indicators on low wage earners, 2004 and 2009
(%) - Source: Eurostat (tsiem050), (earn_nt_unemtrp) and (earn_nt_lowwtrp)
Figure 6: Average hourly labour costs in the business economy, 2009 (1)
(EUR) - Source: Eurostat (lc_an_costh_r2) and (lc_an_costh)
Figure 7: Breakdown of labour costs in the business economy, 2009 (1)
(% share of total labour costs) - Source: Eurostat (lc_an_struc_r2) and (lc_an_struc)

The level and structure of wages and labour costs are important macro-economic indicators used by policymakers, employers and trade unions to assess labour market supply and demand conditions.

Contents

Main statistical findings

Gross earnings

Among EU Member States, the mean (average) gross annual earnings of full-time employees in enterprises with ten or more employees were highest in Denmark (EUR 56 044) in 2009, followed by Luxembourg (in 2010), Ireland, the Netherlands and Germany (in 2010) – all above EUR 40 000 – while earnings were lowest in Romania (EUR 5 891 in 2010) and Bulgaria (EUR 4 085) – see Table 1.

In 2006, median annual earnings showed a broadly similar ranking of countries (see Figure 1), with mean earnings higher than median earnings in all countries except Malta. The proportion of employees considered to be low wage earners in 2006 was highest in Latvia, at 30.9 %, while more than one in four employees were also considered as low wage earners in Lithuania, Bulgaria and Romania (see Figure 2).

Gender pay gap

Despite some progress, there remains an important gender pay gap: gap between the average earnings of men and women in the EU-27. Women were paid, on average, 17.1 % less than men in 2009. The smallest differences in average pay between the sexes were found in Slovenia, Italy, Malta, Romania, Belgium (in 2008), Poland and Portugal (at 10 % or less), the biggest in Estonia (in 2007), the Czech Republic and Austria (more than 25 %). 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 (see also the article on gender pay gap statistics).

Minimum wages

In July 2011, 20 of the EU's 27 Member States (all except Denmark, Germany, Italy, Cyprus, Austria, Finland and Sweden), as well as two candidate countries (Croatia and Turkey) had national legislation setting a minimum wage by statute or by national inter-sectoral agreement.

Monthly minimum wages varied considerably in July 2011 (see Figure 4) ranging from EUR 1 758 per month in Luxembourg to EUR 158 and EUR 123 respectively in Romania and Bulgaria. When adjusted for differences in purchasing power, the disparities between the Member States were reduced from a ratio of 14:1 (highest compared with lowest) in euro terms to a ratio of 6:1 in purchasing power standard (PPS) terms. The same countries remained at either end of the range, with a high of PPS 1 466 in Luxembourg and a low of PPS 243 in Bulgaria (see also the article on minimum wage statistics).

Net earnings and tax rates

Tax wedge data measures the relative tax burden – within Figure 5 this information is provided in relation to low wage earners. The tax wedge for the EU-27 was 39.3 % in 2010, which was slightly lower than five years earlier. The highest tax rates on low wage earners in 2010 were recorded in Belgium, France, Germany, Hungary, Italy, Latvia, Austria and Romania.

Among the EU Member States, it was common to see tax rates lowered over the most recent five years for which data are available through to 2010. The largest reductions were recorded in the Netherlands, Cyprus (to 2007), Poland, Slovenia, Finland and the Czech Republic. On the other hand, the tax wedge rose at a relatively fast pace in France and Italy.

The other 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 generally less incentive between 2005 and 2010 for the unemployed or low wage earners to seek paid employment, as a higher proportion of their earnings would be ‘taxed away’ (see also the article on earnings statistics).

Labour costs

Average hourly labour costs (see Figure 6) and the structure of labour costs (see Figure 7) varied widely across the Member States in 2009. Hourly labour costs in the business economy (NACE Rev. 2 Sections B to N) ranged from a high of EUR 36.94 in Belgium and EUR 36.11 in Denmark, to EUR 4.00 in Romania and EUR 2.88 in Bulgaria in 2009 (note these figures include not only the compensation of employees, but also vocational training costs, other expenditure, taxes and subsidies incurred or received by business economy enterprises). The relative importance of wages and salaries in total labour costs was 66.2 % in Sweden (in 2007) and was also less than 70 % in Belgium and France, while it was 85 % or more in the United Kingdom, Slovenia, Luxembourg, Denmark and Malta (see also the article on labour cost statistics).

Data sources and availability

Gross earnings

Gross earnings are the largest part of labour costs – information is provided on average (mean) annual gross earnings. The main definitions on earnings are provided in a 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, are included (13th or 14th month, holiday bonuses, profit-sharing, allowances for leave not taken, occasional commissions, etc.). The information is presented for full-time employees working in business economy (as covered by NACE Rev. 1.1 Sections C to K up to and including 2007, and by NACE Rev. 2 Sections B to N from 2008 onwards). The statistical unit is the enterprise or local unit. The population consists of all units, although it is limited to enterprises with at least ten employees for most countries.

Data on median earnings are based on gross annual earnings, and represent the median earnings of full-time employees in enterprises with ten or more employees. Low wage earners are full-time employees that earn less than two thirds of the median gross annual earnings.

Gender pay gap

The gender pay gap (GPG), 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 unadjusted gender pay gap indicator covers all employees (there are no restrictions for age and hours worked) of enterprises (with at least ten employees) within industry, construction and services (as covered by NACE Rev. 2 sections B to N and P to S).

Minimum wages

Minimum wage statistics refer to monthly national minimum wages; data are published showing the wage on the 1 January and the 1 July of each year. The national minimum wage is enforced by law, often after consultation with social partners, or directly by national inter-sectoral agreement (this is the case in Belgium and Greece). The national minimum wage is usually applicable for all employees, or at least for a large majority of employees in the country. Minimum wages are gross amounts, that is, before the deduction of income tax and social security contributions; such deductions vary from country to country. In some countries the basic national minimum wage is not fixed at a monthly rate but at an hourly or weekly rate. For these countries the hourly or weekly rates are converted into monthly rates according to conversion factors directly supplied by the countries:

  • Ireland: hourly rate x 39 hours x 52 weeks / 12 months;
  • France for data from January 1999 to January 2005: hourly rate x 39 hours x 52 weeks / 12 months; for data from July 2005: hourly rate x 35 hours x 52 weeks / 12 months;
  • Malta: weekly rate x 52 weeks / 12 months;
  • United Kingdom: (hourly rate x mean basic paid hours per week for full-time employees in all sectors x 52.18 weeks) / 12 months;
  • United States: hourly rate x 40 hours x 52 weeks / 12 months.

In addition, when the minimum wage is paid for more than 12 months per year (as in Greece, Spain and Portugal, where it is paid for 14 months a year), data have been adjusted to take these payments into account.

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 business economy (NACE Rev. 2 Sections B to N). The unemployment trap measures the proportion of gross earnings taxed away by higher tax and social security contributions and the withdrawal of unemployment and other benefits when an unemployed person returns to 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 the gross earnings. This indicator is compiled for single persons without children earning 67 % of the average earnings of a worker in 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 business economy (NACE Rev. 2 Sections B to N). This indicator is compiled for single people without children and also for single-earner couples with two children between 6 and 11 years old.

Labour costs

Labour costs are defined as employer’s expenditure that is related to employing personnel. They 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 three core indicators:

  • average monthly labour costs, defined as total labour costs per month divided by the corresponding number of employees, expressed as full-time equivalent units;
  • 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.

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.

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) 0092) 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.

Further Eurostat information

Publications

Main tables

Earnings
Main tables
Earnings (t_earn)
Average gross annual earnings in industry and services, by gender (tps00175)
Tax wedge on labour cost (tsiem050)
Tax rate on low wage earners by marginal effective tax rates on employment incomes (tsiem060)
Gender pay gap in unadjusted form (tsiem040)
Minimum wages (tps00155)
Labour costs
Main tables
Labour costs (t_lc)
Labour cost index (teilm100)
Total wages and salaries (tps00113)
Social security paid by employer (tps00114)
Other labour costs (tps00115)
Hourly labour costs (tps00173)
Monthly labour costs (tps00174)

Database

Earnings
Database
Labour costs
Database

Dedicated section

Methodology / Metadata

Source data for tables and figures (MS Excel)

External links

See also

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