Wages and labour costs

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.

Gross earnings

Among EU Member States, in 2010 the mean (average) gross annual earnings of full-time employees in enterprises employing ten employees or more were highest in Denmark (EUR 58 840), followed by Luxembourg (EUR 49 316), the Netherlands (EUR 45 215), Ireland (EUR 45 207, in 2009), Belgium (EUR 43 423) and Germany (EUR 42 400). On the other hand, the lowest mean gross annual earnings were registered in Romania (EUR 5 891) and Bulgaria (EUR 4 396) – see Table 1. In 2010, median gross hourly earnings showed more or less similar ranking across the EU Member States (see Figure 1), with the highest median hourly earnings (25.0 EUR) in Denmark and the lowest (1.5 EUR) in Bulgaria. The median gross hourly earnings in the EU was registered at 11.9 EUR whereas in the euro area this was recorded at 13.2 EUR. The proportion of low-wage earners in the EU was registered at 17.0 %, the highest in Latvia (27.8 %) and Lithuania (27.2 %), while less than 8 % 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 %). 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.

Minimum wages

In January 2013, 20 of the EU's 27 Member States (Belgium, Bulgaria, the Czech Republic, Estonia, Ireland, Greece, Spain, France, Latvia, Lithuania, Luxembourg, Hungary, Malta, the Netherlands, Poland, Portugal, Romania, Slovenia, Slovakia, and the United Kingdom), Croatia and Turkey had national legislation setting a minimum wage by statute or by national intersectoral agreement (see Figure 4). Monthly minimum wages varied widely, from EUR 157 in Romania to EUR 1 874 in Luxembourg. When adjusted for price differentials across countries, the disparities between the Member States are reduced from a range of one to twelve (in EUR) to a range of one to six in purchasing power standard (PPS). At the opposite ends of the scale were Romania (274 PPS) and Luxembourg (1 524 PPS per month).

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 2012. The highest tax burdens on low wage earners in 2012 were recorded in Belgium, Hungary, France, Germany, Italy, Austria, Romania, Latvia and Sweden (all above 40 %). 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 less than 30 %. 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 2005 to 2011 (see Table 2) – with the tax burden rising in 15 Member States and falling in 12. The largest reductions were recorded in the Netherlands and Sweden with a drop of 8.5 percentage points and 5.9 percentage points respectively. On the other hand, the tax wedge rose at a relatively fast pace in France (up by 5.1 percentage points), while there were increases of between 1 and 3 percentage points in Greece, Italy, Latvia, Hungary, Portugal, Romania and Slovakia. 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 decrease between 2005 and 2011 in the incentive for low wage earners to seek higher incomes, as a higher proportion of their earnings would be ‘taxed away’; there was no change between 2005 and 2011 in the proportion of earnings that would be ‘taxed away’ when an unemployed person moved into employment.

Labour costs

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 38.44 in Denmark, EUR 37.70 in Belgium and EUR 41.9 in Sweden, to EUR 3.7 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 (90.8 %), 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 employer, at around one third (33 %).

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 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 ten 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 excluding apprentices) working in enterprises with ten 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 ten 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.

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. 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 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

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.

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. 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. fonte - Eurostat