The real wage outlook in Europe's leading economies varies from country to country.
According to the OECD's 2026 Employment Outlook report, real wages are expected to decline in Italy, Spain, France and the UK between the first quarter of 2026 and the first quarter of 2027, and to increase in Germany.
The report stated that geopolitical uncertainties and the rise in energy costs could weaken labor markets, create additional pressure on inflation, and this could push wages down.
It was stated that the forecasts are based on the assumption that the economic and energy-related disruptions caused by the conflict in West Asia will be significant but relatively short-lived.
OECD economist Alexandre Georgieff said the differences between countries were due to different outlooks on inflation, unemployment and spare capacity in the labor market.
THE BIGGEST DECLINE IS IN ITALY
Among the five major economies, the steepest loss in real wages is expected to occur in Italy.
It is estimated that real wages will remain 1.9 percent lower in the third quarter of 2026 compared to the first quarter of the year.
While a gradual recovery is anticipated after the decline, the difference is expected to decrease to 1.4 percent in the first quarter of 2027.
Despite this, it is estimated that real wages will remain 0.6 percent below the level in the first quarter of 2026 even at the end of 2027.
ENERGY DEPENDENCE IS PRESSURING ITALY
It was stated that the annual inflation in Italy in September is expected to reach 4.1 percent.
Georgieff said the rise in energy costs is expected to erase recent real wage gains due to the country's high dependence on imported oil and natural gas.
Stating that wage increases are expected to remain limited in 2027, Georgieff cited the limited number of collective bargaining agreements to be renewed and the continuation of idle capacity in the labor market as the reasons for this.
LOSSES IN SPAIN WILL LAST LONGER
The decline in real wages in Spain is expected to be more limited but longer-lasting than in Italy.
It is estimated that real wages will decline by 0.4 percent in the third quarter of 2026 and 0.7 percent in the fourth quarter.
In all four quarters of 2027, real wages are expected to remain 0.7 percent below the level in the first quarter of 2026.
In this case, Spain will be the country with the highest loss in real wages among the five major economies at the end of 2027.
THE DECLINE IS MORE LIMITED IN FRANCE
Real wages in France are expected to bottom out by declining by 0.5 percent in the second quarter of 2026.
While a gradual recovery is then anticipated, real wages are expected to return to the level of the first quarter of 2026 in the second quarter of 2027.
It is estimated that real wages will remain only 0.1 percent above this level by the end of 2027.
While the annual inflation in France in September is estimated to be 3.4 percent, this rate is below the Euro Zone average of 3.8 percent.
Georgieff stated that nuclear energy contributed to keeping inflation relatively low in France, but the increase in unemployment limited the recovery of wages.
REAL WAGES WILL INCREASE IN GERMANY
Germany was the only country among the five major economies where real wages were expected to rise over the period.
It was estimated that real wages would increase by 0.1 percent in the second quarter of 2026 and 0.5 percent at the end of the year.
While the increase is expected to accelerate in 2027, real wages are predicted to increase by 1.1 percent in the second quarter and 1.7 percent in the fourth quarter.
This rate marks the strongest real wage growth among the five countries.
WHAT SUPPORTS WAGES IN GERMANY?
Georgieff said the real wage outlook in Germany is supported by a tight labor market, a shortage of skilled workers and more positive unemployment expectations.
It was stated that broad fiscal policies financed by debt also supported economic activity.
Institute for Employment Research (IAB) Professor Enzo Weber reminded that real wages in Germany declined significantly due to high inflation in the first years of the 2020s.
Weber stated that nominal wages started to catch up with inflation after the collective bargaining agreements and that the current rise is largely a continuation of this recovery.
Stating that the minimum wage in Germany was increased by 8.4 percent at the beginning of 2026 and is planned to be increased by another 5 percent in 2027, Weber said that the increase in capacity utilization also creates space for wage increases.
