Eurozone: Key measures of wage growth have slipped over recent months – ABN AMRO

Aline Schuiling, senior economist at ABN AMRO, points out that all measures of wage growth in the Eurozone have accelerated during the past few years, from levels of around 1.0-1.5% yoy in 2015 and 2016, to levels of around 2-2.5% in 2018. 

Key Quotes

“The numbers for 2019Q1-Q2 indicate that wage growth has stopped rising and peaked in 2018 H2. Indeed, the definition used by the ECB in its own projections, compensation per employee, rose by 2.4% yoy in 2018Q3 and has subsequently declined to 2.1% in 2019Q1. As this definition of wage growth includes changes in social security payments by employers it can be influenced by policy changes. Indeed, changes in France’s labour market taxes and social security payments at the start of 2019 have had a sharp downward impact on compensation per employee in France.”

“Nevertheless, even If we take this one-off effect into consideration the eurozone total would have been 2.2% in 2019Q2, which still is a slowdown from 2018Q3. Another definition of wage growth that is also closely watched by the ECB is negotiated wages, which excludes the impact of taxes. The rise in negotiated wages has declined from 2.3 in 2019Q1 to 2.0% in 2019Q2.”

“Looking further ahead, we expect wage growth to continue to slow down gradually over the coming quarters. The decline in unemployment in the eurozone has already slowed down in recent months whereas the employment component of the composite PMI has dropped to levels consistent with stagnating employment growth and modestly rising unemployment. Combined with ongoing subdued inflation and inflation expectations, this should push wage growth down further.”