Historically, inflation remains one of the most important drivers of wage growth in the eurozone, as negotiated wage growth uses the cost of living as a key input. Therefore, the rapid decline in inflation throughout 2023 would historically have a dampening impact on future wage growth. As this coincides with a cooling of the labor market, it means that a further moderation in wage growth is expected. Using a simple model with historical relationships, we would expect wage growth to trend in the low 3% range in 2024, down from the latest reading of 4.4% annual growth. However, this is not the time to rely on historical relationships.
In fact, there are good reasons why wage growth will most likely turn out to be higher. Negotiated wages are advancing slowly and are still adjusting to some extent for last year’s high inflation. Given high inflation and the large negative real wage shock resulting from last year, unions could try to launch another round of high wage demands. In addition, unions could try to compensate for the end of the one-off inflation compensation schemes with higher wage demands in 2024 and 2025. The ECB monitors the latest negotiated wage agreements, which gives a decent idea of where growth will move. general salary in the first quarter. mid-2024. This appears to be around 5% at the moment, somewhat above current levels. We do not expect a further acceleration due to market developments, but it does not appear that a decline in the growth of negotiated wages is imminent either.
Beyond negotiated wage growth, wage growth for new hires also gives an idea of where wages are headed. The Indeed Wage Tracker provides an estimate of this, which will likely move ahead of negotiated wages. Here we see a cautious downward trend, which in fact began in September of last year. That means overall pay growth per employee will be somewhat below negotiated pay developments as the market begins to change.