Hourly labour costs in Europe: Luxembourg in the lead

"The share of non-wage costs in total labour costs for the whole economy was 24.7 per cent in the EU and 25.5 per cent in the euro area," the report further explained. The lowest shares of non-wage costs in the EU were in Romania with 4.8%, Lithuania with 5.4% and Malta with 5.8%. The highest in France with 32.2 per cent and Sweden 31.6 per cent'.

As far as Italy is concerned, according to ISTAT's Q4 labour market report, 'input, as measured by hours worked, increased by 0.2 per cent compared to the previous quarter and by 0.5 per cent compared to Q4 2023. Over the same period, GDP grew by 0.1% in cyclical terms and by 0.6% in trend terms'. Not only that: the number of employed people remained substantially stable compared to Q3 2024, as a result of the growth in permanent employees (+118 thousand, +0.7%), which offset the decrease in fixed-term employees (-86 thousand, -3.1%) and the self-employed (-36 thousand, -0.7%)

The labour cost per full-time equivalent work unit "increased by 0.2% on a cyclical basis, both in the wages and salaries component (+0.2%) and, to a slightly lesser extent, in the social contributions component (+0.1%)". On a yearly basis, although slowing down compared to the strong growth recorded in the two previous quarters, labour costs "show an increase of 3.2%, as a result of the growth of the wage component equal to +3.1% and of the contribution component worth +3.5%, influenced by contractual renewals".

In industry and services enterprises, dependent employment, net of seasonal effects, "grew by 0.4% in cyclical terms, with an increase of equal intensity for the two components full-time and part-time". Not only: hours worked per employee increased compared to the previous quarter (+0.4%) but decreased compared to Q4 2023 (-1.0%). Lay-off hours (Cig) grew in trend terms by 1.8 hours per thousand hours worked. In this context, 'the decline in positions in temporary employment continues, observed on both a cyclical (-0.9%) and annual (-3.6%) basis'. Positions with intermittent contracts are also growing.

Bulgaria represents a peculiar case within the European Union: despite an enviable fiscal stability - with a debt/GDP ratio among the lowest in the entire EU and a public deficit below 3% in 2023 - it remains the poorest country in the bloc, both in terms of GDP per capita and salary levels. This apparent contradiction has its roots in the banking crisis of 1996-1997, which led to the adoption of a currency board and a policy of strict control of public spending, maintained for years by governments of different orientations.

In recent years, due to the pandemic crisis, this discipline has been loosened somewhat, with increased spending on pensions, benefits and wages in the public sector. An effective - but debated - lever has been the annual increase of the minimum wage, now set at 1077 leva (EUR 550). However, the average gross wage remains low: in the fourth quarter of 2024 it stood at 2413 leva (1233 euro). This is compounded by a significant underground economy, particularly in sectors such as tourism, agriculture and construction, which contributes to an underestimation of real incomes in order to reduce contribution burdens.

However, Bulgaria has a competitive advantage in terms of labour costs. The tax burden on income is among the lowest in the EU (flat rate of 10%) and social security contributions do not apply beyond 4130 leva (2111 euro), while non-wage costs account for only 13.3% of the total, against an EU average of 24.7%.

On the convergence front, the path is on course. GDP per capita expressed in purchasing power standards (PPS) reached 66% of the European average in 2024. Bulgaria is aiming for eurozone entry as early as 2025, while according to the World Bank's 'Country Economic Memorandum', with the appropriate reforms it could achieve the status of a high-income economy by 2040. However, the path remains uphill: without a revival of productivity and a decisive response to the demographic emergency, growth could slow down to 1.2% per year by 2050.

In Lithuania, labour costs rose among the fastest in Europe, while remaining below the EU average. According to the Ministry of Finance, wage dynamics slowed down in 2024 compared to previous years, but remained strong due to the shortage of skilled labour. The gross monthly wage increased on average by 10.2 %, with stronger increases in the public sector (+12.8 %) than in the private sector (+9 %).

Both the strong demand for skilled workers and public pay policies, including the increase in the minimum monthly wage (MMA), which rose by 10% to EUR 924 as of January 2024, drove the increase in wages. All economic sectors recorded wage increases, albeit with different intensities: from +5.7 % in administrative services to +15.7 % in education.

Despite the robustness of these dynamics, elements of fragility remain. In the private sector, the limited financial capacity of companies and the easing of inflationary pressures on wages slowed wage growth. However, high vacancy rates continued to support labour demand.

Lithuania is thus in a transitional phase, trying to consolidate the wage and social progress of recent years without compromising the competitiveness of companies. The crucial issue remains the balance between wage growth and productivity, in a context where skills shortages risk becoming a structural brake on development.

*This article is part of the European collaborative journalism project Pulse.