Labour costs in the European Union keep climbing, piling onto an already sluggish economy battling global uncertainty. But beyond higher wages, deeper structural challenges—deindustrialisation and a growing skills gap—are straining Europe’s economic outlook even further.
According to a new Eurostat report, hourly labour costs, a key inflation indicator, have risen across the EU, with the trend accelerating in late 2024. While wages and salaries edged up alongside modest increases in non-wage expenses, these shifts occurred against a backdrop of persistent economic hurdles. In response, European policymakers have pushed initiatives like the Competitiveness Compass and Clean Industrial Deal to stabilize the situation.
The European Central Bank (ECB) has sounded the alarm, warning that wage growth unaccompanied by productivity improvements could curb investment and weaken demand, slowing the EU’s economic recovery. Adding to the gloom, the ECB recently downgraded eurozone growth projections for the fourth straight quarter, citing weak consumer spending, global trade tensions, and lingering geopolitical risks. A sluggish export sector and fragile investment climate have only reinforced the need for economic adjustments.
Despite the challenges, the ECB remains cautiously optimistic. With inflation cooling and past interest rate hikes losing their bite, real wages could rise, potentially boosting demand in the near future.
Meanwhile, Europe’s deepening skills shortage poses another major roadblock to long-term competitiveness. Roxana Mînzatu, the European Commission’s Executive Vice-President for Social Rights and Skills, recently told the European Parliament that “four in five businesses struggle to find workers with the right skill set.” Labour shortages span over 40 critical sectors, including construction, transport, and healthcare.
To bridge the gap, some industries, like mining and quarrying, have ramped up training and benefits in a bid to attract talent. However, unless the EU tackles these workforce challenges head-on, rising labour costs could further strain economic recovery efforts.
