Original Coverage & Source Attribution: www.euronews.com
Real wages — pay adjusted for inflation — are projected to fall in Italy, Spain, France and the UK between the first quarters of 2026 and 2027, while rising in Germany, according to the OECD’s Employment Outlook 2026. In Italy and Spain, they are expected to remain below their early 2026 levels until at least the end of 2027.
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“In the future, geopolitical uncertainties and a time-limited increase in energy costs may significantly weaken labour markets while exerting further upward pressure on inflation, which likely will depress wages,” the report said.
The report notes that projections are “based on the assumption that the disruptions from the conflict in the Middle East are sizeable but limited to a relatively short period of time”.
Alexandre Georgieff, an OECD economist and one of the report’s authors, said differences in projected real wage growth can be explained by different outlooks for inflation, unemployment and labour market slack.
Unless otherwise stated, all figures below compare real wages with their level in the first quarter of 2026.
Across the eurozone as a whole, real wages are expected to fall by 0.4% in mid-2026 and return to their early 2026 level by the first quarter of 2027. By the end of 2027, they are projected to be 0.7% higher.
Italy sees the largest fall
Italy is expected to record the largest decline in real wages among the five countries, falling 1.9% below its early 2026 level in the third quarter of that year.
A slow recovery is expected to follow. The decline narrows to 1.4% in the first quarter of 2027. By the end of 2027, real wages in Italy are still projected to be 0.6% below their early 2026 level. Italy’s annual inflation rate was estimated to reach 4.1% in September.
“In Italy, high energy costs are expected to wipe out recent real wage gains, reflecting the country’s heavy dependence on imported oil and gas,” Georgieff told Euronews Business.
“Its recovery in 2027 is expected to be limited because few collective wage agreements are due for renewal that year and slack remains in the labour market.”
Spain shows no recovery
Spain’s decline is smaller, but it lasts. Real wages slip 0.4% in the third quarter of 2026 and 0.7% in the fourth.
Spain’s decline is smaller but more persistent. Real wages are projected to fall 0.4% in the third quarter of 2026 and 0.7% in the fourth.
They then remain 0.7% below their first-quarter 2026 level through all four quarters of 2027.
By the end of 2027, Spain is projected to have the largest decline among the five major economies, at 0.7%.
Georgieff said that Spain is expected to see strong job creation, but continue to face high inflation, largely driven by energy prices. Prices in Spain were estimated to be 5% higher in September compared with the year before.
Italy and Spain are the only two countries among the five where real wages are projected to remain below their early 2026 levels at the end of 2027.
UK falls fast then recovers
The UK has the second-largest projected drop after Italy. According to OECD projections, real wages fall 0.6% in the second quarter of 2026 and 1.5% in the third. They bottom out in the fourth quarter at 1.6% below their first-quarter level.
The recovery is quicker. The decline eases to 1.1% in the first quarter of 2027 and 0.4% in the second. Real wages then move above their early 2026 level, up 0.4% in the third quarter and 1% by the end of 2027.
With annual inflation rising to 3.1% in August, pay remains under pressure.
“The outlook for real pay growth in the UK remains challenging. The UK is particularly exposed to energy price volatility as a result of the conflict in the Middle East. This means inflation is expected to remain higher for longer than in comparable European economies into 2027,” Charles Cotton, senior reward and performance adviser at the CIPD, told Euronews Business.
He noted that the CIPD’s Labour Market Outlook suggests employers are becoming increasingly cautious about future pay awards. Rising employment costs, including higher employer National Insurance contributions and increases to minimum wage rates, combined with wider cost pressures such as rising supplier costs, are constraining pay budgets.
France sees a smaller decline
France reaches its lowest point earlier, with real wages projected to fall 0.5% in the second quarter of 2026. The gap then narrows. Real wages return to their first-quarter 2026 level in the second quarter of 2027 and end 2027 just 0.1% higher.
September’s estimated annual inflation rate of 3.4% was below the eurozone’s 3.8%.
“In France, inflation remains relatively low thanks to nuclear power, but wages are expected to adjust only slowly as unemployment continues to rise,” Georgieff said.
Real wages are projected to fall year-on-year in these four major economies between the first quarters of 2026 and 2027.
Germany is the exception
Germany is the only country among the five where real wages are projected to rise throughout the period, despite annual inflation reaching an estimated 3.3% in September.
The gain is small at first, at 0.1% in the second quarter of 2026 and 0.5% by the end of the year.
Growth accelerates in 2027, with real wages projected to be 1.1% higher by the second quarter and 1.7% higher by the fourth. This is the strongest result among the five.
Georgieff noted that Germany’s wage projections are boosted by a comparatively tight labour market, with skilled labour shortages and better unemployment prospects. A large debt-financed fiscal expansion is also supporting activity.
Why are real wages growing in Germany?
Enzo Weber, a professor at the Institute for Employment Research (IAB), noted that real wages in Germany were particularly weak in the first years of the 2020s due to surging inflation. “Afterwards, nominal wages started to catch up, supported by collective wage bargaining. What we see at the moment is still driven by this development,” he told Euronews Business.
He noted that the minimum wage increased by 8.4 % at the beginning of 2026 and will increase by a further 5% in 2027.
“Germany witnessed several stagnation years. Now the business cycle recovers with capacity utilisation clearly increasing. This boosts productivity and creates more room for wage increases despite the crisis in manufacturing,” he said.
