Switzerland and Iceland are two of the highest paying countries across the EU and EEA, whereas Bulgaria and Romania have the lowest wages.
EU labour regulations are generally quite strong, with an emphasis on individual working conditions and labour rights, right to information, anti-discriminatory laws and job security.
However, when it comes to salaries and wages across EU member states, there are still significant variations, depending on a number of factors, such as labour laws, demand, inflation and more. According to Eurostat, in 2022, the average annual wages ranged from €106,839.33 in Switzerland to €12,923.66 in Bulgaria.
The highest paying countries in 2022 were Switzerland (€106,839), Iceland (€81,942), Luxembourg (€79,903), Norway (€74,506) and Belgium (€70,297), whereas the lowest payers were Bulgaria (€12,923), Romania(€14,500), Croatia(€17,842), Hungary(€18,274) and Poland (€18,114).
Eurostat highlights in this report that the average hourly labour cost in the EU was €30.5. Average annual salaries for single employees without children came in at €26,136. Working couples with two children clocked in an average of €55,573 yearly.
The unadjusted gender pay gap was 12.7% in 2021, with the largest gap being seen in Estonia, at 20.5% and the smallest gap being in Luxembourg at -0.2%. However, according to the European Commission, the pay gap increased to 13% in 2023.
Back in 2020, the European Commission announced a strategy to attempt to bridge this gap by 2025. This was followed by the commission launching the Pay Transparency Directive in June 2023, with a €6.1 million fund to help implement the same. This made it easier for employees to recognise pay discrimination, as well as functioned as a guideline for employers.
Average annual net salaries have increased slightly over the years for both the EU and the Euro area but not as much as might have been expected. This is largely due to productivity lagging, especially in the aftermath of the global financial crisis, even when economic growth started to recover. Lower inflation in the earlier years of the 2010s have also contributed to somewhat stagnant wages, as well as higher unemployment levels.
Typically the highest paying sectors in Europe are finance, insurance, electricity, mining, information technology, retail and education. On the other end of the spectrum, the lowest paying sectors tend to be administrative support, hospitality and construction.
However, inflation is key factor to be considered when looking at the purchasing power in different countries. Most of the EU and EEA has seen soaring high inflation in the last couple of years. This was mainly due to the pandemic and its resulting price shocks, caused by supply chain backlogs.
Other geopolitical shocks such as the Russia-Ukraine war have also contributed to these supply delays, as well as aggravated the energy crisis. Now, with the Israel-Hamas conflict, this situation may very well get worse.
In this case, higher inflation is likely eating away at wages and increase the cost of living. Wage growth often does not keep up with the speed of rising prices. Many companies also don’t offer inflation hikes, undermining the impact of a higher salary somewhat.
Why such high salaries in Switzerland and Iceland?
Switzerland’s high salaries are mainly driven by its banking and financial services sector. It also has much lower taxes compared to the rest of the EU and EEA, averaging around 20% to 35% for the 150,000 to 250,000 Swisss Francs bracket.
Iceland’s salaries are boosted by a large proportion of the country’s private sector banking on collective agreements. Some increases have also been due to the addition of COVID-19 benefits, as well as hourly salaries bouncing back following weakness during the pandemic.
Iceland is also one of the most expensive countries in the world, with persistently high inflation, which also contributes to workers demanding higher salaries. Since March 2019, 326 Icelandic labour agreements have been signed, with over 90% of the workforce being part of a labour union.
Much like Switzerland. the financial and banking sectors form the main weight behind Luxembourg’s attractive salaries, with most banks employing highly educated, experienced and in demand workers. A number of these are also expats.
Luxembourg also reviews its minimum social wage, in comparison with average wages and price movements every two years, thus keeping wage standards very updated. However, salaries depend largely upon sectors, divisions of banks, seniority, age, as well education and experience.
This can cause significant disparities, even within the same sector, depending on an employee’s particular role and job title. As such, average salaries have been more or less flat in Luxembourg since 2015, as productivity wanes.
Workers in Norway are typically very highly educated, thus commanding higher salaries. Wage inequality is also quite low, with a very well thought out progressive taxation system, which further keeps income inequalities at a minimum. Norway’s more egalitarian work culture also makes it easier for workers to negotiate salaries and perks.
Belgium banks heavily rely on wage indexation for both private sector white collar and blue collar employees. The country saw the highest indexation in 50 years in 2022, as soaring inflation and out of control energy prices took their toll on employee purchasing powers.
However, taxation rates can play a huge part in real wages, and dictate the amount of purchasing power workers have. Most high wage countries in the EU and EEA, especially those part of the Organisation for the Economic Co-operation and Development (OECD), as highlighted below.
Countries with the lowest salaries
Bulgaria is currently struggling with lower salaries as more and more workers leave the country to work in more prosperous parts of Europe, such as Western European countries. Low education, chronic poverty and less access to employer-sponsored training, as well as career counselling, have all contributed to depressed salaries.
However, Bulgaria is still resilient, having recently petitioned to raise minimum wages from 933 levs (€477) from next year, from 780 levs (€398) currently. It also has less exposure to dangerous chemicals at work, as well as a less hectic work life, compared to some of its peers.
Weak or not adequately leveraged labour unions play a huge role in Romanian salaries remaining low. Foreign companies are not very well regarded, causing some reluctance in joining them. The Romanian economy is also still finding its feet, leading to lower opportunities.
The Croatian War of Independence, in the early 1990s, took a heavy toll on the economy at the time, with Croatia missing out on building up its economic and financial sectors, when the rest of the EU was. Following the war, the government has also had massive expenses in terms of compensations and rebuilding efforts.
This has led to Croatia’s economy today still being not as developed as one might expect. There is a heavy reliance on temporary and seasonal workers supporting the country’s hospitality and tourism sector. This has led to wages being kept chronically low, as little upside pressure in terms of length of employment tenure, unions, or negotiations arise.
However, since joining the EU, things are looking up with Croatia now taking advantage of a bigger labour market, amongst other benefits. The country also has quite a low cost of living, which also helps with purchasing power.
A technical recession in Hungary may have contributed to lower wages recently, as fewer companies were able to afford labour costs. However, historically, Hungary’s low cost of living may have been a key factor in weak upside salary movements, although this may be slowly changing now that the country faces higher inflation.
Coming to Poland, the government may have quite a hand in keeping wages suppressed, with it intentionally doing so for several years, so Poland can retain the tag of “cheap labour”. While this does attract foreign companies, it hardly makes life any better for the average Polish worker, who are paid much less than their Western European counterparts. A low of living does go some way in easing this pressure though.
However, average earnings only show part of the picture, especially when it comes to an entire country or region. Ideally quantitative statistics should always be looked at along with qualitative ones, to gain a more cohesive understanding.
In this case, statistics like overall satisfaction of life may shed more light on actual quality of life and living conditions. In some cases, despite average earnings being low, such as Poland, respondents are shown to be quite satisfied with their lives, as highlighted below.
Source : Euro News Business