Wages in Europe

Across Europe, wages trended upwards throughout 2024, driven largely by high inflation, combined with ongoing competitive labour market conditions. In Q4 of 2024, hourly labor costs rose by 4.6% in the euro area and by 5.1% in the European Union. Employers are facing pressure to maintain competitive rates while facing cost pressures through newly introduced minimum wage structures and tax adjustments.

UK and Poland

Minimum wages have been a key driver of wage spikes in Europe, and this has been reflected in AGS benchmarking analysis throughout 2024. In the UK, since 2019, wage hikes have accelerated due to inflationary pressures surpassing historical averages. The minimum wage in the UK rose by 39.3% from April 2019 to April 2024, with a further increase set to be introduced in April 2025, raising the minimum wage for adults age 21 and over to £12.21 per hour.

In the UK, manufacturing and light industrial roles have seen the highest growth in wage rates year over year, with roles including network engineers, general laborers and packers emerging as top movers. This trend is driven by a combination of higher minimum wage rates and a need to attract and retain a skilled workforce in high-turnover sectors. This growth also reflects a broader trend where employees are increasingly moving away from low-paying roles in favor of positions offering better compensation, career progression and improved workplace conditions.

Poland’s labor market has also experienced significant wage increases, largely in response to changes in the statutory minimum wage. In January 2025, the minimum wage in Poland will rise to 30.5 PLN per hour, marking an increase of 10.1% year on year and a 167% increase over the last decade.

This sharp rise has most notably affected entry-level roles, where wage hikes have been most pronounced. As a result, industries traditionally reliant on minimum-wage labor are experiencing a ripple effect, with salaries for roles requiring less experience rising substantially. AGS benchmarking data highlights this trend, with noticeable upward movement in wages for entry-level positions, particularly in call centers, customer service and lower-level administrative roles. These roles have experienced some of the most substantial year-on-year wage increases in Poland.

While wages for entry-level positions have surged, the wage growth for more experienced professionals has not kept pace. As a result, the wage gap between entry-level and senior roles has narrowed for some roles, particularly in sectors where entry-level roles traditionally dominated. However, this may represent a short-term market adjustment in response to recent minimum wage changes rather than a long-term trend.

While these wage hikes have been substantial in the short term, AGS will continue tracking this shift as we expect companies to adjust internal wage structures over time to balance wage compression with long-term sustainability.

Belgium

Belgium’s wage growth has remained strong, averaging 4% annually over the past five years, with a particularly sharp increase of 10.2% in 2023 due to automatic wage indexation in response to inflation. This system, which adjusts salaries in line with the cost of living, has helped cushion the impact of rising living costs. However, with inflation expected to fall to 1.9% by 2026, real wage gains may slow in the coming years.

Belgium’s pharmaceutical sector remains a standout performer, benefiting from continued investment in biotech research and production. Companies like Janssen, Pfizer and UCB have helped drive wage growth, with salaries in pharma outpacing many other industries.

Netherlands

The Netherlands has experienced slower wage growth compared to its neighboring countries, with an average annual increase of 3.5% over the past five years. While 2023 saw a 5.6% rise, wages have struggled to keep pace with inflation, which hit a peak of 10% in 2022 before falling to 3.2% in 2024. This suggests that real wage growth is still recovering, but a tight labor market, especially in tech and healthcare, has driven up wages in key sectors.

The IT sector has seen the most substantial wage growth, with salaries rising faster than the national average. Amsterdam, in particular, has solidified its status as one of Europe’s top tech hubs, with companies like ASML, Adye and Booking.com aggressively hiring and increasing pay to attract scarce talent.

Germany

Germany has recorded the highest wage growth among the previously mentioned European countries, with salaries increasing by 4.3% per year on average, peaking at 5.8% in 2023 – the fastest rise in over a decade. This is largely attributed to high inflation and collective wage bargaining agreements, particularly in manufacturing and engineering. However, Germany’s inflation rate remains a concern, hitting 2.6% in December 2024, which could impact real wage gains. Rising labor costs, particularly in the automotive industry, have also led to debates over competitiveness, with firms like Volkswagen facing cost pressures.

Engineering remains a critical pillar of the Germany economy, but with over 100,000 vacancies, wage pressures continue to increase, with wages in manufacturing increasing by 5.7% in 2024. This growth is fueled by a persistent demand for skilled engineers, particularly in mechanical, electrical and automotive engineering disciplines. The country's strong emphasis on innovation and quality, and its focus on green energy and automation, has solidified its position as a global leader in engineering.

2025 Outlook

While wage growth trends across Europe have shown signs of cooling, particularly in response to falling inflation rates, pressure remains in skilled markets. The trend has shifted from pronounced demand-driven wage increases to supply-driven growth, influenced by regulatory changes including recent minimum wage adjustments.

Given ongoing cost pressures in the market, employers continue to face battling priorities when it comes to hiring, emphasizing the need to stand out among competitors to attract and retain talent. Companies must remain agile in adjusting compensation strategies to align with the evolving market conditions, particularly in high-demand sectors requiring specialized skills.

We recommend employers focus on low-complexity, high-reward schemes to drive efficiency and growth in the internal workforce. This includes an emphasis on upskilling, i.e., focusing efforts on growing the potential of the existing workforce by providing greater opportunity to expand capability within existing roles and pursue opportunities for development.