Europe

Wage growth across Europe moderated in 2025 despite historically low unemployment, marking a clear shift from the stronger gains observed in 2024. In Q3 2025, hourly labor costs increased by 3.3% in the euro area and 3.7% in the European Union. This declaration reflects easing inflationary pressures, within inflation expected to remain close to the European Central Bank’s target through 2026. While competitive wage pressures have softened, employers continue to face rising labor costs driven by minimum wage increases, many of which took effect across countries in January 2026.

United Kingdom

Consistent with broader European trends, wage growth in the United Kingdom slowed in 2025 as labor market conditions cooled and unemployment rose to a five-year high of 5.2%. Despite this moderation, minimum wages continued to increase across age groups. Rates for workers aged 21 and over are expected to rise by 4.1%, while minimum wages for those aged 18–20 are set to increase more sharply, by 8.5%.

As a result of these minimum wage increases, wage growth remains most pronounced in entry-level roles, a trend also reflected in our benchmark data. Across the Allegis Global Solutions portfolio, entry-level positions within the light industrial sector experienced the highest rate increases in 2024 and 2025. At the same time, rising labor costs and heightened economic uncertainty are prompting many organizations to reassess hiring strategies, with a growing preference for more experienced talent.

Allegis Global Solutions’ benchmarking data reinforces this trend, showing a growing concentration of mid-level roles, particularly within:

Engineering: 33% of roles classified as mid-level
IT: 27% of roles classified as mid-level
Professional Services: 25% of roles classified as mid-level

As wage growth cools and cost-of-living pressures persist, employers are increasingly emphasizing benefits and workplace flexibility over salary increases to attract and retain talent. Concurrently, declining availability of entry-level roles is likely to reshape early-career pathways. With fewer traditional entry-level opportunities, higher-level apprenticeship models may gain traction, particularly as apprentices can earn up to 15% more than university graduates five years into their careers.

Germany

While negotiated wages in Germany reached 6% in 2024, more moderate growth is expected in 2026. Wages increased 4% in Q4 2025; however, Bundesbank notes that this rise largely reflects inflation compensation, bonuses and pay increases in mid-2024 rather than renewed wage momentum.

Germany’s economic recovery remains uneven amid lingering impacts from US trade policies with manufacturing, particularly the automotive sector, experiencing the greatest pressure. Global automotive output declined 8.8% in January, highlighting continued weaknesses across the sector. Despite these challenges, production and manufacturing roles recorded some of the strongest wage growth, increasing 4.1% .

Entering 2026, policy and industry focus has been centered on accelerating adoption of industrial AI to improve productivity and GDP growth, alongside sustained investment in environmentally sustainable manufacturing to help offset structurally high energy costs.

Ireland

Despite inflation stabilizing between 1.9% and 2.9%, wage growth in Ireland remained resilient in 2025 as employers continued to prioritize compensation increases to attract and retain talent. Approximately 85% of Irish employers increased wages in 2025, with average pay rising 3.6%, reflecting sustained competition for skills even as inflationary pressures ease.

This momentum is expected to continue into 2026, with 80% of employers planning further wage increases averaging 3.1%. Recent earnings data supports this outlook, with average weekly earnings rising 3.1% in the final quarter of 2025, signaling ongoing upward pressure on labor costs.

Accommodation and food services recorded the strongest annual wage growth at 6.8%, driven by persistent labor shortages in frontline roles. This was followed by financial, insurance and real estate, where wages rose 6.2% amid ongoing demand for specialized, high-value skill sets.

Additional sectors contributing to upward wage pressure include:

Technology: Ongoing demand for cybersecurity, DevOps and data engineering talent.
Construction: Large-scale housing and infrastructure projects sustaining labor demand
Hospitality and Catering: Ongoing staffing shortages intensifying wage competition

Talent scarcity remains a key constraint within Ireland, with two-thirds of businesses reporting hiring challenges, reinforcing the need for competitive market pricing to secure critical skills.

European Emerging Markets

Wage growth across Europe’s emerging markets, concentrated primarily in Central and Eastern Europe (CEE) and the Baltics, continued to accelerate in 2025 as these regions expanded their roles as outsourcing and nearshoring hubs. Industrial growth in countries such as Poland, the Czech Republic, Romania and Hungary have increased demand for manufacturing and engineering talent, while the Baltics have emerged as centers for digital transformation and high-skill technology roles. As a result, wage growth in these markets remains among the strongest in Europe, reflecting both rising demand and ongoing convergence in purchasing power.

In Q3 2025, several emerging markets recorded hourly labor cost increases well above the EU average, led by Bulgaria (12.4%), Lithuania (9.7%), Croatia (9.7%), Hungary (8.8%) and Poland (7.8%). While these increases are notable, they are occurring from a relatively low base, and labor costs in these markets remain highly competitive compared to Western Europe.

Minimum wage increases remain a key driver of wage acceleration across CEE markets, lifting entry-level pay and raising the overall wage floor. In Poland, for example, the minimum hourly rate increased to PLN 31.40 in January 2026 (+3% YoY). Despite these increases, labor costs continue to trail Western Europe benchmarks, preserving the region’s attractiveness for sourcing.

Wage pressures are most pronounced in technology, manufacturing and engineering, where demand for digital and technical skills continues to outpace supply. As wage growth narrows historical cost advantages, employers are increasingly shifting toward targeted, role-based pay strategies focused on critical skills and productivity rather than broad-based increases.