European pay differences narrowing

2005

The pay gap between Europe's wealthiest and poorest nations is narrowing, according to new figures released this week.

According to Pay in Europe 2005, a report by the Federation of European Employers (FedEE), European Union (EU) countries are developing a more coherent labour market as people increasingly move to work in other countries and it becomes easier to live in one country and work in another.

At the same time, Western European countries are struggling to restrain their labour costs in the face of competition from Eastern Europe, India and the Far East.

In 2001, for example, hourly pay in Denmark was 39 times greater than in Romania. But by February 1st this year the gap had narrowed to just 22 times.

The reason for the dramatic change is that during the period 2001-5, hourly pay in Denmark has risen by only 18%, whilst in Romania it has risen by 115%.

The figures highlight that poorer countries are reaping the benefit of inward investment, while governments in countries such as Belarus and Moldova are also increasing salary levels to stave off social unrest.

Unsurprisingly, though, a huge divide remains between established EU countries such as Germany, Italy and the UK and the emergent accession states such as Poland and Hungary.

However, for the majority of European employees, living standards are gradually being harmonised and skill differentials changing to reflect a better relationship with market value.

Speaking at the launch of the report, FedEE Secretary-General, Robin Chater, suggested that statutory minimum wage levels were exerting a strong influence on pay relativities.

“33 of the 48 countries covered by our report operate legal pay minima, and the list is likely to grow over the next five years - especially if Germany eventually decides to adopt this approach to supplement its ailing collective bargaining system.”

He also pointed out that the smaller countries appeared to have generally higher pay levels.

“It is certainly an advantage to work in a small country or in an island economy," he said. "This may be due to the dominance of financial services businesses in many states such as Liechtenstein, Luxembourg or the Isle of Man.

"However, even in the Faroe Isles where the principal industry is fishing, pay levels are relatively high”.