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.
