Key points
- Timely data on wage growth have historically been limited, especially in Europe.
- While central banks monitor wage developments for signs that could impact the inflation outlook, finding accurate wage growth data has been difficult.
- We have developed the Indeed Wage Tracker — a new monthly indicator of wage growth based on data from millions of online job postings on Indeed in six euro-area countries and the UK.
- Growth in euro-area posted wages accelerated in 2022, reaching 5.2% year-on-year in October — more than three times the pre-pandemic rate — while growth in the UK was 6.2% and appears to have peaked at this level.
- Wage growth has also become increasingly broad-based, with most occupational categories seeing annual growth in posted wages above 3%.
- These trends align with central banks’ expectations for wages to continue to grow at rates well above historic levels in the near term.
Central banks are more and more concerned that current high rates of inflation will become entrenched in employees’ wage demands, pushing up costs and prices in the future, and making it harder for inflation to return to its target. This puts wage developments firmly in the spotlight. As policymakers keep a close eye on the inflation outlook and worry about the wage-price spiral, they need to know both how fast wages are growing and how widespread high wage growth is.
Timely, forward-looking indicators of wage growth are rare in Europe. Official wage statistics are often released with a long lag. Some additional sources of information, such as the European Central Bank (ECB)’s indicator of negotiated wage rates from collective bargaining processes, are useful, but come with concerns about coverage and timeliness.
In response to these needs, we have developed the Indeed Wage Tracker — a new indicator of wage growth based on wages and salaries posted in Indeed job ads. We focused on data from the UK and six euro-area countries — France, Germany, Ireland, Italy, the Netherlands and Spain — that jointly account for over 80% of euro-area employment. Here, and in the accompanying research paper, we use data from 24 million job postings from January 2018 to October 2022 to measure growth in posted wages by country and occupation. Our method — based loosely on the Atlanta Fed’s US Wage Growth Tracker — consists of measuring wage growth within narrowly defined jobs and then calculating the median. This means that our overall wage growth trends are not driven by increases in the share of specific high- or low-paying jobs in any given period.
Our tracker was built to be responsive. Available shortly after the end of each month, it’s much more timely than existing sources. It can help shed light on future trends because it tells us how much employers expect (and are willing) to pay to hire an additional worker. The wages of new hires tend to be more sensitive to the economic cycle than the wages of all workers — tracking them gives us up-to-date insight into how tight the labour market is, i.e., if vacant jobs are plentiful and available workers are scarce.
With such novel data, it’s important to understand how representative these figures are, which is why we benchmark our data against official wage statistics — with encouraging results. The posted wage data compares very well, both in terms of general trends and population coverage.
Wage Growth Has Accelerated
Growth in posted wages accelerated sharply during the pandemic recovery. In the euro area, the employment-weighted average growth rate in our six target countries more than doubled from around 2% in late 2021 to over 4% by the summer of 2022. In October, wage growth in our tracker was 5.2%, consistent with the ECB’s expectations that wages of all workers will grow at rates well above historical levels in the near term.
In the UK, growth picked up earlier and has been higher, reflecting both higher inflation and a tighter labour market due to the decline in labour supply. Posted wage growth in our tracker doubled from around 3% in mid-2021 to 6.4% in June 2022, before falling back slightly to 6.2% by October.
We see broadly similar trends in the individual euro-area countries. While wage growth rates differ, they increased relative to the pandemic and pre-pandemic rates in all countries in the first half of 2022. In Ireland, Italy, Netherlands, Spain and France there were tentative signs of plateauing in the third quarter but the growth rates remained high. In Germany, wage growth has continued to rise and shows little sign of slowing.
Germany leads our euro-area posted wage growth ranking with a growth rate of 7.1% in the three months to October. It is followed by France (5.2%), Ireland (4.7%), Italy (4.2%), Netherlands (4.0%) and Spain (3.5%). Germany’s high rate of growth is buoyed by the rapid pace of minimum wage increases and pulls up the employment-weighted euro-area average. The relatively low rate of wage growth we observe in Spain is consistent with data on negotiated wages and could be driven by the low job vacancy rate relative to other euro-area countries.
These growth rates are well above 2019 levels, but they lag estimated headline inflation which ranged from 7.1% in France to 16.8% in the Netherlands in October.
High Wage Growth Is Broad-based
In the year to October, six out of 10 occupational categories in the euro area and more than eight out of 10 in the UK saw wage growth in excess of 3%. That nominal wage growth rate is roughly consistent with a 2% inflation target set by the ECB and the Bank of England if we allow for 1% productivity growth on top of price increases. The share of occupations experiencing high wage growth is well above the 2019 average of three to five out of 10.
These results suggest that high wage growth is broadly spread across most segments of the labour market, rather than being driven by a small number of job categories where the supply-demand balance is tight. Such broadening of upward wage pressures will be a concern for central banks, as it could be evidence of growing ‘second-round’ effects of energy and food price shocks on inflation.
Drawing on the granularity of Indeed’s job posting data, we delved below the headline trends to see which occupations experience the highest wage growth and compare this with the pre-pandemic picture. Community and social service (8.9%), food preparation and service (7.9%) and cleaning and sanitation (7.9%) topped the euro area ranking of large occupations by the average year-on-year wage growth rate in the three months to October 2022. In the UK, the highest growth was recorded in personal care and home health (8.3%), loading and stocking (7.4%) and production and manufacturing (7.3%).
There is a similarity between the euro area and the UK’s top-10 lists. Seven categories appear in both: cleaning and sanitation, customer service, food preparation and service, loading and stocking, personal care and home health, production and manufacturing, and retail.
Jobs that are seeing the fastest growth in posted wages currently and before the pandemic share some similarities. In both the euro area and the UK, six categories appear in the respective top-10 lists in both October 2022 and October 2019, although wage growth in each of them was substantially higher in 2022.
Our research paper contains additional data on occupational wage growth trends in the individual euro area countries. The data are also published on GitHub.
When Will Wage Growth Peak?
Wage growth accelerated in the first half of 2022 to reach two to three times the pre-pandemic growth rates, depending on the country. While wage growth remains elevated in all the countries in our dataset, it appears to be plateauing at this historically high level in some of them. Combined with gradually declining job postings in those countries, this suggests that some employers are starting to rethink their demand for labour as they balance the currently tight labour market against an increasingly uncertain and deteriorating economic outlook.
We will continue to watch these trends for possible turning points. We will publish monthly updates and downloadable CSV files on GitHub, adding more countries globally as the data become available.
Methodology
To calculate the average rate of wage growth, we follow an approach similar to the Atlanta Fed US Wage Growth Tracker, but we are tracking jobs, not individuals. We begin by calculating the median posted wage for each country, month, job title, region and salary type (hourly, monthly or annual). Within each country, we then calculate year-on-year wage growth for each job title-region-salary type combination, generating a monthly distribution. Our monthly measure of wage growth for the country is the median of that distribution. Alternative methodologies, such as the regression-based approaches in Marinescu & Wolthoff (2020) and Haefke et al. (2013) produce similar trends.
More information about the data and methodology, as well as additional country-specific wage growth results, are available in our accompanying research paper, ‘Wage growth in Europe: evidence from job ads’, published in the Central Bank of Ireland’s Economic Letter series.
