The role of sectoral developments for wage growth in the euro area since the start of the pandemic

The recovery of growth in compensation per employee (CPE) has been V-shaped and driven mainly by adjustments in compensation and less by changes in employment. This can be explained by the decisive role played by job retention schemes during the pandemic, which helped to preserve the employment status of employees. The dispersion of CPE growth has remained higher than during pre-pandemic times – underlining the importance of taking sectoral developments into account when analysing aggregate wage growth in the euro area. The differences in sectoral developments in CPE growth reflect the different degrees to which sectors were affected by the pandemic and the measures taken to contain it. While wage growth has been strong in non-market services and construction in recent quarters, CPE growth was hardest hit and remains negative in high-contact services. The effects of the pandemic on growth in compensation are expected to shape wage developments in 2021 in all main sectors. As for the outlook, a key question is whether sectoral wage negotiations will aim to make up for the temporary cuts in compensation at least partly and in some sectors – which could add to wage growth over the next years, especially in those parts of the services sector that were hit hardest during the pandemic. JEL Classification: H24, J30, J31