12 Aug, 2013

Eurozone pay bubble

Although there has been much talk about the decline in real pay levels that resulted from the post 2007 economic decline, workers across the eurozone have actually fared better relative to their company’s fortunes following the downturn rather than during the period leading up to it. The sustaining of employee salaries through the recession has also hit company profitability and the level of re­investment in fixed capital. The Federation of European Employers reports

According to the latest figures published by the European Commission’s statistical agency Eurostat, in the first quarter of 2002 total employee remuneration in the eurozone stood at 60.4{6060b2de664e4eaa3e7b7e86961ce2c4bbd7a29b6c1097abf8257a4e5b07383e} of gross value added. When the downswing came in 2008 it fell to 59.2{6060b2de664e4eaa3e7b7e86961ce2c4bbd7a29b6c1097abf8257a4e5b07383e}. However, as the recession took hold and company value added fell sharply through the Autumn and Winter of 2008/9 employee remuneration climbed to 62.1{6060b2de664e4eaa3e7b7e86961ce2c4bbd7a29b6c1097abf8257a4e5b07383e} of value added. Since then remuneration levels have sustained much of their recessionary gains to stand at 61.1{6060b2de664e4eaa3e7b7e86961ce2c4bbd7a29b6c1097abf8257a4e5b07383e} of value added in the first quarter of this year.

Gross fixed capital formation did not enjoy such a level of shielding during the downturn. In the first quarter of 2002 it amounted to 21.5{6060b2de664e4eaa3e7b7e86961ce2c4bbd7a29b6c1097abf8257a4e5b07383e} of gross value added. By the second quarter of 2009 it had fallen to 19.8{6060b2de664e4eaa3e7b7e86961ce2c4bbd7a29b6c1097abf8257a4e5b07383e}, but then it continued to fall to just 18.8{6060b2de664e4eaa3e7b7e86961ce2c4bbd7a29b6c1097abf8257a4e5b07383e} by the first quarter of 2013.

Commenting on these developments during an online debate from his base in the south of France today the Secretary-­General of the Federation of European Employers, Robin Chater, warned that ” If there is to be a sustained recovery during the eurozone, resources are going to have to be diverted away from employees back into long­term investments. Companies have sustained their positions by substituting labour for capital for far too long and that is exposing the European economy to increasingly capital intensive competitors in North America and the far east”.
Credit: onrec.com

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