Monday, February 13, 2017

13/2/17: Wages, Income and Consumption: Euro Area's Poor Performance since 2003

Based on data reported at the end of January 2017 by the Eurostat, since 2003, through 3Q 2016, or roughly across the span of 13 years,
  • Nominal adjusted gross disposable income per capita has grown by a cumulative 26.37 percent in the Euro Area (EA 19) member states  
  • Real adjusted gross disposable income per capita has risen only 5.30 percent
  • Real actual final consumption per capita rose just 7.75 percent
  • Nominal wages have expanded by 12.4 percent, cumulative.


Compared to pre-Global Financial Crisis peaks (based on the 4 quarters average around the peak) at the end of 3Q 2016:
  • Nominal adjusted gross disposable income per capita was 9.7 percent higher
  • Real adjusted gross disposable income per capita was only 0.73 percent higher
  • Real actual final consumption per capita was up only 1.66 percent
  • Nominal wages rose 4.64 percent, or less than half the rate of increase in nominal income.


As chart below shows, in simple terms, the last nine years saw:
  1. Basically flat real adjusted gross disposable incomes per capita; and
  2. Widening gap between real actual consumption per capita and the real adjusted gross disposable income per capita


Coupled with a simple fact that the EA19 includes countries with consumption and incomes catching up toward the EA12 averages, while gross disposable income does not net out fiscal losses sustained due to post-crisis tax and spending rebalancing across the EA19, the picture is quite dire: there is, effectively, no meaningful growth in incomes in the euro area for some 9-10 years running. Worse, when we adjust for ageing demographics, the marginal increase in the real consumption of the last 9-10 years is also far from being comforting. 

While the Eurostat does not report received real wages dynamics, using income deflator we can estimate changes in the real wages. Chart below shows the results:


In real (inflation-adjusted) terms, take home (received) wages have fallen in the EA19 group of countries in 2003-2016, with 3Q 2016 real wages index reading at around 93.6, down 6.4 percentage points on the end of 2003. A caveat applying to this is that I am using index values to map out nominal-to-real revaluation. Still, minor errors and rounding issues aside, the chart above clearly shows the lack of real wages income uplift in the EA19 since the early 2000s.

Post a Comment