## Wage Dynamics in Europe: Drivers, Institutional Amplifiers, and Policy Spillovers

_IMF Working Papers, June 12, 2026_

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## Bibliographic details
- Authors: Kareem Ismail, Ana Lariau, Théodore Renault
- Published: June 12, 2026
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229048729.001

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### Paper overview and data sources
- Authors: Kareem Ismail, Ana Lariau, Théodore Renault
- Date: June 12, 2026
- Coverage: cross-country macro evidence for 26 European economies; agreement-level collective bargaining data for Spain; estimates of minimum and public sector wage spillovers.
- Publication: IMF Working Papers, Working Paper No. 2026/120, Issue 120, Volume: 2026, Pages: 71.
- Identifiers: DOI: https://doi.org/10.5089/9798229048729.001; ISBN: 9798229048729; ISSN: 1018-5941; Stock No: WPIEA2026120.

### Key empirical findings
- The slope of the wage Phillips curve has not materially changed since the pandemic—labor market slack continues exerting a restraining influence on wage growth.
- Postpandemic wage growth was higher than predicted by historical relationships, reflecting:
  - the outsized inflation shock in 2022–23, and
  - a higher sensitivity of wages to past inflation.
- Regional heterogeneity in wage-setting:
  - Central, Eastern, and Southeastern European Economies (CESEE): wage formation remains more backward-looking, with past inflation playing a dominant role.
  - Advanced Economies (AEs): inflation expectations are more important in wage-setting.
- Sequential wage response observed in AEs:
  - Early rise in wage drift as employers granted ad hoc increases.
  - Negotiated wages adjusted with a lag as collective agreements were renewed and workers recouped accumulated real wage losses.

### Institutional amplifiers and micro evidence
- Collective bargaining (Spain, agreement-level micro evidence):
  - CPI indexation clauses are associated with stronger wage responses to past inflation.
  - Sector-level bargaining is associated with stronger wage responses to past inflation.
  - Shorter contract duration is associated with stronger wage responses to past inflation.
- Minimum wages:
  - Minimum wage pass-through has strengthened markedly in CESEE since 2015.
- Public sector wages:
  - Public sector wages dampened aggregate wage growth in AEs during 2022–24.
  - Public sector wages amplified aggregate wage growth in CESEE during 2022–24.

### Implications and policy-relevant conclusions
- The core Phillips curve mechanism remains intact: labor market slack still restrains wage growth.
- However, future inflation shocks could generate more persistent wage pressures where:
  - wage-setting is more backward-looking,
  - inflation compensation becomes institutionalized (including through indexation that interacts with downward nominal rigidity),
  - discretionary minimum and public sector wage policies add impetus.
- Institutional design of collective bargaining, minimum wage frameworks, and public sector pay policy can materially condition inflation pass-through to wages.

*IMF Working Paper: "Wage Dynamics in Europe: Drivers, Institutional Amplifiers, and Policy Spillovers", June 12, 2026.*

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_Source: https://www.imf.org/en/publications/wp/issues/2026/06/12/wage-dynamics-in-europe-drivers-institutional-amplifiers-and-policy-spillovers-576876_