While the US provides monthly updates on the development of wages, eurozone wage data is published quarterly, creating delays of up to six months. This negatively affects how inflation is discussed in Europe and could lead to bad economic policy.
Year-on-year inflation in the euro area reached 8.6% in June 2022. Although the price rise is still clearly driven by energy prices, monetary and fiscal hawks are fast to marshal the European Central Bank (ECB) towards rate hikes or to warn against public expenditure as it might lead to an overheated, inflationary economy.
Identify a wage-price spiral – or its nonexistence
In principle, they are right to worry. According to mainstream theory, one way inflationary pressure can arise is when public spending pushes the economy too far over its productive capacity, and wages would increase faster than productivity. To this, companies could only react by raising prices, creating the much-feared wage-price spiral.
“If wages are increasing faster than productivity, a more restrictive monetary policy would be warranted,” Florian Kern, a director at the German macro financial thinktank Dezernat Zukunft, told EURACTIV.
“By having timely data on wages, you could know whether this is the case or not,” he added.
Alas, the EU does not publish timely wage data. While, in the US, you know in July how wages developed in June, the EU only publishes it every four months, at which point it is already somewhat out of date.
According to a spokesperson from the EU’s statistical office, Eurostat, this is due to the European System of National and Regional Accounts (ESA 2010) that defines the EU accounting framework and thus determines how fast and how often national statistical institutes have to send in their data.
According to this regulation, national statistical institutes have up to two months after the end of a quarter to transmit their data on wages and salaries. However, “in practice, member states send quarterly data between t+25 days and t+90 days in relation to their domestic release schedules and derogations,” Eurostat communicates on its website.
This means we will probably have to wait until the beginning of October to know how wages developed in April, May, and June.
The fact that, in the meantime, inflation figures are communicated every month might betray a slight bias on where the EU’s policy focus lies.
Just give us the facts
The ECB is working on new indicators to monitor wage development, for example, an experimental forward-looking euro area wage tracker that tries to predict future wage developments based on information in recent wage agreements.
Moreover, one can take a look at the consumer confidence index or the purchasing managers’ index to see that the economy is hardly in danger of overheating.
But neither the ECB’s predictive models nor the various other economic indicators are substitutes for the cold hard facts about how wages are developing.
It is a pity that, as a Eurostat spokesperson told EURACTIV, “there are no plans to change the frequency of data collection” for wages and salaries.
As long as the data is missing, uncertainty will make it easier for politicians and commentators to argue along their preconceptions.
“If there’s uncertainty, a rather significant part of the German political discourse will be in favour of a more rigid and contractionary monetary policy,” Kern said, invoking the example of Germany.
“The best way to convince those people is with data,” he added.
And even if, as a cynic might argue, data is seldom enough to convince anybody in the political arena, monthly publications of wage data would at least help to raise the facts about people’s wages to the same status as inflation numbers.