Italy and Spain See Decades of Stagnant Real Wage Growth, Sparking Euro Debate

Real wages in Italy and Spain have seen minimal growth over the past three decades, with figures indicating increases of just 0.5% and 2.76% respectively between 1994 and 2024, according to recent data. This stark underperformance contrasts sharply with the average 30.8% real wage growth across OECD countries during the same period. Economist Michael A. Arouet highlighted this disparity in a recent social media post, stating, "Just look at Italy and Spain: three lost decades. What were politicians smoking when they introduced the Euro there? Why don’t they admit it was a mistake?"

While the tweet questions the Euro's role, economic analyses suggest that the common currency is unlikely the primary cause of this prolonged stagnation. Experts point instead to deep-seated structural issues within these economies. These include stagnant productivity since the 1990s, a shift from industrial sectors to lower-value-added services, and persistent structural inflation that outpaces nominal wage increases.

During the Eurozone crisis, Italy and Spain, alongside other Southern European nations, implemented "internal devaluation" policies. These measures, often influenced by European institutions, involved wage cuts, public sector austerity, and reforms aimed at decentralizing collective bargaining. Such policies, intended to restore competitiveness in the absence of currency devaluation, led to significant real wage declines, particularly between 2010 and 2013.

More recent data from the European Central Bank (ECB) and EY indicates some real wage recovery across the Eurozone in 2024 and 2025, with Italy recording a 2.7% increase and Spain 1.9% in 2024. However, these gains are still moderate compared to other European nations and follow years of decline. The overall economic outlook for Italy projects slow growth, while Spain is anticipated to expand more robustly, supported by immigration and tourism, though its growth is expected to moderate in the coming years.

The persistent challenge of low real wage growth in Italy and Spain is therefore attributed to a complex interplay of historical structural weaknesses, the economic pressures of the Eurozone crisis, and ongoing productivity issues, rather than solely the adoption of the Euro. These factors have limited the ability of wages to keep pace with the cost of living, contributing to a perceived decline in living standards for many citizens.