Labor Costs in Germany Exceed EU Average at EUR43.40 per Hour

Recent data from the Federal Statistical Office of Germany indicates that companies are paying an average of EUR43.40 for each hour of labor, marking a significant 30% increase compared to the average labor costs across the 27 EU member states. This figure places Germany in seventh place in a comparison of labor costs within the EU, a slight decline from its previous sixth position in 2023.

The analysis includes both gross wage costs and associated expenses such as contributions to pension and health insurance. The costs vary significantly by sector; in the manufacturing industry, the average labor cost reaches EUR48.30, which is 43% higher than the EU average, while in the services sector, it is EUR42.10, exceeding the EU average by 26%. The overall EU average stands at EUR33.50 per hour.

Countries with the highest labor costs include:

• Luxembourg: EUR55.20
• Denmark: EUR50.10
• Belgium: EUR48.20

Conversely, labor is most affordable in Eastern European nations such as:

• Bulgaria: EUR10.60
• Romania: EUR12.50
• Hungary: EUR14.10

Notably, labor costs in Poland rose by 19% last year, representing the highest increase in the EU, followed by Croatia at 14%, and both Bulgaria and Romania at 13%. In contrast, Germany's labor cost increase of 5% aligns with the EU average, indicating that Germany's competitive edge in terms of labor costs remains stable.

Experts argue that despite higher labor costs in more developed economies like Germany, productivity levels are also elevated. Germany's productivity is slightly above the EU average, similar to nations like Luxembourg, Denmark, and Belgium, which are recognized for their high productivity levels. In contrast, countries such as Bulgaria, Romania, and Hungary rank lower in this regard.

Despite the stability in labor costs, business associations have expressed ongoing concerns about the overall competitiveness of Germany as a location for business. Issues cited include a high tax burden, elevated energy prices compared to international benchmarks, excessive bureaucracy, a shortage of skilled labor, and prolonged planning and approval processes.

Experts like Alexander Herzog-Stein emphasize the responsibility of the new federal government to enhance infrastructure and education through significant investments. Such measures are deemed essential to maintain high productivity levels in Germany, which is crucial for sustaining high income levels in the future.

To bolster Germany's economic competitiveness, the coalition government of the Union and SPD aims to implement various reforms. Key initiatives focus on improving depreciation conditions for companies and reducing electricity prices, which are critical to enhancing the business environment.