In the last decade, wages across Europe have recorded considerable growth, with some of the fastest increases recorded in CEE and SEE as these economies continued to close the income gap with Western Europe. However, higher salaries have not automatically translated into higher living standards or stronger competitiveness, particularly when productivity growth fails to keep pace with labour costs and inflation. In this blog, we give an overview of how wages, productivity and labour costs have developed since 2015, where CEE and SEE countries stand relative to the EU and the US, and whether the region’s current pace of wage and productivity convergence with Western Europe is sustainable.
Many CEE and SEE countries have been among the fastest-growing economies in the EU over the last decade, particularly when compared with Germany, the EU’s largest economy and industrial core.
Select SEE & CEE countries’ Real GDP growth (2015 – 2026, %)*
Source: IMF WEO, InterCapital Research
*2026 based on estimates
Across the period, growth was supported by higher private consumption as wages increased, government investment and EU funds absorption, together with industrial growth in countries such as Czechia and Hungary and stronger exports of goods and services in Croatia, Slovenia and Poland. In other words, growth was supported by what those countries were already good at and improving: Croatia’s tourism, Czechia and Hungary’s industries (such as automotive and related sectors), Slovenia’s higher-added-value, export-oriented industries (such as pharma), and, of course, private consumption growth across each respective country. This development has led to strong double- or triple-digit nominal GDP growth between 2015 and the latest data (TTM Q2 2026), available in the chart below:
Nominal GDP for select countries (EURbn), growth comparison (%), (2015 vs. TTM Q2 2026)
Source: Eurostat, InterCapital Research
In fact, compared to 2015, the latest TTM GDP print for Bulgaria shows the greatest increase, growing from EUR 45.8bn in 2015 to EUR 123.1bn on the TTM Q2 2026 basis. Romania also recorded strong growth, at 143% to EUR 390bn, followed by Poland at 119% to EUR 948bn, and Croatia at 112% to EUR 96.4bn. Of course, part of this nominal expansion reflects inflation and, for non-euro countries, exchange-rate movements rather than real output growth alone. Still, growth has been broad-based and strong, but a question arises: how have two levers that are important to companies, i.e. salaries and productivity, developed during the same period?
Nominal salary & cumulative growth comparison between select countries and the EU (2016 – 2025, EUR)*
Source: Eurostat, InterCapital Research
*2025 figures are based on estimates
As we can see, salaries have increased significantly in the region, with the largest relative growth in EUR terms recorded by Romania, which recorded salary growth of approx. 185%, followed by Bulgaria at 157%, Poland at 111%, Hungary at 103%, Czechia at 99.6%, Croatia at 80.4%, and Slovenia at 69.3%. All of this is far higher than the EU27 average, which stood at approx. 36% during this period.
In other words, salaries have expanded strongly in nominal terms, but in real terms, the story is a little bit different. Inflation presented a real drag on earnings, so we have to differentiate between wage growth that simply compensated for inflation and actual increases in employees’ purchasing power. Whether those real gains were supported by productivity is a separate question. Another important caveat is the differentiation between the public and the private sectors. The public sector has recorded strong wage growth across many of the observed countries. With so many people employed there, this also put pressure on private enterprises to boost salaries, on top of pressure from inflation due to energy shocks, supply chain disruptions, and general macroeconomic and geopolitical instability (COVID-19, war in Ukraine, wars in the Middle East, etc.).
Real cumulative salary growth comparison between select countries and the EU (2016 – 2025, %)*
Source: Eurostat, ECB, InterCapital Research
*2025 salary figures are based on estimates; real salary growth is calculated in local currency and adjusted for cumulative HICP inflation
However, when we adjust for inflation during the period, the story is a lot more “real”. Romania recorded the strongest real salary growth in the comparison group, at approx. 98%, followed by Bulgaria at 78%. Hungary also recorded sizeable real salary growth of approx. 50%, followed by Poland at 33%, Croatia at 30%, Slovenia at 29%, and Czechia at 18%. At the EU27 level, real salary growth stood at only approx. 2%.
Still, real salary growth by itself does not tell us whether this increase was sustainable from the perspective of companies or the broader economy. For that, we need the other side of the coin: productivity. As an example, if an employee’s salary increases by 50%, but the amount of output produced per hour increases by a similar amount, then the increase in labour costs is far easier for a company to absorb. On the other hand, if wages rise significantly while output per hour remains broadly unchanged, the higher cost ultimately has to be absorbed through lower margins, higher prices, or some combination of the two.
This brings us to labour productivity.
Real labour productivity per hour worked in select CEE countries and the EU (Q1 2015 – Q2 2026, 2015=100)
Source: Eurostat, InterCapital Research
The differences between the observed countries are significant. By Q2 2026, Poland recorded the strongest productivity improvement in the group, with real output per hour worked growing by approx. 38% compared to the 2015 level. Romania and Bulgaria followed, at approx. 33% and 32%, respectively, while Croatia recorded an increase of approx. 25%. Slovenia and Hungary stood at 23% and 19%, respectively, while Czechia recorded a more muted increase of approx. 10%. At the EU27 level, productivity increased by less than 8%.
As we can see, most of the countries observed did not simply become more expensive over the last decade; they also became more productive. However, the pace at which this happened differed significantly from the pace of real salary growth.
Cumulative real salary growth vs. real labour productivity growth in select CEE countries and the EU (2016 – 2025, %)*
Source: Eurostat, ECB, InterCapital Research
*2025 salary figures based on estimates
The comparison makes these differences clearer. Romania and Bulgaria recorded the widest divergence, with improvements in employees’ purchasing power considerably outpacing productivity growth. Hungary also recorded a sizeable gap. Poland, on the other hand, stands out with the most balanced development, while Croatia, Slovenia and Czechia fall somewhere in between. At the EU27 level, the opposite was true, as productivity growth exceeded the relatively modest increase in real salaries.
It should also be noted that real salary growth is not driven by productivity alone; labour shortages, minimum wage increases, public-sector wage policies, bargaining power, sector composition, migration, and other factors all play a role.
This brings us back to the perspective of companies. Even when wage growth simply compensates employees for inflation, companies still have to pay the higher nominal amount. From their perspective, this remains an increase in operating costs, which is where nominal unit labour costs provide a useful measure.
Nominal unit labour costs per hour worked in select CEE countries and the EU (Q1 2015 – Q2 2026, 2015=100)
Source: Eurostat, InterCapital Research
Nominal unit labour costs (NULC) measure the labour compensation required to produce one unit of real output. If compensation rises faster than productivity, unit labour costs increase. On the other hand, if productivity rises in line with compensation, companies can absorb higher wages far more easily.
Out of the observed countries, Romania recorded the strongest increase, with nominal unit labour costs roughly 140% above their 2015 level. Bulgaria and Hungary followed, at 120% and 118%, respectively, while Poland recorded 72% growth, Czechia 71%, Croatia 63%, and Slovenia 54%. At the EU27 level, the increase stood at around 33%.
This is where the entire story comes together. Higher real salaries are one of the main goals of economic convergence, but if labour compensation continuously grows faster than productivity, the cost of producing each unit of output also increases.
For companies, the available responses are relatively straightforward: absorb part of the increase through lower margins, raise prices, slow hiring, invest in automation, or move toward products and services with higher value added. In practice, it is usually some combination of these.
For comparison, the US provides an interesting benchmark. In Q2 2026, US nonfarm business productivity increased by 2.2% YoY, while unit labour costs increased by 1.4%. While the methodology is not directly comparable with Eurostat’s whole-economy measure, the direction is clear: stronger productivity growth makes higher employee compensation considerably easier to sustain.
This is also why the next stage of CEE convergence will likely be harder than the previous one. For years, the region benefited from lower wages, improving infrastructure, strong FDI and the relatively easy adoption of technologies already widely used in Western Europe. Today, wages are higher, labour markets are tighter, working-age populations are shrinking, and some of the easier convergence gains have already been realised.
Moving forward, growth will therefore have to come much more from productivity.
For Croatia, the biggest opportunity is in sectors where a lot of labour is still required to produce relatively limited added value. Tourism, retail, logistics and construction all offer room for more automation, digitalisation and better use of technology. At the same time, stronger growth in ICT, engineering, pharma, energy and specialised manufacturing would help move the economy toward sectors where each employee generates more value.
For Poland, the main task is to maintain what has so far been a relatively healthy balance between wage and productivity growth. Further automation, domestic R&D, energy investment and the international expansion of Polish companies could support this, while the size of the domestic market remains a clear advantage.
For Romania, the challenge is to keep productivity growing fast enough to support the wage level the economy has now reached. Better infrastructure, faster digitalisation of SMEs, stronger links between universities and companies, and keeping more R&D and intellectual property inside the country would all help.
For Bulgaria, the low-cost labour advantage is gradually becoming less important as wages catch up. The next phase will therefore have to rely more on automation, digitalisation, education and attracting investment that creates more value added, not just jobs.
For Czechia, the next step is moving further up the industrial value chain. Manufacturing remains a major strength, but future productivity gains increasingly lie in engineering, software, electronics, R&D and intellectual property rather than production alone.
For Hungary, the logic is similar. Large automotive and battery investments can support exports and industrial output, but their long-term productivity impact will be much larger if domestic companies and workers capture more value through engineering, software, specialised suppliers and R&D.
For Slovenia, which is already closer to Western European productivity and income levels, the challenge is increasingly about innovation rather than basic convergence. Commercialising research, scaling domestic companies, automating more activity and attracting skilled workers will therefore matter more going forward.
As such, the next stage of CEE convergence will look quite different from the previous one. Higher salaries and living standards can continue to converge with Western Europe, but for that convergence to remain sustainable, productivity will increasingly have to do the heavy lifting.