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Understanding regional pay differences in Europe

Compensation Strategy & Design|Talent|Total Rewards
Beyond Data

July 15, 2019

Workforces are never static, but how do organisations manage their differentials between regional pay in countries?

Workforces are never static but the drivers of movement can be numerous: shifts in the location of prolonged economic growth outside of traditional labour centres, the ease of starting new operations or moving existing ones and the ability and willingness of workers to uproot themselves in the search for opportunities all contribute. In addition, such drivers interact with a multitude of social and cultural factors.

But the extent to which one might expect pay to be impacted by location is subject to a whole host of various factors which – broadly-speaking – could fuel or suppress regional variations and which could indirectly be reflected in relative wage levels across a given country. For this reason, understanding regional pay differences across diverse markets generally eludes the application of a singular approach.

Graph showing the minimum and maximum regional pay differences vs comparator regions (France, Hungary, Ireland, Spain, Italy, Netherlands and Germany range from 90-110%) (Russia ranges from 60-100%) (Poland, Turkey, Romania and UK range from 80% to 110%)
Minimum and maximum regional pay differences vs comparator regions (supervisory and professional staff)

Source: 2019 Global Geographic Salary Differentials Report
Note: The geographic salary differential for each Employee Category in a particular region was determined by calculating the average of the differentials for all jobs and organizations in that category in that region. The figures shown compare a selected comparator location whose value equals 100% (usually the national capital or main business center) against the other individual regions in the given markets.

One example is urbanization. How compact a labor force is (so to speak), relative cost differences between urban and rural environments, the availability of large urban talent pools and the overall dominance of a country’s business center (often its largest city) can all influence relative pay differences within a national market.

Another possible influence is the sheer geographic size and diversity of a given market. In very large and far-flung markets such as Russia, specific industries may be centralized in certain locations where employers may not be able to source all the talent they need locally. In such cases, it may be necessary to attract people from other parts of the country or even from abroad to meet employers’ needs.

Yet another common factor to consider is a country’s overall level of socio-economic development. As markets ’emerge’ and grow, this rarely do so at an even pace geographically. Stronger growth is generally found in the main business centers (often – but not always - the capital regions) while other parts of the country may develop at a slower place. If a given market has locations which are particularly attractive to multinational employers for specific types of operations (manufacturing, shared services, research and development) this can also fuel wage differences between regions.

Overall, regional pay differences manifest very differently across Europe (even among neighboring markets) signaling that once again, a one size fits all approach to looking at geographic pay differences is not necessarily appropriate. Therefore, a multifaceted, data-driven approach is required in order to understand different markets and determine the best course of action.

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Geographic Salary Differentials Report