| Today the average worker is paid less than $ 4 an
hour in Portugal and $ 9 an hour in Spain, compared with $13 in Germany and
almost $16 in Denmark. Taking accounts of non-wage costs, such as employer's
social-security contributions, the gap is wider still: from $ 6 in Portugal to $
24 in Germany. With the EC's single market knocking down barriers in
intra-European trade, no wonder German companies now seem keener on sunnier
climes. But how long will southern Europe's cost advantage last? Conventional wisdom argues that greater economic integration within the single market, and later under a single currency, will cause wages to converge. Increased labor mobility, for example, should allow worker to move from low-wage to high-wage economics. Increased trade and cross-border investment should also push labor costs closer. The experience of the past 20 years seems to confirm this: Spanish wages rose from 29% of German wages in 1970 to 68% in 1991. Italy's rose from 42% to 74%. If convergence continued at this pace, the gap would vanish within the next 20 years. But a study concludes that the pace of convergence will slow, and that low-wage economics will stay that way for some time. Because of Europe's linguistic and cultural barriers, labor migration and so pressures for wage convergence — will remain modest. The study estimates that two-thirds of the existing wage gap between EC countries will remain in 2010. But total labor cost may converge much faster. Non-wage costs will remain about the same. This could be wrong. Non-wage costs now range from 22% of total labor costs in Denmark to 102% in Italy. As more and more companies employ people across Europe, and as 11 of the EC's 12 governments move to standardize worker's right and benefits, such wide disparities are unlikely to survive. |