The low unemployment rates in the US and Germany suggest a full employment situation that could feed upward pressures on wages.
If we consider labour market participation and not just the level of unemployment, labour market pressures are confirmed for Germany, but are less clear in the case of the US and not in the short run horizon for the main euro area countries.
We measure labour market conditions as the sum of the employment gap and the participation gap. The employment gap is calculated as the difference between the unemployment rate and the average unemployment rate prevailing in the pre-2008 expansion (1995-2007). The participation gap reflects the difference between potential and effective labour force (that is the number of people willing to work). Potential labour force is calculated starting from the active population (15-64 years) by extending the pre-2008 trend of the participation rate (that is people willing to work as a share of active population). Hence, a positive value of the participation gap means a potential labour supply that is higher than the actual one.
In the US, the excess labour supply was substantially exhausted in 2017. Still, the positive participation gap estimated for 2018 suggests wage growth could be dampened in the near future.
In Germany, real compensations growth per employee reflects tight labour market conditions.
In Italy, the abundant potential labour supply and the high numbers of unemployed suggest the absence of widespread upward wage pressures in the short run.
France has a similarly abundant, although smaller, supply of excess labour.