Recent increases in the euro area labour force may have a mitigating effect on wage growth, a box from the latest ECB Economic Bulletin argues, as marginal workers coming back into the labour force help to constrain incumbents’ wage demands even as workers’ bargaining power strengthens.

“On average, the newly employed are younger and have a lower level of education than incumbents (employed workers before the new transitions),” the bulletin note says.

“They are also more likely to be women, work part-time and have lower levels of labour income. Those hired from a position of unemployment earn about 55% of incumbents’ labour income, whereas those transitioning directly from inactivity to employment have an average level of labour income which is equivalent to approximately 80% of the level earned by incumbents,” the note adds.