The annual growth in hourly labor costs in Cyprus reached 3.5% in 2025, slightly below the European Union average. This dynamic reflects the gradual convergence of the Cypriot labor market with broader European trends at a time when labor costs are steadily rising across Europe. According to Eurostat data, labor cost growth continued in the third quarter of 2025, confirming the sustainability of this trend.
For Cyprus, approaching the EU average level is particularly significant. The country’s economy is increasingly no longer perceived as a low-labor-cost market, while growth remains moderate and does not place excessive pressure on business competitiveness.
Euro Area and EU: Growth Is Accelerating
In the euro area, hourly labor costs increased by 3.3% in the third quarter of 2025 compared with the same period in 2024. Across the European Union as a whole, growth was even higher, reaching 3.7%. These figures reflect not only rising wages but also higher non-wage employer costs, including social contributions and other mandatory charges.
In the euro area, hourly wages rose by 3%, while non-wage costs increased by 4%. A similar pattern was observed across the EU, where wages grew by 3.5% and additional employer costs rose by 4.2%. This indicates that pressure on total labor costs is driven not only by pay increases.
Pressure on Businesses Across Economic Sectors
Rising labor costs are being recorded across all key sectors of the economy. In the euro area, hourly labor costs increased by 3.3% in industry, 4.3% in construction, and 3.2% in services. The construction sector remains the most vulnerable to cost increases, due to labor shortages and strong demand for workers.
At the EU level, the trend is even more pronounced. Labor costs rose by 3.7% in industry, 4.7% in construction, and 3.7% in services. The largest increases were seen in labor-intensive sectors such as construction, various service activities, and professional, scientific, and technical services. By contrast, more moderate growth was observed in energy-related sectors, including electricity, gas, and air conditioning, where labor market pressure remains relatively limited.
Significant Differences Between EU Countries
Despite the overall upward trend, disparities among EU member states remain substantial. The highest annual increases in hourly labor costs were recorded in Bulgaria, where the figure rose by 12.3%, followed by Lithuania with 9.7% and Croatia with 9.4%. These countries continue to catch up with more developed EU economies in terms of income levels and labor costs.
At the other end of the spectrum are Slovenia, with growth of just 1.6%, France at 1.7%, and Spain at 2.1%. Notably, Malta even recorded a decline in hourly labor costs of 1.4% during the reporting period, a rare exception in the current European economic environment.
What This Means for the Cypriot Economy
Against this backdrop, Cyprus’s position—very close to the European average—appears balanced. It reflects a maturing labor market and the gradual adaptation of the economy to new conditions following a period of high inflation and changes in EU monetary policy. For investors and employers, these indicators point to a more predictable environment, where rising labor costs are accompanied by productivity gains and maintained competitiveness.
As labor costs continue to rise across Europe, the key challenge for Cyprus remains maintaining a balance between employee incomes, business sustainability, and long-term economic development.