Our View: Rising wages mask public sector inefficiencies
Nobody should have been surprised to be listening to Labour Minister Yiannis Panayiotou taking credit for the 13 per cent increase in the average salary in the last two years. It was now close to €2,500 per month, while the median salary had increased by 11.5 per cent approaching €1,900.
The minister’s comments followed the release of the latest Eurostat figures for the first quarter of 2025, during which Cyprus recorded a 4.8 per cent rise in the hourly labour cost compared to the corresponding period of last year. The EU average increase was 4.1 per cent with Cyprus among the six member states with the highest increase.
This, Panayiotou said, confirmed the “positive course of the Cyprus labour market and the effectiveness of government policy.” The claim should be taken with a pinch of salt because the stats are based on the aggregate of public and private sector wages, with the former pushing up the average. In the last two years, this government has ensured a significant rise in public sector pay, through an increased Cost of Living Allowance and across-the-board pay rises. Without these, the average wage increase in the real economy (the private sector) would not be as high.
While the labour ministry increased the minimum wage, the rise in pay in the private sector has much more to do with market conditions than with the effectiveness of government policy, which Panayiotou credited. We have full employment conditions with many sectors of the economy faced with labour shortages. Labour market conditions – rising demand and limited supply – have pushed up wages in the private sector. The minister must be aware of this, given the number of businesses filing applications to the government for the employment of foreign workers.
He should also be aware of the falling competitiveness of the economy but does not consider it worthy of comment. According to the World Competitiveness Yearbook compiled by the IMD business school in Lausanne, Cyprus is 44th in the world rankings of 69 economies in 2025. It fell one place this year, but it should be noted that in 2021 it was ranked 33rd. For productivity and efficiency performance, Cyprus is ranked 48th by the IMD, which highlights the inefficient utilisation of resources.
Is this also the result of the effectiveness of government policy or a consequence of government failure to improve productivity and efficiency in the public sector, something that impacts the general performance of the economy. It does not bode well for the economy when the labour minister boasts about the rise in the average wage while showing complete disregard to low productivity, in the sector in which wages are rising most rapidly