Cyprus may rank among the wealthier economies of the European Union, but workers’ wages continue to lag far behind the country’s overall prosperity, according to the 2025 Report on the Economy and Employment published by the Cyprus Labour Institute (INEK–PEO).

The report’s main conclusion is stark: while output and profitability have surged in recent years, a growing share of national income has shifted from labour to capital, leaving the purchasing power of most workers under strain despite low unemployment and some real wage gains.

Based on Eurostat comparisons, INEK notes that in 2025 Cyprus ranked 13th out of 27 EU member states in GDP per capita, but only 21st when countries are sorted by the purchasing power of average wages per employee.

In practice, this means that Cyprus appears relatively affluent on paper, yet ordinary employees enjoy significantly weaker purchasing power than workers in countries with comparable income levels. The institute highlights Italy and Spain as examples: both have GDP per capita similar to Cyprus, but average wages there provide 25% to 30% higher purchasing power.

INEK calculates that, compared with the pre-crisis period, the share of national income going to wages in the business sector has fallen structurally by 7.2 percentage points of value added relative to 2011–2012. Most of this drop occurred between 2013–2015 and again in 2021, as the economy exited the pandemic.

As a result, Cyprus is now one of only four EU countries where the labour share in the business sector is below 50%. The report argues that this reflects redistribution “against wage labour” and in favour of profits, driven by inflation and productivity gains largely captured by businesses rather than shared with workers.

According to the institute, income from capital (profits, interest, rents) in 2025 was roughly double its average level in 2006–2012. Over the same period, labour income rose by about 60% – but INEK stresses that most of this increase is due to the growth in employment, not strong wage gains per worker.

The average real wage is estimated to be about 13% higher than its 2006–2012 average, a rise sufficient to maintain purchasing power but not enough to reverse the redistribution that followed the financial crisis. The figures are also influenced by well-paid groups: managers, representing roughly 4.5% of employees, are estimated to lift the official average wage by around 15%, while the inflow of highly skilled foreign workers adds another upward bias of about 5%.

One of the report’s strongest findings concerns the national minimum wage. Using EU data, INEK analyses how minimum wages relate to GDP per capita and labour productivity. It concludes that the statutory minimum in Cyprus is “spectacularly lower” than what would be expected given the country’s development level: to align with GDP per capita, it would need to rise by about 28%, and to align with productivity by about 26%.

Because the minimum wage is adjusted only once every two years, the institute warns that these gaps will likely widen over time. It also notes that Cyprus was the only EU country not to raise its minimum wage in 2025.

The report highlights that unemployment fell to 4.3% in the second quarter of 2025 – a level comparable to the pre-crisis years 2006–2008. Between 2017 and mid-2025, labour demand increased by around 100,000 people, largely driven by GDP growth.

INEK finds a strong statistical relationship between changes in GDP and unemployment. If the European Commission’s forecast of 2.5% growth in 2026 is achieved and no adverse structural changes are made to labour market rules, unemployment is expected to remain around 4.5%, maintaining a favourable climate for workers seeking better wages and conditions.

Addressing a sensitive public issue, the report concludes that the substitution of Cypriot workers by migrants is “smaller than the complementarity” between the two groups. Rising GDP tends to increase demand for both migrant and Cypriot labour, helping explain why unemployment has declined despite growing labour supply.

At the same time, INEK argues that unemployment would have fallen earlier if labour supply had not increased as strongly – a trend it attributes partly to households offering more labour to compensate for low wages, and partly to the inflow of foreign workers. The institute stresses the need to protect the working conditions of migrants, who remain vulnerable to employer abuses.

The report also addresses the debate over inflation. It points to “profit inflation” in the post-pandemic period, where companies raised prices to expand profit margins despite small, zero or even negative wage changes. INEK rejects the argument that wage increases automatically fuel inflation, saying such claims overlook the impact of profit margins on price-setting.

On investment, the institute notes a paradox: the rate of return on fixed capital has risen sharply since 2015 and stabilised in 2022–2025 at the highest levels of at least two decades, around 75% above its 2010 level. Yet gross fixed capital formation as a share of GDP has declined compared with pre-2010 levels, and only about half of business profits are now used for productive investment, down from roughly 80% before the crisis.

INEK argues that a growing share of the economy’s capacity to finance investment is being directed to non-productive uses. It contends that higher wages would not undermine productive investment, but would instead reduce profits that are currently not reinvested in the country’s productive capacity.

Stepping back from the statistics, the institute frames significant wage increases – including a substantial rise in the minimum wage – as both an economic and social necessity. By aligning wages with the cost of living, it argues, Cyprus can support the reproduction of its “living productive forces”, promote economic justice and social stability, reduce poverty and material deprivation, and strengthen overall welfare.

The report also links higher wages to growth, noting a strong correlation between private consumption and the purchasing power of wage earners, as well as between GDP, average wages and employment. In a country where investment’s contribution to growth has weakened, INEK advocates a strategy of “wage-led growth”, where stronger earnings support consumption, reduce inequality and curb import-heavy spending by higher-income groups through a partial redistribution of income towards lower-income households.