On Comparing Wages Across Central Europe

A recent study by the Slovak Ministry of Finance (in Slovak) revealed problems in inter-temporal comparisons of 'gross wages'. The trick lies in the definition of gross wage, which varies over time as social security or other payments are shifted from employer to employee or vice versa. The same problem, with the addition of currency and price level conversions, appears with inter-country comparisons.

For these reasons, comparing total labor costs (or 'super-gross wages'), or just net wages seems to be a much more reasonable solution to assess living standards of the local working populations. Here's the 2006 data for V-4 countries: an average monthly salary of an employee in the economy, first converted into euro according to official 2006 yearly exchange rates, and then adjusted for the respective price levels (of 2004) relative to the European Union average.

	--SGW	----GW	---NW
CZ	1854	1374	1064
HU	1531	1136	750
PL	1634	1356	920
SK	1250	988	768

Note that GW stand for gross wage's purchasing power in euro, SGW for 'super-gross wage' (including employers' social security contributions), NW - net wage. SGW and NW were calculated according to the OECD information on labor tax wedges in 2006.

An informed observer might spot that the purchasing powers of average wages across V-4 countries do not correspond to GDP/head rankings of these countries. Slovakia, for example has higher GDP/capita in PPS than Poland, but lower wages. In order to explain these differences, one ought to look closer at the labor productivity statistics, as well as the local definition of a 'salary' (as opposed to other income).