Wage developments in CEE
FES
conference
Budapest, 30 May 2016
Bela Galgoczi ([email protected])
European Trade Union Institute - ETUI
CEE-s are underperforming
Underperformance in terms of GDP and investments;
convergence to EU15 out of steam (exc: PL, SK, LT, EE)
Two major causes:
1/ EU crisis management practice is particularly harmful to
peripheral middle-income economies
CEEs (exc: HU, HR) had no public debt problem and CEEs
have no cost-competitiveness problem
STILL: austerity and a downward pressure on wages is applied
(as graphs below will show)
2/ There is also a longer term problem with CEE growth model:
Externally financed low wage based growth is out of steam
A change towards investment led innovation based growth
2
model with higher value added content is necessary
Convergence/divergence in the EU
3
Growth, wages, investments, FDI - all on downward trend
/see graphs on next slides/
With the exception of Slovakia and Poland GDP level in
2015 is not much above pre-crisis level
In terms of real wage development a bipolar picture also in
CEE, but apart from Bulgaria wages lag behind productivity
(so wage moderation takes place)
Both public (exc: HU, HR) and private debt is lower in CEE
than EU average and much lower than in crisis countries
Investments in all CEE at much lower level than before the
crisis (exc: PL)
Foreign direct investments (FDI): downward trend
Share of FDI in total investments: also down
4
Role of EU transfers: upward trend, in HU near 6% of GDP
and close to 100% of public investments= EU money
Change in real GDP in CEE countries, 2008 to 2015 (%)
●
Source:
estimates.
Calculated from AMECO database, GDP at 2010 constant prices. Note: 2015 figures are
UP to the crisis: higher wage dynamics in CEE than in both the
core and periphery of EMU
Eurozone in 2010
Unit labour costs that consider the effect of productivity as well,
are widely regarded as a measure of competitiveness
The claim in the Eurozone is that divergence in nominal unit
labour costs (NULC) led to unsustainable imbalances as the
gap between Germany and countries like Greece and Portugal
widened to unsustainable levels
The graph below shows that while NULC-s grew by around 35%
in Greece and Portugal, in some CEE countries it showed an
increase between 80 and 90%
CEE countries outside the Eurozone tend to have (real effective)
appreciating exchange rates
6
Total nominal unit labour costs 2000-2014, 2000=100.0
200
190
180
170
160
Germany
Estonia
150
Greece
Poland
140
Portugal
Slovenia
130
Slovakia
120
110
100
90
80
I
Source:
Authors’ calculations based on AMECO.
●
●
Higher wage dynamics in CEE not necessarily a loss of
competitiveness
Increasing nominal ULC-s normally mean losing on
competitiveness, as we see in case of the EMU periphery
Still in CEE, no comparable loss of competitiveness occurred, as
trade balances, export performance and market share gains
show (see European Commission documents, as Annual
Growth Survey)
Wage levels are still a fraction of that of the EU15. BUT higher
productivity levels and increases in the exporting manufacturing
branches. Wage adjusted productivity in manufacturing for
CEEs is substantially higher than EU15 or Germany’s. This
`productivity reserve` gives room for upward wage
convergence.
8
Wage-adjusted productivity in manufacturing, 2012
countries, 2009
Country
Apparent labour
productivity*
Average personnel
costs
Wage-adjusted
productivity (%)
(EUR 1000 per employed)
EU28
54.0
37.7
144.0
Czechia
25.7
16.2
158.5
Hungary
26.9
13.1
204.6
Greece
38.1
25.6
149.1
Germany
67.2
50.3
133.5
Poland
22.2
11.8
187.4
Slovakia
21.9
14.8
147.8
Romania
11.5
6.2
184.7
Source: Eurostat (2016) NACE_Rev._2
*apparent labour productivity is defined as value added at factor costs divided by the number of persons employed.
Still EU policies push for wage moderation for
most CEE-s…
The main adjustment tool in the EU crisis management
strategy has been wage reduction (not addressing the real
cause, but creating harmful side-effects and also not fair) and
time horizon is also flawed, result: double-dip recession
Policy of internal devaluation:
 Direct intervention into wage developments by cutting and
freezing public sector and minimum wages (HU, LV, RO)
 Structural reforms of wage setting institutions to increase
downward flexibility of wages
New European Economic Governance:
 European Semester/European
Imbalances procedure: half of the EU
Member states received recommendations
 Troika /Memorandum of Understanding
Measures in countries under international surveillance,
including HU and RO
So, are CEE wages too low or too high?
The picture is not black and white, substantial differences in
wage trends among individual CEE-s:
Wage shares in GDP tend to be lower in CEE (cca 55%)
than in EU15 (65%) and the main trend is also downward.
Exception: wage share in Slovenia is even higher than
EU15 and Czech wage share increased a lot against the
main trend. Slovak wage share is a mere 49% of GDP.
A polarised picture in recent real wage trends,
BUT all CEEs (exc: BG) had lower real wage growth than
productivity /2008-2014/.
12
Wage shares in GDP, % (1995-2015)
●
Source:
Ameco
Real compensation in the EU 2010-2014
ETUI: Benchmarking working Europe 2015
Development of real wages and productivity 2008-2014
●
Source:
Authors’ calculations based on AMECO.
Concluding remarks and outlook
GDP growth below potential, convergence is out of steam
Instead abandoning ‚low wage competitiveness‘ model, this is
being reinforced
It is not too high wages or high wage increases that explain
economic weakness and lower than potential growth
Austerity and risk avoidance by banks result in low investment
activity
Foreign direct investments (FDI): downward trend – this a longer
term trend
Share of FDI in total investments: also down
EU transfers provide a large part of public investments
ALL THIS is NOT SUSTAINABLE!!
A16new growth model, investment and wage led growth,
upgrading of the economy is needed
Gross fixed investment in CEE, as % of GDP, 2004-8 and 2015
●
Source:
Calculated from AMECO database, using 2010 constant prices.
Investment rate (gfcf in GDP) 2007–2013, %
40
38
36
Czech R.
34
Romania
32
Slovakia
30
Hungary
28
26
Slovenia
24
EU 15
22
Poland
20
Portugal
18
Greece
16
14
12
10
2007
2008
2009
2010
2011
2012
2013
FDI inflow, EUR million (BoP, excl. SPEs)
16000
Bulgaria
14000
Croatia
12000
Czech R.
Estonia
10000
Hungary
8000
Latvia
Lithuania
6000
Poland
4000
Romania
2000
Slovakia
Slovenia
0
2007
-2000
-4000
2008
2009
2010
2011
2012
2013
Greece
Portugal
Net realised EU transfers in % of GNI in the bigger NMS (Czech
Rep; Bulgaria, Poland, Romania, Slovenia, Slovakia, Hungary)