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Generous cabinet fuels 7.2% real wage jump

Although real wage growth in Slovakia has reached its highest level for the last five years, analysts stress that the growth stems from government policy rather than greater labour productivity.
The average nominal monthly wage reached Sk13,329 ($300) in the second quarter of 2002, a year-on-year increase of 10.5 per cent, while in real values wages grew by 7.2 per cent compared to the same period in 2001.

Although real wage growth in Slovakia has reached its highest level for the last five years, analysts stress that the growth stems from government policy rather than greater labour productivity.

The average nominal monthly wage reached Sk13,329 ($300) in the second quarter of 2002, a year-on-year increase of 10.5 per cent, while in real values wages grew by 7.2 per cent compared to the same period in 2001.

However, analysts cautioned that increases in public sector wages combined with record low inflation were behind the wage growth, not an increase in labour productivity.

"High real wages are backed up by growth in sectors which can be influenced by the state," said Viliam Pätoprstý, an analyst from Unibanka.

"Moreover, record low inflation resulting from postponed price deregulation before September parliamentary elections also supported [real wage growth]."

According to Juraj Kotian, a Slovenská Sporiteľňa analyst, nominal wages grew by only 8.3 per cent in the private sector in 2Q02, but increased on average from 13.8 per cent to 19.7 per cent in the public sector.

In addition, said Kotian: "In an election year, the government has not been applying unpopular measures, a fact demonstrated by its not raising prices for natural gas and electricity."

Kotian added that the government had increased spending on highway construction and public works, as well as the minimum wage and retirement benefits.

Public sector wages have grown in some long-neglected areas like education and health care, while administrative changes also had an impact, said Pavol Baláž of the Slovak Statistical Office.

"The growth of nominal wages was related to changes in the payment system in the public sector, which has resulted in approximately Sk1,500 to 2,000 ($35-45) per month per person more.

"Besides this, employees in the education and health care systems have received a rise even above this level," said Baláž.

According to Statistical Office data, nominal wages grew by 22.9 per cent in the health care sector and by 19.6 per cent in education in 2Q02.

As a result of the government's election-year policy, the real increase did not correspond to a healthier economy or a more efficient labour force, said analysts.

"Any comparison of labour productivity and the level of wages brings unfavourable results," said Pätoprstý.

"To put it simply: The money you are paid should reflect what you produce. Real wages are growing at almost double the pace of real labour productivity."

While some blame the government for what they say is an unsustainable economic policy, others think that austerity measures coming after a new government takes the reins will compensate for today's loose fiscal policy.

"Such growth is irresponsible," said Marek Senkovič, an Istrobanka analyst.

"The government should have known that it was not going to start [utility price] deregulations, and its discussions with unions on growth in wages and retirement benefits should have been based on this," he added.

On the other hand, Ján Toth from ING Bank, while agreeing that real wage growth had surpassed labour productivity, said: "We are not alarmed, since we consider public wage increases as temporary and due to the elections.

"The new government will implement austerity measures in early 2003, and that will take real wage growth back to levels of 0 to 1%," he said.

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