Miserable salary news: Hungary among the EU laggards
It's not easy to navigate the European salary league tables. On the one hand, you have to convert the wages of non-euro countries into the common European currency at some exchange rate to make them comparable (and since currencies fluctuate, the result can be different every day), and on the other hand, you often compare gross wages at purchasing power parity, which may not be a completely true picture of salaries because of different tax rates.
What is certain is that, according to recent Eurostat data, the gross minimum wage in Romania (over €600) was already higher than in Hungary (€578) at the beginning of this year, ahead of only Bulgaria in the EU, where the minimum wage is below €400. To understand how we got to this point, it is worth looking at the data over a longer time horizon. Ten years ago, Hungary's minimum wage level was still in line with that of the Central and Eastern European region, but now it has fallen behind.
This is because, in euro terms, Hungary has seen the smallest increase in wages in the region, averaging less than 6% a year, which of course also reflects the continued depreciation of the forint.
Minimum wages in the region have risen by an average of 6-8% per year, keeping the region largely together.
The difference in wage growth between Hungary and the region does not seem large, but if we consider that it is not a one-off difference, but that in euro terms the wage dynamics in the region have been on average higher than in Hungary every year, then this can easily result in a serious gap.
In addition to the plunge in the forint, the unpredictability of wage growth in Hungary is also a factor: after the Covid crisis, in 2021, for example, the minimum wage increased by less than 4%, while average wages rose 2.5 times as fast, while in the year of the elections, 2022, the minimum wage rose by 20%, which is only slightly less than the increase in average wages. As can be seen from the above, there is no catching-up strategy for wages in Hungary, and it is decided on an ad hoc basis how much the minimum wage will increase in each year. In one year the government intervenes heavily in wage negotiations, while in the other year it does not.
There is the unpredictability factor in the conversion to the euro, that sometimes the forint is stronger and sometimes weaker, and the current data are based on an exchange rate of 400, so given the fluctuations in the forint over the past year, this is neither too strong nor too weak. A weaker exchange rate would make the minimum wage in euros even worse, and a stronger exchange rate would make it slightly higher, but the weaker exchange rate is slowly feeding through to inflation.
It would be interesting to show how much these wages are actually worth in purchasing power parity terms (how much the earnings are worth in a given country), but this is very difficult. In Eurostat's database, only gross wages are available in purchasing power parity, which is not worth comparing, simply because the public is not really interested in the purchasing power of wages subject to different levels of taxation in different countries. Therefore, one could either compare wages calculated on a net purchasing power parity basis or wages calculated with the corporate tax burden on wages: the former would show at what level the inhabitants of a country can afford to live, while the latter would show the total wage cost (wage competitiveness).
Cover photo: Getty Images
