Economy 14 June 2024, 3:00pm

Eight to nine-fold difference between high and low earners' wages in Hungary

Portfolio

More than two-thirds of workers in Hungary take home less than the average wage, according to data from the Hungarian Central Statistical Office (KSH), published at the request of Portfolio. The exclusive data show that the gap between the wages of the top and bottom 10% of the population is eight to nine times larger, and even double between the ninth decile (the second highest earning decile) and the tenth. In this article, we look at how much money each decile can take home, and the reasons for this apparently wide gap.

Every month, the Central Statistical Office (KSH) publishes a series of flash reports on average wages, which are the subject of huge debate among readers. The flood of comments on social networking sites has increased especially in recent years. It is no wonder that many people are puzzled, since wages are rising at a rate that is rarely seen. A few years ago it was around HUF 400,000, last year it was well over 500,000 and this year the average gross wage is already over 600,000.

But there is no trick here: the "average person" does not earn the average wage. The average person takes home the median wage, which half of the workers earn less than and half earn more than.

And the median gross wage is barely 80% of the average, based on trends in recent years.

It is not surprising, and indeed a common trend in all countries, that the median is substantially lower than the average. The reasons lie in the distribution of wages. In other words, the explanation is that the wages of the top 5-10% of earners are so out of line with the rest that they pull the average upwards to an extreme degree.

As a result, last year 67.5% of (full-time) workers had gross wages lower than the average wage.

This means that more than two-thirds of people earn less than the average wage. This phenomenon was discussed earlier by experts from KSH to Portfolio.

Hungarian earnings inequality is not particularly high by European standards,

said Katalin Janák, head of the Quality of Life Statistics Department at KSH. In terms of income inequality, Hungary is among the middle-ranking countries in the EU as a whole.

The size of the pay gap is not only affected by earnings inequalities, but also by differences in employment structure, Katalin Janák told Portfolio earlier.

A look at the way wages vary by sector provides a good example. Last year, the financial sector paid three times as much as the social care sector. If, for example, some agricultural and construction jobs were to suddenly disappear, while the same number of jobs were created in the financial sector, average wages would jump enormously without any increase in wages in either sector. Of course, this does not happen in reality, but it shows that if more jobs are created in industries that pay poorly, then more people can earn below the average wage. Meanwhile, if more jobs are created in IT or finance, the average is pushed up.

Having said this, it is worth looking at the distribution of wages. For some time now, the KSH has been publishing quarterly data on wage trends by income quintiles (20% of employees in each quintile). This shows that there are substantial differences between the wage categories, but it seems that some of these 20% brackets still actually concentrate too many employees.

A clearer picture of social differences can be obtained by looking at earnings deciles. To do this, we asked KSH for annual data for 2023, which show that there is a massive gap between the first and tenth decile.

The wages of the 10% of the lowest earners were less than HUF 200,000 gross, while those of the highest earners exceeded HUF 1.6 million a month.

The average wage of the lowest 10% did not even reach the minimum wage (HUF 232,000 last year), which is not surprising given that public employees, for example, receive only half the minimum wage.

As shown in the chart below, it is the 10th income decile that stands out the most (until then growth is roughly linear), although the growth gap is already widening between the 8th and 9th deciles. It is striking that the highest earning decile can take home twice as much money as the 9th decile immediately after them. However, in percentage terms, the wage gap has narrowed slightly, with the lowest earners seeing their wages rise by 16-20%, while the average wage in the tenth decile has risen by 'only' 10%.

The much higher wages in the 10th decile can be explained by the fact that wages in some highly paid professions and among managers are much higher than for other workers. In some jobs, salaries as high as HUF 2-2.5 million gross are already achievable in Hungary, while salaries of HUF 1-1.5 million are no longer rare. Many people in non-managerial positions can also fall into the 9th and 10th earnings decile, such as engineers, lawyers, and doctors.

Although the breakdown by jobs is only available up to 2022, it is clear that it is the high-skilled, graduate workers who earn the most money. While simple industrial or commercial jobs paid around HUF 400,000 gross, graduate jobs typically paid over HUF 700,000 and salaries for senior managers were close to HUF 1 million. The jobs with the lowest wages were those not requiring qualifications.