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Do Romanians really earn more?

According to Eurostat’s wage statistics for 2023, Hungarian wage levels in euros were ahead of those in Croatia, Romania and Bulgaria, and close to those in Slovakia. However, last year’s high inflation levels, which varied across countries, led to a different regional ranking of earnings in purchasing power parity (PPS) terms adjusted for price levels: Hungarian wages in PPS terms were higher than in Slovakia, Bulgaria and Croatia, while Romania, Slovenia, the Czech Republic and Poland had higher wages than Hungary. This gave rise to the interpretation by some media outlets that Romania has overtaken Hungary in various parameters of living standards. As we will see in our analysis below, Hungary is still ahead of most of the region based on economic data, with last year’s data in PPS terms showing a distorted picture due to high inflation, the reasons for which are also discussed below. Looking ahead, as inflation expectations for 2024 are the lowest in the region, this could lead to a very different ranking of this year’s PPS-based net wages. Both the Polish (5%) and Romanian (6%) expected annual inflation could be higher than the Hungarian rate (3.7%), affecting the purchasing power of earnings.

Eurostat wage statistics for 2023

Eurostat published its latest data for 2023 on wage developments in the European Union countries this week. There are several breakdowns of the data available for last year, and in this article we will go through and present them according to the following principles:

  • we look at net wages, i.e. what workers receive after tax and benefits;
  • in nominal values in euros;
  • values adjusted for exchange rates and price levels at purchasing power parity;
  • in different earnings categories: single, one-earner and two-earner households; households with no children or two children; at different levels of earnings relative to average wages.

Net wages in euros

The figure can be referenced here: https://public.flourish.studio/visualisation/18315343/

Net wages in euros have been rising steadily in recent years, both in Hungary and in the countries of the region (average wage-earning single-person household). In 2023, Hungarian wage levels in euros were ahead of those in Croatia, Romania and Bulgaria, and were close to those in Slovakia. Looking at the other earnings categories, a similar picture emerges in a regional comparison: Hungary had higher annual net wages (in euro terms) than Romania and Bulgaria (and in some cases Croatia and Slovakia). Overall, looking at wage levels in nominal terms across the countries of the region, Hungary has higher earnings than several countries in the region, including Romania and Bulgaria.

Inflation and exchange rate movements

Eurostat also uses a different method of calculating wages, namely the purchasing power standard (PPS). In this methodology, earnings are adjusted by price levels, i.e. how much goods and services can be bought (in one currency against another) in which country for a given level of earnings. On this basis, the comparison of the purchasing power of earnings between countries is influenced by several factors:

  • different currencies and exchange rate fluctuations;
  • different prices;
  • gross-net wages, i.e. tax and benefit systems.

The PPP figure seeks to address these factors, but the methodology for estimating price levels is limited.

Overall, therefore, inflation is an important determinant of earnings (for more details on inflation and its spill-over socio-economic effects, see HERE). At the regional, global and European level, we saw record highs in inflation during 2022-2023, peaking in late 2022 and early 2023 in the economies of the region, and a gradual slowdown thereafter. There were several factors behind the acceleration in inflation. On the one hand, demand recovered quickly at the opening up after the coronavirus pandemic, but the supply side could not keep up, resulting in shortages of many products, raw materials, etc. On the other hand, higher energy prices following the Russian-Ukrainian war also exacerbated the inflation situation across Europe, and food prices also rose significantly due to the drought. As a result of Hungary’s inflation-mitigating measures, the pace of price increases in Hungary has been more protracted than in other countries, with inflationary pressures being exerted gradually rather than suddenly and shock-like. In 2023, however, the rate of inflation gradually slowed down as a result of corrective consumption, central bank tightening, government measures and a technical factor, the base effect (for details on the different regional inflation paths and the lengthening of the pace of Hungarian inflation, see HERE).

The figure can be referenced here: https://public.flourish.studio/visualisation/18315580/

In 2023, our region was the EU’s leading region in terms of inflation, with Central and Eastern European countries in the top ten places of the ranking. Annual average inflation in 2023, calculated according to Eurostat methodology, was:

  • 17% in Hungary,
  • 12% in the Czech Republic,
  • 11% in Slovakia,
  • 10.9% in Poland,
  • 9.7% in Romania,
  • 8.6% in Bulgaria,
  • 8.4% in Croatia,
  • 7.2% in Slovenia.

Higher inflation also eroded the purchasing power of earnings, thereby reducing their value. By 2024, however, inflationary pressures had eased in all economies, with the Hungarian rate below 4% in March, along with those in Slovenia, Bulgaria, Poland, Slovakia and the Czech Republic, while in Croatia and Romania it reached higher levels (4.9% and 6.7% respectively, on a year-on-year basis). Looking ahead, the IMF forecast in April foresees a significant decline in inflation in the countries of the region from 2023 to 2024 (annual average):

  • IMF expects Romania to have the highest inflation in the region: 6%
  • followed by Poland: 5%
  • Hungary: 3.7%
  • Slovakia: 3.6%
  • Bulgaria: 3.4%
  • Slovenia: 2.7%
  • Czech Republic: 2.1%.

Furthermore, a comparison of the exchange rate of the Hungarian forint and the Romanian leu against the euro also helps to better understand wage dynamics. Over the last 5 years, the forint has depreciated by roughly 20%, while the Romanian leu has depreciated by approximately 5%. This aspect is also important because wages in Hungary are realised in forints, while Romanian wages are realised in lei.

The figure can be referenced here: https://public.flourish.studio/visualisation/18316216/

Net wages at purchasing power parity

Having seen inflation hit record highs in 2023, it is not surprising to see larger differences between countries in earnings at purchasing power parity (PPS). Overall, it is positive that, despite high inflation, earnings in the countries of the region increased on a PPS basis too in 2023, as they did in previous years:

The figure can be referenced here: https://public.flourish.studio/visualisation/18315680/

Although Hungarian inflation was the highest in the region in 2023, Hungarian wages in PPS terms were higher than in Slovakia, Bulgaria and Croatia last year, while Eurostat reported higher PPS-based earnings in Romania in 2023, as it did in Slovenia, the Czech Republic and Poland too (average wage-earning single-person household), due to lower inflation than in Hungary. Looking at the other earnings categories, a similar picture emerges in a regional comparison: Hungarian PPS-based annual net wages in 2023 were consistently higher than those of Slovakia and Bulgaria, and in most cases also higher than those of Croatia, while Romanian wages were ahead of Hungarian wages due to lower inflation, except in two cases:

  • a single adult with two children, earning 67% of the average wage: the Hungarian PPS-based wages were higher than the Romanian ones in 2023;
  • single-earner couple with two children, at average wage level: the Hungarian and Romanian PPS-based wages were at the same level in 2023.

Looking ahead, based on inflation expectations for 2024 (IMF WEO), the ranking of this year’s PPS-based net wages could change at the regional level, as both the Polish (5%) and Romanian (6%) expected annual inflation could be higher than the Hungarian rate (3.7%), affecting the purchasing power of earnings.

Sources for this article can be found here, here, here and here.

Kutatási igazgató

Szabolcs Pásztor is an associate professor at the Department of Economics and International Economics of the University of Public Service (Budapest, Hungary). Previously he worked at the Central Bank of Hungary and as an advisor for the Hungarian Banking Association. He joined the Oeconomus Economic Research Foundation in 2020. He has taught at various universities in Australia, China, Belgium, France, Czechia, Italy, Russia, Turkey, Republic of South Africa, Kenya, Ethiopia and other countries. His main research interests are related to the issues of economic and financial transformation in developing countries.

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