Wages continue to rise rapidly

Low wages and slow wage growth in Slovakia are two of the main issues for trade unions to address in negotiations on behalf of their members. The new Slovakian government also considers wage increases to be an important issue and included the topic in its Programme Declaration. On the other hand, employers try to keep wage increases at a moderate level; however, according to recent data, wages continue to rise rapidly. In the second quarter of 2006, the average monthly nominal wage of employees reached SKK 18,324 (€486) – an almost 9% increase over the same period in 2005. Nevertheless, due to a high inflation rate, real wages grew more slowly. Wage developments in individual sectors did not change substantially.

Effects of continuing wage increases

Wages in Slovakia are still among the lowest in the EU. Wage increases are a priority of the trade unions, which annually try to negotiate increases in nominal wages, in order to ensure growth in real wages (after inflation) or at least to avoid a fall in real wages. The new government also included the issue of support for wage increases, including raising the minimum wage, in its Programme Declaration (SK0609019I).

On the other hand, employers warn that excessive wage increases could lead to lower competitiveness; the consequent job cuts raise the already high unemployment rate (SK0607019I). Foreign investors also consider low wages as one of Slovakia’s comparative advantages when locations for new investments are being decided.

During 2006, the relatively rapid growth of nominal wages has continued. According to data from the Slovakian Statistical Office (Štatistický úrad Slovenskej republiky, ŠÚ SR), the average gross monthly nominal wage reached SKK 18,324 (€486) in the second quarter of 2006, compared with SKK 16,737 (€444) in the same period in 2005. The rate of wage increase was slightly higher in 2006 – 8.8%, compared with 8.2% in the same period in 2005 (SK0511101N). The rapid growth rate of nominal wages results in an increase in labour costs for employers (including contributions to the compulsory insurance funds). Therefore, employers try to avoid having to increase wages if possible.

Inflation reduces growth in real wages

Growth in nominal wages does not necessarily mean that employees’ real wages grow. In 2005, the average nominal monthly wage increased by 9.2%, while the average real wage increased by 6.3% – the highest growth in real wages over the last 10 years. The rate of increase of nominal wages in the first two quarters of 2006 was largely the same as in the first two quarters of 2005; however, due to the higher inflation rate, real wages rose significantly less for that period in 2006 than in the same period in 2005. In the first quarter of 2006, real wages increased by 2.7%, compared to 7.2% in 2005. In the second quarter of 2006, real wages increased by 4%, as against 5.6% in 2005. If this rate of increase continues, it could exceed the extraordinary wage growth seen in 2005. However, the growth in real wages will probably be much lower than in 2005.

Changes in sectoral wage development

Nominal monthly wages increased in both the private and public sectors in 2006. In the public sector, the wage tariffs increased on 1 July 2006, according to the sectoral collective agreements – by 5% for civil service employees and by 6% for public service employees. Nominal wages in the private sector grew continuously throughout the year and their average rate of increase was higher than in the public sector. The table below shows recent data from the ŠÚ SR on average gross monthly nominal wages in selected sectors of the Slovakian economy.

Average gross monthly nominal wages in selected sectors, January–July 2006
Table Layout
Sector Average monthly nominal wage in SKK 2006/2005 Index 2004/2005 Index
Manufacturing 18,549 105.8 108.4
Construction 13,938 105.9 106.0
Wholesale 17,643 107.5 111.5
Sale and repair of cars 17,996 107.7 105.5
Retail 12,422 109.1 107.8
Hotels and restaurants 10,240 106.1 110.6
Transport and storage 17,706 106.9 107.0
Real estate, letting, commercial activities 19,886 108.8 112.2
Post offices 14,309 107.8 108.5
Telecommunications 39,034 104.7 107.4

Note: 36.14 SKK = €1 as of 11 October 2006.

Source: ŠÚ SR

The highest nominal wages continue to be found in the telecommunications sector, while workers in the hotels and restaurants sector are traditionally paid the lowest wages. However, employees in hotels and restaurants sector usually have other sources of income.

The highest rate of wage increase was recorded in the retail sector, followed by the real estate, renting and commercial activities sector. The telecommunications sector experienced the lowest rate of increase, followed by the manufacturing and construction sectors.

Similarly to 2005, the highest rate of increase in nominal wages in the period from January to July 2006 was seen in real estate, letting and commercial activities. However, when compared with the same period in 2005, the rate of increase in the average nominal wage in 2006 was lower in almost all of the sectors.

Ludovít Cziria, Institute for Labour and Family Research

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