Minimum and average net wages in relation to productivity in OECD countries

Transcription

1 Minimum and average net wages in relation to productivity in OECD countries Martin Pernica, Institute of Finance, Faculty of Business and Management, Brno University of Technology, Brno, Czech Republic, František Janáč, Procurement research specialist, Czech Republic, Abstract Rewarding work in the Czech Republic has been discussed for a long time. According to data from the Organization for Economic Cooperation and Development, the Czech Republic has significantly lower wages compared to developed Western European economies. There is lower purchasing power from the net average wage in the Czech Republic than in the OECD countries of Mexico, Hungary, Slovak Republic, Turkey and Poland. The importance of the contribution of this paper is to assess interrelationships of the minimum wage, average net wage and labor productivity in the Czech Republic versus the European comparison. To complete this paper there have been used methods of analysis, comparison, induction and deduction. Data sources include the Czech Statistical Office, the European Statistical Office, Ministry of Labour and Social Affairs of the Czech Republic and the Organisation for Economic Co-operation and Development. The comparison of OECD countries concerning the level of average net wages and data on labor productivity in terms of GDP per hour and per person revealed differences, in average annual net wage expressed in purchasing power parity in OECD countries, with the Czech Republic adjacent match about differences in labor productivity in terms of GDP per hour and per person in D. The theory that the differences in average net annual wage expressed in purchasing power parity matches the level of labour productivity per hour and person (also expressed in purchasing power parity) is not true. For example, in the case of Luxembourg, the Netherlands, Norway or Switzerland. These countries have much higher minimum wage levels, both when comparing absolute values, and when expressed in purchasing power parity. A higher minimum wage leads to an increase in other wage levels, which affects the amount of the average gross wage. Higher wages bring higher levies on premiums and taxes. Raising the minimum wage can be seen as a way of fostering economic growth and the path to raising living standards. Keywords Minimum wage, living wage, efficency, code of labour Introduction In the early nineties of the twentieth century the leaders of our country presented optimistic targets that Czechoslovakia, and later the Czech Republic, would reach within a few years, the economic level of developed European countries. The former chairman of the State Property Fund and member of the Czech National Council, Tomas Jezek in August 1992 said: "I'll put head on the block that just as in the fifties and sixties, spoke about the German, and in five years - and maybe sooner - begins to speak on Czech economic miracle. Not so much because of the genius of the creators of economic reforms, because we have done nothing else than the fact that we apply textbook knowledge, but thanks to hard work, diligence and skill of Czech people. "(Skutečnosti, 2015) Unfortunately, these assumptions have not so far been met. To compare the performance of individual countries is a most commonly used indicator of gross domestic product, GDP per one

2 capita, GDP per capita (Novotny, 2010). Giovannini GDP is even referred to as the most important variable used in the national accounts. (Giovanni, 2008) GDP is based on the idea of measuring economic output produced on the economic territory by resident and non-resident units. Regardless of the nationality of the factors of production (labor, land, capital) in the production process. (Hronová, 2009) comparing the volume index of GDP per capita in purchasing power parity (PPP) of all European Union countries, the Czech Republic is in the second half. The volume index of GDP per capita at purchasing power parity achieved in 2014 above 84. In 2004, at a time ten years ago, the value indicator was 79. For example: in Austria the comparable amount of volume index of GDP per capita in PPS 128. See table below. Table 1 GDP per capita in PPS (Source: Author according ČZSO,2015) Country / Year EU (28 countries) EU (27 countries) Eurozone (19 countries) Eurozone ( countries) Eurozone ( countries) Belgium Bulgaria Czech republic Denmark German Estonia Irleand Greece Spain France Croatia Italy Cyprus Latvia Litvenia Luxembourg (p) Hungary Mortar Holland Austria Poland Portugese Romania Slovinia Slovenia Finland Sweden United Kingdom Island Norway Swiss (p) Montenegro : : (p) Macedonia (p) Albania : : (p) Serbia : : Turkey

3 Bosnia and : : Hercegovina United States Japan The volume index of GDP per capita expressed in purchasing power standards in relation to the EU average of 28, which is equal to 100. If the index for a country is higher than 100, it means that GDP per capita of the country is higher than the EU average and 28 vice versa. Data are expressed in purchasing power standard - a common currency, which blurs the differences in price levels between countries, allowing comparisons of GDP between countries rather than in time. (CZSO, 2015) Factors that affect the living standards of the Czech population are numerous. For example, investment in infrastructure, investment in education, investment in new information and communication technologies and others. (Novotná, Kříž, 2012) We will dedicate one of the most talked - remuneration of labour in the Czech Republic, Institute of minimum wages and labour productivity interrelated. Importance of the contribution of this paper is to assess interrelationships of the minimum wage, average net wages and labor productivity in the Czech Republic in the European comparison. Evaluation work in the Czech Republic ( in comparison with selected OECD countries ) According to data from the Organization for Economic Cooperation and Development, the Czech Republic has significantly lower wages compared to developed Western European economies. Among these include, for example, Germany, France, Belgium, the Netherlands and Great Britain. The average net wage in PPP takes into account the prices of goods and services in individual OECD member countries. The table below shows a comparison of the average net wage in purchasing power parity in OECD countries over the past fifteen years. Table 2 Net income after taxes - dollars PPP exchange rates (Source: Author according OECD,2015) Indicator Family type Net income after taxes in dollars using PPP exchange rates Single person at 100% of average earnings, no child ayear Country Unit Australia 23151, , , , , , , , , , , , , , ,844 Austria 22811, , , , , , , , , , , , , , ,838 Belgium 20251, , , , , , , , , , , , , , ,939 Canada 21989, , , , , , , , , , , , , ,98 Chile 8994, , , , , , , , , , , , , , ,852 Czech Republic Denmark 8780, , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,472 Estonia 6744, , , , , , , , , , , , , , ,702 Finland 17528, , , , , , , , , , , , , , ,381 France i 20161, , , , , , , , , , , , , , ,002 Germany 20216, , , , , , , , , , , , , , ,426 Greece 18057, , , , , , , , , , , , , , ,616 Hungary 6474, , , , , , , , , , , , , , ,314 Iceland 23995, , , , , , , , , , , , , , ,023 Ireland 18235, , , , , , , , , , , , , , ,462 Israel 20498, , , , , , , , , , , , , , ,244 Italy 18722, , , , , , , , , , , , , , ,271 Japan 26721, , , , , , , , , , , , , , ,307

4 Korea 24198, , , , , , , , , , , , , , ,717 Luxembourg 27242, , , , , , , , , , , , , , ,206 Mexico 7621, , , , , , , , , , , , , , ,642 Netherlands 23736, , , , , , , , , , , , , , ,905 New Zealand Norway 19550, , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,061 Poland 9047, , , , , , , , , , , , , , ,599 Portugal 12111, , , , , , , , , , , , , , ,726 Slovak Republic Slovenia 7708, , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,613 Spain 18919, , , , , , , , , , , , , , ,187 Sweden 19132, , , , , , , , , , , , , , ,924 Switzerland 32379, , , , , , , , , , , , , , ,623 Turkey 13980, , , , , , , , , , , , , , ,986 United Kingdom United States OECD - Average 29073, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,044 The lower purchasing power of the net average wage compare to the Czech Republic is within OECD countries only in Mexico, Hungary, Slovak Republic, Turkey and Poland. This situation has not change for several years. The table above shows a comparison of the average net wage expressed in purchasing power parity individually in the years A fifteen-year period is a sufficiently long period to make it possible to compare the development of individual countries and further explore the reasons behind these Czech Republic unflattering results. Institute a minimum wage in the Czech Republic The minimum wage is regarded as socio-economic category. (Měchura, 1994) The minimum wage provides protection in labour relations and that both employees and employers. Employees ensures a certain level of social protection. It is also a means of limiting wage undercutting on the part of employees. Thus helping to reduce tensions on the labor market. The minimum wage creates the preconditions for income motivate people to search, adoption and execution of work, ie. Through their working income to favor the employee to only those with a social reception. The minimum wage for the employees regardless of the performance criteria and the quality of work and regardless of the type of work performed. (Galvas, 2015) For employers, the lowest level for salaries of their employees. It is obvious that the function of the minimum wage and the associated interests of employees and employers can not be the same. Achieve a balanced solution when modifying the minimum wage is therefore not a simple matter. (MPSV, 2015) From a macroeconomic perspective, the minimum wage affects particularly demand - the amount of goods and services that they can afford to salaried workers the minimum wage to purchase, which is reflected in the increase macroeconomic output. In terms of public finances, a higher minimum wage brings higher state payments - mainly on social and health insurance. Institute a minimum wage in the Czech Republic is enacted. As each utility regulation is the subject of political debate not only in the Czech Republic and other European countries. The right-wing political parties in the Czech Republic often emphasize the negative impact of minimum wages on employment. Assume that the idea of the classic respectively. neoclassical school of economic thought. According to this criticism is deformed labor market on both the supply and the demand side. Too high a minimum wage leads to a reduction in demand for labor, but also promotes the growth of the labor supply by the applicants. The minimum wage in this view, will ensure better labor conditions, but for a smaller number of employees. (Neumark, 2009). Leftist political parties in the Czech Republic, on the contrary, emphasize the function of social protection and promote equal conditions of wage competition among employers. The basis of these propositions is Keynesian, respectively. New Keynesian school of economic thought. Keynesians have based their claims on

5 time delays between supply and demand for labor. The labor market is influenced by many factors. Employment contracts are concluded for a longer period of time, not immediately terminate. Labor market affects the rigidity of wages. Due to the delay in the relationship between supply and demand on the labor market there is involuntary unemployment. Institut minimum wage is in this sense is understood as a means of stability that allows to reduce poverty and improve the living conditions of workers. This view is supported eg. The study by Paul Krugman that. (AEI, Krugman, 2015). In the Czech Republic clearly outweighs the neoliberal beliefs about the harmful effects of the minimum wage. From 1989 to the present they were in power at all times, except for two election periods, political parties of the right wing of the political spectrum. Contemporary coalition can be designated as a center. The minimum wage was regularly valorized especially in the period of leftist governments, especially in the years ( ). The nominal value of wages during this period increased more than doubled. While there was a decline rates of major taxes. Especially for taxes on personal income and the basic VAT rate. In the years , when with the Government of the Czech Republic turns right-wing coalition, the minimum wage remained unchanged at 8,000 CZK per month. During this period, significantly increased the VAT rate from 19% to 21% and the reduced rate of VAT, which is a whole range of socially sensitive items (eg. Food) has increased from 5% to 15%. At the same time, some taxes were added, eg. Environmental, increased excise taxes, particularly on fuel and was deregulated rents. Table 3 Trends in the minimum wage in the Czech Republic since its introduction in 1991 (Source : Author according MPSV, 2014) Party/prime minister Period adjustments of The minimum wage minimum wage CZK/month CZK/hour Center/Petr Pithart ( ) 1991 February ,80 Rigt wings/václav Klaus ( ) 1992 January , January ,60 Josef Tošovský ( ) 1998 January ,80 Left wings/miloš Zeman ( ) 1999 January , July , January , July , January , January ,90 Left wings /Vladimír Špidla ( ) 2003 January , January ,60 Left wings /Stanislav Gross ( ) 2005 January ,50 Left wings /Jiří Paroubek ( ) 2006 January , July ,10 Right wings/mirek Topolánek ( , Jan 2007 January ,10 Fischer ( ), Petr Nečas ( ) Jiří Rusnok ( ) 2013 August ,60 Center /Bohuslav Sobotka ( ) 2015 January ,00

6 The minimum wage in the Czech Republic and GDP Result appreciable increase in the cost of living in the stagnation of the minimum wage in the years also deepen impact of the global economic crisis in the Czech Republic. The table below summarizes data on the performance of Czechoslovakia and the Czech economy since Table 3 Development of gross domestic product since 1990 (Source: Author according CZSO,2014) Measuring unit Gross domestic product, not CZK mil seasonally adjusted current prices GDP growth (constant prices ) %. -9,7-2,3 1,0 2,4 6,2 4,3 Gross domestic product, not seasonally adjusted Measuring unit GDP growth (constant prices ) CZK mil current prices % -0,7-0,3 1,4 4,3 3,1 1,6 3,6 Gross domestic product, not seasonally adjusted Measuring unit GDP growth (constant prices ) CZK mil current prices % 4,9 6,4 6,9 5,5 2,7-4,8 2,3 Gross domestic product, not seasonally adjusted Measuring unit GDP growth (constant prices ) CZK mil current prices % 2,0-0,8-0,9 2,0 In the summer of 2013 there was an increase in the minimum wage from 8000, - CZK per month on the amount of 8500, - CZK per month. From 1 January 2015, the amount of the minimum wage increased to 9200, - CZK. GDP growth for 2014 was 2.0%. At this time, the amount of the minimum wage has been increased for 8500 at CZK. If we compare the evolution of the volume index of GDP per capita in purchasing power standards (PPS ) increased significantly between 2003 to 2007 from the value of 77 to 84. From 2008 to 2013 the amount was flat at 82, in 2014 he returned to the level of 84, thus, a value of 2007.

7 The minimum wage in PPS - comparing the EU and the Proper adjustment of the minimum wage can also be assessed in terms of its purchasing power. In the table below are expressed in euro minimum wage per month in purchasing power parity in the case of major European countries and the in time comparison is always at 1.1. in 2008, 2014, and Table 4 Minimum wages expressed in euros per month in purchasing power parity in EU and (Source: Author according EUROSTAT, 2015) Minimum wages per month in purchasing power standards* in the EU 1st January st January st January 2015 Belgium Bulgaria Czech Republic Denmark Germany Estonia Ireland Greece Spain France Croatia 512** Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden United Kingdom United States * PPS for 2014 and 2015 are estimated ** 1 July 2008 not applicable The Czech Republic, Croatia, Latvia, Hungary, Poland and Slovakia moved from the lower group (less than 500 per month) to the medium group (500 PPS to 1,000 PPS per month) When price level differences are eliminated. Above the base rate of the minimum wage in 2014 was 8,500 CZK and the average monthly wage reached CZK the same year. Portion of minimum and average wages in 2014 amounted to 33.1%. In 2015, this proportion would have under current forecasts of the average wage increased by

8 1.5 percentage points to 34.6 %. It would thus slightly exceeded the proportion of minimum and average wages reached in The level of minimum wages relative to average gross monthly earnings In 2013, the gross minimum wage in the Member States ranged from nearly 33 % to slightly above 50% of average monthly gross earnings of persons employed in industry, construction and services. The amount of minimum wage relative to the average value of the average (mean ) of monthly gross earnings was the highest in Slovenia ( 51.4 % ), Greece ( 50.1 %, 2011) and Turkey ( 50.0 %, 2010). At the lower end of the range reported A, Czech Republic, Spain and Estonia minimum wage is less than 35 % of average gross monthly earnings. (Eurostat, 02/2015 ) Work productivity When comparing the average net wage expressed in purchasing power parity in D in OECD countries, as shown in the second table we conclude that Germany was above the average annual net earnings (data for 2014), expressed in PPS approximately doubled in comparison with the Czech Republic (Germany - Net annual income after taxes , - D PPP exchange rate versus Net annual income after taxes , - D PPP exchange rate in the Czech Republic). Similarly, even in comparison with Austria (Austria - Net annual income after taxes , - D PPP exchange rate). Above the annual average net wage expressed in purchasing power parity in D in the Czech Republic is comparable to that of neighboring countries, only Poland (Poland - Net annual income after taxes D PPP exchange rate) and Slovakia (Slovakia - Net annual income after taxes D PPP exchange rate). Poland has a population four times more in comparison with the Czech Republic, Slovakia has about half the population compared to the Czech Republic. Czech Republic can be from neighboring countries compare well with Austria, which has approximately the same population. Czech Republic and Austria has a long history lasting approximately four hundred years. During the existence of Austria-Hungary, the Czech lands were among the most advanced part with a strong focus on manufacturing and engineering. This compared more or less correspond to the dates of labor productivity in terms of GDP per hour per person. As is apparent from OECD statistics (OECD, 02/2015) productivity work in the Czech Republic in 2014, defined as GDP per hour worked, expressed in dollars in PPS is 34, -D. In Germany it is about double the 62.3, -D in Austria, 55.6, -D, which is about 40% more in comparison with the Czech Republic, the Slovak Republic 38.1, -D and Poland 29.7, -D, which is about 12% less in comparison with the Czech Republic. Diameter EU28 represents 50, -D. From the above it can be concluded that differences in average annual net wage expressed in purchasing power parity in OECD countries with countries with which the Czech Republic bordering correspond approximately to differences in labor productivity in terms of GDP per hour per person in D. We emphasize that this is a comparison of the average net wage (after tax ) expressed in purchasing power parity with the level of labor productivity per hour and person as well as in terms of purchasing power. When a simple comparison of the differences in average gross wages without relating them to the purchasing power parity in OECD countries would come to completely different conclusions. E.g. the average gross monthly wage in Germany in 2013 reached the amount of 3,449 ( Gola, 2015), while in the Czech Republic it was 25078, -D equivalent to the amount of 929 at the exchange rate of 1 = 27, -EUR. ( Finance, 2015) DISCSION On the example of other European Union countries, the differences in average annual net wage expressed in purchasing power parity no longer match the productivity of labor in terms of GDP per hour per person in D. An example of such a country can be Luxembourg. The average annual net wage expressed in purchasing power parity in 2014 amounted to D in Luxembourg,, the Czech Republic, it was 17,723, -D, approximately 2.3 times less. Labour productivity measured in GDP per hour per person in D amounted in 2014 in Luxembourg 58.2, -D (less than in Germany, which reached 62.3, - D), the Czech Republic, it was 34, -D in the same period, an

9 increase of 42% compared with Luxembourg. The thesis that the average annual net wage expressed in purchasing power parity equivalent to the amount of labor productivity per hour and person as well as in terms of purchasing power therefore does not apply in the case of Luxembourg. Similar evaluation can be done in the case of other countries, the Netherlands, Norway or Switzerland. Luxembourg is a country where the minimum wage is the highest in Europe and also in purchasing power parity (PPP), which represents a value of 1561, -. In second place is Germany, which introduced the minimum wage from The minimum wage in PPS is in Germany , with a certain distance by 1363, - or Great Britain 1114, -. All figures are for January 1, Above the volume index of GDP per capita in PPS was in 2014 in Luxembourg 263, Germany 124, the Netherlands 130 Belgium 119 and 108. In the UK, the Czech Republic amounted volume index of GDP per capita of only 84, the same as in Otherwise told, Czech Republic over the past 7 years in this respect not moved anywhere. In 2003, the above volume index of GDP per capita in PPS 77. Germany despite the effects of the global economic crisis over the last 7 years increased from 116 to 124, Belgium from 115 to 119, Austria from 123 to 128, etc. EU represents Czech Republic while after years of economic decline recorded for 2014 economic growth of 2.0%. CONCLION The minimum wage in the Czech Republic is nearly six times lower in comparison with Luxembourg. When compared with other European Union countries, where the minimum wage is set, the actual amount of 9200, - CZK in the Czech Republic, which corresponds to approximately the amount of 336 the as fourth lowest. Even if there was a one time increase in the amount 1000 CZK per month as promote by unions, it would still be the sixth lowest when compared with twenty-two EU member states that use the institute. The minimum wage is not enacted in Finland, Sweden, Denmark, Austria, Cyprus and Italy. Germany introduced it from The final comparison is not much better even when expressing minimum wage in purchasing power parity. When comparing the current level of minimum wage in terms of purchasing power in the Czech Republic, we get a value 502 PPS - fifth lowest value in the European Union. Increasing the minimum wage may be perceived as a way of fostering economic growth. Higher minimum wage leads to an increase in other wage levels, which affects the amount of the average gross wage. Higher wages bring higher levies on premiums and taxes. These are in all of the developed countries (Germany, Netherlands, Belgium, Great Britain) higher in comparison with the Czech Republic. Funds thus obtained allow to stabilize public finances and invest for example in education, science and research, health and social care, which in their turn influence economic growth and productivity. Acknowledgements The paper represents an output of the specific research project Selected Problems of Enterprise Financial Management in International Environment of the Internal Grant Agency of the Technical University of Brno, registration number FP-S References AEI. Paul Krugman on the minimum wage: 1998 vs [online] [cit ]. Dostupné z WWW: < ČZSO. HDP na obyvatele v PPS (standard kupní síly) [online] [cit ]. Dostupné z WWW: < ČZSO. Vývoj Hrubého domácího produktu od roku CSU.cz [online]. Český statistický úřad, publikováno [cit ]. Dostupné z WWW: EUROSTAT. Statistika minimálních mezd [online] 02/2015 [cit ]. Dostupné z WWW: < EUROSTAT. National minimum wages in the EU [online] 2015 [cit ]. Dostupné z WWW: < EN.pdf/42097ff5-231b-4116-b0cf-8a28ca316f84>

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