English
Eastern European countries have a competitiveness problem amid successive wage increases in recent years, and the foreign direct investment they benefit from could suffer, according to a recent study carried out by the IESEG School of Management, taken over by the French publication Les Echoes.
According to the quoted source, Eric Dor, the director of economic studies at the IESEG School of Management, emphasizes that in Eastern European countries, the increase in wage costs "was clearly higher than in the countries belonging to the Eurozone starting from 2015".
Eric Dor states: "Between the first quarter of 2015 and the second quarter of 2023, the increase was 16% in the euro zone, while in Bulgaria it was 67%, in Romania 62%, 52% in Hungary, 41% in the Czech Republic and 40% in Poland. By removing the exchange rate effects of these countries that have their own currency, measurements in euros provide a similar overall picture. Thus, in the same period, wage costs, measured in euros, increased by 67% in Bulgaria, by 62% in the Czech Republic, by 46% in Romania, by 25% in Poland and by 19% in Hungary. The relative attractiveness of these countries has been reduced even if they continue to benefit from much lower wage cost levels than those in the rest of the European Union".
The evolution of salaries in these states as the cause of the loss of competitiveness was also recorded by the experts of the International Monetary Fund (IMF) in the latest report on the economic prospects of the countries of Central, Eastern and South-Eastern Europe (CESEE). The IMF actually notes that wages in this area have increased more than in Western European countries. In the latter, wage growth began to accelerate in 2021, reaching 5% by mid-2023 from 1% to 3% between 2015 and 2019. For Eastern European countries, the figures exceed 10% in mid 2023, compared to 5% to 8% in 2015-2019.
Taking into account the effects of inflation, all European countries experienced a decline in net wages, says the IMF, which notes: "The erosion of purchasing power has been considerable across Europe, but particularly in advanced European economies." Thus, in Western Europe, the decrease in real wages was 8% in the last quarter of 2020, while in Eastern European states it was only 5%. To explain this difference, the Fund's economists argue that the demands for wage increases in Eastern European states were caused by inflation, a phenomenon that was observed earlier, and not by expectations of price increases as it was in Western European states. Eastern European countries, having higher inflation than in the West, increased nominal wages more strongly, hence the decrease in their competitiveness, summarizes the IMF.
This phenomenon is expected to continue: on average, wages are expected to increase by 5% and 4.5% in 2023 and 2024 in advanced European countries, while the increase will be 9% in 2023 and 7% in 2024 for Central and Eastern European countries.
Eric Dor argues that the resulting loss of competitiveness could reduce exports and favor imports which, in the end, would worsen the trade balance of the respective states and gives an example in this sense: "Until now, especially in Romania, the trade balance of goods, excluding energy, has continued to deteriorate since 2015, with a worsening of the deficit".
We remind you that this autumn the Government increased the minimum wage for the economy to 3300 lei per month starting from October 1, 2023, decided a new wage increase for different sectors of activity - construction, agriculture and the food industry - starting from November 1, 2023 and wants a new salary increase during the next year. The respective measures were not contested by the business environment, but the entrepreneurs requested that the salary increase be carried out through the lens of the reduction of the labor tax, which in our country is at the highest level in the European Union, approximately 43% of the gross salary monthly reaching the state budget.
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