Institute ONE: Nominal wage growth and the harsh reality – 2024-02-16 13:07:31

Despite the increase in nominal wages, earnings remain low, there is strong wage inequality, while purchasing power has decreased. This is revealed by the analysis of remuneration prepared by the Institute for Policy Alternatives ENA.

The researchers processed the data from Ergani which show that there was a movement of many employees from the lower to the immediately higher levels. However, the largest percentages of the population are concentrated in the relatively lower values ​​of the distribution, while much smaller percentages of wage earners are found in much higher values. “In other words” they state that “the average wage (average of all wage earners) is higher than the median wage (the wage below which half of the wage earners are paid and above which the other half are paid).

In addition, the increase in the average salary exceeds the average annual increase of the General Price Index of 2023 (3.5%) but falls significantly short of the increase in the index of food and non-alcoholic beverages (11.6%).

The analysts, also using ELSTAT’s data, conclude “that we cannot accurately calculate the median salary in 2023, in order to see if the ratio with the average increased or decreased, what is certain is that the majority of employees are still paid well below the average salary.”

The analysis of the ENA Institute

Data on private sector employees from the ERGANI system of the Ministry of Labor were recently published. Naturally, interest focused on the wage data (tables IB3 and IB4) showing the distribution of workers by wage category. Table IB3 is reproduced below in Table 1, without the change columns and with the addition of the last two columns showing cumulative distributions (ie the percentages below each scale).

The general picture that emerges from the table is an “upward shift” of the entire wage distribution due to nominal wage growth, that is, the movement of many wage earners from the lowest to the immediately higher rungs. Perhaps Table 1 is not the most appropriate to see this development, mainly because of the uneven range of salary scales. If we convert them to have the same range, the diagram below results.

The average salary is higher than the median salary

As can be seen in Chart 1, in 2023 the percentages of employees receiving less than 1,000 euros decreased and the percentages of employees receiving more than 1,000 euros increased. However, an even more interesting feature is the positive or right skewness of the distribution, a common feature of wage inequality. Larger percentages of the population are concentrated at the relatively lower values ​​of the distribution, while much smaller percentages of wage earners are found at considerably higher values. In other words, the average wage (average of all wage earners) is higher than the median wage (the wage below which half of the wage earners are paid and above which the other half are paid). This last one we can look at somewhat more specifically.

The average salary results from table IB4 of the ERGANI report, where the total salary is presented (and not, as incorrectly stated in the title, the average salary). If we divide by the total number of employees, we get the average salary for the years 2022 and 2023 as shown in Table 2.

An interesting point is that if we take into account the data of ELSTAT, the increase in the average salary exceeds the average annual increase in the general price index of 2023 (3.5%) but falls significantly short of the increase in the index of food and non-alcoholic beverages (11.6 %).

The wage inequality index

The median salary cannot be calculated precisely from the data published by ERGANI, we can only approximate it from cumulative distributions. For 2022, it can be seen from Table 1 that 49.5% of wage earners were paid amounts up to 900 euros, which means that the median salary was slightly above this amount. In 2023, according to table 1, the percentage of wage earners who were paid less than 900 euros decreased to 39.3%, which means that the median wage increased. If we also notice that 53.7% of employees were paid less than 1,000 euros, we can conclude that the median salary in 2023 has increased compared to the previous year but remains below 1,000 euros.

From the above data we can calculate a simplified index of wage inequality, the ratio of the median wage to the average, i.e. how far below the average half of the wage earners are. In our case, if we assume that the median wage in 2022 was 900 euros, then its ratio to the mean (1,176.5 euros, see Table 2) was 76.5%, or, in other words, the wages of half of the wage earners did not exceed three quarters of the average salary. Although, as we said, we cannot accurately calculate the median salary in 2023 to see if the ratio with the average has increased or decreased, it is certain that the majority of wage earners are still paid well below the average salary.