added: 02.10.2015
Twelfth edition of annual report on labour costs in Central and Eastern Europe. For the first time covers 17 countries. Presented in new spreadsheet format in addition to pdf printable file. + more
added: 03.11.2014
Updated set of country Labour Costs & Earnings Country Fact Sheets, based on 2013 annual data has just been released. + more
Labour Costs CEE 2014

News

20.01.2009

Strong growth of labour costs continued in 2008 throughout Central and Eastern Europe

According to a forecast recently released by Database Central Europe (www.databasece.com), in 2008 strong growth of labour costs continued throughout Central and Eastern Europe. However, stagnating nominal wages and depreciation of local currencies should reverse that trend this year, thus improving the region’s competitiveness.

Measured by average gross earnings, labour costs expressed in Euro increased in thirteen countries of the region monitored by Database CE, at between 8% and 24% year to year.

Increase of average gross earnings in Euro in 2008

The increase has been strongest – at 20% and over – in the Czech Republic, Russia, Bulgaria, Latvia, Poland and Lithuania.

Gross earnings increased least in Hungary, Slovenia and Croatia, at a rate of 8–9%.

In Ukraine, Slovakia, Estonia and Romania, Euro earnings in 2008 increased by 12–18%.

Average monthly gross earnings in Euro 2008

Average gross monthly earnings are highest in Slovenia at €1398, followed by Croatia with earnings at €1043.

The Czech Republic, Poland, Estonia register earnings of above €800 with Hungarian earnings at €791. Earnings in Latvia, Lithuania and Slovakia reach €600 to €700 a month.

Earnings in Romania and Russia are close to €470 and they are lowest at around €267 in Bulgaria and at €230 in Ukraine.

In US dollar terms, gross earnings increased more than in Euro as the average exchange rate of the Euro to the dollar strengthened. The increase reached 15% (Hungary) to 33% (Czech Republic).

Average monthly gross earnings 2008 in selected countries of Central and Eastern Europe
 

€ change
y-o-y in %

US $

US $ change
y-o-y in %

Bulgaria

267

21.4

391

29.9

Croatia

1 043

8.5

1 528

16.4

Czech Republic

969

24.1

1 416

32.6

Estonia

825

13.8

1 205

21.6

Hungary

791

7.5

1 157

15.0

Latvia

684

20.8

992

28.0

Lithuania

627

20.1

911

27.6

Poland

856

20.4

1 250

28.5

Romania

472

11.8

690

19.4

Russia

474

22.8

694

31.4

Slovakia

698

17.3

1 023

25.7

Slovenia

1 398

8.8

2 046

16.2

Ukraine

230

17.9

336

25.4

source: Database Central Europe


The growth of Euro earnings in the case of the Czech Republic, Slovakia and Poland was due to an increase of nominal earnings in local currencies and to a similar degree due to nominal appreciation of currencies against the Euro.

For Romania, Russia and Ukraine, the yearly average exchange rate of their currencies against the Euro declined, thus limiting gains from the growth of nominal earnings.

For the remainder of the region’s countries, the exchange rates were neutral as their national currencies were pegged to the Euro or, in the case of Hungary, happened to remain stable year on year.

Contributions of nominal growth and exchange rates to growth of Euro earnings 2008

Taking into consideration differences between inflation rates in the Euro-zone (3.3%) and most of the region’s countries, even stable nominal exchange rates meant that local currencies were appreciating in real terms and in the case of Russia and Ukraine nominal depreciation was outpaced by inflation differentials. In fact when the difference is adjusted for inflation, only the Romanian Lei has depreciated against the Euro.

Dynamic increases of average earnings brought earnings in leading countries of the region close to the level of newly industrialised countries of Asia; however, with the exception of Slovenia earnings remain lower than in the poorest ‘old’ EU member state – Portugal.

The above results are based on yearly averages. During the year growth rates of nominal earnings have been steadily falling as the financial crisis took its toll and economies slowed. Across the region the closing months of 2008 brought marked declines of industrial production and exports. In November industrial output declined year on year by between 4% and 29%, with the steepest falls in Ukraine (28.6%), Estonia (21.7%), Czech Republic (17.4%) and Latvia (13.9%). In the same period, exports in Euro terms (for countries where data has already been made available) were falling by about 15–20% year on year with the exception of Lithuania, which registered an increase of similar magnitude.

Collapse of output and trade will strongly impact on labour markets and result in rapid deceleration of earnings dynamics in the coming months. As a result growth of nominal earnings in 2009 should be much lower than in the previous year.

Moreover, the deterioration of financial markets and the relative vulnerability of many countries of CEE (high current account deficits, weak fiscal position) resulted in a strong depreciation of local currencies under flexible exchange rate regimes against the Euro. Consequently, average exchange rates at the start of 2009 are significantly weaker than the yearly averages of 2008, thus pushing down the cost of wages in Euro terms. This applies to the Czech Republic, Hungary, Poland, Romania, Russia and Ukraine.

As the economic slump deepens it is plausible that at least some of the region’s currencies pegged to the Euro (Baltic states, Croatia and Bulgaria) could be devalued sometime this year, with the Latvian Lat being particularly vulnerable. This would also result in significant decreases of Euro earnings and labour costs.

From the point of view of labour costs, the recent slowdown in the region will increase its attractiveness, as the recent rapid rate of convergence to Western European cost levels is reversed in the short term and slowed significantly in the mid term.