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Published: 2 month

More than expected: average salary of 600 thousand forints. Have wages taken off?

The January earnings data published by the Hungarian Central Statistical Office (KSH) exceeded all analysts' expectations. The average gross salary was HUF 605,000, the average regular gross salary was HUF 588,300 and the median gross salary was HUF 493,676. What is the difference between the figures and what do they mean for us?

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The KSH publishes key indicators on earnings every month, and the average gross earnings figure is usually circulated in the press, giving the impression that this is the average wage that Hungarian workers earn. This is (unfortunately?) not the case, so it is important to know what these figures actually represent.

The figures are not the real average.

The gross average salary is the average of the gross(!) earnings that have been included in the average for a given month, including all wage-related payments (bonuses, bonuses, 13th month pay, etc.). That is, everything that is counted as wage income is included. It is important to note that since this is gross, personal income tax, social security contributions, etc. have not yet been deducted. When looking at the curve of average gross earnings, it is clear that the curve jumps in December each year, as this is when the year-end bonuses, such as the 13th month's pay, are paid.

Regular gross earnings is the difference between gross earnings and non-regular gross earnings, and therefore excludes non-regular benefits (bonuses, bonuses, 13th month pay, etc.)

Average earnings are the ratio of the average earnings to the average number of staff associated with it, while median earnings are the amount by which half of the workers earn more and half earn less, i.e. like the kid in the middle of the gym. Since this value is the median, analysts consider median earnings to be the best indicator of wage trends.

Looking more closely at January and before, we can see that median wages have started to approach the average wage, a clear sign that the increase in the minimum wage and the guaranteed minimum wage has started to squeeze the gap between the lower and higher wage bands.

The January wage growth figures are a guide to the 2024 annual figures, which will thus most likely exceed the 10-11% wage increase in the MNB's inflation forecast given that all three wage categories (gross, regular gross and median) rose by around 15% compared to January last year. This is despite the fact that labour market tensions appear to be easing somewhat, with the number of unemployed rising from 203,800 in December to 220,400 in January, before rising further to 222,200 in February. The unemployment rate crept up from 4.2% in December to 4.6%.

Real earnings also showed an increase, but this was partly due to inflation curving downwards due to the base effect. Let's look at an example:

If a good cost £10,000 in January 2022, it cost 25.7% more in January 2023, or £12,570. In January this year, inflation was 3.8% compared to the same period last year, so you had to pay 13 048 Ft for the same product. Let's look at all this in terms of wages, using the same base, i.e. 10 000 HUF. The increase in the average regular gross wage for January 2023 was 17.3%, so the example wage is £11 731 on a grand average basis, and this has increased by 10.4% to £12 950 in January this year. To put it very crudely, you could say that I could buy the same product in January this year at last year's price.

What has caused all this? That retailing has effectively collapsed, so much so that within the volume change in retailing, from the second half of 2022 onwards, food sales have already started to fall until March 2023. And this brings us to the much-talked-about concept of the price-wage spiral, which is worth mentioning because we are now hearing noises that it is back in the pantry. In my opinion, it never was, as real earnings have not risen (in fact they have) and consumption has started to plummet, i.e. the rise in prices can no longer be attributed to wage rises because of supply and demand. Consequently, even if wages do fall, they will not push inflation up, but other external factors (exchange rate and energy prices) will.

What can we expect by 2024?With the labour market still largely dictated by workers, and although real wage growth sounds beautiful on the communication level, but in reality the purchasing power is still somewhere in 2022, wage pressures will not ease, recruiting good professionals will remain difficult, and the focus will remain on retention. Firms that can't afford to retain workers may find a way out by increasing efficiency.

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