Commentary on the development of average wages of employees - 3. quarter of 2005

In Q3 2005, the average gross monthly nominal wage per actual person reached CZK 18 833 and its year-on-year increase amounted to CZK 1 099. In the business sphere the average wage increased by CZK 993 to CZK 18 930, while in the non-business sphere it went up by CZK 1 464 to CZK 18 497. The relative increase of the average wage was 6.2%, the growth in the business sphere being 5.5% and in the non-business sphere 8.6%. In the same period, consumer prices went up by 1.9% and the real wage thus rose by 4.2% in total, in the business sphere by 3.5% and in the non-business sphere by 6.6%.
In comparison to the previous two quarters of 2005, in which the relative growth was very low (Q1 +5.8%, Q2 +5.3%), there was a slight acceleration in the average wage growth in Q3. Despite that, the increase of 6.2% belongs to the historically lowest since the formation of the Czech Republic.
Nationwide wage development is heavily shaped by the business sphere as employees of this sphere account for more than three quarters of the set of units under observation. While the wage development in the business sphere is rather fluent and affected by economic results of the companies, it is jump-like in nature in the non-business sphere because it depends to a large extent on legislative measures of the government and on what is permitted by the budget.
In previous years, wage differences between the business and non-business spheres usually became wider always in Q1 and Q3 of a given year—that is to say the average wage in the business sphere was higher than in the non-business one. In Q2 and Q4, the average wage levels then mostly converged, owing to half or a certain part of the additional salary regularly paid in the non-business sphere. In some periods the wage level in the non-business sphere even exceeded the one in the business sphere.
Since the beginning of this year, the wage development has been influenced by adjustments to salaries and wages of employees in public services and administration. Apart from the normal year-on-year rise in average salaries, salaries in selected professions rose in a differentiated way. Government Regulation No. 637/2004, Coll. extended the circle of employees whose wage rates are provided according to the scale of increased wage rates (e.g. employees providing social care directly, employees in charge of administrative social care services, employees engaged in work on roads, collection and processing of municipal waste, etc). Furthermore, a new scale of increased wage rates was put in place for employees – members of the Police of the CR, the Prison Service of the CR, the Fire and Rescue Service of the CR, and the Customs Administration of the CR. On 1 January 2005, the payment of the additional salaries was cancelled in the non-business sphere. These latest wage adjustments in particular helped suppress rather large differences in the wage levels between individual quarters in the non-business sphere. The wage development in this sphere therefore becomes smoother, with possible jumps caused to happen in response to legislative measures only. The described development of the nominal wage is shown in columns in Graph 1.

The relative growth of the average wage always depends on the level of the wage in the observed period and also on the base, which is used for comparisons (in our case the comparison to the same period of the previous year). The business sphere shows quite a uniform growth in all quarters (Q1 +4.9%, Q2 +5.3%, Q3 +5.5%). In the non-business sphere, however, the growth in this year is a little unsteady (Q1 +8.9%, Q2 + 5.5%, and Q3 +8.6%). This is due to the fact that this year’s wage level was affected by the above-mentioned wage adjustments, whereas the base of last year’s Q2 was affected by the payment of part of an additional salary. It is possible to expect that the relative growth in this sphere, as in the nominal wage, will be smoother in the next year.

Graph 1
Industry-to-industry wage differences became slightly wider over the period under observation and the variation coefficient of average wages (by CZ-NACE division) reached 33.4%, 0.5 percentage points up on Q3 2004.
The wage development in Q1-Q3 2005 was characterized by an average wage of CZK 18 421 and a year-on-year increase of 5.8% (CZK 1 006). The average wage of employees in enterprises rose by 5.3% (CZK 924) to CZK 18 516, and in the non-business sphere it increased by 7.6% (CZK 1 281) to CZK 18 095.
Given the fact that the non-business sphere employs a higher proportion of part-time workers than the business one, the following comparisons are made with average wage data related to full-time equivalent (FTE) employees as these data take account of the length of work.
In Q3 2005, the average wage per FTE person increased by CZK 1 157 year-on-year (+6.3%) to reach CZK 19 407, rising to CZK 19 382 (+5.6%, CZK 1 022) in the business sphere and CZK 19 497 (+9.2%, CZK 1 637) in the non-business sphere. The real wage increased by 4.3% in total, in the business sphere by 3.6% and by 7.2% in the non-business sphere.
In Q1-Q3 2005, the wage growth amounted to 5.9% (nominal wage being CZK 18 996) in the whole country, 5.3% (CZK 18 957) in the business sphere and 8.0% (CZK 19 134) in the non-business sphere. The real wage increased by 4.1% year-on-year and its increase is based on 3.5% growth in the business sphere and 6.2% growth in the non-business sphere.

Graph 2Differences in the wage level and in its growth rate between industries (CZ-NACE sections) are well characterized by Graph 2. The graph suggests that the lowest wage level in the first nine months of 2005 existed in ‘hotels and restaurants’, ‘agriculture, hunting and forestry’ and ‘fishing’. The other end of the scale included ‘financial intermediation’, ‘electricity, gas and water supply’ and ‘real estate, renting and business activities’. It is also apparent that the industry with the lowest wage had the lowest growth. It may be in order to say that the statistics refer to wages charged to be paid to employees, from which income tax, health and social security insurance are deducted. However, the statistics cannot cover other possible incomes of employees (e.g. tips, etc).
Comparisons of the wage development in Q1-Q3 in industries made at the CZ-NACE division level (two-digit code) suggested that the following three industries (employing a minimum of 20 thousand people and excluding enterprises with less than 20 employees) paid the lowest average nominal wage per FTE person:
– manufacture of wearing apparel; dressing and dyeing of fur: CZK 10 629 (the average wage in this industry was CZK 8 367 down on the national average, the nominal or relative year-on-year rise being CZK +273 or +2.6%, respectively)
– manufacture of textiles and textile products: CZK 12 863 (CZK –6 133, CZK +486 or +3.9%)
– agriculture, hunting and related service activities: CZK 13 512 (CZK –5 484, CZK +704 or +5.5%).
On the other hand, the following were three industries (with the same criterion in force) paying the highest average nominal wage per FTE person:
– computer and related services: CZK 42 736 (the average wage in this industry was CZK +23 740 up on the national average, the nominal or relative year-on-year rise being CZK +3 065 or +7.7%, respectively)
– financial intermediation except for insurance and pension funding: CZK 40 295 (CZK +21 299, CZK +2 834 or +7.6%)
– electricity, gas, steam and hot water supply: CZK 25 896 (CZK + 6 900, CZK +1 827 or +7.6%).
The order in both ends of the ranking has not changed when compared to the first half-year. The above-mentioned comparisons suggest that Q1-Q3 2005 earnings of employees in the industry with the highest wage rose 3 times faster year-on-year and that the average wage of these employees was about 4 times higher than the average wage of employees in the industry paying the lowest wage. In the same period, inter-industry wage differences became wider year-on-year and the variation coefficient of average wages (by CZ-NACE division) reached 35.4%, which is 1.8 percentage points up on Q1-Q3 2004.
Manufacture of wood and wood products was the industry with the lowest growth or drop of real wage among industries employing at least 20 thousand people—the year-on-year drop in real wage was 0.4%. The average nominal wage in this industry increased year-on-year by 1.3%; it reached CZK 14 536 and was CZK 4 460 below the national average.
On the contrary, the industry (rather significant in terms of employment) with the highest achieved growth of real wage was real estate, renting and business activities (+ 7.2%).
The comparison of the wage development made for sectors suggests that the highest average wages have been paid for a long time in financial institutions, insurance companies and pension funds. The Q1-Q3 2005 average wage per FTE persons in the financial institutions climbed up to 2.1 times as much as the national average, and the insurance companies and pension funds paid wages about 1.7 times the national average. In contrast, wages of employees in the sector of households (i.e. wages of unincorporated natural persons) are about one third below the average. In the sector of non-profit institutions serving households wages are about three quarters of the average wage in the whole of the CR. The average wage level, though, is fundamentally affected by the non-financial corporations sector and the government sector. Employees of these sectors make up about 95% of the set of units measured.
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¹ The data refer to business sphere enterprises with 20+ employees (in financial intermediation irrespective of the number of employees) and all non-business sphere organizations. They only refer to employees under employment contract with reporting units. Persons performing public office, such as members of Parliament, senators, full-time councillors at all levels, judges, etc. are excluded. Employees of the non-business sphere make up a quarter of all employees included in the quarterly survey.