Does Slovakia have lowest standard of living in Europe?
Food is extremely expensive.
Low wages in Slovakia is a hot topic and one reason why people leave to work abroad. Compared to Slovaks, people in the West earn two to four times more, making the idea of unfair wages insufficient for living return like a boomerang.
The starting position of the 1990s Slovak economy is mainly to blame for the situation. During socialism, there was no rationale behind where many factories were built and placed, which ultimately proved unproductive after the 1989 revolution.
While socialism consumed capital wealth, the West gained the lead thanks to building capitalism over decades, and that cannot be quickly surpassed. This is still evident today in the different wages between western and eastern Germany.
The wage levels in individual countries are influenced on one side by the structure of the economy, which is related to its capital intensity, and on the other side different labour productivity, in other words the volume of production per hour worked.
The fact that Slovaks earn little is not just a subjective feeling, but a statistical fact. However, some data and interpretations of Slovak wages should be taken with a grain of salt.
Among the V4 countries, Slovaks and Hungarians earn the least; Czechia and Poland have significantly outpaced both. Slovaks pay even more for food than the average European.
At the bottom
Statistical office Eurostat published net income data for the past year. An average childless Slovak earns €12,744 a year. The wage is more or less similar to that of a Hungarian, Croatian, and Latvian, but €2,000 lower than that of a Pole. Compared to the Czech Republic, annual wages in Slovakia are even €5,000 lower.
Only Bulgarians and Romanians earn significantly less than Slovaks.
In Germany, on the other hand, the annual wage is €38,000, which is three times more than in Slovakia.
However, when discussing wages, the annual income statistic adjusted for purchasing power parity is often used. In this comparison, Slovakia ended up in last place. This was highlighted in an article on Euronews.com, which also circulated on Slovak social media.
In each country, the prices of goods and services that people buy are different. Comparing wages in purchasing power parity thus provides a theoretical comparison of what people can buy with their wages in different countries.
In light of the currently high prices of goods and services and relatively low wages, it follows that Slovaks have the worst standard of living.
It is a bit of a simplified statement because, when interpreting this data, it should be added that purchasing power parity is somewhat like a "Bulgarian constant" [something that makes your result correct - Ed. note]. Statisticians try to compare the purchasing power of countries using the parity, but it is not always accurate.
Where are the errors
Purchasing power parity (PPP) should be taken with a grain of salt; it is just a statistical construct that is not perfect. It is influenced by two components - the level of wages and the prices of goods and services.
The first imperfection is the measurement of prices based on surveys of prices of goods and services. When it comes to household consumption, these surveys rotate only in three-year cycles in order to reduce administrative burden, as noted in the past by the Institute of Financial Policy. This means that PPP is approximate and cannot reflect the exact reality in time.
Additional fluctuations occur when compared with countries that have their own currency, for example Hungary, Czechia and Poland. The weakening or strengthening of the local currency when the price level is determined in the survey must be converted into euros, which can create an unnatural deviation with significant exchange rate fluctuations.
Moreover, PPP prices are determined only in capital cities. This is a significant case for Slovakia, where there are huge regional differences. This might not apply to the prices of goods, since Slovaks pay more or less the same for food whether they are in Bratislava, western Slovakia, or Snina, eastern Slovakia; however, a significant difference can occur when it comes to services: a hairdresser in Bratislava charges twice as much for a haircut as one in Bardejov, eastern Slovakia.
The price level for services measured through PPP can distort Slovakia's position in the rankings and worsens it, as acknowledged by UniCredit Bank analyst Ľubomír Koršňák.
Still, the statistical imperfection of PPP does not hide the fact that Slovaks simply earn little. This would not be a problem if the cost of living were cheaper than abroad, but it is not.
Low wages, higher prices
In terms of prices, Slovaks are quickly catching up with the EU average. Last year, the prices of goods in Slovakia were at 91 percent of the EU average. Previously, it was around 87 percent of the average, but high inflation has erased part of the price gap.
The lowest prices or around 77 percent are in Bulgaria and Romania, in Poland it's 80 percent, and in Hungary 84 percent.
In the case of Czechia, prices are at 99 percent, which is more than in Slovakia. However, the average gross wage for the first quarter of 2024 was €1,726 (net €1,373) in the former, while in the latter it was €1,447 (net €1,104).
Expensive food is a specialty of Slovakia. Last year, food prices climbed to 105.5 percent of the EU average. While an average European pays €100 euros for a basket of food, a Slovak pays €105.50.
Even Swedes have cheaper food relative to the EU average; the average gross monthly wage is €3,453 (net €2,728). Food prices in Slovakia are on par with those in Belgium or Austria.
Within the V4 group, the gap between Slovakia and its neighbours has widened. In Czechia, food prices are at 98 percent, and in Hungary, prices are at the EU average.
Some Slovaks travel to areas around the border with Poland to shop. No wonder; food prices in Poland are significantly lower and represent only 76 percent of the EU average. While a Slovak pays 105.50 euros for a basket of food, in Poland it would be almost 30 percent cheaper.
Distorted economic performance
If we return to purchasing power parity, the parameter not only distorts the living standard measured through net earnings, but also distorts Slovakia's economic position measured through GDP per capita in purchasing power parity.
While Slovakia has caught up with the EU average when it comes to food prices, in regards to the economy it is significantly worse.
From 1995 to 2023, Slovakia has been catching up to the EU average, but much more slowly than its neighbouring countries. In 1995, the GDP per capita in PPP in Slovakia was 49 percent, the third-highest level among former Eastern Bloc countries, behind Slovenia and Czechia.
During the debt crisis 10 years ago, Slovakia even surpassed Portugal and Greece, which were being rescued.
However, Slovakia's momentum has since waned. According to Eurostat, GDP per capita in PPP dropped from 71 percent of the EU average in 2021 to 68 percent in 2022. Along with Greece, Slovakia placed 25th and 26th out of the 27 EU member states ahead of poorer Bulgaria.
This year, Eurostat revised the data for the past years, slightly improving the gap. Slovakia's GDP per capita in PPP rose to 73 percent last year, but the country still remains among the weakest. Only Bulgaria, Latvia, and Greece are behind it.
Economists have cited errors in measuring GDP through PPP. The problem with the statistics is the price indexes, especially housing, which are adjusted for GDP recalculations. The international comparisons of economies take into account the varying costs of services or rent in EU member countries. These data are provided to Eurostat by the Statistical Office.
Last year, the economist Marek Hlaváč discovered that Eurostat data sets contain excessively high expenses for housing rent. Since 2016, they have grown at a rate similar to the rate of real estate price growth. "However, it is likely that during this period, real estate prices in Slovakia grew faster than actual housing rent," explained Hlaváč.
The analyst noticed that the reason for the sharp rise in rent could be a change in the reported square metres of housing stock in Slovakia that took place between 2016 and 2017. The total area of housing stock inexplicably decreased by a quarter.
As a result, there was a sharp increase in rental prices per square meter. When these data were fed into the GDP per capita calculation in PPP, Slovaks suddenly appeared to be paying much more for housing than they actually were, thus distorting Eurostat's official figures.
Regardless of the distortions, Slovakia's lagging behind EU countries is indisputable.
"Last year, Slovakia lagged behind the average GDP of other Central and Eastern European EU countries by 8 percentage points, and by as much as 21 percent behind the economically strongest country in the region last year, Slovenia," says UniCredit analyst Koršňák.
In 2023, Slovenia narrowly - by 0.6 percentage points - replaced Czechia as the regional leader. According to official figures, Slovakia's economy lags behind neighbouring Czechia by 20 percentage points.
The reasons are not hard to find. In the previous decade, the Slovak government did not adopt any fundamental reforms to support business, education, or healthcare. The Smer administrations and their coalition partners sought to maintain social peace through inaction, as reforms often provoke public opposition.
However, if done well, as shown by the years of Mikuláš Dzurinda's government (1998-2006), they provide economic growth and improve living standards. The government of Eduard Heger (OĽaNO, 2021-2023) also failed to achieve significant progress. If any reforms were actually adopted, they were usually on the condition of billions of euros from the recovery plan. The current government has been in power for less than a year and continues to do nothing.
©Index
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