Zoltán Pogátsa's blog on economics in English

Zoltán Pogátsa's blog on economics in English

Friday, 28 June 2013

No income convergence for Eastern Europeans

GDP per capita levels in CEE are famously converging to the West, so let us see whether living standards also are. As comparison countries in our limited experiment we have chosen Belgium, Austria and Germany, because they are not totally offshore tax havens (although Belgium and Austria show such features) or have rich natural endowments. Their climatic conditions are similar, and they are economically tied to Eastern Europe as dominant investors. From Eastern Europe we have chosen star performers Slovakia and Poland, as well as laggard Czech Republic. (No data available for the ultimate GDP sloth, Hungary.)

What we are looking for, are the nonessential income levels, defined as the remainder of the income left over for nonessential consumption or saving once we have spent on subsistance. The subsistance minimum is of course a difficult concept, but that is no reason why the EU should not have tried to come up with a harmonised indicator for it. Eurostate perhaps spent too much of its time on business related data, so there exists no harmonised European subsistance minimum. Eastern European national subsistance leves, around a €100 for parents in the Czech Republic and Poland, €140 in Slovakia, are so ridiculously low, they are meaningless. Whatever the methodology behind it, noone believes one can subsist with such wage levels.

So we have decided instead to take the Belgian subsistance level, €534 for cohabitating persons per person, and multiply it by the purchasing power consumption standard. (This procedure is likely to come up with a slightly lower figure than realistic, since the ppcs includes hotels, alcohol, and services that poor people do not take advantage of, but where the East-West price differentials are greater. But we shall disregard this.) By doing so we claim to arrive at a realistic subsistance level for these economies. Here is what we find.


Final primary income per inhabitant (on Purchasing Power Consumption Standard) in Slovakia increased from €5747 to €10583 between 1998 and 2008, in the decade before the crisis. The difference from Belgium basically stagnated (€9925 to €9764). Difference to Germany grew (€10576 to €11082). Difference to Austria grew (€10090 to €11684). A realistic subsistance minimum based on the Belgian methodology would be around €343 per month, or €4120 per year. Thus a typical Slovak would have around €6463 to spend on nonessentials, or save if she so chooses, the Belgian €13 939, which is more than double.


Final primary income from €5395 to €8763. Difference to Belgium grew €10277 to €11584, Germany €10928 to €12902, Austria €10442 to €13504. The realistic Belgian-based subsistance minimum for Poland would be around €286 a month, €3433 a year. This would leave the typical Pole €5330 for nonessentials. A Belgian has more than two and a half times as much.

Czech Rep

Final primary income grew from €7276 to €11076. Difference to Belgium €8396 to €9271, Germany €9047 to €10589, Austria €8561 to 11191. A Belgian-based realistic Czech subsistance mimimum would be around €367 a month, €4406 a year. This leaves a Czech €6670 of nonessential spending, about half of a Belgian.


Final primary income grew €3847 to €9233. Difference DECREASED SLIGHTLY €11825 to €11114. (Then Estonia crushed...), Germany stagnated €12476 to €12432, Austria €11990 to €13034.


No data for Hungary, but the country's wage growth has been so flat, it is not even looking into.

1 comment:

  1. Hi Zoltan, I recently saw your article here: http://www.parameter.sk/blog/pogatsa-zoltan/2013/12/29/rendszervaltas-tarsadalom-nelkul and think it would be great to get this translated into English.