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Wage inequality in the European Union

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The European Union aims to bring economic prosperity and peace to all its member states. Yet, more than a decade after the accession of the Central-Eastern European bloc, a huge difference subsists between the wages of the Western and Eastern member states. Is it possible to overcome these differences in the near future and if so, what would be the best way to do it?

We can solve inequality of wages, but only through the power of the EU

Nikolas Szabó | 2017. October 08. 00:00

The European Union wants to be a guarantor of equality. We know that practically equality does not yet exist in the Union between all of the member states. We can still see big differences between real wages, especially between Western European countries and Eastern European countries. These problems of low wages in Eastern European countries are very old and well-known problems. The question is, what are these differences due to?

Socialism has ended in Eastern Europe in 1989 but its consequences are still here. With a communist economy, Eastern Europe was not competitive on the global market. Then, after the fall of communism national enterprises have been sold to rich corporations for little money, by local politicians, and the countries have yet again lost their chance to be competitive. Later, when multinational corporations entered this region they gained cheap workforce and easy access to Eastern markets, with some of them even gaining tax-cuts!
The fact that Western corporations made higher profits after the fall of communism in Eastern Europe, is not the problem though…The biggest problem lies in the inequality of salaries and this issue is still unsolved. The former Eastern bloc has gained after the fall of the iron curtain the freedom of traveling, enterprise and religion. But it lost equality.
As an example, the average disposable income in Slovakia is 690€ and in Austria it is 2000€, almost three times higher! We can see similar, huge differences between other Eastern and Western EU member states. Some might argue that the cost of life in Eastern states is still much cheaper, but we can see that is not true, by looking at the “real wages”. A “real wage” shows what the employee buy in the country for his wage. The index of harmonized consumer prices shows that prices in Slovakia are as high as in Austria, so real wages are three times higher in Austria than in Slovakia. 

*Know how or cheap labour force

Eastern Europe has a competitive advantage in the form of cheap labour force and low corporate taxes. Western Europe has more know-how, established corporations and a well-developed enterprise culture. Therefore the harmonization of wages should not be as hard as it looks at first sight. Corporate taxes could remain the same as they are now, it would be a competitive advantage and support for new entrepreneurs in Slovakia and in the region in general.
The most important issue is, whether corporations would stay in the Eastern European member states after such harmonization happened, and this is what EU must ensure, with adequate regulations. Most of the small corporations are dependent on multinationals. So if multinational corporations stay in the Eastern member states, small corporations will stay in the region too. This should be feasible through regulations since the EU itself has the biggest power over the European market, not the individual governments of the member states.
The best part is that if corporations pay higher wages, demand will automatically be higher, because people would have more money to spend. Higher demand will generate higher employment because entrepreneurs will need to sell more products and services, thus higher demand will support new or small entrepreneurs too, creating a win-win situation.

*Migration to the West

Emanuel Macron, the President of France, supports the EU Commission to harmonize wages in the EU (same work = same wage). He aims to diminish the competitive advantage of the Eastern states in this respect. He simply doesn’t want corporations to relocate from West to East, seeking cheaper workforce there. This would also stop Eastern Europeans immigrating to richer Western countries, if wages were equal. For example, there are enough jobs in Slovakia, but people still immigrate to Western Europe in hopes of higher wages. So corporations in the Eastern states look for employees from further East... Jobs are plenty, but potential employees are not.
All in all, Eastern Europeans need wage equality but the EU must ensure that corporations will nevertheless stay in the Eastern states afterwards as well.

The road to hell is paved with good intensions

Lesik Marcel | 2017. October 10. 00:00

Exactly 100 years ago the idea of equality imposed by force was implemented in Russia and the Soviet Union, starting a period of poverty and starvation for millions of people in more than 30 countries around the world. The basic idea was simple – people are equal to each other, so there is no reason to differentiate their wages, as we are all worth the same. Thankfully, those times are gone, but nowadays another organization aiming to be next empire is willing to try something quite similar, though less extreme–equal wages for the same jobs among 27 member states of the European Union. So, was Lenin right, but went too far, or this idea of economic equality will have similar to Soviet -meaning-disastrous- consequences?

First of all, it is important to clarify why we have wage differences across the European Union, especially between the Western-Eastern sides. 13 countries that joined the EU in 2004 have communist history, which resulted in delayed technological and economic progress for them. Because of that, the productivity of labor in Eastern Europe is much lower than in Western Europe . However, thanks to relatively cheap education and competitiveness on the labor market, a lot of Western European companies are investing in Eastern Europe. These investments are helping Eastern European countries to catch up and develop their economies. In parallel to this cheaper Eastern labor is travelling to the West to help foreign companies and individuals optimize their costs. By doing so, they also make Western economies better and stronger, while at the same time providing better lives for themselves.

Obviously, the free movement of capital and labor also has some downside and potential for dangerous demagogic rhetoric. The downside exclusively for the European Union is that it has no limit on immigration, so after 2004 about 100 million people gained a right to emigrate to any Western European country, and many of them took advantage of this right. The economic result is wage compensation and driving millions of natives out of a marketplace. The political consequence of this is of course a rise of extreme anti-immigration views, resulting in popularity of Front National in France, AfD in Germany, UKIP in the UK or even neonazi parties such as Golden Dawn in Greece or Kotleba in Slovakia. But the most dangerous political consequences of this situation are when the leaders are trying to compete with the extreme parties on rhetoric. Such an example is French President Emmanuel Macron, who, during the presidential run-off with Front National leader Marine Le Pen, tried to address the issue of deindustrialization of France by blaming Eastern Europeans (in particular – Poles) for exercising their right to live and work in France. It was reckless, irresponsible and dangerous, because by doing so he fueled the anti-Polish, xenophobic mood, already existing in French society. And after the election, instead of dropping it and moving on, he doubled up and proposed equal wages across the EU to tackle his problem.

*Good intensions, disastrous consequences

As far as potential consequences of implementing this proposal are concerned, it is important to compare current costs of living and disposable income in various EU countries. So Denmark, the most expensive country in the EU, has Cost of Living Index on the level of 93.27, and Romania, the cheapest EU country, has the same index on 38.71 points . That means, that costs of living in Romania are about 60% lower than in Denmark. At the same time, monthly average wage in Denmark is about 3270 euro (all values net) and in Romania about 520 euro. Trying to bridge this differences by legislation is like giving an F1 car to a 2 years old toddler and expecting from him to win a title. The consequences of imposing the same wage across the EU will be, assuming that it will be close to that in France or other Western countries, massive inflation followed by surge in structural unemployment and, providing that EU will try to force companies to stay in those countries, next economic cataclysm caused by mass bankruptcy. Those together could lead to another period of poverty, starvation and misery among Eastern European people, from which they broke up just 27 years ago.

There are a lot of problems the EU is currently facing – over centralization, lack of political leadership, hollowness of ideas, migration crisis, rise of extremes, conflict in Ukraine, economic stagnation etc. It should worry us, ordinary citizens, that instead of facing them, some of the EU leaders are daydreaming about the better implementation of a Leninist agenda.

This article convinced me.

This article deliberately presents only one of the many existing points of views of this contorversial subject. Its content is not necessarily representative of its author's personal opinion. Please have a look at Duel Amical's philosophy.

This article convinced me.

This article deliberately presents only one of the many existing points of views of this contorversial subject. Its content is not necessarily representative of its author's personal opinion. Please have a look at Duel Amical's philosophy.

The state of votes

47%
53%

We can solve inequality of wages, but only through the power of the EU

Nikolas Szabó

The road to hell is paved with good intensions

Lesik Marcel

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