Wages are not a brake on the economy, but part of the solution

In a compelling argument published by SME, the prevailing narrative that wage growth is a drag on Slovakia's economy is challenged. The author, representing the Confederation of Trade Unions, contends that wages are not an impediment but rather a crucial component of economic progress and stability. This perspective directly confronts the oft-repeated claims by some employers that rising wages jeopardize competitiveness and hinder investment.

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The data shows that wages, compared to energy, materials, or capital, form a smaller item in companies' total costs in Slovakia (from 1.74 to 31.44 percent in the most demanding sectors). If some selected companies from these sectors cannot function without extremely low wages, it is more a problem of their business model than the entire economy.

The article meticulously dissects these claims, presenting data that suggests wages constitute a smaller portion of overall business costs in Slovakia compared to other factors like energy and materials. It posits that businesses struggling with low wages may have flawed business models rather than facing a systemic economic issue. Furthermore, the piece highlights a significant disparity: Slovakia's labor productivity, measured against the EU average, is high, yet wages remain considerably lower, indicating that employees are generating substantial value for inadequate compensation.

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Slovak nominal labor productivity per hour and employee today reaches 82 percent of the European Union average, but wages only about half. Even when considering purchasing power parity, or from other perspectives on this issue, the same difference emerges. Employees in Slovakia create relatively high value but receive low remuneration.

This "catching up" of wages is framed not as a problem, but as a necessary correction to decades where productivity outpaced wage growth, leading to a decline in labor's share of value creation. The author also dismisses arguments linking wage increases to excessive tax burdens, noting that Slovakia's overall labor costs remain competitive within the EU. Ultimately, the piece advocates for a reevaluation of economic priorities, suggesting that robust domestic demand, fueled by fair wages, is essential for sustainable growth, and questions the logic of demanding longer working hours in an era of increasing automation and productivity.

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In conditions of growing labor productivity, the demand for more work, not less, is economically and socially unsustainable.