Salaries in Croatia are exactly what we deserve

No matter how much we encourage each other with the news that inflation fell by 0.4 percent in December compared to November, the annual price growth of 13.1 percent calls for caution. Experience shows that inflation above 10 percent is dangerous as it fuels inflationary expectations and threatens to become chronic.

In such circumstances, one of the economically most nonsensical yet sociologically understandable statements from ordinary people should be expected in the coming weeks: ‘We have European prices, but Croatian salaries.’ It is nonsensical because it is self-evident that prices (with some exceptions) are not formed according to the average salaries in a country. Intuitively knowing that such a thing is impossible, ordinary people, as well as their more intellectual counterparts, turn to seeking culprits for the low salaries in Croatia.

It may sound harsh, but when it comes to the average level of salaries, they are not too low. Employees in Croatia earn exactly as much as they deserve on average. Perhaps even a little more.

Slovenian Lesson

It is incredible how much the public avoids the simplest yet most accurate correlation: that between GDP, i.e., gross domestic product per capita (GDP per capita), and the level of salaries. GDP could be simply explained as the amount of added value created in a country divided by the number of inhabitants.

Example? The latest Eurostat methodology has shown that the annual gross average salary in Slovenia is 28,765 euros, while in Croatia it is 16,169 euros. Thus, Slovenian salaries are 78 percent higher than Croatian ones. However, at the same time, Slovenia’s GDP per capita is 63 percent higher than Croatia’s. A slightly smaller difference is shown by a study that takes into account net salaries. Here, Slovenian earnings are about 50 percent higher than Croatian ones. This study included 14 countries that adopted the euro. Croatia ranks 14th with a net monthly salary of 947 euros. But it is also last, 14th, in terms of GDP.

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It is hard to imagine that anyone serious would dare to dispute the claim that higher salaries, and thus stronger resilience to inflation shocks, can primarily be achieved by raising the gross domestic product. However, immediately, as is our habit, the blame game would begin, pointing fingers at why our added value in the country is so low that the comparison ‘what Kosovo was in Yugoslavia, Croatia is in the EU‘ is increasingly used. This is not at all encouraging, and a better yet truthful parallel with counties is: what Lika-Senj County is in Croatia, that is the ‘county’ of Croatian Zagreb in the European Union.

At first glance, the culprits are sought among politicians and in the largely incompetent state apparatus. There is not much to explain here. However, it is increasingly heard that entrepreneurs are primarily to blame for the low level of salaries in Croatia. This especially refers to owners and managers of industrial companies. Comparisons are drawn showing that the income per worker in multinationals is three times higher or more than in Croatian companies in the same sectors.

The data is accurate. The average efficiency of Croatian industry is quite low. Yes, countries with more productive and competitive industries also have higher salary levels. Because industry has the healthiest and greatest impact on other branches of the national economy.

Industry – the usual culprit

However, blaming the management of surviving industrial companies is really not fair. Given how much the industry in Croatia has been devalued and kicked around in the last 30-40 years, it is a miracle that even a stone remains on stone. The ease of rent-seeking in real estate, tourism, and finance has drawn many good professionals away. The bank accounts of industrial companies have been drained since the transformation. Only now, after all the medieval castles have been restored, do larger industrial companies receive small amounts from EU funds. But all of this is a past that cannot be changed. The discussion that begins with ‘European prices and Croatian salaries’ should serve the political and economic elite (if it still exists, apart from traces) for a very simple approach. Salaries depend on GDP. GDP rises most healthily by investing in the modernization of industry and directing it towards exports. The first results could be possible within three years.

This is what should be focused on. And all parts of the community (politicians, civil servants, union leaders, owners of non-industrial and industrial companies…) must answer the question of how they will engage and how they will sacrifice in the common interest.

Of course, the prospects are minimal. Apart from the team from the industry, most responses, if cleaned of phrases, could be reduced to: ‘Nothing is impossible if someone else has to do it.’