Which Regions and Industries are managing best with Inflation
Against the backdrop of continuing consumer price growth, measures to increase incomes and purchasing power take center stage in parliamentary debates. At this stage, the proposal for aggressive increases in the minimum wage is leading, which threatens to further increase inflationary pressures. The current text examines the dimensions of the impact of price growth on workers' wages both at the regional level and among different economic activities.
This topic is best reflected in data on household incomes and expenditures for the third quarter of 2022. At first glance, the average household per capita income not only reaches but also surpasses the average inflation for the quarter, measured by the Consumer Price Index (CPI) (18%), with a registered growth of 21%. However, this is a direct consequence of the aggressive increase in pensions throughout the year - the registered growth in pension income is 44% on an annual basis, compared to an 11% growth in wages, which lags significantly behind the inflation rate.
The dynamics are highly uneven among different areas of economic activity. The average lag in wage growth compared to inflation in the third quarter is just over 3 percentage points, but a noticeable difference is observed even according to the ownership form, with a slowdown of 2.6 points in the private sector and 5.5 points in the public sector. This primarily reflects the slowdown in wages in several professions in the public sector that depend on the state budget, which lacks the flexibility of the private business to adjust to changes in macroeconomic conditions. Among individual sectors, the smallest lag is observed in agriculture, government administration, and trade, while the largest one is in healthcare and education. The significant lag in hospitals and schools confirms the observation that the public sector has not been able to respond promptly to the decline in real wages of its employees. On the other hand, the outsourcing sector and processing as a whole are relatively coping well. However, there is no sector in the Bulgarian economy where wage growth exceeds that of consumer prices and achieves an increase in purchasing power.
Just like among industries, the 28 regions of the country register significant differences in wage growth compared to inflation. As expected, Vratsa performs the best with a lag of only 0.4 percentage points, thanks to the good performance of the energy sector during the year. Similar results can be seen in Vidin, Blagoevgrad, and Sofia. On the other hand, Smolyan, Razgrad, Yambol, and Lovech experience a lag of almost 10 points compared to inflation. The remaining regions fall within the entire spectrum.
The approach presented here, of course, has some obvious weaknesses - when reviewing economic activities, differences in the dynamics of remuneration for specific positions are not taken into account, and in the case of regions, the different price levels in different parts of the country and the potential for different rates of change. Despite these limitations, however, it demonstrates the heterogeneous impact of price growth on workers in various industries and regions.
This, in turn, has some obvious consequences for the way income policies are reflected, especially changes in the minimum wage, which aim to preserve purchasing power. The significant differences in starting levels as well as in the rates of development of the country's regions and individual industries require an individual approach to each of them, taking these realities into account. Instead, the currently discussed changes assume the simple linkage of the minimum wage to the dynamics of the average wage, which is extremely sensitive to the dynamics of the leading sectors and the fastest-growing regions. This will inevitably lead to even greater problems for the least developed and weakly competitive sectors.