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Average wage: what does it affect?

The average wage is a frequent subject of discussion and newspaper articles. During 2022, it attacked the 40,000 mark and even exceeded it at the end of the year. How telling is it whether your income is above or below this amount? And what all does the level of the average wage affect across the economy and in an individual’s life? That’s what we look at in our article.

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Chapters of the article

Average wages in the global economy

The average gross monthly nominal wage includes all labour income (basic wages and salaries, allowances and supplements to wages or salaries, bonuses and rewards, wage and salary replacements, on-call bonuses and other components of wages or salaries) accruing to employees for payment in a given period and represents the proportion accruing per employee per month. It does not include wage or salary compensation for periods of temporary incapacity for work or quarantine paid by the employer. These are gross wages, on which the employer then pays the relevant amounts for health insurance, social security and advance payments of income tax on behalf of the employee.

Average wage vs. median

When statistics refer to the level or development of wages for a certain period, they often use the terms ‘average wage’ and ‘median’. Sometimes the two terms are used interchangeably, but they are not the same.

The average gross monthly wage can be obtained by calculating all (gross) wages paid to employees in a given period, including bonuses, overtime pay, holiday pay, etc. However, this does not include wage or salary replacements, e.g. for sick leave.

In order to know the average wage in a particular economic area or regional area (enterprise, region), it is sufficient to know only the wage costs for the period and the number of employees.

It is necessary to distinguish the concept of median from the concept of average wage. In this case, it is not an arithmetic average, but a mean value, for the calculation of which more data are needed.

We can imagine a small company with seven employees and monthly wage costs of CZK 350 000. However, the specific wages vary widely from the position of director to the position of receptionist and we find monthly wages of CZK 100 000, CZK 80 000, CZK 60 000, CZK 35 000, CZK 30 000, CZK 25 000 and CZK 20 000. The median, i.e. the middle value, would be a salary of CZK 35 000, while the average salary here would be CZK 50 000.

If we apply this simple example to the whole economy and calculate average wages or medians in a particular region or for the whole country, it is clear that the median is more telling. Indeed, the average wage is often distorted by the extremely high salaries of a few (hundreds or thousands) individuals, while hundreds of thousands or millions of other employees are paid quite different amounts.

Tip: Simply put, the minimum wage is a basic amount that every worker should be able to earn. But its meaning is much broader. The concept cuts across different areas of law and can apply to almost anyone. How is it determined and what is the difference between the minimum wage and the guaranteed wage? We have addressed this in a separate article on our blog.

Specifically, in the fourth quarter of 2022, the average wage per headcount in the Czech Republic was CZK 43 412. The median wage in the Czech Republic was CZK 37 463 (both values were higher in Prague). A certain paradox is that although wages increased by 7.9% in nominal terms compared to the same period of the previous year, they fell by 6.7% in real terms due to high inflation. Consumer prices increased by 15.7% over the period.

The level of average wages is monitored over a calendar year, but it is also important to monitor the increase (or decrease) compared with the same period of the previous year. In fact, certain segments of the economy behave in the same way, typically paying out bonuses to employees to some extent in the half-year and especially at the end of the calendar year. This usually explains the frequent decline in average wages in the third quarter of the calendar year compared with the second quarter.

If we want to use the average wage to compare our income with some general standard, it is better to look for figures based on a smaller whole. For example, the average wage in Prague differs from that in North Bohemia, and there are also differences in individual sectors of the economy or industries. On the other hand, obtaining average wage data directly from your company can again be rather misleading. As we said in the example above, this will include the salaries of top management right up to, for example, a cleaner, and if your position is unique (for example, the only payroll accountant in the company), you will be comparing incomparables. In general, however, there are always more below-average paid employees than above-average ones. Moreover, this disparity is increasing and is now estimated to be about two-thirds of employees.

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Why is the average wage tracked?

Although we have explained that the average wage may not be very indicative of the income of a large part of the population, its general predictive value in tracking its rise or fall can certainly not be denied. Indeed, it is meant to be indicative of the overall level of wages, not to tell us how much the citizens of a country actually receive. Moreover, obtaining and processing this data is considerably simpler than obtaining the median. In the age of information technology, however, even this distinction is blurring.

Above all, however, the average wage is an important factor that cuts through the various areas of the Czech legal system.

It is an important indicator whose change implies a change in various benefits, levies and rates.

It is, for example, the minimum advance payments for insurance premiums for self-employed persons, in the determination of which the increase in the average wage is taken into account. The minimum advance on health insurance for self-employed persons is 13.5 per cent of half of the average wage and the minimum advance on social insurance is 29.2 per cent of a quarter of the average wage.

Another important area is income tax, which now exists at two rates. To move up to the higher rate, the income of 48 times the average wage is decisive.

As the average wage in the state rises, the amount of pensions paid also increases.

The importance of the average wage for an individual

The term ‘average wage’ can take on a completely different meaning in the context of a single employee’s income. Tracking his or her particular average wage over a specific period, for example, the last quarter of the year, can affect the amount and payment of certain other benefits, wage replacements, etc.

Thus, average earnings have a direct impact on, for example, the amount of severance pay, overtime pay, night work or holiday pay, wage replacement during holidays, when taking time off, when temporarily unable to work or when taking care of a family member. For new mothers, the average wage is directly reflected in the amount of maternity pay and indirectly in the parental allowance. Although everyone is entitled to the same amount of parental allowance, the level of income to date may affect how it is used.
The importance of the calculation of average earnings for the calculation of pensions is also undeniable at the individual level. The amount of the pension is calculated on the basis of a system which includes many factors, but above all the length of the insurance period and the average salary of the individual concerned.

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Author of the article

JUDr. Ondřej Preuss, Ph.D.

Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.

Education
  • Law, Ph.D, Pf UK in Prague
  • Law, L’université Nancy-II, Nancy
  • Law, Master’s degree (Mgr.), Pf UK in Prague
  • International Territorial Studies (Bc.), FSV UK in Prague

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