Average salaries according to the GUS (CSO)

What is worth remembering when referring to CSO data in salary decisions?

According to the CSO, the average monthly salary in the enterprise sector in January 2023 was PLN 6,883.96 (gross) and was higher year-on-year (i.e. compared to January 2022) by 13.5%. Clear and readable information, but is it "true"? We took a closer look at the methodology used by the CSO, primarily to find out:

1. how does the CSO count salary amounts, does it use the category of basic salary, or does it include other elements in these amounts? And if it takes into account, what exactly?

2. for which part of the economy (for which industries) is this salary calculated? In other words, which employees are included in these calculations, and which are not?

3. to what extent is the above information relevant to a particular employer, and to what extent is it not?

How does the CSO calculate salary amounts? Does it use the category of basic salary, or does it include other elements in these amounts?

According to the publicly available description of the methodology used by the CSO , the Office bases its calculations on a broad category of remuneration, ranging from remuneration from employment contracts, contracts for work and commissions (also for sitting on supervisory and management boards), through remuneration for the use or disposal of copyrights or related rights (with the exception of disposal of copyrights for works created within the framework of an employment relationship), and ending with agency and commission remuneration. In its calculations, the CSO includes not only basic wages (gross, of course), but also variable wages (bonuses). In addition, it also includes in wages: wages for overtime work, jubilee awards, disability and retirement benefits, cash equivalents for unused vacation leave, and the value of allowances or their cash equivalents (e.g., coal, energy, foodstuff allowances). And there’s more. This is because in the average salaries, according to the CSO, we will also find equivalents for uniforms if the obligation to wear them results from applicable laws, compensation benefits (in connection with the shortening of the notice period), and compensatory allowances paid to employees whose salaries have been reduced due to an accident at work or occupational disease. Many of these items are not commonly paid for and some employees are not entitled to them at all. An example would be jubilee awards, or payments on the occasion of Forester's Day or Energy Day - we know that they are paid, but in practice they function only in some companies, or are even reserved for selected professional groups and industries. One may also have serious doubts as to why, for example, retirement payments are included in the calculations when they are not involved in the remuneration for work? In addition, due to the one-time nature of some of such payments, the fact that they are paid in a particular month (e.g., industry awards) can be crucial for that month – by the way, we repeatedly encounter such situations in practice. It is enough to look at the month-to-month fluctuation of salaries. Such a practice is often observed at the turn of the year, when special awards and bonuses are paid, or in the months of payment of particularly large “industry awards.” For example, the average salary in December 2021 was higher than November’s by as much as 10.33%, while the month before the same increase was only 1.78%. By contrast, in January 2022, the average salary fell month-on-month by 8.73%, only to rise by 7.16% in March. This also proves another thesis - it is not worth commenting on monthly changes using the CSO data as an example. This makes no practical sense and always requires a thorough analysis of the phenomena that occurred in a particular month. Since we are discussing methodology, it is impossible to omit from consideration the importance of static methods, specifically the "average wages" published by the CSO. To begin with, let's emphasize that this average is not an "average" in the sense of statistical measures. More important, however, is the difference between this "average" and the arguably more correct measure, which is the median. In statistics, the median is the so-called middle value. For example, in the case of the value of the "average" salary, the median would mean the value of the salary for which half of the 6.5 million salaries analyzed by the CSO would be above it, and the other half would be below it. We often hear that using the average is not correct, because we then abstract from the scale of differences in the phenomenon being analyzed. In support of this thesis, in the case of the CSO data, we can add that out of the group of 6.5 million employed, whose data the CSO included in its calculations in January 2023, less than one million employed earned more than the average wage! This means that the remaining 5.5 million employed earned less than the average. It is also interesting to compare the average salary to the median. Using data from 2020 (such surveys are conducted by the CSO every two years, more recent data is not available), in October 2020, the average gross monthly salary in the national economy was PLN 5,748.24, 22.2% higher than the median salary for the same period, which was PLN 4,702.66. This is quite a difference, especially from the perspective of the "annual salary increases" referred to in Poland. Let's recall that in October 2020, salary growth according to the Central Statistical Office was 4.7% year-on-year. Let's also add that the employed who received salaries less than or equal to the average then accounted for 65.6% of the total number of employees included in this survey. Conclusion - average (or mean) is not sufficient for formulating comprehensive conclusions about salaries.

Wages of which employees (which industries) are included in the CSO calculations?

First and foremost - not all of them. It is assumed that about 17 million people work in Poland. The CSO includes the salaries of only 6.5 million of them in its calculations (this was the case in January 2023). These 6.5 million people work in 15 sectors of the economy (according to the PKD). Average wages in the enterprise sector (the full name of the data published monthly by the Central Statistical Office) thus only applies to entities employing a minimum of 10 people, in which economic activities classified under selected activities of the PKD are carried out. Let us emphasize that the survey does not include a number of sectors including public administration, education, health care, social assistance and thousands of small businesses - so-called microenterprises. This means that the salaries of more than 60% of Poles are not included in the CSO data.

What is the relevance of the information published by the CSO to a specific organization?

Let's start by asking about the sector in which a particular company operates and the level of salaries it offers. In short, if a company operates in a sector outside the "CSO list" or / its salaries significantly exceed the average values published by the CSO (and this also means that the level of the statutory minimum salary is irrelevantin this case), then the salary growth reported by the CSO (e.g. January's 13.5%) is only an "informative" category for it. Important - because it presents the dynamics of salaries in a part of Polish companies but is nevertheless of little practical significance. If such an employer decides on just such an increase, will it be the right decision from the perspective of the competitiveness of its salaries? Assuming that the company pays its employees more than the CSO average anyway (PLN 6 900 in January), why should salaries at this employer increase by the CSO’s 13.5%? It would make sense if this was what the employers with whom the company competes in the labor market did - but then it would simply be a strategy of raising wages in accordance with market conditions anyway. CSO data in such cases should be considered important, but they certainly should not determine the scale of "required" raises at this particular employer. Although, on the other hand, it should be borne in mind that employees will certainly refer to CSO information in their "raise" expectations. Moreover, they will tend to refer to the percentage of increase, rather than the nominal value of the average salary. As a result, while CSO information is not critical in such a case, it remains important and should be taken into account in the salary management process.

At this point, it is also worth emphasizing the importance of "non-market" elements affecting the outcome of CSO calculations. For this group we can confidently include the change in the statutory minimum wage, which has been increasing significantly for several years, and without the participation and influence of employers. As an example, let's take the data for January 2023. It was in the data for this month that the effect of the increase in the minimum wage appeared, which increased by 15.9% compared to 2022 (from PLN 3,010 to PLN 3,490 today). So does our organization pay such salaries? And if not, what is the significance of this increase for our companies?

Summary

We would like to preface the summary by citing an article on the methodology used by the CSO in calculating monthly wage increase rates, which appeared a few months ago on the pages of Onet. A "guiding" thread was published utilizing the CSO average salary for July 2022. It amounted to PLN 6,778 and increased year-on-year by 15.8% (inflation at the time was about 15.5%). This was quite a surprise at the time, as economists had expected an increase of about 13%. In the summary of the text, an attempt was made to "correct" the CSO's data and eliminate categories that, in the authors' opinion, should not necessarily be there, mainly extraordinary, and one-time payments. This was done by Pekao Bank economists, who, in order to "capture" fundamental wage growth, "cleaned" the CSO data of the effect of bonuses in mining and energy and counted "base" wage growth. They came up with a year-on-year wage increase of 13.5%, not 15.8% as reported by the CSO. If they had included a 13.5% wage increase (instead of the official 15.8%), the average salary in July would not have been PLN 6 800 gross, but PLN 200 less, or PLN6 600. The article also says that after excluding a few industries with unusually high monthly wage increases, the weighted average salary would have been even lower, at around PLN 6 500 gross. Of course, one should be careful with such manual interventions. After all, we can't exclude from the average salary industries that pay significantly more than the average, such as IT specialists or miners. After all, we are looking for an answer to the question of what the real level of wages in Poland actually is. And the fact that some industries pay better than others is, after all, obvious and normal.

Moving on to the actual summary - let's start it by saying that among the many elements included in the calculations, there are definitely some that should not be there. This is especially true of payments of one-time and special industry awards, jubilee awards, retirement, and disability severance payments, etc. Further - we need to be aware of the "imperfection" of the sample - let's recall that the January calculation (2023) included salaries of only 40% of all employees in Poland (6.5 million working out of a total of 17 million people). Another is the issue of how "average wages" are calculated by the CSO. Despite the fact that the CSO calls the figures it publishes "average wages," this is not an average or average salary in the common sense of the word. The CSO calculates "its" wages as a so-called weighted value, in which, in addition to the value of wages, the "strength" (representativeness) of a given sector, measured by the number of employees, is taken into account. And since this is the method of calculation, we can immediately ask ourselves what sectors have the greatest influence on the size of average wages reported by the CSO? The answer is simple. In practice, there are three sectors that almost 70% determine the average salaries published by the CSO. These are: industry (manufacturing), trade and transport and logistics (transportation and warehousing). If our company belongs to one of these sectors then the CSO data should be analyzed by us with great care. But if this is not the case, and in addition we pay well above the CSO average, then the question arises, why should we pay attention to this data at all? Shouldn't we then compare ourselves with "our" market, the companies in the sector to which we are losing and from which we are gaining employees? By excluding selected sectors, and perhaps reducing the share of those "over-represented" perhaps we will arrive at more correct results? Just how do we do this, and is it really necessary when the market offers access to alternative compensation information (of the Mercer TRS type)?

When comparing salaries, and in this case analyzing the values published by the CSO, it is not enough just to understand the methodology of calculations used by the Office, one should also take into account each time the broader context (economic, perhaps also fiscal) and phenomena that may have influenced the formation of salaries in a given month. Let's refer here to the data for January 2023 and the increase in the statutory minimum wage. Compared to 2022, this increase amounted to 15.9% and was, of course, a significant component of the total wage increase. The question is, are we able to exclude it from the 13.5% January wage increase? Unfortunately, we cannot do this with great accuracy. As a result, the January data should be analyzed with great caution.

The "informational" dimension of the CSO's publication remains an open question, not subject to discussion or evaluation. Since every month economists and labor market analysts devote their attention to them, assessing growth, formulating recommendations and scenarios for the future, employers have no choice but to carefully read this data and the analyses formulated on their basis. Fortunately, knowledge of how these values are calculated allows us to approach the above-mentioned assessments critically. At the same time, the question arises as to whether and how to discuss CSO publications with employees, or more broadly with the participants in the increase processes: company heads, finance chiefs, union leaders, or, finally, employees themselves? These discussions will certainly continue, but we should definitely strive for a situation in which all parties to the process understand the figures under discussion in a similar way, assess the scale of the changes, understand their cause, components, and calculation methodology, etc. And this is a goal and task which is always achievable and under all conditions. Although such an "educational process" will certainly not be simple and quick, we strongly recommend taking such measures.