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Wages in Georgia

Written by Daan Harmsen, FINANCIAL MANAGER, GEOCAPITAL MICROFINANCE ORGANIZATION

23/12/2012 23:22 (486 Day 07:01 minutes ago)

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The FINANCIAL -- Since 2004, wages in Georgia have risen tremendously: while real GDP grew by an average of 6% per year, during the same period, real wages rose by 14% per year on average. Thus, the share of wages as a part of GDP went up. On December 7th, the International Labor Organization (ILO) published their Global Wage Report, which gives us a unique opportunity to take the data that we have from the National Statistics Office of Georgia and compare it to what is going on in other countries. In this article, I’ll take a deeper look at Georgian wage levels and growth and the gender pay gap, draw comparisons, and discuss what may happen in the future.

The average Georgian now makes 636 GEL per month, up from 156.6 GEL in 2004 (248 GEL when corrected for inflation). This is especially interesting given that, while the unofficial employment rate is only 15%, according to a recent National Democratic Institute survey, 69% of Georgians consider themselves without a job. It is very unusual to see such rapid wage growth when unemployment is high.

However, salaries differ quite a lot across sectors. The highest paid people work in the financial sector, where employees make on average 1386 GEL per month, followed by public administration, which pays its people an average monthly wage of almost 1000 GEL. The lowest paid people work in fishing (271 GEL) and education (320 GEL). Manufacturing wages, often the benchmark of a country’s wage competitiveness, come to 552 GEL per month.

It is often easiest to compare manufacturing wages, because manufacturing jobs are usually relatively similar across countries. Georgian manufacturing wages are roughly two dollars per hour based on a 160-hour work week. Compared  to other countries, this is still very low. Workers in Brazil for example, earn $5.40 per hour, while in Greece they make a whopping $13 per hour. In the United States this number is $23.30, while in Denmark a manufacturing worker makes $34.80 on average. In the ILO table, which only includes a sample of countries, only workers in the Philippines earn less - $1.40 per hour.

The fact that the share of wages in GDP has increased in Georgia contrasts with global trends. Even in China, where wages roughly tripled over the last ten years, the share of labor in GDP has gone down. Real wage growth in Georgia has also been extraordinary compared to global growth numbers: while Georgian salaries grew by 14% on average, between 2006 and 2011, global real wage growth never topped 3%. However, the growth rates are more in line with the experience of other countries in Eastern Europe and Central Asia: between 2006 and 2011 salaries in this region grew by an average of 7% in real terms. In fact, since 2000, the EECA region has experienced the highest real wage growth in the world.

Another issue is the difference in salaries paid to men and women. The gender gap is still quite large in Georgia: men make on average 68% more than women. Georgia is one of the countries that has made a lot of progress in decreasing the gender pay gap though, according to a measure compiled by the ILO that measures decreases in the gender pay gap between 1999 and 2011. Perhaps surprisingly, the most progress was made by Azerbaijan and Armenia.

Let us now attempt to explain some of these trends, and the differences with other countries, especially the high growth rate of real wages. These high growth rates in this part of the world may be part of a catch up after a strong decline in GDP and wages after the fall of communism: this is what statistics from Russia and Ukraine show, where wages dropped significantly in the early nineties. Another explanation might be a strong increase in labor productivity: maybe Georgian workers have become a lot better at what they do. Unfortunately we do not have adequate statistical information available to prove or disprove this theory. Furthermore, it may be possible that part of the rise in wages is due to the composition effect: maybe we we are not dealing with the same people getting paid more, but with a different set of people. During the nineties a lot of highly-qualified people left Georgia, and their return later on may have caused part of the rise in wages.

The gender wage gap is hard to explain, but most likely a combination of two different factors: cultural stereotypes and different types of employment. To start with different types of employment: women are overrepresented in some of the lowest-paying sectors, especially the education sector, which pays an average wage of only 319.6 GEL per month. They are also more likely to stay home to take care of the household and to take up part-time employment instead of full-time employment. Furthermore, employers may pay hold biases against women and pay them less for the same work, either because they think women deserve less, or because they think that women are less capable.

Georgia has seen significant wage growth over the last decade but still remains quite competitive in terms of pay, especially when it comes to manufacturing wages, which are at an attractive level for foreign investors to come in. The low wage levels in education are worrying - since this is an extremely important sector for the development of the country, which requires high-quality teachers. What will happen in the future remains uncertain, but if GDP keeps growing we can expect wages to keep growing as well. However real wages cannot keep growing faster than GDP indefinitely, and especially with the scarcity of capital in Georgia, we may see wages starting to grow at a slower rate than GDP.

 

 

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