By: Štefan Šumah
What does the path to socialism look like? The journey to socialism can take different forms: through revolution, leading to misery quickly, or slowly, like boiling a frog by gradually increasing the temperature, leading to misery over time. Slovenia, under left-wing governments, is treading the second path – slowly but steadily toward equalisation and socialism. In all forms of socialism, inflation – an invisible tax and a tool of monetary policy – is crucial. The long-term devaluation of money, coupled with the drive for equalisation, leads to equality in a particular way: everyone equal, everyone poor.
An illustrative example is the agreement with public sector unions: starting in 2029, public sector wages are to rise by 80% of official inflation. For public employees currently earning an average gross salary of €2,336.48 (as of September), this would mean that over ten years, with an average annual inflation rate of 2%, wages would increase to only €2,738.41 instead of €2,848.15, a real decrease of €109.78 or 3.8%. And this is just within ten years. What about young employees who begin working in 2029? How much lower would their real wages be just before retirement?
A paradox arises between minimum and base salaries. If the base salary – initially equal to the minimum wage – were adjusted at the same rate, it would also be 3.8% lower after ten years, dropping below the minimum wage again. Conversely, if the base salary remains tied to the minimum wage, it would have to adjust with inflation and grow faster than other wages. This would result in an increasing number of public sector employees earning minimum wages.
A comparison of the trends in average and minimum wages in Slovenia highlights this issue. In September 2009, the average gross salary was €1,418.19, while the minimum wage was €734.25, a ratio of 2.01:1. By September this year, after 15 years, the ratio had dropped to 1.86:1. The average wage grew at an annual rate of 1.034%, while the minimum wage grew at 1.04%. If this trend continues, those entering the workforce today would retire with average wages only about 40% higher than the minimum wage. When considering net wages, the disparity would be even smaller, as average wages are significantly more taxed than minimum wages.
In a normal economy, wages are distributed along a bell curve, with most wages clustering around the middle. However, in Slovenia, the peak of the curve has shifted to the right, meaning more than half of employees earn below-average wages. If current trends persist, this peak will shift further right, leading to more workers earning minimum wages and, eventually, socialism.
No form of equalisation is healthy. It stifles competitiveness, innovation, and productivity. Socialism is detrimental to the economy. While Slovenia might currently be in a “soft” socialist state, the disproportionate growth of average and minimum wages is pushing the country toward “hard” socialism, where “all animals are equal, but some animals are more equal than others”. It is important to emphasise that the institution of the minimum wage can make it more difficult for some individuals to enter the labour market. As such, it acts as a barrier to economic progress, despite serving as a kind of social regulator.
And how can public sector wage growth be addressed in a fair way? There are two potential approaches. The first is to align public sector wages with changes in wages in the private sector, adjusting wage growth (or decline) in the public sector in tandem with the private sector during good or bad times. The second approach is to link public sector wage adjustments to changes in gross domestic product (GDP), again reflecting economic performance, whether positive or negative. Both methods would act as incentives for public administration, fostering an understanding that it exists to support the economy, not the other way around. Additionally, the minimum wage should either be abolished or, at worst, legally capped at half of the average wage.
