Average net salary: how much has it increased since last year?
In the economy, certain situations and solutions that have direct application in everyday life are often debated. But opinions about the same economic phenomena and problems can often be different, even diametrically opposed.
For example, in which sectors should the state regulate and limit the prices of goods and services? What kind of tax system to have – with more indirect or direct taxes, proportional or progressive tax rates? What should be the public expenditure and what should it be spent on – for agricultural subsidies, social purposes and higher salaries in the public sector or for the construction of infrastructure, equipment in education and health, and modern defence?
Analyses of such dilemmas and solutions are qualitative, and their verifiability and accuracy is never completely possible because they are subject to the moral judgments of the public. Citizens determine what is right based on their own perceptions and worldview. But in contrast to qualitative, are quantitative analyses and data. They indicate much more precisely certain conditions in the economy.
The economic indicators are accurate, objective, measurable and comparable with the corresponding previous indicators, but also on an international scale. Hence, the debate based on such indicators is based on facts.
Comparing a current salary to a few years ago
One of the most common problems with interpreting economic data. It is the comparison of the current average salary with the average salary a few years ago. That is, not distinguishing between nominal and real data.
First, let’s clarify what is nominal and what is real data. Nominal values are the values that are valid at the time of the calculation itself and are expressed in a specific currency, such as denars, euros or dollars. If in July 2023 the average net salary was 36,286 denars, that is its nominal or current value. Real or true value, on the other hand, is when we correct the nominal value according to the inflation rate of the respective currency.
Therefore, comparisons of only nominal, current amounts from different years are inappropriate and a manipulative presentation, especially if inflation rates are greater than 1 to 2 percent annually. When comparing current data with the same data from an earlier period, then its real value should be used. This will remove the possibility of citizens being misled about whether something has improved or not.
Let’s compare the average net salary in July of this year with that of July 2022. The comparison of these two figures is important because during this period we have increased inflation, which affects what the current average net salary is really worth.
If we just compare the nominal salaries of the two months – in July 2023 it is 36,286 denars and in June 2022 it is 31,812 denars, we will get that the salary this year has grown by 4,474 denars. But that is only nominal growth and it is not true.
To get the real picture of the average net salary in July 2023, its nominal size should be reduced to a real size, comparable to the average net salary of the previous year, 2022. For that, the so-called deflator for one year, which reduces the nominal size of the average net salary is used. In our case, the deflator is the annual inflation rate, so the average net salary in June 2023 should be adjusted for the percentage of official inflation in the period June 2023 / June 2022.
Or in this case, this year’s July average net salary of 36,286 denars, in order to compare its real size with the salary of July 2022, should be reduced by the level of the annual inflation in the period July 2023 / July 2022, which is 8.4 percent. After it is reduced by 8.4 percent, we receive a comparable salary from July this year, which is 33,238 denars. This real size should be compared with the average net salary in July 2022, which amounted to MKD 31,812. After we compare, we will get that the salary increased by 1,426 denars, and not by 4,474 denars, as was incorrectly calculated earlier.
The level of the average net salary is often used in public to highlight the success or failure of government promises and policies, but as we have seen, it can be interpreted differently.
Hence, it is necessary to very carefully and accurately report the data that represents nominal values and consider their adjusted real value.