Nowadays our most important accessory is our mobile phone, no matter whether you are a male or a female. In the August 6th press release of the European Commission, it has been brought to attention that between the cheapest Member State and the most expensive Member State there is a nearly eight times difference in mobile phone call rates.
The biggest difference (774%) shows between Lithuania and the Netherlands. While I was reading the press release a question struck me: is there any convergence between the rates of mobile calls and the earning stance of the given country? As I presumed, if the typical earning of a country is higher, than the price of the calls will be higher as well. In this comparison I did not find a strong significance, therefore I compared the typical earnings of each Member State with the prices of the basic goods. Here, I found a stronger convergence.
The biggest difference (774%) shows between Lithuania and the Netherlands. While I was reading the press release a question struck me: is there any convergence between the rates of mobile calls and the earning stance of the given country? As I presumed, if the typical earning of a country is higher, than the price of the calls will be higher as well. In this comparison I did not find a strong significance, therefore I compared the typical earnings of each Member State with the prices of the basic goods. Here, I found a stronger convergence.
In the Commission’s press release we can read that, the "Mobile users across the European Union face huge price differences for the same services." In the institution’s opinion, "these price differences cannot be explained by differences in quality, differences in the cost to provide the service, or by differences between countries in consumer purchasing power" - although I think, that the almost 10 PPS (Purchasing Power Standard) difference between Lithuania and the Netherlands is not negligible. 1
After that, I examined what the convergence between the prices of the mobile calls and the typical earnings of the given Member State is. I compared the average gross annual earnings and the median gross hourly earnings with the prices of the calls.
On the comparison graph, we can see that from Bulgaria to the Czech Republic, continuing until Malta with the exception of Portugal, there is the same growing tendency between the prices and the earnings showing. My presumption after Malta is somewhat true, and in the countries where the earnings are higher, the prices of the calls are more expensive as well, exceptions being Cyprus, Spain, Greece, Great-Britain and the same time joint countries, Austria, Sweden and Finland. Furthermore, the rates of the calls in these countries are higher than in the Member States which are in the front, like Lithuania or Bulgaria.
As previously mentioned, I made the same comparison with the prices of the basic goods in the Member States. I used the price level index of the foods and non-alcoholic beverages and the same annually and hourly earnings statistics. I wanted to find out whether there was a lower difference between the prices of these basic goods, because as the press release says, "there are much smaller price differentials in other categories of basic goods and services in the European single market."
As previously mentioned, I made the same comparison with the prices of the basic goods in the Member States. I used the price level index of the foods and non-alcoholic beverages and the same annually and hourly earnings statistics. I wanted to find out whether there was a lower difference between the prices of these basic goods, because as the press release says, "there are much smaller price differentials in other categories of basic goods and services in the European single market."
As the diagram shows, it is true that between these prices there is a lower difference, therefore, I add that in the ten years, between 2003 and 2012, there was never a higher difference than 30% in the price convergence, and it could only be reduced to 20%. 2 Compared to the European average, these products are the cheapest in Poland (61% of the union average) and we can buy them the most expensive in the Danish Kingdom, where these goods are nearly 1,5 times more expensive as the union average (143%).
If we line up the countries on the diagram according to their typical earnings, we can see that there is not a big difference amongst them, but it is also true that in the countries where the earnings are typically higher, the prices of the foods and non-alcoholic beverages are higher as well. The growing trend of the columns break by Poland, Spain, Great-Britain, the Danish Kingdom and the Netherlands. In these countries the prices of the basic goods are lower despite their higher typical earnings, although it is true that they are still higher than in Bulgaria or Romania.
Without a strong significance and in some points with some differences, but it can be suggested that in the countries where the earnings are typically higher, we find higher prices of the goods and services as well. Why is this important?
As Neelie Kroes vice-president draws, "it is critical for the whole EU to move quickly to build a real single market to achieve a truly connected continent." Nice words and it is important to become true! However, if it means that the persistent approximation of the prices of goods and services, then the question pops up, how it is "benefitting
consumers"?
If the prices would reduce, then the countries where the earnings are still higher, could buy more products and services. What could this result in? On one hand, a stronger blowing effect on the labour market, because if the higher income level would result in a lower price level, then it will effect a stronger east-west labour migration which is already too strong enough. That would devastate the goals of the regional policy of the EU (economic, social and territorial cohesion - in ‘Skilled migration in the EU’; publications). On the other hand, the unification is hardly conceivable by this measure. Because if the countries with higher earnings could buy more goods and services, the consumption in the countries with
lower earnings would not run so high. Namely, if in the Netherlands somebody made a lot of mobile calls on high rates now, then after a price reduction he or she would call much more often on a lower price. Moreover, if a mobile service company would reduce the prices of mobile calls in a country where the people already pay the higher prices, that
would not be imaginable.
On the other hand, it would be more realistic to increase prices in the countries with lower earnings. But then why would it "benefit consumers"? Moreover, it would surely devastate the economic, social and territorial unification.
In both cases the approximation of prices in 28 countries, where the earnings standards are strongly different, it means that the balance between the prices and earnings would overturn. This would not help the building of a single market at all. To achieve it, it is necessary to increase the earnings in the lower developed Member States as well, but this is not the goal of the EU. With countries differing in earnings could most likely build a single market due to the difference in prices.
-Ákos-
1 Eurostat: earn_ses_pub2
2 http://epp.eurostat.ec.europa.eu/statistics_explained/index.php?
title=File:Price_convergence_in_the_EU-27_between_2003_and_2012_by_product_group
s.png&filetimestamp=20130612123614
If we line up the countries on the diagram according to their typical earnings, we can see that there is not a big difference amongst them, but it is also true that in the countries where the earnings are typically higher, the prices of the foods and non-alcoholic beverages are higher as well. The growing trend of the columns break by Poland, Spain, Great-Britain, the Danish Kingdom and the Netherlands. In these countries the prices of the basic goods are lower despite their higher typical earnings, although it is true that they are still higher than in Bulgaria or Romania.
Without a strong significance and in some points with some differences, but it can be suggested that in the countries where the earnings are typically higher, we find higher prices of the goods and services as well. Why is this important?
As Neelie Kroes vice-president draws, "it is critical for the whole EU to move quickly to build a real single market to achieve a truly connected continent." Nice words and it is important to become true! However, if it means that the persistent approximation of the prices of goods and services, then the question pops up, how it is "benefitting
consumers"?
If the prices would reduce, then the countries where the earnings are still higher, could buy more products and services. What could this result in? On one hand, a stronger blowing effect on the labour market, because if the higher income level would result in a lower price level, then it will effect a stronger east-west labour migration which is already too strong enough. That would devastate the goals of the regional policy of the EU (economic, social and territorial cohesion - in ‘Skilled migration in the EU’; publications). On the other hand, the unification is hardly conceivable by this measure. Because if the countries with higher earnings could buy more goods and services, the consumption in the countries with
lower earnings would not run so high. Namely, if in the Netherlands somebody made a lot of mobile calls on high rates now, then after a price reduction he or she would call much more often on a lower price. Moreover, if a mobile service company would reduce the prices of mobile calls in a country where the people already pay the higher prices, that
would not be imaginable.
On the other hand, it would be more realistic to increase prices in the countries with lower earnings. But then why would it "benefit consumers"? Moreover, it would surely devastate the economic, social and territorial unification.
In both cases the approximation of prices in 28 countries, where the earnings standards are strongly different, it means that the balance between the prices and earnings would overturn. This would not help the building of a single market at all. To achieve it, it is necessary to increase the earnings in the lower developed Member States as well, but this is not the goal of the EU. With countries differing in earnings could most likely build a single market due to the difference in prices.
-Ákos-
1 Eurostat: earn_ses_pub2
2 http://epp.eurostat.ec.europa.eu/statistics_explained/index.php?
title=File:Price_convergence_in_the_EU-27_between_2003_and_2012_by_product_group
s.png&filetimestamp=20130612123614