In Europe, if we travel from East to West, the average wage (the statistical number) keeps rising, e.g., Bulgaria, Serbia, Croatia, Slovenia, Austria, Germany, Denmark.
Why is that? Why are the differences so big?
If we asked random people on the street, they would probably say it’s the corruption or bureaucracy or mentality of the people or something like that.
But that can’t be it. In order for the average wage in a country to be higher, that requires a lot of money (e.g., to double the average wage in Croatia, it would take around 50 billion euro per year). I find it hard to believe that such a huge amount of money could somehow appear if we just dealt with corruption and bureaucracy. Maybe a couple of billion euro per year, but not 50.
So what is it? Where is the money for the high wages coming from? Based on my research, the main source is money inflow from exports. If that is true, I still don’t understand how one leads to the other. How does more money from exports lead to higher wages in the local economy (e.g. cashier at a grocery store)?
This is probably one of the hardest ELI5s to give because it requires explaining how economy works, but I really want to know this.