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Bank analysts predict average wages in Latvia to increase by 7-9%

Mārtiņš Kazāks/twitter.com.
Next year, gross wages (before taxes) in Latvia may grow by approximately 7-9%, bank analysts predict.

Swedbank chief economist in Latvia Mārtiņš Kazāks says average gross wages in the country may grow by 9% in 2018. There is also a possibility of a two-digit increase.

«Wages will grow in nearly all sectors. The most rapid increase will be observed in industries with highest activity and narrow bottlenecks – the construction sector is a good example. Minimal 16% growth of minimal wages will also serve as a major factor. Still, considering the assessment from the State Revenue Service that envelope wages form 20% of wages paid in the country, wage growth is likely to be limited to legalization, rather than true wage growth. Yes, wages will grow, but we shouldn’t exaggerate with requests to increase wages – businesses have to be able to pay bigger wages and make profits at the same time. In addition, if you have no envelope wages, then the average wage growth becomes much lower than what is suggested by official statistics,» said Kazāks.

Luminor economist Pēteris Strautiņš predicts that wages in Latvia may grow by approximately 9% next year.

«Construction sector is an industry in which competition for labourers within the country’s borders and beyond will raise the labour market’s temperature. We expect rapid growth to continue in industries associated with tourism and leisure, where wage growth exceeding the average has already been noticed. In relation to the sharp increase of minimal wages, a more rapid than average growth may take place in industries where wages are below the average. This mainly applies to trading and service industries, as well as services associated with property management,» said Strautiņš.

At the same time, he added that one important matter is the deficit of workers in the programming sector even though the wage level in this industry is already high, making the road ahead very difficult.

SEB Bank’s macroeconomic expert Dainis Gašpuitis says rapid wage growth and tense situation on the labour market is typical for all three Baltic States. In Estonia, wages grew by 6.3% in the first half of 2017 and reaching 7.4% in Q3. Average wage rise in Lithuania was 9% in the first half of the year and 7.2% in Q3. Similar growth was noted in Latvia, where average wages in Q3 reached EUR 925, which is 7.5% more than a year ago. Gross wages remain the highest in Estonia – EUR 1,201. The lowest average gross wages are in Lithuania – EUR 851.

He also says that all three Baltic States have plans to increase minimal wages next year. In Lithuania, minimal wages will grow by EUR 20 (to EUR 400) on 1 January 2018, whereas non-taxable minimum will be increased from EUR 310 to EUR 380. Estonia plans to increase minimal wages to EUR 500, making the non-taxable minimum on the same level. Latvia plans to increase minimal wages to EUR 430 and establish non-taxable minimum at EUR 200. All three countries have a progressiveness principle that allows for income increase with added decrease of non-taxable minimum.

Gašpuitis notes that wages grew in all fields at amplitude of 2.7% to 10.1% in Q3 2017. This does not apply to electrical energy, gas supply, heating and air conditioning industry (-4.3%) and real estate industry (-0.5%).

«Under such conditions, more people have more chances of receiving bonus. Information about rapid wage increase will only increase pressure, especially in regions and sectors where profit opportunities are limited. This will result in migration of workers to and from sectors. Newly hired workers and specialists will experience the biggest wage increases,» he said.

SEB Bank’s macroeconomic expert predicts wage rise in Latvia will be 7.6% in 2017, 8.2% in 2018 and 7.2% in 2019. Changes to wages will vary from region to region.

«The situation in the economy will be more beneficial for future wage growth. Pressure will be increased by the growing deficit of workers. Minimal wage growth will influence in next year. This will have a positive impact on consumption activity and inflation. The situation in the budget will allow for an increase of wages for state administration workers. In addition, more and more different industries will expand their focus in the search for employees, including the possibility of hiring people in neighbouring countries. The importance of this topic will only increase because of ambiguous trends and much-needed solutions. Growing wage pressure, lack of workers and reluctance to search for more complex solutions will only increase the desire to import labour force,» says Gašpuitis.

He also notes that even though average wage growth predictions are confident, there are doubts about part of the public for who wage rise will be minimal or non-existent.

«Migration of workers to country centres will continue in all three member states. I would say Latvia and Lithuania will continue experiencing a very clear pressure. This is different from Estonia, where certain benefits already exceed Finland’s level and average wages are around EUR 1,000 after taxes, which is an acceptable level to convince people to stay,» said Gašpuitis.

Citadele Bank’s economist Mārtiņš Āboliņš said that average gross wages in Latvia may grow by 7-8% next year. However, considering unemployment dynamics, it may even reach 10%.

«Next year’s wage rise will benefit from sufficiently rapid economic growth, declining unemployment and minimal wage growth from EUR 380 to EUR 430. This way average wage rise may be around EUR 1,000 before taxes. Similar to this year, wage rise is expected in nearly all industries and professions next year. Doctors’ wages should be increased as well, because the government decided to make healthcare a budget priority for 2018,» said Āboliņš.

He also admits that pressure on wages will remain very high. «Average wage for employed people aged 30 to 40 already exceeds EUR 1,100. For people of pre-pension age, however, average wages are around EUR 800. In a situation when unemployment is rapidly declining, wages will be a major challenge for industries with relatively low wage levels and high average age of workers,» admits Āboliņš.


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