Flash comment: Latvia - June 1, 2017
Wage growth accelerated in Q1

• Annual growth of the gross monthly wage at 7.2% in Q1

• Wages growing in almost all sectors

The annual growth of the average gross monthly wage accelerated to 7.2% in the first quarter of this year after growing by 5% last year as a whole. Wage growth is picking up as the labour market is heating up, business cycle is picking up and the economic growth is broadening across sectors. Some part of the increase can be attributed to higher minimum wage and probably some income legalization. At the beginning of this year the minimum wage was increased to EUR 390, which is a 2.7% growth – similar to the last year.

The average net wage was 6.4% higher than in the first quarter of last year. It advanced slower than the gross wage due to the application specifics of the differentiated non-taxable income threshold (the minimum threshold that is applied at the wage pay-out moment to everybody was reduced from EUR 75 to EUR 60). Higher inflation at the beginning of this year (+3.2% in the Q1) partly cancelled out the wage gain effect, resulting in a slower growth of households’ purchasing power (+3.1%).

As the economic growth is broadening across the sectors, almost all sectors saw average wage gains in the first quarter. The wage growth was almost the same in the private and public sector.

The average wage growth statistics does not reflect improvements in households’ income as a result of an increased number of work hours. The total gross wage paid out to the society increased by 8.1%, as the number of workers in full time equivalent increased by 6.4 thousand.

Outlook: Wage growth to remain strong this year

The income of households is increasing – they are earning more and working more. Their confidence is gradually improving after collapsing at the end of last year. The unemployment continues on its downward path, heating up the labour market and putting pressure on wages. According to our latest forecast, the average gross wage growth will be about 6% this year. However, the start of the year for the economy has been better than expected, and the wage growth could turn out to be faster.

For more information please contact Ms. Agnese Buceniece, +371 67445875, agnese.buceniece@swedbank.lv 


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