Flash comment: Latvia - Wages Q2 2019
Wage growth keeps up in the Q2

Despite softening economic growth and the first signs of weakening in the labour market, wages are still increasing rapidly. The annual gross wage growth remained steady at 7.8% in the second quarter. Public sector wage growth has eased this year, while gross wages in the private sector are growing at a similar pace as last year.

Although all sectors saw positive wage growth in the second quarter, the differences among the sectors have increased lately. In some sectors like construction, real estate, hotels and catering, health care, and information and communication services the wage growth exceeded 10%, while there are sectors like financial services and insurance, education, and public administration, where wage growth was only about 3-5%. There are different reasons at play that motivate wage increases. In some sectors like construction and hotels and catering, where the share of unofficial wages is relatively high, most of the increase is due to “income legalization” - the increase of the official pay at the expense of the unofficial part - , which is motivated by measures taken by the industry and tax authority. The wages of health care and IT workers are mostly increasing because of labour shortage. The state budget spending for the wages of public health care workers were considerably increased last year and topped up also this year, the wage increases are spilling over to the private health care. The wage growth in the financial services is slow due to structural changes in the sector leading to falling employment. 

The average net wage increased by 7.5% in the second quarter. The purchasing power improved, but its annual growth rate slowed to 4.1% compared to about 7% last year. 

Outlook

We expect the average gross wage growth will be around 7.3-7.5% this year supported by “income legalization” and still pronounced labour shortages. The wage growth will gradually slow going forward, to about 5.5% in 2020, as companies review their hiring and remuneration policies amid slowing demand and income. Nevertheless, the labour shortage in some industries and professions will remain elevated, boosting some wages. Hence, while the average wage growth is expected to moderate, we might see diverging trends among sectors.

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

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