Flash comment: Lithuania - November 24, 2015
Wage growth accelerated to 5.5% in Q3. More to come.

In the third quarter of this year annual nominal growth of gross wages accelerated to 5.5%. Meanwhile, real net wages increased by 6.2% as prices decreased this year. Wage growth was driven by continued rise in demand for the qualified labour force and shrinking supply of such employees. The number of registered vacancies in the third quarter was 16.3% higher than during the same period a year ago. Although during recent months a number of registered vacancies declined somewhat (mainly due to seasonal factors), in August they were at the highest level since the beginning of 2008. This and other factors indicate that at least partially wage growth is driven by lack of skilled labour. In addition to that hike in minimum wage from EUR 300 to EUR 325 in July also had a significant effect on the acceleration of wage growth, especially in some sectors.

Wage growth continued diverging in private and public sectors – private companies increased wages by 6.5% compared with the same time a year ago, whereas wages in public sector have increased by 3.9%. Wage growth was still very divergent across different economic sectors. Rapid growth was recorded in some services sectors, such as information and communication (7.9%), financial and insurance activities (7.8%), where the vacancy rate is the highest. Wage growth accelerated significantly in accommodation and food service sector, at least partly due to higher minimum wage. Wage growth remained high throughout the year in arts and entertainment. Wages barely grew in some public sectors, for example in health and education.

Outlook: wage growth will accelerate

Even though productivity increased again in the third quarter as employment stalled, wages has been outpacing productivity for a few years now. Employment did not rise anymore in the third quarter, but the main reason behind most likely was not stalling job creation, but shrinking working-age population and increasing shortage of qualified labour force. Vacancy rate did not decrease in the third quarter compared with the previous quarter and was higher than a year ago. The number of unemployed per vacancy was the lowest since 2008 in the third quarter. High structural unemployment will put more and more pressure on wage growth. We expect gross wage growth to accelerate from 5% this year to 6.5% in 2016 and 6% in 2017. Accelerating wage growth and shrinking labour force poses challenges to growth and competitiveness, which will be very difficult to address unless productivity enhancing structural reforms are carried out and investment friendly climate is ensured.

For more information about this report, please contact Ms. Vaiva Šečkutė, +370 5 258 2156, Vaiva.Seckute@swedbank.lt

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