Flash comment: Lithuania - May 26, 2017
Wage growth surge in private sector in Q1

Nominal gross wages growth accelerated to 9.3%, while real net wages rose by 7.4% in the first quarter of this year compared with the same period a year ago.

Wages in private sector increased by 10.4%, which was the highest pace since 2008. Construction, accommodation, food and trade sectors recorded the highest wage growth. All those sectors have lower than average wage levels and this should have some positive effect on income equality. However, vacancy rates are at high levels in ICT and financial and insurance sectors. Therefore wage growth should not subside in these sectors as well.

Outlook: wage pressures will not ease, policy actions are needed

Productivity growth accelerated significantly in the first quarter, but that was partly due to decreasing employment. Businesses were not able to employ as many people because of shrinking labour force. Vacancy rate and the number of unemployed per vacancy was at the highest level since 2008. Public sector, which struggles to offer adequate wages and financial and insurance, ICT and construction sectors were among sectors having the hardest time filling vacancies.

Without policy actions for decreasing high structural unemployment and improving education system labour shortage and high wage growth will start having more effect on cost competitiveness, potential growth and eventually productivity growth. Annual wage growth might slow down during the rest of the year due to higher base. However, high structural unemployment, decreasing working age population and high labour demand will push up average gross wage by around 7% this year, while employment will shrink somewhat.

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

This email is sent through the Research Department’s web-based distribution system. As a subscriber you can change your settings regarding what publications you will receive by clicking “Change your settings” you can also unsubscribe by clicking "Unsubscribe".

This letter is distributed by Swedbank in cooperation with Brightly. The letter is personal.