Flash comment: Lithuania - November 24, 2017
Wage growth slows as minimum wage effect fades
Annual wage growth slowed down to 7.2% in the third quarter. The waning effect of minimum monthly wage increases was the main reason for the slowdown.

Wage growth was also dragged down by sluggish wage growth in the public sector. Its wages grew by only 5.6% compared to 8.1% in the private sector.

Net wages increased by 8.3%. A faster pace of net wage growth was largely influenced by an increase in non-taxable income threshold in the beginning of the year. Real wages suppressed by high inflation grew at a moderate pace of 3.7%.

As minimum wage effect dissipates, new sectors come at the forefront of wage growth. Wages grew the fastest in sectors with severe labour shortages. ICT sector wages grew by over 11% followed closely by the financial and insurance sector which grew at almost 10%. Both of these sectors have vacancy rates exceeding 3% - double the economy average. Wholesale and retail sector wage growth slowed to 8.7% down from almost 12%.

Outlook: Wages will keep increasing next year
Relatively strong wage growth is expected to continue next year at a somewhat slower pace. We forecast gross wage growth of 7% next year. Strong demand for labour fueled by an economic upswing together with severe shortage of labour will keep pushing wages higher.

Wage growth will be supported by a 5.3% increase in the minimum monthly wage. Net wages will be supported by a further increase in non-taxable income threshold to EUR 380. In addition, the planned introduction of social security contributions floor may provide incentives to raise wages for people earning less than a minimum wage and may drag some income out of shadow economy.

There is potential for wages to grow faster due to expected wage increases in the public sector as well. Wages of civil servants are set to increase next year, also education and medical workers are negotiating for significant increases in their salaries.

For more information about this report, please contact Mr. Vytenis Šimkus, +370 5 258 5163, vytenis.simkus@swedbank.lt

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