Flash comment: Lithuania - February 26, 2018
Gross wages grow at 8.5% in 2017
Tight labour market continues to support strong wage growth. Annual gross wage growth inched up to 7.5% in the fourth quarter. In 2017 gross wages grew at 8.5%, exceeding our expectations. Generally growth was quite strong across industries.


Wage growth in the public sector is finally picking up. Annual growth in gross wages in the public sector accelerated to 6.7% in Q4. Meanwhile in the private sector wages grew at 8% year-on-year. In 2017 as a whole wages grew at 9.5% in the private sector followed by 6.8% growth in the public sector.


Net wages saw larger gains as they increased by 9.6% in 2017. The increase in non-taxable income allowance at the beginning of last year was the main reason for the difference. Real wage growth slowed due to higher inflation but remained solid. Real wages grew at a rate of 5.7% in 2017, down from 7.7% in 2016.



Outlook: Wages will keep increasing
We expect wage growth to ease to 7% throughout this year. The private sector will have less room to raise wages due to rising competitiveness concerns. However, the public sector wages can still grow faster as public pressure to raise wages that have been dormant for a long time is strong.


Wage growth will be supported by the increase in the minimum monthly wage of 5.3% as of January 2018. Meanwhile, an increase in the non-taxable income allowance to EUR380 will add to the net wage growth this year. However, this will be somewhat amortized by the removal of the additional non-taxable income allowance for children.


Labour market remains tight and it is becoming an increasingly important factor limiting activity for many businesses. Although immigration from neighbouring countries has increased recently, it is still insufficient to alleviate rising pressures in the labour market, thus strong wage pressures are expected to persist.

 


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

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