Flash comment: Lithuania - May 28, 2018
Record post-crisis wage growth in Q1
The annual average gross wage growth was the fastest since the financial crisis in 2009 and stood at 9.5% in the first quarter of the year. The average net wage grew a bit slower - it increased by 8.6% due to the fact that additional income tax reduction for having children was replaced with direct payments. The annual real wage growth accelerated to 5% thanks to easing inflation.

An increase in the minimum monthly wage of 5.2% supported the wage growth. Also the floor on social security contributions could have put pressure on raising the lowest wages and reducing the shadow economy.

Public sector wage growth is still lagging behind. It increased by 8.2% annually, while wages in the private sector are up 10.1%. For the first time in history the average wage in the private sector was larger than in the public one. Next quarter we will observe more profoundly the increases in wages of health service workers, however public finances will continue to face an increasing pressure to raise public sector wages in order to keep up with the private sector.


ICT and administrative activities were leaders in wage growth, both sectors observed average wage growth of nearly 15%. However, rapid wage growth was broad across all sectors. Slower growth was observed in sectors that are dominated by public sector employees.



Outlook: Wage growth to remain strong


We expect gross wage growth to ease to 7.5% throughout this year. The private sector will have less room to raise wages due to rising competitiveness concerns. However, the public sector wages will face a lot of pressure to catch up as they have been lagging behind for quite some time.


Labour market conditions facilitate rapid wage growth. Labour shortage is one of key concerns for businesses, current immigration flows alleviate the problem somewhat but are insufficient to lower labour shortages significantly. While the number of vacant positions dropped for the first time in years we do not think that it is a sign of cooling labour market. The ratio of vacant positions to all still stands at 1.6% and is stable.

 


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

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