Flash comment: Lithuania - February 26, 2019
Public sector leads the way in wage growth

The trends in earnings continued in fourth quarter of the 2018. Annual gross wage growth declined by 0.3pp to 9.7%. The gap in in growth rates between public and private sectors widened. Public sector wages grew 12.5% annually, while those of private sector increased 8.9%.

Growth of net wages was still a bit slower due to the removal of additional non-taxable income threshold for children in the beginning of the year, the trend is set to reverse this year. On average net wages grew 8.9% annually. Real wage growth slowed down a bit down to 6.2% down from 6.6% the previous quarter.

Industries dominated by public sector were leaders in wage growth by a wide margin. Health sector wages surged 18% annually, while education workers had a 16% salary increase on average. ICT sector was in the third place with a comparatively modest increase of 11%.

Outlook: Public sector wage growth likely to be faster

The trend of gradually slowing wage growth will likely continue, however it is set to remain rapid at least in the nearest future. We forecast 8% annual gross wage growth this year and 5 % in 2020. Net wages will grow faster this year due to tax reform, it is unknown however how much of the increase will be funneled towards savings due to the increased participation in private pension schemes.

Unemployment is low and labour shortages remain one of the main headaches for business, so the conditions for elevated wage growth are present. However, prolonged rapid wage growth eats into competitiveness of the firms and probably limits their financial capabilities. Also, due to the tax reform the pressure for companies to raise wages is likely to be slightly relieved as employees will enjoy a raise from taxpayers’ pocket. The pressure for wage hikes in public sector will remain higher as it lagged behind for many years and needs to rebuild a wage gap to be able to attract talent.

For more information about this report, please contact:

Vytenis Šimkus, +370 687 17870, vytenis.simkus@swedbank.lt.

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