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2015.09.08 13:45

Wages increased by 3.7% in Q1, productivity lags behind

DELFI EN | The Lithuania Tribune2015.09.08 13:45

 In the first quarter of this year wages increased by 3.7% compared with the same period a year ago. Wages rose almost at the same pace as a quarter ago despite high base effect as minimum monthly wage increased by 17.6% as of January 1st of 2013, Swedbank announced in its Flash comment today.

 In the first quarter of this year wages increased by 3.7% compared with the same period a year ago. Wages rose almost at the same pace as a quarter ago despite high base effect as minimum monthly wage increased by 17.6% as of January 1st of 2013, Swedbank announced in its Flash comment today.

Real net wages increased at a faster pace, 4.0%, due to increase in non-taxable income threshold. Higher minimum monthly wage may have had spillover effect on higher earners as wage differentials had to be restored after the minimum pay hike.

Wage growth diverged in private and public sectors – private companies increased wages by 4.2% compared with the same year ago, whereas public sector employees enjoyed only 3.2% growth.

Outlook 

Unemployment increased temporarily from 11.4% in the last quarter of 2013 to 12.4% in the first quarter this year due to seasonal factors. Nevertheless, at the end of the first quarter of this year the number of vacancies increased to 12.3 thousand and was 40% higher than a year ago. A number of unemployed per one vacancy has also dropped from 57 at the end of 2009 to 14.9.

We forecast that unemployment will decrease during the rest of the year and will be at 10.4% on average in 2014 as stronger job creation will continue in domestically oriented sectors. We foresee pressures to increase wages to intensify as it becomes harder and harder to fill vacancies and the negotiating power of employees especially of the higher qualified ones increases.

The wages have been growing faster than productivity for several quarters now. In a short term this is not a big problem, but pre-crisis experience suggests that longer lasting divergence undermines competitiveness of the companies. As unemployment will be close to natural level of unemployment this year, lack of skilled labour, increasing employee negotiation power and high expectations will sustain wage pressures. Thus, in order to remain competitive companies will have to continue investing and looking for other ways to increase their efficiency. Luckily investments in fixed tangible assets in the first quarter were 23.4% higher than a year ago.

We forecast average annual gross wage growth to be at 5.0% in 2014.