Data from the Central Statistical Bureau of Latvia (CSP) shows: after five quarters of lasting decline actual wages – ones influenced by inflation, not just numerically speaking – finally showed signs of growth in Q2 2023.
The measured growth, however, was rather symbolic – 0.1%. However, economists stress: the dynamic is rapidly improving.
Actual wages went down by 4.7% in April. In June, however, they went up by 3.9%. On top of that, in Q2 average wages increased by EUR 163 or 12% when compared with the same period of 2022. At the same time, experts remind us about the slowing of the national economy and GDP.
***
Luminor Bank economist Pēteris Strautiņš has no doubts the growth of actual wages will continue. He also believes it is necessary to remind people in Latvia that welfare and GDP are “two different things”.
The expert writes:
“The price level has not changed much since March. This will continue in the remaining months and next year. The wage growth will continue despite the poor GDP indexes, because the because the balance of the labour market is favourable to wage-earners. At the end of the year the rise of actual wages in some months could reach 10%.
GDP is not the same as welfare. Last year actual GDP grew relatively rapidly (+2.8%), but the purchasing power went down. Actual wages went down 8.7%. This year both GDP and rise of actual wages will be very small. Next year actual wage changes could serve as an accurate fix of the mistake of 2022 – a similar digit with the opposite sign by about 8%.
Published indicators of consumer sentiment surveys in August show that the public has noticed a change in the direction of the welfare curves. The outlook for private financial situation is the best it has been since February 2022 and has come close to a neutral mark (-1.9 points). The outlook of the state economic situation is the best it has been since October 2021.
The improvement since November 2022 is very impressive – from -55.0 to -17.7 points. The average historical index is -10.1 points. The popular vote on upcoming price changes has been the most optimistic since May, but minus that, even since November 2020. Concerns about losing one’s job
are the lowest in the past one and a half years.
In general, the rate of wage growth is quite even, in large sectors – trade, manufacturing, public administration, professional services, education – it is in the interval of 10–15%. The wage growth rate is not all that different between regions. Wages have growth the most rapidly in Pieriga (+14.9%), perhaps because producing and exporting services have relocated to there. As a result, the region is increasingly a relatively low-paying local service area.
Wage growth is the most encouraging indicator in the overall rather grayish picture of this year’s macro figures, exceeding the most optimistic forecasts so far. There is no longer much doubt that this year, as a whole, wage increases will be a double-digit number.
Next year the wage growth should become slower – partly because there will no longer be emergency compensations for the rise in the cost of living; partly because the labour market is not fully immune to the troubles in the commodity export sectors – because the fall in unemployment has stalled.”
Strautiņš adds that the growing inflation has not saved Latvian businesses from rapid wage rise. But in any case it would be wrong for companies to complain about life, because the labour market is the “slower” part of the economy – wage-earners are just starting to regain what they lost last year. “The real life for them will begin on long winter evenings,” says the Luminor economist.
***
SEB Bank economist Dainis Gašpuitis offers a drier look at wage rise data:
“The inflation-driven wage growth continued in Q2 despite several sectors of the economy starting to become slower. The ongoing wage growth in the first half of the year was very rapid. It benefited from higher activity on the labour market and pressure from workers to compensate growth of various expenses. Profit indicators, on the other hand, allowed the salary to be increased.
Inertia will maintain high growth rate in the coming quarters.
After that, however, it will go down. Inflation is going down and recovery of purchasing power in Q3 will be more confident. It will not happen equally and immediately for everyone – especially those outside of the labour market. The trend will reduce pressure for employers, especially in sectors that are in a state of stagnation or decline.
Unemployment will rise slightly in the second half of the year and should also cool the wage growth. Even though it is clear that every worker wants to have a larger wage, but while the economy is stuck in place, employers will remain focused on cost control to maintain their competitiveness. In those companies or sectors where the previous wage growth will have proved too rapid, it may be necessary to take more active optimization measures.”
Also read: Businessman turns to prosecutor, complaining about possible fraud from Sadales tīkls and SPRK