The strongest growth in Europe
The National Data Agency recently announced that the average salary in Lithuania exceeded the 2,000 euro limit “on paper”. And according to data from the Organization for Economic Co-operation and Development (OECD), during the last 2019-2022 quarters, the real hourly wage in Lithuania grew the fastest in Europe – 7.1 percent.
In comparison, other Baltic countries recorded a significant decline in real hourly wages: in Latvia, by more than 6 percent. and in Estonia, almost 10 percent. This indicator also declined in countries such as Germany (-3.2%), as well as in many other OECD countries.
Real wages are the amount of goods and services that, after inflation and various taxes, can be purchased for a nominal wage, which is the amount of money a worker receives for work performed. Real wages fall when inflation exceeds the rate of increase in nominal wages.
It is important to note, however, that hourly wages apply in specific fields, such as service and construction companies, where wages are generally lower than average.
“This is probably the main reason why we have very rapid wage growth compared to other countries. This is not very good news. If labor costs do not increase or decrease in other countries and wages are increasing very quickly in Lithuania, this theoretically means a threat to Lithuania’s competitiveness.
However, this does not necessarily mean that the Lithuanian economy will lose its competitiveness: the faster wages rise, the more incentives companies have to increase their efficiency and productivity. I think it’s a very good incentive for companies to be careful,” said the economist.
Matt has good news for employees
The interviewer also sees good news: “First of all, Lithuania is increasingly looking like a standard Western European country, with a rapidly developing middle class. Unequivocally, this is a very positive and welcome thing. And we should hope that these trends continue in the future. »
Andrius Romanovskis, president of the Lithuanian Business Confederation (LVK), also believes that the hourly wage rate in Lithuania, which is the fastest growing in Europe, is a sign of a labor shortage, particularly in the service sector.
“The evolution of hourly wages shows that there is an attempt to retain workers in these fields.” It is good news that we have stability in the labor market and that there is no fear that unemployment will increase,” he said.
The company representative emphasizes that the financial situation of many employers is currently difficult or bad, but they have no other choice and have therefore increased salaries through gritted teeth until now. Otherwise they wouldn’t have hands.
“All employers understand that this situation is temporary, we are not talking about a long-term crisis, in general we are not talking about any crisis. The company therefore considers that the greatest value does not lie in the reduction in profits or in unrealized investments, but in employees who contribute to creating added value,” explains A. Romanovskis.
Raising wages becomes a challenge for companies
However, according to him, the increase in wages has another aspect: it has recently become a major challenge for companies, so growth rates will be slower next year.
“Such an increase in wages carries risks related to both inflation and the economic capacity of different sectors and employers. The mood and expectations in some sectors are very gloomy, especially when it comes to ‘a sector where the number of layoffs is relatively high, despite the fact that the demand for workers always exceeds the supply.
I see the risk that the push for higher wages will become a challenge at some point. This is why we expect that next year wage growth will be lower,” says the LVK president.
Nevertheless, the interviewer sees good news for employees: “A situation like that of 2008-2009, where companies cut salaries or laid off workers, is unlikely to happen. This is good news for employees, but a challenge for employers, because the increase comes not only from their own profits, but also at the expense of their own investments. If they do not increase business taxes, I think they will will come out and we will all work on it. If you bring it up, it will probably be very difficult.”
2000 euros does not reflect the real situation
Speaking about 2 thousand average salary in Lithuania, Inga Ruginienė, President of the Confederation of Lithuanian Trade Unions, emphasizes that this does not reflect the real situation of the population.
“Statistics show that two-thirds of employees earn up to the average wage. It often seems to us that everyone earns an average income and above, but unfortunately, this is not the case for the majority of people. Regardless whether they live in Vilnius or Telšiai, it is difficult for everyone to pay their bills because they have financial obligations, they have to pay for communal services and the products cost exactly the same as in any large city,” she said.
The interlocutor emphasizes that speeches and euphoria about rapid wage growth mean nothing if the economic situation and the environment in which we live are not evaluated.
“These 2,000 euros seem like nothing, but when you subtract more than 40% taxes, then suddenly you see that the amount in your hands is small. Let’s look at the environment we live in: the fact that salaries are increasing by 10% means nothing, because we see that the prices of the most necessary products are increasing by 30% and much more, and some services have become even more expensive.
When the European Central Bank (ECB) continues to raise interest rates without any sense of shame, it means that people with financial obligations have seen a drastic increase in their loan repayments.
There is no illusion that product prices should fall. Therefore, managing inflation (by increasing interest rates – editor’s note) seems very strange and it cuts into the pockets of every citizen. Every day you pay more and more, prices rise at an inhuman pace – we have already overtaken the strongest countries of Western Europe. For example, when you compare the prices of goods in Lithuania and Germany, you want to cry, and when you compare salaries accordingly, you get an even bigger shock,” comments I. Ruginienė.
Residents do not feel the increase in income
The interviewer points out that residents are not feeling the increase in income at the moment, so she makes a metaphorical comparison: “When you are at the bottom of the deepest lake and you move away from the bottom, no matter what or the speed at which you run. , but if you don’t reach the surface and breathe air, you will drown. It’s the same thing with our wage growth and the economy: we’ve rebounded a little bit, but we’re not going to be able to breathe air anytime soon.”
The employers’ representative recognizes that companies must react to rising interest rates and respond accordingly to employees’ expectations.
“In Lithuania there are not many people who have loans, it seems, about 17 percent. natural persons.
We are talking about the most active and active part of society, and when the interest rate increases, of course, the employer must react to it in one way or another. It means that de facto the salary paid to your employee decreases, he simply has less money,” explains A. Romanovskis.
The company freezes employees’ salaries
The Citadelle economist notes that companies in financial difficulty are already freezing their payrolls.
“From what I myself have told companies, companies that have a problem with lack of orders start with a salary freeze, because there are now two scenarios: either a reduction in staff, for example in industry, or a freeze in the payroll.” I think the export sectors are trying not to reduce wages, but simply to freeze them due to the drop in orders and shortages,” comments A. Izgorodin.
The employee representative believes that the situation will be even worse next year: if interest rates continue to rise and prices do not stop, the current salary will simply not be enough to live on.
“When we look at the salary every month, we will cry,” she says.
The interlocutor notes that companies are currently preparing for next year and forming the opinion of employees that they should have their appetite for salary cuts.
“Now the opinion is being formed that employees should sit down and be silent, in no case should they ask for a salary increase. Let’s imagine the situation people find themselves in, they are as if trapped, because that the bills increase very drastically, and on the other side they tell him that wages should not increase. This is how inflation turns. When a person can no longer consume and prices continue to increase at an inhuman rate, this does not bode well.
It will be more and more difficult for businesses, because the consumption chain is already beginning to crack, our manufacturing companies produce products, but little by little there are no more buyers. This will lead to big problems. In the service sector, restaurants are already talking about people eating at home despite having no income. Apparently, they will be the first to fall into this field,” teaches I. Ruginienė.
Sees a big threat next year
The Citadele economist believes that it will be extremely difficult to talk about increasing wages in the private sector next year.
“I think this is a very big threat for next year. Unfortunately, I don’t see a big increase in salaries in Lithuania next year, because the recession or the crisis, which we have been talking about all the time year, is likely to continue into the fourth quarter of this year and the first half of next year. We already have a decline in industry in Lithuania, a decline in retail turnover, indicators of Companies in the transport sector are not very good either.
I think that next year private sector companies will slightly increase salaries when planning the budget, but a more likely scenario is that some companies will freeze salaries, especially in exporting sectors – industry and transport “, believes A. Izgorodin.
It is already clear that the MMA will increase by 10% starting next year, but according to the economist, the average wage growth in the private sector will not reach this level.
“It will be difficult enough to reach this level. I think companies will raise wages more in the second half of next year, when exports and orders pick up,” he predicts.
Source: The Delfi