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Economists: inflation «eating up» the salary growth

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUAlthough, the average salary has risen by 20 lats within a year, this factor will not affect the purchasing power due to inflation eating up all the wage increases, indicate bank economists.

SEB bank economist Dainis Gašpuitis:

Growing economic activity, although not convincing, has also brought the average wage growth.

Businessmen are not in a hurry to raise wages, because the high unemployment rates are currently maintaining employee’s requirements. Also the future outlook is not optimistic. Given the tax impact, during this period wages increased 4.1%. However, the salary growth was affected by the minimum wage increase of 20 lats. Minimum wage is received by nearly half of the employed in Latvia.

Compared to the fourth quarter of 2010, the average monthly gross salary has declined; however, seasonal effects should be considered as well. Despite the crisis, the salary is affected by various bonuses in the last quarter of the year. Therefore, except the boom years (2006, 2007 and 2008.), when the salary surged, the remaining years reported salary drop (compared with the previous quarter).

The economic sector recovery brings along a rise in remuneration that will prevail in following quarters, although varying in each sector. Businessmen will raise salaries in line with their performance indicators and will be forced to follow the job market trends. Currently, the lack of necessary employees is becoming more apparent.

Moreover, prospective employees’ requirements for wage growth are becoming clearer, emerging in one year’s time as a serious challenge for competitiveness and development. Also, wage growth will remain in the public sector. The desire to return to pre-crisis income level will be the driving force, accompanied by arguments on the necessity of attracting professionals.

Therefore, when discussing with the private sector the possible salary maintenance for euro introduction, the government should not ignore salary changes in the public sector. If the salary climb continues. The government should also come up with structural reforms, encompassing efficiency and quality boost, while optimizing the number of employees.

The society is not highly content with the current salary rise, because it is reduced by the inflation. Consequently, the wage increase will not bring along the purchasing power growth. It is expected that this year will see a slight increase in purchasing power, gaining momentum in the second half of 2011, provided that the started political processes will not hamper the overall economic development.

Swedbank senior economist Lija Strašuna:

Salary growth can be partly explained with the fact remuneration cuts in the public sector were not that big during the crisis. Similarly, also the structure of the staff changed, namely, low-paid jobs were done away with. While the biggest productivity growth, boosting also remuneration climb, took place exactly in the private sector.

However, the issue of the public officials pay is very important. It does not, though, mean there are grounds to raise salaries for all the employed in the public sector. A possible solution could be to introduce such a remuneration system where salary levels are tied to the performance, as well as to the remuneration in the private sector.

Gross salary rise does not automatically mean the purchasing power of the residents of Latvia is growing, as it is affected by the tax changes and inflation.

In the first quarter of 2011, the average monthly gross salary amounted to 4.6% more than a year ago, however, the actual net salary was an even 0.1% lower.

It is forecast the average net salary rise could hit about 5%, however, most likely, inflation will eat up most of the purchasing power.


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