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Salary growth forecast to continue in Latvia

In the second quarter, the average gross monthly salary increased by 10.2% compared to a year earlier, reaching EUR 1,237. Experts forecast that the growth will continue, albeit not as rapid, Latvian Radio reported September 10.

The recovery of the economy and the loosening of pandemic restrictions have had a positive impact on the labor market. The number of unemployed people decreased to the pre-pandemic level of 6.5%, and the number of job vacancies is growing.

Senior economist of Swedbank, Agnese Buceniece, said that the increase in wages was affected by both the increase in minimum wages and the increase in wages in the public sector.

"We have seen a rise in wages in the health sector, which has long been needed to attract people and pay health workers enough. We see that the salaries of education workers have also risen. If we look at hourly rates, these two sectors also stand out. In the public sector, wages are growing more rapidly than in the private sector.

"And another factor is raising the minimum wage. This year, the minimum wage was raised to €500, and it also affects the total wage fund and even more, the smaller wages. For example, Rīga and its region have the highest salaries. If we compare, wages have increased more rapidly in Latgale and this is mainly related to the minimum wage factor," said Buceniece.

The structure of employment has also changed as a result of the pandemic. Less-paid jobs have disappeared from the labor market, but jobs with higher wages have been created.

Jānis Salmiņš, head of the Analytics Service of the Ministry of Economics, estimated that wages will continue to increase in all sectors: "If we look at Q2, virtually all sectors are growing. For example, in the aviation sector, which suffered the hardest during Covid-19, wage dynamics are slightly in the negatives but remain high. Also in sectors that have suffered more, such as accommodation, creative industries and the food industry, wage growth has been more moderate, but still continues. If we look at sectors that have had more favorable conditions, such as the woodworking sector, we see a very rapid rise in wages. There is a significant increase in wages in health care. Looking at the medium term and even the long term, we can certainly expect it to continue at similar rates."

Some entrepreneurs are concerned about whether wage increases will go hand in hand with productivity growth.

“We need to move from a low-tech economy to a medium- and high-tech economy. More and more investment is needed in science, research and innovation. And this, of course, requires great resources from Latvian merchants. One is the private stocks of companies themselves, and the reform of zero interest rates for reinvested profits was very helpful here. However, this money is not so much, so entrepreneurs look at the recovery and resilience facility to make our businesses more competitive and productive towards European companies,” said Katrīna Zariņa, board member of the Latvian Chamber of Commerce and Industry (LTRK).

Latvia is already experiencing a lack of labor force, which is also one of the factors why wages are rising. Zariņa said that entrepreneurs are also concerned about the quality of the workforce.

“There needs to be a lot more engagement and investment to retrain these people so that they are in line with what is needed in the labor market. We must hope, of course, that we will also be able to debate with policy makers on a more competitive tax policy at the same time as wage rises. Of course, if there is an increase in pay, the employer's costs are also increasing to keep that pay,” Zariņa said.

The experts predicted that pay would continue to increase, but the increase would no longer be measured in double-digit figures. 

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