As economic growth resumes, salaries rise

The annual rise in average salary, first observed after a year-and-a half's interval last September, has continued reaching 3.4% in the fourth quarter of 2010. Thus a moderate rise in hourly wage has resumed earlier than predicted. However, reflecting a substantial drop in salaries (year-on-year) in the first six months, in 2010 overall the average salary dropped by 3.5% year-on-year.

Several factors account for the resumption of a moderate rise in salaries. The drop in the average hourly wage in the private sector was small, with the consolidation of the salary fund mostly taking place on account of layoffs and contraction of the working week. Thus the percentage of highly qualified (or receiving relatively higher salaries) employees increased, pushing the average salary statistics up. As a result, even though the drop in salaries took place across the board, the official statistics hardly indicate a drop in the average salary in the private sector in 2010 as compared to the pre-crisis period.

In the public sector, the drop in salaries began earlier and was more substantial. The amount of adjustment in the salary fund was equal to the private sector indicator, but it was accomplished primarily by reducing the hourly pay. Thus in the fourth quarter of 2010, the average salary in the public sector was 19.8% smaller than two years earlier (including a 23.9% reduction in the state administration).

The upward pressure on salaries is also created the inadequacy of the skills of some of the unemployed vis-à-vis the market demand. A situation is beginning to materialize where there is a lack of highly qualified workers and their remuneration is gradually going up (primarily on account of bonuses rewarding good results), whereas some of the less qualified workers have difficulty finding work even for relatively low pay. Thus about 5% of the surveyed manufacturing and construction companies at the beginning of 2011 mentioned a lack of workers as the main factor hampering their business (Central Statistical Agency's status quo survey data). The negative consequence here is a rise in structural unemployment.

An additional factor bringing up the average salary this year will be the rise in minimum salary to 200 lats (by 11%). According to our estimates, that could raise the annual average salary by about 2 percentage points.

It can be predicted that this year and next year the rise in salaries will remain moderate – it will be hindered by the high unemployment. If the annual rate of growth remains between 3-5%, the average salary may reach its historic high (500 lats per month for full-time work) not earlier than in 2012.–2013.