Private sector retains its leadership in wage bill rise also this year

The acceleration of the annual rise in the average salary in the third quarter of 2013 to  5.1% is related to the base effect, whereas the seasonally adjusted quarter-on-quarter rise in salaries remained stable. The habitual leadership role in wage bill rise this year was again retained by the private sector,  thus the positive developments in the labour market are sustainable and reflect the actual situation instead of artificial short-lived measures for doing away with the consequences (and not causes) of the crisis (e.g., state subsidized temporary jobs).

The need to keep the best employees and to get them interested in the performance of the enterprise determines a rapid rise in the irregular component of the compensation. It should be noted that, in contrast to the public stereotype, bonuses in the private sector have been greater than in the public sector for a fifth consecutive year.

The labour income share is only slightly lower than the historical average for Latvia, at 55%. First of all, it signifies that the situation in the labour market has improved to the point where it is no longer compatible with consumer price deflation or zero inflation, but at the same time it does not pose a threat for price stability – low and predictable inflation – in the medium term. Second, it reflects the decisive role of productivity in any further rise in compensation. Salaries change not because of some decision by the government or as a result of entrepreneurs' good will; they are determined by the dynamic of value added or productivity in the case of a particular employee, enterprise, branch or economy at large.

Employment and compensation will continue to rise next year as well.  Business tendency surveys indicate that there are more employers that are planning to increase the number of their employees than there are those that plan to decrease it (European Commission data). The evaluation of labour shortages is stable indicating that the rise in salaries will be based in increased productivity and will thus be sustainable and will not worsen competitiveness of the economy.