Average wage continued to rise also under COVID-19

Last year, the private sector saw a steeper rise in wages. Sectors such as information and communication technologies (ICT) and professional, scientific and technical activities were among the largest positive contributors and also recorded a stable rise in remuneration during the crisis. The public sector, too, saw an increase in its average wage owing to higher wages in sectors such as health care.

The situation differs considerably from the previous financial crisis of 2008 during which the average wage was declining.

In the private sector, wage growth remained more resilient since the economic shock caused by COVID-19 was, at least initially, assessed to be only temporary, and, therefore, businesses were seeking alternatives to reduce wages.

The government support also had a positive impact, at least partially offsetting the losses incurred during the short-term turnover decline. Meanwhile, the situation in the public sector differs: during the previous crisis, there were no opportunities to borrow in international markets, which lead to the government budget consolidation. As a result, wages in the public sector were reduced, a development uncharacteristic of the COVID-19 crisis.

Similar to the employment data observations, labour market dynamics also reveal differences by sector. The situation in the goods-producing sectors was more stable, as their development was less affected by economic fluctuations due to COVID-19. At the same time, the crisis hit the services sectors more severely, with their activity significantly suffering from mobility restrictions. Although the average wage has decreased only in the accommodation and food services and transportation sectors, the wage bill, which also reflects changes in the number of the hours worked and the number of the employed, indicates a decline in arts and entertainment, as well as other service activities (which include e.g. hairdressing and other beauty treatment). Given that remuneration in these sectors was below Latvia's average already before the crisis, the income inequality could increase.

On the one hand, with the COVID-19 crisis dragging on, wage growth is expected to slow down due to weaker economic activity this year. Moreover, owing to an abundant labour supply, businesses will be less willing to rapidly increase wages. On the other hand, the minimum wage increase from 430 euro to 500 euro as well as the already approved wage rise for the teaching and medical staff will exert pressure on wages. The efficiency of the COVID-19 control and support measures is a significant factor that will affect the dynamics of wages this year. It will determine the rate of economic recovery, thereby also affecting the labour market situation.