Wages rise, the population's purchasing power recovers

The nominal wage continues to climb steeply in Latvia's labour market. According to the Central Statistical Bureau of Latvia, its growth in the third quarter of 2023 reached 11.8% year on year. The increase is less impressive than in the first half of the year; however, given a minor climb in unemployment during the third quarter of 2023, a significant fall in inflation and the negative changes in GDP growth over the first and second quarters, a slower wage rise was expected.

Nevertheless, the growth rate of the average nominal wage remains high, and inflation has currently receded. Owing to both factors, real wages rise and the population's purchasing power, which suffered much from the soaring inflation of 2022, improves. Moreover, the real wage growth of this year's third quarter is not as symbolic as a quarter ago anymore: nominal wage growth outpaces inflation, allowing people to spend more or build up savings.

Similarly to the beginning of 2023, the minimum wage will also rise (to 700 euro) as of 2024, helping to reduce income inequality and to meet the basic needs of the people with lower income. Although the minimum wage growth will be slower than this year, it will affect more employees, thus also giving rise to increased expenses for employers, especially in sectors with historically low wages.

However, labour shortage remains a significant factor in Latvia's labour market and so employers may be interested in retaining their current employees. The post-crisis economic recovery, expected to unfold in the medium term, will also boost demand for employees, and, owing to this demand, wage growth will remain persistently high amid labour shortage.

To increase the income of lower-paid employees, the minimum wage calculation methodology will also be introduced as of 2025. In its turn, inflation should return close to 2% in the medium term and should no longer pose a threat to the population's purchasing power.

APA: Migunovs, A. (2024, 20. feb.). Wages rise, the population's purchasing power recovers. Taken from https://www.macroeconomics.lv/node/6194
MLA: Migunovs, Andrejs. "Wages rise, the population's purchasing power recovers" www.macroeconomics.lv. Tīmeklis. 20.02.2024. <https://www.macroeconomics.lv/node/6194>.

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