Last year saw the highest remuneration rise in post-crisis period

According to data published by the Central Statistical Bureau, the average gross wage for full-time job grew by 8.4%, reaching 1004 euro in Latvia in 2018, and is close to the forecasts of the Macroeconomic Developments Report of December. Meanwhile, the fourth quarter saw a 8.3% higher average gross wage year-on-year. The real net wage also moved up last year pointing to an increase in consumer purchasing power. This remuneration dynamics was no surprise due to the accelerated economic growth last year and the considerable increase in the minimum wage. 

The health and social care sectors posted the most rapid rises in wages, i.e. exceeding 15%. This was possible as part of the additional funds allocated to the health care sector was used for raising wages. As a result, the sector's average remuneration has moved closer to the average wage in Latvia, but the situation in the health care and social care sectors differs considerably. While the health care has already reached Latvia's average wage level, the social care has still a long way to go. 

The highest wages are earned by those working in the finance and insurance as well as information and communication services sectors. The high remuneration level in the information and communication services sector is a result of the sector's rapid growth and massive labour demand, as well as strong mutual competition for the best employees among companies. Solid differences in wage increases are also observed across regions. Kurzeme boasts the highest wage rise of 10.8%; Latgale ranks the second with 9.6%, while Zemgale has the lowest rise of 7.9%. Although the second slowest wage rise was registered in Riga region, such remuneration dynamics will prevent regions in Latvia from reaching the levels seen in Riga. 

This year the non-taxable minimum was increased both for wages and pensions, and tax relief for dependants was also raised: these will result in  higher net wages, improving household purchasing power and supporting consumption. Nevertheless, the slowdown of the global economy will also be reflected in more subdued economic growth in Latvia in 2019; consequently, the current pace of wage rises will be difficult to maintain. Our forecast for 2019: the increase in remuneration will be more moderate.

Nevertheless, company survey data suggest that businesses, particularly those of the construction sector which was the major driver of economic growth last year, still point to labour shortages as an essential constraint for business activities. Although increasingly larger number of formerly economically inactive population get involved in the labour market and the remuneration is becoming more attractive, we cannot expect the number of labour market participants to continue to expand considerably. Along with the still accelerated wage rises this suggests that a long-term solution has to be sought, the issues of productivity growth have to be addressed, and meaningful use of technologies has to be ensured in the sectors where it is possible.