Productivity rising faster than salaries; risks in construction which lacks workers
In the second quarter of 2011, the average hourly salary continued to increase in the rise reaching 5.5% over a year. Currently that presents no obstacles to the competitiveness of the economy. Considering the annual rise in consumer prices by 4.8%, the rise in average real gross salary was less than the calculated rise in productivity, i.e. 0.7% versus about 2%. Thus there is currently no reason to think that salaries are departing from productivity as was the case in the years of overheating economy. The period of recovery of economic competitiveness, which began at the end of 2008, restored a balance between salaries and productivity and since the beginning of 2010 the ratio between these indicators is stable finding reflection in growing economic activity and new jobs.
Salary rises outpacing productivity would mean losing competitiveness of the economy; inflation devouring the salary rises, and a new wave of layoffs. We continue to hold the opinion that the possibility of such a scenario repeating itself on the scale of Latvian economy is low. However, the more effective and active labour market policies are, i.e. measures taken to lessen structural unemployment (professional training of the unemployed, psychological support, etc.), the less the possibility of the aforementioned scenario taking place. Its likelihood is lessened also by the drop in emigration observed both by the data of the Riga international airport and the number of newly registered cases with the social security systems of Great Britain and Ireland. The only industry where the skills of the available workforce are clearly inadequate vis-à-vis demand is currently construction, but it is, in part, a seasonal phenomenon.
The business survey conducted by the Central Statistical Department indicates that 16% construction entrepreneurs (seasonally unadjusted data) in August 2011 considered lack of workforce the most important factor impeding business. The European Commission calculates the seasonally adjusted indicator at 10.3%. Although the difference between the current indicator and that of the overheating years is still substantial (in summer 2007 it was above 40%), change for the worse since the 1% registered in the summer of 2009 is obvious.
It is important to note that it is highly qualified workers, not just any workers that are lacking in construction.
On the one hand, there is a great demand for highly qualified construction workers. The number of filled vacancies in construction grew faster in the first quarter of 2011 than the average in the economy at large. Latvian entrepreneurs have been competing for qualified workers with foreign companies since the average salary resumed rising in construction in the spring of last year; in the second quarter of 2011 the salary rises in the industry already exceeded the average in the economy at large.
On the other hand, lesser qualified workers are still not in great demand – e.g., the State Employment Agency (NVA) has no information on plans to substantially expand the personnel in construction professions (whereas NVA is being informed, e.g., on increases in the number of sales persons). Consequently, construction entrepreneurs do not tend to consider the NVA-registered unemployed their potential employees.
The return of émigrés to Latvia might provide a certain breather to the construction entrepreneurs: in Ireland, where unemployment is approaching Latvia's level, the downslide is particularly notable in construction and many immigrants from Latvia are now out of work. The recovery in the Latvian construction industry may become a stimulus for these people to decide on returning to Latvia.