03.06.2021.

Qualified employees are always worth gold, also in times of Covid‑19

  • Santa Bērziņa

    Santa Bērziņa

    Head of the Macroeconomic Analysis Division, Monetary Policy Department
Photo by: Israel Andrade, Unsplash

Income of employed persons continues to rise despite the Covid-19 crisis and the decline in economic activity. Apparently, businesses are well aware of the motivating role of remuneration for employees also in times like this. The virus will end, while the economic activity will upsurge; therefore, forward-looking businesses understand the importance of retaining key employees. Though the crisis–optimisation–cost reduction are likely to go hand-in-hand; nevertheless, the wage in the economy continued rising by 6.2% on average in 2020 and by 9.5% in the first quarter of 2021 year-on-year. What are the reasons behind this?

The pandemic has affected sectors, businesses and employees very differently

The sectors hit the hardest, such as tourism and entertainment related and transport sectors, have experienced a significant deterioration of their financial situation despite the government support, and their profitability is negative. Other sectors have been less affected by the crisis and some have even experienced a rise in profitability, for example, information technologies (IT) and construction. It gives a good footing for such businesses to raise wages even under the crisis circumstances.

Businesses hit most by the crisis or perceiving it as a signal for reviewing their expense fired employees. Lower paid employees lost their jobs more often [1], while the qualified workers were retained  – they also have better possibilities to adapt to remote work. This is also reflected by the rise in the average wage as the so-called structural effect – the average wage grows though nobody receives a pay increase. However, wages and salaries experienced a rise, and the wage bill in the economy [2] has augmented. Best paid employees saw a larger increase in their salaries than those listed in the first deciles of the labour income [3]. It is yet another proof of the value of qualified employees for a company.

More free work force is available, but the fight for qualified workers continues

Under crisis conditions, a greater availability of free work force eases the pressure on the rise of wages and salaries (employment shrank during the pandemic; emigration continued to decrease contrary to the global financial crisis). Nevertheless, the number of businesses experiencing a shortage of labour force [4], starts growing [5] again. Under such circumstances and being aware of the financial and training costs, as well as of the time necessary for firing and hiring, employers tend to incline in favour of retaining their employees and even increasing their wages for motivation purposes.

The public sector is strengthened by decisions on wage increases

The sharp rise in wages in the first quarter of 2021 was influenced by decisions on wage increases for medical and teaching staff, i.e., for professions having a vital impact on our daily lives as it was clearly demonstrated by the pandemic. Covid-19 related premiums also serve as an indication that a hot challenge for the public sector is to ensure paying of adequate wage which corresponds to employees qualifications, this issue being gradually addressed.

The above leads to estimation that the rise in wages also this year will be similar to the average indicator of the last 10 years  – above 6%, and this crisis, contrary to the global financial one, will not have turned the income of employed persons upside down.  

Taking care of the well-being of its employees is one of the keys for the success of any business. Profit-gaining businesses are able to accommodate costs of higher wages and salaries. At the same time, the increase in the minimum wage this year and the gradual ascent in the shortage of employees can deteriorate the company cost competitiveness. Therefore, the main task always is to boost productivity, including in times of a crisis. A successful company will be able to accommodate a hike in employees’ wages, and it will lead to an improved motivation of the employees.

References

[5] Companies experienced a shortage of labour force already before the crisis

APA: Bērziņa, S. (2021, 12. jun.). Qualified employees are always worth gold, also in times of Covid‑19. Taken from https://www.macroeconomics.lv/node/5231
MLA: Bērziņa, Santa. "Qualified employees are always worth gold, also in times of Covid‑19" www.macroeconomics.lv. Tīmeklis. 12.06.2021. <https://www.macroeconomics.lv/node/5231>.
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