26.02.2016.

Wages last year maintained their rate of growth

Last year, the average gross nominal wage for full-time work rose as fast as in 2014, by 6.8%.

The rate of growth of average wage remained robust also at the end of the year: in the fourth quarter, it was 7.4%. Thus the average wage exceeds the pre-crisis level by more than 20% expressed in monetary terms and by over 10% in purchasing power, lending support to private consumption under the conditions of weak external demand. In the private sector, the rate of wage growth is twice that of the public sector (accordingly, 9.2% and 4.5%).

The only sector where average wage (expressed in monetary terms), still has not reached the pre-crisis level is education. To foster the quality of education, it is not only a rise in average wage that is necessary but possibly a greater wage differentiation, and taking into account not only the position and length of service but also the success of pupils outside the educational establishment (e.g., competitions).

One often finds the assertion in the mass media that "in spite of all the consolidation measures, the wages in the public sector are still higher than in the private sector". That is not a valid statement because jobs cannot be compared directly. On the contrary, given the occupation, sector and the necessary education (for instance, for doctors, pilots and university professors), as well as the differences in the proportion of under-the-table wages, the wage in the public sector is slightly lower than in the private sector (for examples, see here). It is worth mentioning that contrary to the widely accepted view, the amounts of bonuses and extras in the private and public sectors are similar (under 10%).

The question now is how long the rise in wages can exceed the rise in productivity without creating important obstacles for the competitiveness of the economy (and profitability of nonfinancial enterprises remaining stable). Such a situation is most likely possible, owing to the drops in the prices of energy and raw materials as well as those in financial costs (because of low interest rates). The reduction in other (non-labour) costs allowed entrepreneurs to invest in human capital (which can foster employee loyalty), compensating the loss incurred during the crisis period (when enterprises cut their costs on account of labour costs). It must be noted that the evaluation of labour shortages (European Commission survey data) is still moderate and unemployment is close to but not lower than the natural level. Thus it is not likely that the entrepreneurs will be forced to continue to rapidly raise wages when the downward trend of non-labour costs sooner or later comes to an end. 

APA: Krasnopjorovs, O. (2019, 13. sep.). Wages last year maintained their rate of growth. Taken from https://www.macroeconomics.lv/node/1911
MLA: Krasnopjorovs, Oļegs. "Wages last year maintained their rate of growth" www.macroeconomics.lv. Tīmeklis. 13.09.2019. <https://www.macroeconomics.lv/node/1911>.

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