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Thursday, May 29, 2008

Latvia Wages and Salaries Q1 2008

According to the latest data release from the Latvian Central Statistical Bureau shows that monthly average gross wages and salaries in the country in the 1st quarter of 2008 increased from 354 to 453 lats, or by 28.1% when compared with the first quarter of 2007. This marks a slight slowdown, but is still a very hefty rate of increase.

Due to the growth in the basic tax allowance and tax relief on dependants, net wages and salaries increased more rapidly than gross wages and salaries. Compared to the 1st quarter of previous year, net wages and salaries in the three months of this year increased by 29.7% and reached on average 330 lats.

However when we take into account the consumer price growth of 16.4% in the first quarter, then we can see that the real increase in wages and salaries during the period was considerably less: 11.4%. If we look at the chart below where we can see the evolution in real wages month by month, it is clear that the rate of increase in real (inflation adjusted) wages has now been declining since last summer, and continues to do so. This declining rate of increase is however far from sufficient to guarantee the competitiveness of Latvian exports, but then, we will cross that bridge when we - more or less inevitably now - get to it.

Gross wages and salaries witnessed more rapid growth in private sector – by 28.6%, compared with 27.2% in the public sector.

Private sector monthly average wages and salaries were, however, still lower than in the public sector. Average public sector salaries were 516 lats in Q1. Compared to the first quarter of 2007, the increase was 110 lats. In the private sector the numbers were 424 lats and 94 lats, respectively.

It should be mentioned that the difference between wages and salaries of private and public sectors is growing. If in the 1st quarter of 2007 wages and salaries in the public sector were 76 lats higher than in private sector, in the 1st quarter of this year this difference was up to 92 lats.

Should this trend continue then it will of course eat into private sector competitiveness since the cost of public sector wages has to be paid for in some way out of non-wage costs in the private sector.

Looking at the breakdown in wages rises by kinds of economic activity compared to the 1st quarter of previous year the most rapid increase were in education - up by 32.1% (from 327 to 432 lats), transport, storage and communication – up by 31.4% (from 372 to 488 lats), commercial services – up by 30.0% (from 378 to 491 lat), construction – up by 28.7% (from 323 to 416 lats) and trade – up by 28.0% (from 297 to 380 lats).

Compared to the 4th quarter of previous year, in the 1st quarter of this year gross wages and salaries in the country grew by 1.6%. In private sector wages grew by 8.3%, but in public sector they were down by 8.6%. The decrease may be explained with the fact that annual and holiday bonuses are paid in the 4th quarter.

Among the Baltic States the highest gross wages and salaries in the 1st quarter of this year - as in all quarters of previous year - were recorded in Estonia (788 euro), while the lowest were registered in Lithuania (623 euro). Compared to the 1st quarter of 2007, Latvia witnessed the highest rate of increase (28.1%), with Lithuania at 23.8%, and Estonia at 19.5%. Compared with the 4th quarter of 2007, the highest rate of increase during the first three months of this year was in Lithuania (4.8%), with Latvia registering 1.6%, and Estonia 0.5%.

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