Wage purchasing power rise steepest since 2008

In accordance with predictions, the rise of salary purchasing power in the second quarter was determined by the dropping inflation, whereas wage increase has still been moderate: in the second quarter of 2012, the average gross salary for full-time work in lats was 3.7% larger than a year ago, with the rise in wages remaining stable for two years. However, with the rise in consumer prices slowing substantially (in the second quarter, the annual inflation was only 2.3%), the amount of goods and services possible to purchase for the received salary grew (1.5% over a year). This is the most convincing salary purchasing power growth since 2008 and one of the factors that determines a sustainable dynamic of retail turnover. We expect salary purchasing power to grow in the future as well.

The rise of average salary in the private sector has abated: under the circumstances of high unemployment, the newly hired employees can be offered lower salaries than the business average and that pushes the average salary statistics down. In the public sector, on the other hand, the rise in remuneration has accelerated for some groups of employees are being partially compensated for the substantial crisis time salary cuts. At the moment, however, there is no indication that a salary disproportion is beginning to accumulate leading to detrimental consequences in the long run: the quarter and annual growth rates are primarily determined by base effects: i.e. more rapid than usual rises or drops in the previous periods are getting compensated. Even though once again the mass media may run headlines to the effect that: “The average salary in the public sector is still higher than in the private sector”, there is no sensation here: the private and public sector salaries are not comparable directly because of the differences in the structure of these sectors and because of the wide spread of the gray economy.

For the rise in real salary to be sustained in the longer term and for it not to detract from the competitiveness of the economy, it should be based on increased productivity. At the moment there is a balance between salary and productivity and salaries are no longer outpacing productivity, as it was in 2006 – 2008. The risks that salary rises may once again outpace productivity are mostly related to the (slowly) increasing complaints by entrepreneurs that they lack labour (still primarily in construction). Several factors, however, will not allow the lack of labour to take on a scale that endangers economic competitiveness. First, the lack of labour is not felt across the board (as it was in 2006-2007), but is felt regarding highly qualified specialists. That tends to motivate people to acquire new knowledge and skills to become such a highly sought after specialist; and in the economy at large it not only promotes average productivity but also reduces the lack of such specialists. Second, several indicators point to an abating emigration and a rise in re-emigration.