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VILNIUS. The growth of the average gross monthly salary is expected to outpace labour productivity expansion next year, analysts of the DnB NORD Bankas say.
DnB NORD Bankas analysts forecast that 2007 will be the third year running when the average salary growth will exceed 10 percent a year while labour productivity, as well as gross domestic product (GDP) in real terms, is expected to grow by about 5.5 percent.
„Labour force will become more expensive even in the case Lithuanian economy slows down, since previously salaries have been growing at a slower pace then the nominal GDP. At the same time the lack of the labour is getting more and more obvious.” – prof. Rimantas Rudzkis, the chief analyst of DnB NORD Bankas said during presentation of the latest Economic Survey of Lithuania.
The professor noted, that the desire of labour unions to push the average wages in Lithuania to match the European Union (EU) average as soon as possible is understandable however lacks economic ground due to a gap in labour productivity. The only way average wages in Lithuania to encompass that of the EU, is to pro rata increase productivity thus augmenting the revenue of enterprises.
“It is easy to calculate, that even in case the last years profit paid out as dividends by all Lithuanian companies would have been used to raise salaries, the overall increase in average income to each working individual would represent only a few hundred litas ”, - prof. R.Rudzkis said.
To constrain labour force outflow and narrow the gap between national and EU-15 average salaries it is important to speed up modernisation of the economy through efforts aimed at attracting more foreign direct investment and eliminating unnecessary labour market restrictions.
“Instead of opposing the option to increase the amount of working hours per week mutually agreed by an employee and the employer, it would more rational to impose an adequate overtime rates and introduce reliable measures against possible employers’ abuse of such an agreement like granting the right to trade unions to veto the company’s management unilateral decision to extend working hours,” –prof. R.Rudzkis said.
DnB NORD bank analysts also pointed out, that the first signs of the slowdown in economic development, as predicted earlier, became apparent in the third quarter of 2006: strong growth of exports lost its momentum, the real estate fever started to recede and bank credits to businesses and households grew at a more moderate pace
“As the borrowing boom has calmed down, the economic growth will slowdown, as the economy suffers from severe shortages of labour resources while improvement in productivity in the absence of significant foreign investment is unlikely. No one doubts that development and modernisation of production of traditional goods (and services) contributes to strengthening the economic potential. However, following this route makes it more difficult to create high added value due to the low input of new knowledge, stronger competition and high dependency on the prices for raw materials and energy,” prof. R.Rudzkis added.
Comparing the development of the three Baltic states – Lithuania, Latvia and Estonia, the DnB NORD analysts stressed, that despite the cheapest credits, Lithuanian economy grew at a slowest pace, while maintaining the lowest rate of inflation.
Key macroeconomic indicators of the Baltic countries:
DnB NORD Bankas analysts forecast that 2007 will be the third year running when the average salary growth will exceed 10 percent a year while labour productivity, as well as gross domestic product (GDP) in real terms, is expected to grow by about 5.5 percent.
„Labour force will become more expensive even in the case Lithuanian economy slows down, since previously salaries have been growing at a slower pace then the nominal GDP. At the same time the lack of the labour is getting more and more obvious.” – prof. Rimantas Rudzkis, the chief analyst of DnB NORD Bankas said during presentation of the latest Economic Survey of Lithuania.
The professor noted, that the desire of labour unions to push the average wages in Lithuania to match the European Union (EU) average as soon as possible is understandable however lacks economic ground due to a gap in labour productivity. The only way average wages in Lithuania to encompass that of the EU, is to pro rata increase productivity thus augmenting the revenue of enterprises.
“It is easy to calculate, that even in case the last years profit paid out as dividends by all Lithuanian companies would have been used to raise salaries, the overall increase in average income to each working individual would represent only a few hundred litas ”, - prof. R.Rudzkis said.
To constrain labour force outflow and narrow the gap between national and EU-15 average salaries it is important to speed up modernisation of the economy through efforts aimed at attracting more foreign direct investment and eliminating unnecessary labour market restrictions.
“Instead of opposing the option to increase the amount of working hours per week mutually agreed by an employee and the employer, it would more rational to impose an adequate overtime rates and introduce reliable measures against possible employers’ abuse of such an agreement like granting the right to trade unions to veto the company’s management unilateral decision to extend working hours,” –prof. R.Rudzkis said.
DnB NORD bank analysts also pointed out, that the first signs of the slowdown in economic development, as predicted earlier, became apparent in the third quarter of 2006: strong growth of exports lost its momentum, the real estate fever started to recede and bank credits to businesses and households grew at a more moderate pace
“As the borrowing boom has calmed down, the economic growth will slowdown, as the economy suffers from severe shortages of labour resources while improvement in productivity in the absence of significant foreign investment is unlikely. No one doubts that development and modernisation of production of traditional goods (and services) contributes to strengthening the economic potential. However, following this route makes it more difficult to create high added value due to the low input of new knowledge, stronger competition and high dependency on the prices for raw materials and energy,” prof. R.Rudzkis added.
Comparing the development of the three Baltic states – Lithuania, Latvia and Estonia, the DnB NORD analysts stressed, that despite the cheapest credits, Lithuanian economy grew at a slowest pace, while maintaining the lowest rate of inflation.
Key macroeconomic indicators of the Baltic countries: