In recent years, not only employee wages but also business owners’ profits have been rising. And increasing profits do not always reach the employees’ wallets. Bank of Lithuania economists, who made such conclusions, explain that in terms of business owners’ parsimony and sharing of added value with their staff, Lithuanians are far behind. Statistics show that of all the Baltic States, Lithuanian business owners give their staff the lowest revenue share, Karolis Klinka wrote in TV3.lt
However, statistics show that even when raising wages by a tenth, business owners are not losing out. Lithuanian companies’ turnover and shareholder profit continue to grow no less. In Q2 this year, companies earned a tenth more than the same period last year.
“The wage growth is nigh on the fastest since the end of the crisis and at the same time, we see that company profits have ceaselessly risen. Looking at long term prospects, this correlation between profit growth and wage growth, it is evening out. The ratio of the wage fund and added value,” Bank of Lithuania economist Darius Imbrasas says.
While this year, wages and business owners’ profits have been growing at a similar pace, Lithuanian business owners continue to be among the least profitable in Europe. Abroad, business owners consider their staff more and share profits more willingly.
Sharing in other EU countries
Employer generosity can be measured in percentages, based on the ratio of the wage fund and added value generated. The higher the number, the more generous the business owners. The most created value goes to employees of Danish and French business owners. They exceed the European Union average (53%) significantly. Estonia exceeds this average, while Latvians lack only a few tenths of a percentage point. Meanwhile, Lithuania is well behind, taking 9th place from the bottom in a list of 28 countries.
“In the European context, we continue to be behind from the average and this trend can be explained by several factors. First of all, there’s the so-called animal farm problematic, when one way or another, the effort is to pay out company revenue in a way other than wages. Also, the structure of the economy and the country’s development level, where profits are least shared,” D. Imbrasas states.
According to the Bank of Lithuania, the country is prevented from catching up to more countries with more business savviness by its smaller service sector. With its growth, employees obtain a larger revenue share. However, Lithuania is dragged down not only by the lack of services but also by three business sectors furthest from the average.
The lowest revenue share compared to other European countries can be found in the retail and wholesale, transport and manufacturing sectors.
“Here’s your answer as to why income inequality and poverty are rising in Lithuania,” Trade Union Confederation chairwoman Inga Ruginienė believes.
Trade unions are not surprised
The Lithuanian trade unions are not surprised by this statistic. Apparently, the sectors that are less inclined to share revenue are well known to them.
“We have raised this topic a number of times and stated that the employers are unfortunately unwilling to share their profits with their staff and will not be. We have emphasised retail stores a number of times, with them earning gigantic profits, while their Lithuanian staff earn among the smallest wages, something backed up by statistics,” I. Ruginienė said.
According to the employers’ representatives, while Lithuania is lagging behind in the statistics, the situation is gradually improving.
“Nowadays, businesses are doing everything within their capacity, we probably have to emphasise that wage growth in Lithuania over the past five years definitely continued and significantly outpaced other European Union countries’ averages,” Lithuanian Confederation of Industrialists VP Dalius Gedvilas said.
The business owners also highlight that while Lithuanian companies work in the market together with foreign employers, their conditions for operation differ. For example, Lithuanian transport companies find it difficult to compete with other countries’ businessmen.
“The company is forced to compete in the common market with everyone. Under real market conditions, however, the services, the financial instruments, they are harder to access here. This was one of our large carriers speaking, they are no longer financed by local banks, they have to this shop abroad somewhere,” Lithuanian National Road Carriers’ Association [LINAVA] secretary for transport policy Tomas Garuolis says.
On the defence of businesses owners
Every branch of business has its own problems. The Versli Lietuva [Enterprise Lithuania] institution explains that profitably operating Lithuanian business owners aren’t always able to raise wages.
“While work efficiency is growing the fastest in Europe and we have already reached 75% of the European average, it is not growing as fast as wages. Businesses are investing more, material investment is rising. This means that businesses are investing in technological renewal. This is so that they could eventually pay those larger wages,” Versli Lietuva director Daina Kleponė says.
Versli Lietuva adds that Lithuania needs more high added value jobs, where employees receive more of the profits:
“Creating new market brands, not selling raw materials, instead of selling products made out of the raw materials. Bring forward innovation, commercialise it. Teach your employees so as to raise work efficiency.”
Lithuanian employee trade unions want the government to be involved in revenue sharing, which apparently could lead to businessmen facing extra capital taxes and lower employment taxation. While talks about new taxes are ongoing, the government has yet to take initiative for extra taxation on business owners.