Economists warn of rising wages and unemployment: no longer able to keep up

Wage growth in Lithuania remains in double digits. According to Sodra, in the second quarter of this year, people’s incomes grew by 14%. However, this is almost seven per cent less than the rise in prices, so people are buying less than a year ago. This time, the biggest increase has been in the wages of low-skilled workers. Economists warn that wages will continue to rise inertia in the year’s second half, but at a slower pace, which means that inflation will eat into the gains even more. All of which ultimately threatens to increase the ranks of the unemployed, Eglė Šepetytė writing at tv3.lt news portal.

The company that produces wood pellets and pallets in Šiauliai employs around 160 people. The average wage here is just over a thousand euros.

“In the first quarter, the increase was 10%, in the second quarter it was 7%. Every year, we see wage increases of 10-15%, and these trends will continue,” says Rasa Dobrovolskė, Director of JSC “Bageta”.

She has no doubt that the rising electricity prices will inflate the company’s costs, but there will be extra money for the employees. It is not yet clear how much.

“Costs are likely to increase. But the employees’ salaries will not go down – that’s for sure. I can’t say for sure that they will go up, but how much”, says R. Dobrovolskė.

Meanwhile, Sodra reports that despite the geopolitical troubles and energy prices, in April-May, the average income of citizens grew by 14% on paper, with salaries reaching €1,100. This is around €120 more than a year ago. Nevertheless, it is clear that in the race for growth, salaries do not affect prices in any way. People buy less.

“Half a year has passed, and we still have a situation where the real growth of labour income is hampered by rising inflation. We calculate that in June, labour income “in hand” increased by 12%, while inflation was almost 21%,” says Kristina Zitikytė, a representative of ” Sodra”.

Are people feeling the salary increase?

“Wages are rising, but prices are rising too.”

“For us, it has not gone up. They reduced the general tax, except for that. – Has it felt very much? – No, who cares about the €20.”

“Not everyone is getting a raise, and some people have had the same salaries for maybe 5 or 10 years. Only in the big cities do they raise salaries, not here.”

“Raises, but inflation, devaluation. Food, petrol, and electricity costs are huge.”

“You go to the shop, and everyday prices are higher. See what happens here for the apartment, everything, and electricity.”

The fastest growth, over 16%, has been seen in the salaries of both the lower-skilled and the best-paid workers. So both cleaners and programmers. The reasons are different.

“While in administrative and service activities companies have to compete more with social benefits and their increase, in information and communication activities the growth of labour income is more pressured by the increasing demand for workers,” explains K. Zitikytė.

“Those rising prices are the source of wages. The same rapidly rising wages are also pushing companies to raise prices. This is a closed cycle, a spiral that can also lock in,” comments economist Nerijus Mačiulis.

According to economists, wages are also rising due to the ever-increasing minimum wage. But this will not last forever. And not just because of the crazy prices of energy resources.

“There will certainly be companies that will no longer be able to bear the cost burden that accumulates because it’s not just cost lines that are ballooning. And the pace of revenue growth is slowing down, as both domestic demands are no longer rising so fast and the appetite for our exports in key export markets is more modest,” says economist Indrė Genytė-Pikčienė.

Economists think wage growth could already be in the single digits in the year’s second half. So people will have to be more deliberate about what to buy and what not to buy.

“Some companies are facing increases in energy costs that they have never seen or imagined. In this context, it will be difficult to increase wages, and some companies will simply not have the financial reserves to do so,” explains Mačiulis.

Economists do not predict a fall in wages, but they say that the scenario of the last crisis, when companies started to lay off workers, could repeat itself. This could lead to a renewed rise in the country’s unemployment rate. On the contrary, there is now a shortage of workers in the business.

“The real risk is that next year we will see employment falling and unemployment rising,” says Mačiulis.

Somewhat comfortingly, annual inflation has approached 22% and is likely to have reached its ceiling. Sodra does not record a fall in wages in any sector. The lowest wage increases, of 9%, were for health and social workers.