Greedy employers or bad laws: Why are Lithuanian wages lower than in Estonia?

Opinions are divided on why Lithuanians make relatively low wages, even compared to their northern neighbours in Estonia.

As pointed out by the chief economist for Swedbank, Nerijus Mačiulis, there is a plethora of reasons for Estonian wages being higher than those in Lithuania. These range from taxation, thriving black market, to low prices in many service sectors, the dominance of low-value-added industries and low foreign investment and ineffective distribution of public resources or inadequate wages for public sector employees.

Mačiulis does warn against generalisations, however, stating that “There are foreign capital companies that have no under-the-desk payments, nor any other such things, and there are regions where one or several companies have a dominant position, managerial strength and can abuse their advantages. There is no need for absolutes, there are both bad and good examples.”

Similar sentiments are shared by Žilvinas Šilėnas, the President of the Lithuanian Free Market Institute, a neo-liberal thinktank. “Obviously, there are various businesses, but you have that in all countries. I wouldn’t dare assert that this is more common in the fringes. I believe that we often miss those who do sell a house or a car and mostly notice those who do misdeeds. One businessman’s mistake can form an opinion about a hundred others.”

Robertas Dargis, President of the Lithuanian Confederation of Industrialists, focuses on the myth of corrupt businesses cooperating with corrupt politicians, pointing out that such cases are an exceedingly small minority. Furthermore, he adds, a majority of Lithuanian industries produce for exports and have little to do with the Lithuanian market. He focuses on a lack of consumption in the periphery of the country, with people spending most of their funds on bare necessities and leaving little for non-essential services.

The experts point toward investment and a more adequate income taxation in Estonia as some of the reasons for the income disparity between the the two Baltic states. Šilėnas adds the dimension of higher commodity prices in Estonia as a balancing factor as well.

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