Record pay gap in municipalities: predicts that the middle class in Lithuania will shrink

The pay gap has widened

According to Sodra data for the fourth quarter of last year, on average the salaries “in the hands” increased by about 110 euros. The average income from employment after taxes is estimated at about € 935.

Indrė Genytė-Pikčienė, chief economist at INVL Asset Management, commented on the Monetary Affairs program that the salary increase was pre-programmed because even before the pandemic, the monthly minimum wage (MMA) was increased from January 2020 and this affected to all salary. chain.

“In addition, last year there was a very significant increase in salaries in the public sector, which can be attributed both to the increase in the official salary and to the increase in the salaries of employees in the health and education sectors,” said the economist . .

According to data from the Department of Statistics, the gross pay gap in the Western and Central Lithuania region between the two regions was 268.8 euros in the fourth quarter, 5 euros more than in July-September 2020. The economist points out that If individual municipalities are analyzed, an even greater wage gap is shown.

“Vilnius residents see the highest salary. Meanwhile, the lowest salaries are found in the Zarasai district. There is even a difference of 380 euros between these two municipalities. The sad thing is that this gap is a record. In just one year, it has increased by one tenth. This can be attributed to sufficiently objective reasons: concentration in cities. Urbanization plays an important role in Lithuania. Our main economic centers such as Vilnius, Kaunas and Klaipeda pulse at much denser rates As a result, labor markets are much more active there.The potential for wage growth in these large cities is completely unmatched by the economic pulse of the small municipalities.

If we talk about those regions that are losing in the wage race, there is a very unfavorable so-called deceleration spiral. In particular, there is a declining population, a contracting workforce, and consequently a contracting market where businesses can sell their goods and services, and this contraction limits their ability to raise wages accordingly. We can see that in those municipalities where wage growth was the slowest, the number of employees also contracted almost faster. It is logical that this really programs a further widening of the gap with the big Lithuanian cities, ”commented I. Genytė-Pikčienė.

Rytis Krušinskas, a professor and economist at Kaunas University of Technology (KTU), added that the pandemic will not really contribute to closing the gap.

“In short, the arguments related to the centers of economic power and attraction in Lithuania are likely to remain valid. Why? Because in the same big cities there are centers of attraction related to leisure, to culture, which we want to grudgingly, but forcing us to bring money to these cities.

Another very important component is jobs and higher paying jobs. To say that one could expect drastic changes is to shift some of that center of gravity from the big cities to the smaller cities, perhaps sometime in the long term, but certainly not in the short term.

As for the next post-pandemic period, if we could name it this year and next, I would not see a better way to talk about closing the gap between the big cities and the rest of Lithuania or between the big cities and other cities. Even in the case of the same pandemic, we should probably think about long-term perspectives and long-term actions that could simply reduce that gap, because to this day, if we take the same family income, the difference between large cities and the threshold, other cities, is even up to 40 percent. Which is really a sign and cause for concern. It is worrying that Lithuania is rushing towards the cities. Whether it is good or bad is a separate topic of discussion, “said the professor.

The pandemic is not expected to increase in the middle class.

Before the pandemic, there was a lot of discussion in Lithuania about the formation and growth of the middle class. According to Professor R. Krušinskas, the pandemic and rising prices may prevent the middle class from growing.

“If we look at the OECD definition, the middle class is the group of people whose households earn an average income. In Lithuania, this income is a very debatable indicator, but we have it from the Department of Statistics in 2019. At the end of 2007, the average income per household was 1,150 euros.

The OECD says that we should include in the middle income class those households that receive more than 75% of their income. median up to 200 percent. This is twice the median. This is the case in Lithuania, if one looks at an allocation of this type and the median is related to the average disposable income of a household, we would be talking about amounts of 900 to 2300 euros per month per household. The annual income would be approximately 11 thousand. up to 28 thousand. with some miscalculation.

To this day, in terms of the middle class and the pandemic, we must realize that a pandemic is likely to cause a rise in the prices of certain services and products. If we dig even deeper into the middle-income class, we should look at who spends in the same middle-income class. We will see that in the middle-income class, food costs make up an important part and, furthermore, what distinguishes the middle-income class are expenses on travel, leisure, education or education. In this situation, we cannot say with confidence that prices will fall. And this suggests that in the near future a slight price increase is expected and, at the same time, a decrease in purchasing power, middle class.

Will it be a long-term effect? I really want to believe not. “It will be short-lived this year, perhaps next year, and we will return to normality, but the post-pandemic processes in the economy will certainly not increase that middle class,” explained the economist in the program “Monetary Affairs”.

Professor R. Krušinskas also added that, in general, there is a tendency in the world for the middle class to be in decline.

“If we say that in the 90s it was around 65 percent. now it is close to 60 percent. limits and, unfortunately, such a trend. Another very important argument that coincided with the pandemic was digitization. Now, according to the OECD, every sixth middle-income household faces a threat to the workplace due to automation, digitization. As a result, the challenges of the middle class are increasingly relevant in the future.

And what to do? Where to go? There is no one-size-fits-all answer, but I would try to analyze it through a complex issue that we have been talking about in Lithuania for many years. We need to invest in an educated person, learn to change it in a changing environment. Then we can talk about a stronger foundation for the middle class and long-term sustainable growth and establishment of this class, ”the professor advised.

Economist I. Genytė-Pikčienė claimed to be more optimistic. According to her, although prices will rise, it must be borne in mind that wages will not stop either.

“MMA alone is giving a pitch to other companies that increase wages, and it is also increasing this year. Even at around 6 percent, it’s a significant click. As a result, wages are likely to grow faster this year. year of inflation threatening Our purchasing power will not be greatly affected, purchasing power should not decrease this year.

Another thing, the OECD definitions of middle class are not very precise, because, as we can see, those ranges are not very suitable for Lithuania. The lower limit is especially due to that income, which is 75 percent. Certainly, it is not possible for an average Lithuanian to raise or dedicate money to a home, or to a properly qualified quality education. Therefore, apparently, one should speak a little more abstractly, that the middle class is the one that can afford these things in addition to the consumption of basic necessities and services.

Taking into account that the impact of the pandemic in Lithuania is very limited, in the scope of certain sectors, in the scope of certain regions. The municipalities of Druskininkai, Palanga, Neringa are the most affected even in terms of income, where the growth of wages was much slower and it is natural that those tourist spots take the biggest hit due to the current situation. However, the rest of the economy maintains a fairly good pulse, given the challenges we are currently facing, most of the economy is resilient and we hope that viability does not fade after the quarantine, ”commented the economist.