The European Commission forecasts the biggest drop in wages in Lithuania in the EU, our economists see an increase Business

With the coronavirus in the world, one of the most difficult tasks has become predicting what will happen next. Both economists and business leaders recognize that predicting what will happen in the economy more than two weeks later is extremely difficult at the moment.

Therefore, it is not surprising that guesses often stand out. One of the most surprising forecasts for Lithuanian economists is the change in wages indicated in the economic forecast report released by the European Commission (EU) in May.

The EU forecasts that wages in Lithuania will fall further across the EU as a whole, to 8.2 percent. The second since the end is Cyprus, which promises 5.4%. fall wages fall.

That report forecasts wage growth of 0.3% in Latvia and 2% in Estonia. The EU average is 1.1%.

The Presidency also relied on these forecasts when it presented to Seimas the economic stimulus package proposed by President Gitanas Naus Seda later this year. reduce Personal Income Tax (PIT) to a salary component of € 3,724.2, while increasing the applicable maximum NPD from € 50 to € 400 and providing lump sums for children.

“We are the first in the end in terms of the projected decrease in wages, which will reach 8%. – Far above the EU average. We cannot allow this to happen as we did a decade ago, when we lost 10 % between 2007 and 2017. its population. This reduces potential growth in GDP and public revenue, “said Simonas Krėpšta, Senior Advisor to the President, introducing the proposed economic stimulus package to Seimas.

Lower wages: due to downtime and inability to work

It is true that Lithuanian economists predict the opposite trend to that of the EC and most promise that wages will only grow.

Vice Minister of Finance Miglė Tuskienė 15 minutes He explained that the EC and Lithuanian economists calculate different indicators. The EC projects the remuneration of employees, and the Ministry of Finance and economists of the country: the average monthly gross salary (DU) in Lithuania.

“The Ministry of Finance does not know the reasons why the EC is forecasting such a change in employee compensation, because the EU did not provide it in its document,” M. Tuskienė declined to share his ideas.

Sigismund Mauricas, Chief Economist at Luminor Bank 15 minutes He said he was surprised by such EC forecasts. He considered that perhaps the EC had calculated that overall workers’ compensation could fall due to the mechanisms of the various measures to help companies during the pandemic.

“The average salary in Lithuania will increase, but if we talk about the average income of employees, including those who have recently lost their jobs or have been on downtime, they may fall,” Žuris agreed.

According to the Ministry of Social Security and Labor, a total of almost 40 thousand. the companies applied for subsidies for almost 274 thousand. workers sent in downtime.

Additionally, declining worker earnings was not the only cause of downtime due to the onset of the pandemic. Some workers took sick leave certificates when kindergartens closed to care for young children, some lost their jobs, and are currently receiving unemployment benefits.

The average salary will grow

Meanwhile, Swedbank chief economist Nerijus Mačiulis denies that even considering downtime and other circumstances, wages in Lithuania should still rise this year.

“I think it’s one of those predictions that won’t work, maybe even nonsense.” 15 minutes N.Mačiulis said, evaluating the EC’s projections.

He argued that wage growth is predictable due to a variety of facts. For example, in the first quarter of this year, the growth of the average salary in Lithuania compared to the same period last year was one of the highest in the EU: 9.5 percent.

“We do not anticipate that wages will fall. They will rise because the monthly minimum wage has increased a tenth this year; no one will reduce it. Public sector wages also increased a tenth. This only increases the average wage by 5%,” said N. Mačiulis.

Ž.Mauricas also forecasts average salary growth. According to him, several studies show that only 10% of people in Lithuania are considering a pay cut. companies.

In addition, wages have been temporarily increased for healthcare workers, and large retailers have announced initiatives to increase wages.

“There is a high probability that wages will rise, maybe not as fast as last year, but they will grow.” Most companies are looking for other ways to save: they reduce business travel and encourage employees to take more annual vacations, “said J. Maurice.

It is true that economists’ forecasts for the average wage differ. For example, Swedbank forecasts 2%. The growth of DU, the Ministry of Finance, which has forecast two scenarios of economic recession, forecasts a wage growth of 4.6% or a fall of 0.6%, respectively.

The worst forecasts are provided by the Bank of Lithuania, which projects 2.6 percent. fall.

Advisor to the Director of the Department of Economics of the Bank of Lithuania Ernestas Virbickas. 15 minutes He commented that in the event of a shock as large and sudden as the one currently experiencing the Lithuanian economy, it is natural to expect significant changes in the labor market: a reduction in the number of employees, a drop in wages.

“The simple fact that a significant portion of wages (over 6%) generally consists of irregular benefits (such as bonuses) shows that we can actually see a downward adjustment in wages. At the same time, however, it should remember that the economy of our country experienced the greatest shock not in the beginning of the year, but in the following months. At the beginning of the year, Lithuania’s economic activity continued to grow, and the average salary continued to increase, “said E. Virbickas, who predicted that wages could start to recover again next year.

Suggests remember that staff shortages were still a struggle

Maurice hoped that wages would not fall, as domestic consumption now depends on workers with a stable income.

“Now we cannot trust exports, because in other markets it is worse than in Lithuania. Our exports will not put pressure on the economy this time, so it is important to support domestic consumption. If we start to cut wages, we will create a crisis in our feet It is better not to reduce wages and increase wages in others this year than to reduce them by others and increase others, “says Ž.Mauricas.

Economists were also reminded that the biggest challenge for managers in early March was staff shortages.

“If the epidemic passes faster than expected, it will need workers, and if we cut wages and send them to emigration, it may be even more difficult to recover from the crisis due to the shortage of workers,” Mauric concluded.