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Rapid Contraction of Wage-Productivity Gap Allows Industrial Growth
By Latvian Institute
On September 14, the Central Statistical Bureau reported that the drop in per-hour labour costs in the second quarter was similar to the one in the first quarter, i.e. 9.6%. As before, labour costs have dropped a little more rapidly than wages: as the wave of layoffs died down, the amount of compensations shrunk; moreover, vacation pay, sick pay as well as the voluntary social security payments by employers also dropped faster than wages.
Oļegs Krasnopjorovs, Bank of Latvia Economics Expert, said: „One of the main sources of the lack of balance in the Latvian economy - the previously accumulated gap between wages and productivity - has substantially contracted in the second quarter of 2010, with wages approaching the rates appropriate for the level of productivity. The competitiveness of the Latvian economy improved as a result, which influenced economic development: the lowest point of the recession has been overcome and economic activity is on the rise.”
At the same time material differences are observed in the wage-productivity gap dynamics by industry. That causes big differences in the competitiveness of the industries as well as in their output and employment dynamics. Krasnopjorovs explained: „To wit, in manufacturing the gap between wages and productivity contracted more rapidly, and it is therefore no surprise that this industry has become an engine of economic recovery: according to the data, manufacturing in the second quarter of 2010 was the industry with the highest annual rise in value added (15%); the number of its employees has also grown over the year. In construction, on the other hand, the gap between wages and productivity is currently the widest and it is also the industry with the sharpest drop in output and employment.”
For further information see: http://www.csb.gov.lv/csp/events/?lng=en&mode=arh&period=09.2010&cc_cat=471&id=12028
