Wednesday, July 23, 2008

Economic slowdown is starting to bite

One of strange things about Latvian economy was that, even as the economy started slowing down at the end of 2007, salaries continued to increase at 30-40%/year. It appears that this trend is now over. Our statistics office has not yet released the data on Latvian salaries in Q2 2008 but there is data from the tax office:

The graph above shows how the revenue from social security contributions is changing. Since Latvian social security contributions are a fixed % of person's salary (except for very high incomes), the average salary increase should be about the same. And increases have slowed down from about 40%/year to slightly less than 20%/year. The next graph shows the same data, adjusted for inflation (which has been steadily rising):
We are at a point when salaries are no longer increasing faster than inflation. And, given the trend, in a few months, they will be increasing substantially slower than the inflation. The economic slowdown is starting to affect almost everyone.

Also, at my work, I'm starting to get questions of the type "Do you have openings in your organization?". Just a year ago, it was organizations having to look for employees, not the other way around. Things are changing and labour market is getting tighter.

In short, the economy is starting to hurt and it will get worse. Given the scale of economic inbalances in Latvia'2007, this was inevitable. I'm only hoping that this recession lasts a year or two, not 5-7 years.


Anonymous said...

Hello! It is very interesting your blog for those who don't know about the Baltic countries. What is the average wage in Latvia? And the median? Thanks! George

Latvian abroad said...

The information on average salaries is available here:
Q1 2008 average was 455 lats/month = 650 euros/month.
I have not seen any statistics about the median but I would expect it to be slightly smaller than the average (as it usually is for the incomes).

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