Banks, Direct Speech, Economics, Employment, Labour-market, Latvia, Wages
International Internet Magazine. Baltic States news & analytics
Thursday, 28.03.2024, 15:22
Minimum wage hike can deteriorate Latvian labour market
The overall Latvian data, however do not show the existing substantial differences by region. The number of the employed outside the Riga region has been dropping since 2013, particularly in the private sector. The situation is particularly worrisome in Latgale (Fig. 1) where the unemployment has increased since 2013. The share of Latgale in the number of job places is decreasing faster than in population (Fig. 2). The reason could be the fast rise in minimum wage in 2014 and 2015 (by a total of 27%), which mostly impacted Latgale where the minimum wage is two thirds of the average wage in the private sector – it is the highest indicator in the Baltics.
The dynamic of the labour market in a regional breakdown is a counterargument to the statement "we increased the minimum wage by 40 euro in 2014 and 2015 and nothing bad happened".
With the minimum wage outpacing productivity for several years, the
ability of enterprises to wriggle out of difficulty by raising
productivity and optimizing non-labour costs can become rather
circumscribed. Thus every next exceedingly fast raise in minimum wage
increasingly limits the competitiveness of enterprises. That may force
liquidation of jobs and restrict hiring of new employees. With that in
mind, we are of the opinion that right now is not a suitable moment for substantially raising the minimum wage.
Figure 1. Number of jobs (y-o-y growth; %)
Figure 2. The proportion of regions in the number of jobs (%; Latvian total = 100)