Citadele Bank

Citadele Index: 40% of employers in Latvia plan to increase employees’ wages

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In Latvia, 40% of employers plan on increasing their employees’ wages. Some employers will be able to accomplish this thanks to improvements made to productivity and investment in development. However, a large proportion of business owners indicate that the wage increase will affect both their profits and prices for their clients - states Citadele Bank in collaboration with SKDS as part of their Citadele Index survey.

Of those who plan on increasing wages, 50% of employers can afford it thanks to previous investments in development and improved effectiveness, according to the Citadele Index survey. A majority, or 60%, of business owners admit that a wage increase will probably decrease the business’ profit. Meanwhile, 52% of employers have indicated that, due to an increase in wages, prices for their clients have been or will be increased. Wage increases compensated for by an increase in prices is indicated most often by businesses in the construction sector (74%). Almost quarter of those who plan on increasing wages, or 23% of respondents, say that an increase in wages threatens the business’ operations.

“It is clear that, nowadays, business owners are competing in the job market not only with other businesses operating in Latvia, but with the whole world and especially with other European nations. The population can freely choose their place of employment in almost any country. Therefore we have to consider that a competitive wage is and will continue to be a growing trend. Decreasing expenses and providing employees’ wages from the company’s profit is not sufficient for ensuring the long-term operations of a business. The solution is investments in productivity and improving process effectiveness. For example, business owners have used Citadele financing to purchase newer, more modern equipment, allowing a large number of processes to be automated, in addition to allowing for an increase in production power and speed while using less energy,” says Citadele Board Member Santa Purgaile.

“People can decide for themselves whether the 23% of businesses who say that wage increases threaten the business’ operations is a lot or little; however, it is a crucial indicator. It is important that this proportion does not grow, especially in the manufacturing industry. Currently, as shown by the Citadele Index survey, those who feel wage increases to be a threat to the business are largely manufacturers and retailers, as well as businesses outside Riga,” explains Citadele Bank economist Mārtiņš Āboliņš. He points out that “the actual wage increase in Latvia is around twice as fast as employers’ plans for wage increases. A swift wage increase, meanwhile, is a risk to the economy, because employers will struggle to earn as much - when wages would be too high for the current economy, but still too small to prevent emigration.”

Citadele Index shows that almost 40% of businesses are planning wage increases. The greatest proportion of employers, or 19%, plan to increase wages up to 5%. Meanwhile, 16%

of employers plan on increasing wages by 5% to 10%. A more significant wage increase of more than 10% is planned by 4% of employers.

Exporting businesses are most likely to plan wage increases - 47% of these, as opposed to 37% of businesses who work only in the local market.

Wage increases are being planned most by construction (46%) and manufacturing (44%) businesses; they are planned least in the service industry (37%).

Wage increases are mainly planned by medium- and large-sized businesses by number of employees. Wage increases are planned by 72% of businesses with between 50 and 249 employees, and 59% of businesses with over 250 employees.

52% of employers do not plan on increasing wages, according to Citadele Index. Some of the businesses can’t afford to increase wages, meanwhile others, due to the lack of workforce, will nonetheless be forced to increase wages despite not planning to, says Citadele economist Mārtiņš Āboliņš.

About Citadele Index

The Citadele Index survey is undertaken in collaboration with market and public opinion research centre SKDS in spring 2018, surveying the heads of 750 businesses operating in Latvia.

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