2011-09-13 - Latvia‘s labour costs continue to rise (MatasM)

Labour costs increased by 5.4% yoy in Q2 (seasonally adjusted), despite acute unemployment, currently at 16.2%. After going into a downwards spiral from mid 2009, labour costs started picking up at the end of 2010 and are now only 5% below their historical peak.

Most noticeable rise was registered in the sectors of public administration and education, 10.9% and 12.8% respectively. This is hardly surprising bearing in mind labour cost in these segments have previously shrunk by more than a quarter due to Latvia ’s strict austerity program.

In the private sector labour costs rose at a slower rate: 4,9% in manufacturing, 1.2% in transportation and storage. After 2 years in decline, construction labour costs finally picked up in Q2 growing by 2.9%. With Latvia ’s construction sector recovering strongly, this may be a lasting process.

Assessment: We expect that in the short term labour costs will continue to rise, backed by robust economic growth. Looking beyond 2011, however, uncertainty about EU economy looms over further recovery of Latvia 's labour market.

Mindaugas Jurgelis
Analyst

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