September 5th, 2016

It is bad. It will be even worse. Or 8.5% growth

At the begining of this year I published short report about forecasts for the Lithuanian economy in 2016 ( They were summarized in next table:

Then I wrote that we will check the correctness of the predictions one year later. But now is clear that one figure is completely wrong. This is the average salary growth. It was predicted that annual salary growth will be 5.3%. But the factual data showed that even in the first half of the year salaries went up by stuning 8.5% in this country. This is the fact that makes a lot of worries.
This is real phenomena. E.g. I personally saw advertisement on the supermarket doors "Cashiers are needed. Salary 650 EUR." I can not remember that earlier shops were ready to pay such salaries for cashiers - one of the lowest paid groups ow employees. Or the  news in the portals with such names "Due to catastrophic shortage of labor force ...", etc. And the advertisments in Kaunas bus stops: "Job is waiting for you".
From the first point of view the news are good: 8.5% growth of salaries minus 1.2% inflation rate means 7.3% increase in real income. But here is the real danger: probably any country in the world can not afford such growth of real income for a long time.
What was the reasons of so rapid growth of salaries. The answer is simple: the shortage of labor force. Now the labor market enters signifantly less numerous younger generations than were older generations now leaving labor market. But with such problems are dealing all European countries: younger generations are less numerous that were older generations. The additional problem for this country is the emigration: many people (especially younger ones) are seeking for the better salaries abroad (and this is the way how Western European countries are solving the problem of less numerous younger generations ...).
The 8.5% growth in salaries in any way can not make the emigration less attractive: we can not forget that if the salaries in this country reached 890 EUR per month at the same in Germany  in July they were 3612 EUR per month, in UK 2345 GBP per month and in Norway about 4700 EUR per month. How to solve this problem the question is open.
One of the experts said: this year situation is bad. The next year it will be even worse. In ten years it may be simply catastrophic.