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Labour productivity as major constraint to further wage growth

June 05, 2017 12:57
Фото: Дмитрий Брушко, TUT.BY

Following the economic recession in Belarus, wages are gradually rising to the 2015 standard. In previous years, one of the reasons for devaluation in the economy was a disproportionate increase in wages relative to the pace of economic development. Economic authorities are likely to try not to repeat the mistakes of the past and limit the wage growth. The prospects for further wage growth would depend on enterprise managers and demand for their produces.

According to Belstat, wages in April in Belarus totalled BYN 776.7 or USD 412 in Dollar terms. This was the highest wage since August 2015. Thanks to the National Bank's actions aimed at curbing inflation in the economy, real wages in April rose by 2.9% as compared with April 2016. The key factor for the wage growth was the growth in industrial production, which totalled 5.4% in January – April 2017, enabling an increase in wages from USD 382 in April 2016 to USD 452 in April 2017.

In previous years, one of the reasons for devaluation was the outstripping increase in wages compared with the dynamics of economic indicators. In 2010, the Belarusian authorities raised wages by 37%, which for the first time reached USD 500. Meanwhile, Belarus's GDP in 2010 increased by 7.7%. That led to a sharp increase in consumer spending on imports due to the loss of competitiveness of domestic goods, an increase in demand for foreign currency and, ultimately, a three-fold gradual devaluation in 2011. The second attempt to ensure high wages amid growing negative economic processes in 2014, led to yet another devaluation.

In late 2016, the ratio of labour productivity to real wages was 1.03, in Q1 2017 it decreased to 1.01. The decrease was due to the outstripping growth of real wages in comparison with the labour productivity. The real wage grew due to the growth in nominal wages and reduced inflation. Labour productivity is growing, however, at an insufficient pace. According to the government's forecast, GDP may grow by 1.7% by the year-end, which limits the potential growth in nominal wages to the current pace. That said, attempts to increase nominal wage are likely to lead to a reduction in the ratio between labour productivity and wages below 1. The government is likely to prioritise macroeconomic stability and would not pump up salaries. Hence, enterprise managers, who could not ensure an increase in production indicators, would be blamed for the derailed wage plan.

Overall, in Q1 2017 salaries grew faster than labour productivity in Belarus. Taking into account the inflation forecast and GDP growth target, wage growth plan up to BYN 1000 by the year-end is likely to be derailed and enterprise managers would be the ones to blame, as if they had not applied enough effort to improve labour productivity or finding new markets for their products.

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