Public sector lags behind in employees’ social protection
On September 1st, the first discharge tariff rate increased by 4%.
The announced wage increase in public sector cannot reduce the traditional gap with the average salary in the economy and is offset by growing prices on goods and services. The government lacks resources to continue the old social policy, and will seek to curb real incomes growth.
Conventionally, public sector salaries are among the lowest in the economy. According to the National Statistics Committee, in July 2013 the average monthly wage in education was USD 384, in health care – USD 450, in social services – USD 343, with the average wage in the economy USD 614. The government’s forecast for 2014 suggest that wages in the public sector will be circa 70 % of the average wage in the industry. Consequently, there is an outflow of human resources from the public sector, which will continue into next year.
Even a nominal increase in wages (due to increased first discharge tariff rate by 4%) will not improve the financial situation of public sector employees. As of August 29th, the prices of bread and bakery products will increase by 10%. On September 1st, the electricity tariff for the population increased by 12%. Excise tax on gasoline increased by 45 % and on diesel by 70%, which will result in increased costs for individuals and increase the production costs for industrial enterprises. As a result, in the near future prices will rise, including on the consumer goods. In addition, housing and utility tariffs may increase (an increase of 65% is planned for 2014).
The government wants to curb real wages growth. The economy is experiencing considerable difficulties, which results in decreased budget revenues and consequently, in cuts in various state programmes, including social benefits for the population. The state reduces eligibility criteria for receiving social assistance and readjusts its size. In 2014, the Social Security Fund may face a deficit of funds due to continuously deteriorating demographic situation. The government has no extra cash and therefore the level of social protection will be lower.
Public sector workers should realistically assess the feasibility for keeping their workplaces in terms of financial well-being, while the state should be prepared for staff shortages and unfulfilled vacancies in the public sector and should seek additional funds to improve social security protection in the public sector so as not to lose quality of staff.
The rapid increase in wages has led to a decline in the ratio between labour productivity and real wages to one. Previously, the rule was that enterprises, in which the state owned more than 50% of shares in the founding capital, were not allowed increasing salaries if this ratio was equal to or less than one. The authorities are unlikely to be able to meet the wage growth requirement without long-term consequences for the economy. Hence, the government is likely to contain wage growth for the sake of economic growth.
According to Belstat, In January – August 2017, GDP growth was 1.6%. The economic revival has led to an increase in wages. In August, the average monthly wage was BYN 844.4 or USD 435, i.e. grew by 6.6% since early 2017, adjusted for inflation. This has reduced the ratio between labour productivity and real wages from 1.03 in January 2017 to 1 in the first seven months of 2017. This parameter should not be less than 1, otherwise, the economy starts accumulating imbalances.
The need for faster growth in labour productivity over wage growth was stated in Decree No 744 of July 31st, 2014. The decree enabled wages growth at state organizations and organizations with more than 50% of state-owned shares only if the ratio between growth in labour productivity and wages was higher than 1. Taking into account the state's share in the economy, this rule has had impact on most of the country's key enterprises. In 2013 -2014 wages grew rapidly, which resulted in devaluation in 2014-2015.
Faster wage growth as compared with growth in labour productivity carries a number of risks. Enterprises increase cost of wages, which subsequently leads to a decrease in the competitiveness of products on the domestic and foreign markets. In construction, wholesale, retail trade, and some other industries the growth rate of prime cost in 2017 outpaces the dynamics of revenue growth. This is likely to lead to a decrease in profits and a decrease in investments for further development. Amid wage growth, the population is likely to increase import consumption and reduce currency sales, which would reduce the National Bank's ability to repay foreign and domestic liabilities.
The Belarusian government is facing a dilemma – either to comply with the president’s requirement of a BYN 1000 monthly wage, which could lead to new economic imbalances and could further affect the national currency value, or to suspend the wage growth in order to retain the achieved economic results. That said, the first option bears a greater number of negative consequences for the nomenclature.
Overall, the rapid growth in wages no longer corresponds the pace of economic development. The government is likely to retain the economic growth and retrain further growth in wages. Staff reshuffles are unlikely to follow the failure to meet the wage growth requirement.