State employees’ salaries increased: a promise that had to be fulfilled
Canceled in August, the raise of the tariff rate for the first class workers would be implemented in September. Accelerated inflation in August made indexing of wages inevitable. Increased incomes will increase domestic demand and may result in greater inflation.
On August 20th, 2012 the Council of Ministers of the Republic of Belarus adopted a resolution No 769, setting the tariff rate for the first class workers at BYR 225,000.
On September 1st, 2012 a new tariff rate for the first-class workers will be BYR 225 thousand (increased by 7.1%), which will raise the salaries in the public sector by 6.1% on average. The regulation also increases differentiation among employees in terms of payment, depending on the complexity of work.
There are funds in the state budget to increase salaries in the public sector. Consolidated budget surplus in the first half of 2012 will beBYR 3.7 trillion. Belarusian companies earned BYR 41.9 trillion net profit. Additional budget revenues will thus be redistributed in citizens’ favour.
Increase in the tariff rate is lined to the inflation. In August, due to the increased utilities’ costs inflation accelerated. During the first two weeks in August, consumer prices rose by 1.5% compared with average prices in July. Indexation of wages is carried out if inflation reaches 5% and higher during a period. Thus, state employees’ salaries increase is a forced and inevitable measure.
The average salary in the public sector with the increase from September 1, 2012 will be BYR 3.2 million. Officials’ wages lag behind the average in the economy, and such disparity has a negative impact on employment in the public sector. The outflow of workers into other spheres can lead to a staff shortage for a number of vacancies.
However, there are some negative trends in the economy. Industrial growth slowed down. Labour productivity could not keep up with the growth of wages in the economy. Unfavorable trends in foreign markets for a number of Belarusian products can reduce profits.
In these circumstances, additional incomes of state employees may increase domestic demand, increase imports and result in a general price growth, including services cost, which will level incomes’ growth.
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.