Latvia: Latest working life developments – Q3 2017

Negotiations on tax reform and budget preparations, a rise in the minimum wage, an increase in healthcare finance following strike action and rapid wages growth are the main topics of interest in this article. This country update reports on the latest developments in working life in Latvia in the third quarter of 2017.

Tax reform and budget approved

After intensive discussions between social partners, the government approved the 2018 state budget and its fiscal framework. The new budget will implement a tax reform aimed at reducing wage taxes. It was also agreed to increase the minimum wage from €380 to €430 per month, and to keep this unchanged for three years. As on previous occasions, the preparation of the budget was accompanied by tension and disagreements about how the institutions and workers involved would be financed.

Longest strike since the 1990s

The healthcare and education sectors were at the centre of industrial relations in the third quarter of 2017. There were continuing tensions in the healthcare sector which, unusually for Latvia, led to a strike by healthcare workers on 3 July. Nevertheless, negotiations continued during the strike, between the strike committee, the Minister of Healthcare, Anda Čakša, and Prime Minister Māris Kučinskis. Two main topics were discussed:

  • the strikers’ demands over the capitation fee for general practitioners;
  • a new model for financing healthcare, based on the insurance principle.

The government eventually promised to increase the finance for healthcare in 2018 by €200 million, and to discuss a new law on healthcare financing, based on the insurance principle. However, although the workers agreed to call off the strike, they decided to continue protesting until October, by working limited hours.

Teachers also monitored the preparation of the state budget, but their activities were modest compared to previous years. The budget is expected to contain plans for closing schools, considerably reducing the number of teachers and optimising the network of higher education institutions – which will enable an increase in pay for the remaining staff.

Rapid growth in wages

An inflow of EU structural funds, which finally started in the middle of year, was immediately reflected in the rapid increase in pay levels. Official statistics show that the average monthly wage in June 2017 increased by 9.2% compared with June 2016: wages increased by 9% in the public sector and by 9.5% in the private sector. The largest increase was fixed in the general government sector, by 11%. According to the annual wage survey by Latvian management consultant company Fontes, 86.7% of employers have confirmed that they will increase wages in 2018.

The wage growth exceeds the GDP growth rate (expected to be 4.2%). Experts and representatives of the Bank of Latvia have warned that the Latvian economy could overheat, while the government think the wage growth is a sign of healthy economic development. The Central Statistical Bureau of Latvia reports that the employment share reached 62.6% in the second quarter of 2017 – the highest level since the same period in 2008 (seasonally non-adjusted data).

Trade union merger

On 27 September 2017, the Union of Latvian Interior Employees (LIDA) joined the Free Trade Union Confederation of Latvia (LBAS), which now has 21 member organisations. This gives LBAS an increase of 2,600 individual members, which includes police officers, firefighters, border guards and prison officers.

Commentary

Further wage growth is planned in the public sector according to the 2018 state budget, and in the private sector according to employers’ expectations. EU funds have facilitated economic activity, but employers report a lack of workers, which will push wages up. The end of the year will be lively due to the finalising of the budget process when the tax reform will become law.

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