Wage growth rates have slowed earlier than expected, and this likely marks the beginning of a new period – when wages will sharply slow their growth, say banking economists.
Ieva Opmane, economist at the Bank of Latvia:
– Signals from the labor market are becoming increasingly contradictory. On one hand, the low unemployment rate supports upward pressure on wages. On the other hand, high energy prices and cautious external demand continue to impact business expenses.
A similar situation is observed from the workers' side: economic uncertainty may make expectations regarding wage growth more restrained, although inflation, on the contrary, may push for demands for higher wages.
In the first quarter of this year, both the wage growth rates and their average levels in the public and private sectors were approximately the same. Wage growth and demand for workers in the public sector are limited by budgetary capabilities and the desire to reduce the number of employees in this area. Nevertheless, in conditions of limited labor supply, competition between employers, as well as between the public and private sectors, will persist.
After the usual nearly 10% wage growth in recent years, an increase of 4.2% may seem insignificant. Moreover, compared to the end of last year, the average salary even decreased under the influence of seasonal factors.
However, despite the slowdown in wage growth, inflation remains below the rate of wage growth. This means that the purchasing power of workers is increasing on average, which, in turn, supports private consumption.
If you haven’t lived richly – there’s nothing to start with
Dainis Gashpuitis, economist:
– The slowdown in wage growth has been anticipated for a long time, but the speed of this process has been unexpected. Prolonged pressure on the profitability and competitiveness of businesses, economic uncertainty, and normalization of inflation have forced employers to both slow down wage increases and create favorable conditions for this.
The adaptation of wage growth rates occurred earlier than expected and likely opens a period of more moderate wage increases. On one hand, this will somewhat reduce cost pressures on business competitiveness. On the other hand, it will slow down the growth of the population's purchasing power. The reason is that accelerating inflation increases the number of people whose purchasing power is not growing or even decreasing.
In the coming quarters, it would be useful to see a slowdown in wage growth in those sectors where it was highest at the beginning of the year, as they are largely an important factor in inflation. The fastest wage growth is observed in the fields of administrative services, water supply and waste management, energy, and education.
The public sector will also have to adapt to the conditions of slower wage growth.
Blame the media and AI?
Pēteris Straujiņš, economist:
– The growth of the average salary at the beginning of the year was so weak that it can be called a surprise. Looking at annual figures, the last time wage growth was below 4.2% was in 2012, when it was 3.6%. Nevertheless, by the end of the year, wages will increase more strongly.
GDP data shows that the total amount of paid wages at the beginning of the year increased by 5.5%, which is not significantly different from last year's figure of 6.4%. Therefore, this is merely a gradual slowdown in growth compared to the average figure for 2020–2024, which was 7.5%.
According to forecasts published in March, by 2028, the growth of the average salary may slow down to 5.4%. This process may begin sooner. It is hoped that by then inflation will also be significantly lower due to falling raw material prices and the impact of artificial intelligence on labor productivity and price levels.
One of the reasons for the sharp slowdown in wage growth at the beginning of the year is the temporary weakening of high value-added service exports, which is the main driver of Riga's economy and largely sets the tone for the entire country's economy.
Moreover, the flow of negative news makes people feel less confident and cling to their existing jobs, which reduces pressure on employers regarding wage increases. Concerns are caused by both geopolitical events and forecasts regarding the impact of artificial intelligence (AI) on employment.
The rapid development of artificial intelligence may become the main factor of change. Awareness of its impact is growing rapidly, and technologies are developing at a rapid pace, replacing people who need to be paid salaries.
At the same time, there are reasons for calm. Employers in surveys more often express intentions to increase rather than reduce the number of employees. Hiring intention indices in industry, trade, and construction remain above historical averages. Negative sentiments are only observed in the service sector. This means that consumers themselves may be overly pessimistic in assessing their risks of losing their jobs.
It’s hard to explain
Agnese Bučniece, economist:
– The slowdown in wage growth has been too sharp and therefore poorly explainable by fundamental economic factors. Only subsequent clarifications of the statistics will show whether this reflects real changes in employer policies or is related to the peculiarities of calculations.
According to the Central Statistical Bureau, wage growth rates have slowed in both the public and private sectors. In the public sector, growth decreased from 7% at the end of last year to 4.6% at the beginning of this year. In the private sector, wage growth slowed to 4.1% compared to an average of 8.1% in 2025 and 6.6% in the previous quarter. This is partly explained by a deterioration in company profitability and competitiveness issues.
At the same time, the labor market remains tense: the unemployment rate is around 7%, and a significant number of businesses continue to experience a shortage of workers. Therefore, such a sharp slowdown in wage growth in the private sector raises skeptical attitudes towards the CSB data.
If we see similar trends in the second quarter, then as inflation accelerates, the real purchasing power of workers may begin to decline in the second half of the year, which will negatively affect household consumption and overall economic growth.
NUMBERS
The average gross salary (before taxes) for a full-time job in Latvia in the first quarter of 2026 was €1831, which is €73 or 4.2% more than a year earlier. In the public sector, it reached €1834, while in the private sector it was €1839, reported the CSB.
Compared to the fourth quarter of 2025, the average salary decreased by 1.6%. At the same time, the private sector recorded an increase of 0.3%, while the public sector saw a decrease of 5.3%.
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