Bank analysts expect wage growth in Latvia to average around 7% next year

RIGA - Average gross wages in Latvia could grow by an estimated 7 percent next year, LETA's survey of bank analysts shows.

Agnese Buceniece, senior economist at Swedbank, told LETA that wage growth would continue to slow down to around 7 percent in 2026.

She said that the tight labor market would help maintain the growth rate. The minimum wage increase will be modest - from EUR 740 to EUR 780, which means that a rising minimum wage will not be a significant driver of average wages in 2026. The pace of average wage growth will be constrained by austerity measures in the public sector, as well as by companies' limited ability to pay higher wages in light of competitiveness related risks and companies' profitability, which has been declining in recent years.

At the same time, Buceniece predicted that wages in the private sector will grow faster than in the public sector. The budget law approved by the parliament stipulates that public sector wages are not expected to increase in 2026. Moreover, no performance bonuses will be paid in 2026. This restriction, however, will not apply to security services.

According to Buceniece's estimates, budget spending on remuneration will increase by 3 percent next year, compared to the projected increase of 6.8 percent in 2025. Salaries in the education sector are likely to grow faster than in the public sector as a whole. While teachers' lowest salary rates will remain at current levels next year, average salaries in the education sector will rise as the implementation of the new funding model Program at School continues, with EUR 45 million allocated in the budget for this purpose.

Wage growth in the construction sector is expected to slow down as the sector has not agreed on a minimum wage increase and the minimum wage will remain at EUR 1,050. However, unlike in 2025, it will apply to all groups of workers without exception, Buceniece added.

She also noted that the Saeima had approved in first reading amendments that would slash the minimum overtime rate from 100 percent to 50 percent. "Discussions on that measure are still ahead. If the current proposal is approved, it could further limit wage increases next year," Buceniece said.

Dainis Gaspuitis, a macroeconomic expert at SEB Banka, told LETA that wage growth would continue to slow in 2026, but the pace would remain high, maintaining challenges for competitiveness and profits.

According to Gaspuitis, average wages could grow by slightly more than 7 percent in 2026. "Wage growth will remain fast, outpacing inflation, which will imply a further strengthening of average purchasing power," he said.

At the same time, Gaspuitis said that in many sectors, it is becoming difficult to sustain current wage growth, but that the fall in inflation is a supportive factor.

"The process is expected to be uneven across sectors, companies and also within each collective, which means that personal perspectives may differ from the overall situation. There is no sector where pay levels are not expected to rise. The biggest changes are likely to be in lower-paid jobs, where demand could rise rapidly, for example in construction and manufacturing," said Gaspuitis.

The macroeconomics expert pointed out that the overall pace would also be dampened by restrictions on wage increases in the public sector, so private sector wage growth would be faster. On the other hand, the expected economic and labor market recovery means improving opportunities for employees and an increasing challenge for employers to keep employees motivated.

Peteris Strautins, economist at Luminor Bank, told LETA that since 2013, the growth of the wage bill in Latvia has continuously been faster than the growth of gross domestic product (GDP) in monetary terms, the only exception being 2021.

He stressed that the officially declared wage bill is one of the very few indicators in the economy that is known with complete accuracy, while almost everything else - production, trade, exports - are more or less accurate estimates.

"The rapid wage growth is giving analysts endless headaches that wages are growing faster than productivity and that this is damaging competitiveness. But the dynamics of exports at times when market conditions are more or less favorable, as at present, do not point to major competitiveness issues. The logical question is: perhaps productivity growth, and hence GDP growth, has been underestimated?", said Strautins.

He also noted that wage growth should continue to slow down next year as has been the case since 2023, when wages grew by 12 percent. Next year, wage growth is expected to be around 7 percent, after an 8 percent increase in 2025.