will we lag behind Western European countries again?
These are not finger-breaking fears. In recent years, wage growth in Lithuania has been one of the fastest in the EU. The share of wages in the structure of the country’s gross domestic product (GDP) has increased from 38% to 50% over the decade. and continues to grow.
According to this indicator, Lithuania is already starting to exceed the EU average and business will not be able to increase salaries from internal resources. As labor costs continue to rise, there will be two options: to raise productivity or production prices.
In our country, GDP has been growing much faster than the EU average. But further economic development may be hampered by growing labor shortages.
In terms of purchasing power, Lithuania’s GDP per capita in 2021 already accounted for 87%. EU average. According to the economic expert Ž.Mauric, in a decade Lithuania’s GDP will be even faster than in Western European countries and should reach about 90%, but not the Community average.
But then the brakes may work and around 2045–2050 the backwardness of the rich countries of Western Europe may grow again, as the number of working people, especially young people, will decrease in Lithuania, and it will start to lose the competition for labor.
Before the coronavirus pandemic, migration flows in Lithuania stabilized, the population stopped shrinking, although not only because emigration decreased, but mostly Ukrainians and Belarusians come to work for us.
The pandemic has slowed the flow of workers from abroad. Undoubtedly, the emigration of Lithuanians has become more difficult, but the balance of departures and arrivals started to deteriorate last year and it is forecasted that it will become negative this year.
In order to increase business productivity, it is necessary that the labor market does not lack young specialists in the first place, and it may be increasingly difficult to prepare them for Lithuania, as society ages.
This is due both to the decline in the birth rate due to the large emigration of young people in previous years, and the resulting demographic gap, and to the desire of a significant number of young people to study, and are often reluctant to return home.
During the decade, the number of students in Lithuanian higher education institutions has decreased by as much as 46%, and it is difficult to attract foreigners, and they would not remain in our country. There is also a shortage of specialists in Germany and the Scandinavian region, so it is not difficult for Lithuanian youth to get a job there and earn much more.
The lack of specialists is already called the biggest obstacle to business development by many Lithuanian companies, although unemployment is still high. True, the number of registered unemployed fell by 36.5 percent over the year, with 10.2 percent looking for work. people of working age and youth unemployment is even lower.
Over 40 thousand employers have registered with the Employment Service. vacancies, most workers feel in the engineering industry, information technology companies, as well as transport, construction, catering business.
Unemployment is expected to fall further and vacancies to increase in the spring, unless the Lithuanian economy is severely curtailed by Chinese sanctions on Lithuanian business and pressure on its foreign partners. This is an increasingly alarming threat that could cause our country even greater losses than the suspension of the transit of Belarusian fertilizers.
Due to geopolitical tensions, Swedbank slightly up to 3.2 percent. – reduced the forecast for Lithuania’s GDP growth this year, and also acknowledged that the possible consequences of the conflict with China for our country’s exports and investments still need to be assessed.
Lithuania cannot have any influence on geopolitics, and only the US and the EU can help alleviate the conflict with Beijing, otherwise the Chinese revenge for the opening of a Taiwanese representation in Vilnius can be suppressed by changing its name and almost kneeling on its knees. But a self-respecting state cannot afford it.
There are not many economic measures that would help counteract geopolitical risks and increase Lithuania’s attractiveness. Suppose a reduction in labor taxation is proposed first.
These taxes are relatively high in Lithuania, and it has long been said that they need to be reduced and the loss of the budget offset by abolishing tax exemptions and increasing the taxation of capital and property. But the carriage up to heavy moves out of place.
At the same time, Western countries that had previously stood out with higher labor and corporate taxes have shrunk and are increasing their competitive advantage.
For example, members of the Organization for Economic Co-operation and Development have halved their corporate tax rates in 35 years and become much more attractive.
It seems that the Government should consider all the rational proposals of economists and business, because the Lithuanian economy is in dire need of a wise stimulus to cope with the challenges as little as possible due to the cloudy geopolitical sky.