Wage-led growth: a case of Lithuania in point

Abstract

The paper deals with the driving factors shaping the gross mean wage (GMW) and her rigidity in Lithuania. The current paper is a first in series “Wage-led growth” and it reminds briefly the basics of well-known and popular approach on wage-led economic growth. The calculations are performed over a sample of ten years. The paper presents the regressive analysis of GMW driving factors. The analysis confirmed an existence of strong, linear relationship between the GMW and three driving factors, namely the unemployment rate, social disbursement expenditures and national GDP. This kind of relationship is inherent in the considerably exportsided economies of small countries like a Lithuania. Furthermore, the well-known multinomial logit model of GMW rigidity has been applied in current research. The analysis found a strong rigidity of the GMW and even the stiffening of rigidity over past few years in Lithuania. The defined wage rigidity can be perceived as a binding constraint on wage setting for large segments of the work force in a low inflation environment like in a Lithuania during present period. The corresponding upward pressure on wages of last year was caused by the decline in unemployment and seems to be a result of strongly improved job market position of employees in Lithuania. A shift in the bargaining power of the employers to the employees was found too. The current paper suggests softening the real wage rigidity, gaining strength the foreign direct investments, internal consumption and youthfulness of nation. It would bring a positive pressure to increase the incomes per capita and raise a well-being of Lithuanian people in the next future.