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Living Wage – the situation in the Baltic capitals

There is a wide variety of indicators that are used to compare the level of the financial welfare of populations living in different countries, such as the share of GDP per capita, or somewhat less frequently used – the purchasing power parity (PPP) and price levels. However, the share of GDP per capita is not the most accurate indicator of welfare, since it does not include either the level of prices nor the distribution of income, while the PPP, which usually much more accurately reflects the real situation, is difficult to understand and relate to for the general population. At the end of it all – these indicators do not show the actual income that is required to live in average conditions.

This year, alongside the annual remuneration surveys, „Baltic Salary Survey“ conducted the analysis of living wages in the Baltic capitals. The Living Wage is a theoretical amount of money, that an average person in a given city should have each month in order to live in good conditions. This includes food, housing, taxes, transportation, clothing and footwear, sports, hygiene goods, medical services, leisure, and other expenses, as well as savings. The amounts of these components were calculated using the data published in the reports of National Departments of Statistics in the Baltic States, the European Commission, and other official sources.

Living Wage, as a “welfare indicator”, differs significantly from the minimum amount of money needed to meet the basic needs, which, according to the Lithuanian National Department of Statistics, is about 400 euros per person, per month. “We aim to persuade the employers to recalculate the value each employee brings to the company, and pay accordingly, not merely follow what the minimum wage law says. If more companies would set out to pay the employees according to the value they bring, there wouldn’t be a need to adjust the minimum wage laws so often.” – Ieva Pecukeviciute.

Results

According to the study, of all the Baltic capitals, the least amount of money required to make a decent living is in Vilnius, where a single person that is living in a rented property, on average, will need around 750 euros per month. According to the data of the Lithuanian Department of Statistics, the average salary in Vilnius after the deduction of taxes currently exceeds the limit of 790 euros, while according to the data of the Baltic Salary Survey, the median wage in Vilnius is 855 euros. This could indicate that almost half of the population still lacks enough income to make a good living. However, this is not necessarily true, since the average salary is calculated by integrating those living in families, where one person is spending less on communal needs like housing, food, and other uses, this would result in a lower living wage for a family member. “The calculation of the living wage for families is rather complicated, there are many influencing factors such as the number of children, the number of working people, their age – this is why it’s more difficult to assess accurately” – Povilas Blusius.

living wage diagram

Living in Riga under the same conditions will require about 100 euros more, but the average salary after taxes is lower here than in Vilnius. The situation in the Latvian capital is slightly worse as the labor market here remains the most expensive among the three countries – employees pay the highest taxes on their salaries. Meanwhile, the situation in Tallinn is better, here the average salary after taxes varies at 1200 euros, while the living wage is around 1050 euros.

Students

Living as a student is cheapest in Vilnius as well, mostly due to the lowest rent prices of dormitories. A student without any family support should be able to live in normal conditions for around 450 euros, in Riga, an extra 50 euros is required, in Tallinn, a student needs over 600 euros.

“Of course, we are talking about absolute averages, so people with radically different needs or living in different circumstances might find these figures too small, but the opposite is true too – with some upfront financial planning even smaller monthly amounts can be enough.”

For a comparison, the economic indicator of GDP per capita in Lithuania is 26 217 EUR, in Estonia – 25 642 EUR, in Latvia – 22 491 EUR, the three countries occupy the 23rd, 24th and 30th places in the list of the richest European countries respectively. Meanwhile, price levels in Lithuania in 2017 were 63%, in Latvia 69%, in Estonia 76% of the average price levels in the European Union. We strongly believe that the Living Wage is much easier to understand, relate to, and compare, than the above indicators.

Calculation Components

Component Sources Comments/Assumptions
Food budget Statistical Bureau/European Food Basket
Rent Expense Other Sources/Real Estate AgenciesSingle bedroom apartment (12-20 sqm), 1-3 km, from the city center
Utilities Other Sources/Real Estate AgenciesApproximate utility costs for respective apartments
Transportation Official Public transport websitesMonthly ticket for adult
Clothing and Footwear Statistical BureauAverage yearly expenses divided per month
Monthly Fitness Club Subscription Other Sources – MyFitness, People Fitness Basic monthly membership
Eating in an inexpensive restaurant, once a month Other sourceThe same inexpensive brand that is in all three Baltic states
Personal Care Statistical Bureau
Dental/Medical Care Statistical Bureau
Life InsuranceOther sources
Leisure ActivitiesOther sourcesOnce a month
Other ExpensesCalculated as 10% of all expenses
Savings/ContingencyCalculated as 5% of all net income