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 – purchasing power parity (PPP) and price levels. However, the share of GDP per capita is not the most accurate indicator of welfare, since it includes neither 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, BSS 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
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 EUR 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.
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 EUR 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 EUR, while according to the data of BSS study, the median wage in Vilnius is 855 EUR. This could indicate that almost half of the population still lack sufficient income to make a decent 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 the most expensive communal needs like housing, food, and other uses – this could 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 it accurately” – Povilas Blusius.
Living in Riga under the same conditions will cost about 100 EUR more, while the average salary after taxes is lower here than in Vilnius. The situation in the Latvian capital is slightly worse as the labour 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 EUR, while the living wage is around 1050 EUR.
Living as a student is cheapest in Vilnius as well, mostly due to the lowest rent of dormitories. A student without any family support should be able to live in normal conditions for around 450 EUR. In Riga, extra 50 EUR is required, while in Tallinn, a student could need over 600 EUR.
“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 and insufficient, but the opposite is true too – with some upfront financial planning, even lower monthly cash income could be enough.” – Povilas Blusius
For 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. The price levels in Lithuania in 2017 were 63%, in Latvia 69%, in Estonia 76% of the average price levels in the European Union – These are the commonly used economic indicators of welfare – we believe that the Living Wage is much easier to understand, relate to, and compare.This article in Lithuanian was published here: DELFI