The growth of salaries in the public sector outpaced the respective private sector's indicator for the first time in five years. The breaking point was Q2 2018. Although salaries in the private sector still grew relatively fast, it gradually slowed down during the past quarters and did not go above the double digit value. Meanwhile, salaries in the public sector have been growing at double digit pace for the third subsequent quarter, and at the end of the year it grew by 12.5%, the fastest since the pre-crisis.
This reversal in the trend looks quite promising. The gap between the public and private sectors' salaries, which had been widening for a long time, undermined the public sector's attractiveness, as an employer. Moreover, it programmed public sector to underperform in the future - low salaries there deter young people from choosing jobs in the public sector. With the increasing gap between salaries in the private and public sectors, the fundamental professions of teachers, doctors, police officers, firemen, etc., get depreciated, lose popularity, and are bypassed by the most talented people. However, we cannot expect sustainable economic and social development of the state without them.
And yet, last year's salary growth rates and the government's ambitious plans for this year, raise some worries. The public finances are limited, therefore the question arises whether they will be capable of sustaining such pace? Especially, considering the past unsuccessful attempts to reform the public sector and to discover internal resources to make processes more efficient. Two subsequent years of elections don't let us expect any visible progress in reforms as this is politically not practical. Also, tax revenue is expected to grow slower this year due to the slower economic development compared to last year.
Meanwhile, the growth of salaries in the private sector remains elevated due to the structural labour market bottlenecks: emigration, lack of qualified labour, sluggish and inefficient retraining system, etc. However, an intensifying immigration slightly reduced these tensions last year. This year, the salaries will keep growing at a high pace, however the implemented tax reform allows the employers to breathe a sigh of relief. Given the effects on wages of recent tax reform, the employers will be able to slow down on the salary raise.
Our team expects gross salaries to rise by 9 % this year, however next year the annual growth rate of salaries should be lower and make 5 %.