This document discusses comparisons between the economies and welfare indicators of Latvia, Lithuania, and Estonia. It summarizes recent economic trends in the Baltic countries, including high inflation driven by rising energy and commodity prices, slowing exports due to trade restrictions with Russia, and declining consumer confidence. It also compares GDP, wages, taxes, unemployment, minimum wage levels, and sectors of economic activity between the three countries. While Lithuania has the highest average gross wages, average net wages are more similar once taxes are accounted for. Estonia has been more successful in attracting investment and new enterprises in technology sectors. Regional economic disparities exist within each country as well.

1. Latvia, Lithuania and Estonia:
Which side of the fence boasts greener grass?
Ieva Opmane
Latvijas Banka
Monetary Policy Department
Senior economist
November 21, 2022

2. Latvijas Banka
Some (not all) functions include:
• Monetary policy analysis and forecasting
• Monetary, bank and balance of payments
statistics
• Communication and financial literacy
• Development of payment systems (e.g.
instant payments between banks, among
mobile phone users)
• Provision of cash circulation
• Collaboration with international
organizations (IMF, EC , rating agencies
etc.)
• Soon: supervision of banks and other
credit institutions

3. Agenda for today
• Tendencies in economy (inflation, global
process impact, labour market)
• Comparison of welfare indicators
• Discussion and questions
3

4. Material
wealth
Productive
activities
Social
relationships
4
Education

5. Utility – can it be measured?
• In economics, utility theory tries to explain the behavior of individual
consumers in an economy
• Bernoulli hypothesis of declining marginal utility, rational choices theories to
analyse subject behaviour
• Total utility of society – as one of the measures of welfare
• But not only total utility might matter, but also the distribution of it
• Positive economy - describes and explains various economic phenomena ;
Normative economy - focuses on the value of economic fairness, or what
the economy "should be" or "ought to be".

6. RU
war
in UA
Brexit Covid-19
Global financial
crisis
EU sovereign
debt crisis
Uncertainty reached new heights in Europe
6
▪ Russian aggression in
Ukraine and global
geopolitical tensions
▪ Energy crisis
▪ Global inflationary
pressures
▪ Possible resurgence of
Covid-19 and recession
fears
Source: Economic Policy Uncertainty (last obs. 10/22).
0
100
200
300
400
500
600
700
800
900
1000
0
50
100
150
200
250
300
350
400
2006 2008 2010 2012 2014 2016 2018 2020 2022
Europe United States China (rhs)
Economic Policy Uncertainty Index (points)

7. Increase in global energy and
other commodity prices;
Deterioration of confidence.
Disruption of exports to the
aggressor countries;
Russia's aggression in Ukraine affects the
economy via four main channels
Unavailability of imports of raw
materials and components;
7
Main channels:

8. Inflation – Baltic countries among
leaders in euro area
8

9. Wheat price in Euronext exchange (EUR/t)
100
200
300
400
500
01/20
02/20
03/20
04/20
05/20
06/20
07/20
08/20
09/20
10/20
11/20
12/20
01/21
02/21
03/21
04/21
05/21
06/21
07/21
08/21
09/21
10/21
11/21
12/21
01/22
02/22
03/22
04/22
05/22
06/22
07/22
08/22
09/22
10/22
11/22
2019. avg.
TTF Natural gas price (EUR/MWh)
0
100
200
300
400
01/20
02/20
03/20
04/20
05/20
06/20
07/20
08/20
09/20
10/20
11/20
12/20
01/21
02/21
03/21
04/21
05/21
06/21
07/21
08/21
09/21
10/21
11/21
12/21
01/22
02/22
03/22
04/22
05/22
06/22
07/22
08/22
09/22
10/22
11/22
9 Source: Refinitiv, Bloomberg.
Prices are high, recession fear slows global price increase
Industrial Metals price (index)
80
130
180
230
01/20
02/20
03/20
04/20
05/20
06/20
07/20
08/20
09/20
10/20
11/20
12/20
01/21
02/21
03/21
04/21
05/21
06/21
07/21
08/21
09/21
10/21
11/21
12/21
01/22
02/22
03/22
04/22
05/22
06/22
07/22
08/22
09/22
10/22
11/22
Brent crude oil price (USD/bbl)
0
25
50
75
100
125
01/20
02/20
03/20
04/20
05/20
06/20
07/20
08/20
09/20
10/20
11/20
12/20
01/21
02/21
03/21
04/21
05/21
06/21
07/21
08/21
09/21
10/21
11/21
12/21
01/22
02/22
03/22
04/22
05/22
06/22
07/22
08/22
09/22
10/22
11/22

10. Inflation in Baltic states and euro area (y/y, %)
-5
0
5
10
15
20
25
30
01.
2019.
03. 05. 07. 09. 11. 01.
2020.
03. 05. 07. 09. 11. 01.
2021
03. 05. 07. 09. 11. 01.
2022.
03. 05. 07. 09.
Euro area Estonia Latvia Lithuania
10 Source: Eurostat.
Inflation in Baltic states is much higher than EA average

11. Euro area inflation (%) and its components (pp)
11 Source: Eurostat, Latvijas Banka calculations
Inflation mainly do to energy prices. Similar tendencies in euro
area and all Baltic states
-1.5
0.5
2.5
4.5
6.5
8.5
10.5
12.5
2019 2020 2021 2022
Services Food Non-energy industrial goods Energy Total

12. Food and energy weights in HICP basket (%)
0 10 20 30 40 50
Euro area
Lithuania
Estonia
Latvia
Food Energy
12 Source: Eurostat, Latvijas Banka calculations
Baltic countries: larger share of
consumption consists of food
and energy

13. Compensation per employee and prices of
services
Consumption tax impact on annual inflation
(percentage points; October 2022)
13 Source: Eurostat; Latvijas Banka calculations.
Other factors: faster growing wages and less active usage of tax
reduction
BE
DE
EE
IE
GR
SP
FR
IT
CY
LV
LT
LU
MT
NL
AT
PT
SL
SK
FI
0
3
6
9
12
15
18
0 5 10 15 20
Prices
of
services
at
constant
tax
rates
(%,
June
2022
compared
to
June
2020)
Compensation per employee (%; 2021 compared to 2019)
-7 -5 -3 -1 1
Inflation
Energy
Food and non-alcoholic
beverages
Latvia Euro area

14. Tweets and inflation Network of the most active users
14
Source: Twitter, Authors'c alculations
Some more ideas how inflation can be analysed...
0
5
10
15
20
25
0
20
40
60
80
100
120
Nov-21
Dec-21
Jan–22
Feb-22
Mar-22
Apr-22
May-22
Jun-22
Jul-22
Aug-22
Sep-22
Oct-22
Average daily original tweets HICP inflation (RHS)
NOTE: black diamond – Bank of Latvia, black circle – media; grey diamond –
economists; grey circle – business representatives; white circle – others.

15. 1600 million euros, mainly in
2022 and 2024
Both to consumers and
enterprises
Estimated to increase
economic activity and have
negative impact on consumer
prices
15
Fiscal support in
Latvia

16. ECB monetary policy
normalization
Decision to raise interest rates
Gradual approach to avoid
inflation rooting in economy
16
Monetary response

17. 0
20
40
60
80
100
120
FR CY LU NL FI PT SP AT EZ DE BE MT IT SK EE GR SI LT IE LV
Source: ECB.
▪ Higher interest rate on loans → higher loan
payments:
o for companies → debt burden is rather
low → interest payments are also rather
limited
o for households → debt burden is low →
more loans for higher income households
→ for them loan payments account for a
relatively small part of disposable income
▪ Decline in foreign demand → lower Latvia’s
export, especially to trade partner countries
with high outstanding amount of loans.
Loans to enterprises and households in Q1 2022
(outstanding amounts; % of GDP)
17

18. Back to (less) confidence and trade

19. Consumer confidence (balance) Private sector investment (% of GDP)
Source: European Commission, CSP, Statistics Lithuania, Statistics Estonia, Swedbank macro research (14.02.2022), Latvijas Banka.
Consumer confidence has worsened, effect not equally
distributed
-35
-30
-25
-20
-15
-10
-5
0
5
I
2020
V IX I
2021
V IX I
2022
Average
LV -14.5
EE -12.3
LT -2.3
0
5
10
15
20
25
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
EU27 Estonia Latvia Lithuania

20. 20
• Investment in Estonia:
* Competitive tax system
* Digitalization
* Long term networking and
work with investors
* E-residency
In EE by 25% more newly
established enterprises than in
LV.
In LV there is 1 unicorn (>1 billion
$ value; in LV Printful), in LT 2, in
EE 10.
First movers advantage?

21. Imports in Latvia (y-o-y; million euro)
Source: European Commission, CSP, Statistics Lithuania, Statistics Estonia, Swedbank macro research (14.02.2022), Latvijas Banka.
Exports and imports impacted also due to trade restrictions
with Russia; substition to trade with other countries
Import: Natural gas, fuel, wood,
metal;
Export: Beverages, mechanisms,
chemicals (large share: reexports)
-100
-50
0
50
100
150
200
250
300
March
May
July
September
March
May
July
September
March
May
July
September
March
May
July
September
March
May
July
September
Natural Gas Fertilizer Metals Wood Fuel
Russia-
Belarus
Other
Countries

22. How large are the wage differences?
Should we migrate to Tallinn or
Vilnius to work there?
22

23. Gross average wage
Source: Eurostat, Statistics Lithuania
Gross wage higest in Lithuania – partly just a trick with taxes
1548€
1277€
1679€
1255€
939€
1059€
Net average wage
Tax reform in Lithuania in 2019 – impact
on average wage
0
200
400
600
800
1000
1200
1400
1600
1800
2000
I
2018
III I
2019
III I
2020
III I
2021
III I
2022
Gross wage Net wage

24. Source: OECD
Average tax rates (% of gross wage)
30
32
34
36
38
40
42
44
46
48
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
LT LV EE
24
Average tax wedge for one employed w/o
dependents (% from labour costs)
Average income tax rate similar, but the average total tax wedge
in Latvia has decreased at slower rate
0
5
10
15
20
25
30
35
40
Vidējās darba devēja
soc. nodokļa iemaksas
Vidējās darba ņēmēja
soc.nodokļa iemaksas
Vidējā IIN likme

25. Source: CSP, Statistics Lithuania, Statistics Estonia, Latvijas Banka calculations
25
Average net wage in different sectors in 2021 (euro)
Compared to neighbours, lower wage in Latvia in education and
information and communication technology sector
0
500
1000
1500
2000
2500 LV LT EE
Wage in Latvia
Relatively smaller higher

26. Education
26
• Minimum wage for teachers in EE 1412 euro;
aim to reach 120% from country average
wage;
• LV minimum wage for teachers 900 euro.
Depends on budgetary restrictions;
• Large investment in education in all Baltic
countries. EE 6.6% from GDP (3rd place in
Europe); LV 5.9% - 6th, LT 5.2% 13th).
• Still the same problems remains in all Baltic
countries: staff aging and problems finding
new employees.

27. Information and
communication technologies
27
• Sector with one of the highest wages (in LV
average >2200 euro/month)
• Not just programmers (=easier to work
remotely, in international enterprises); Also
publishing, production, radio, TV.
• In this sector works around 3% in LT, 4% in LV
and 5% of EE employees.
... Again quetion of new enterprises and
innovations

28. Around 1/6 people receive minimum wage
2022: LV 500 euro, EE 654 euro, LT 730 euro
2023: LV 620 euro, EE 725 euro, LT 800 euro
Regulated at EU level: directive on adequate minimum wages ;
60% of gross median wage or 50% from average wage;
In Europe some countries didn't have minimum wage
(Denmark, Finland, Sweden). Larger role for trade unions.
Increasing minimum wage could help to fight shadow
economy. Or could increase it...
In Latvia large wage and unemployment differences in
regions. Minimum wage increase could widen the gap.
Shaddow economy (%)
28
Source: CSP, SSE Riga pētījums par ēnu ekonomiku, Latvijas Bankas pētījums:
K. Beņkovskis, L. Fadejeva, Ēnai pa pēdām: aplokšņu algu novērtējums Latvijā,
2022
Minimum wage increase – good for employees?
LV 25.5
LT 20.4
EE 16.5
Riga Latgale
4.2% 12.4%
Registered unemployemnt, September (% of
economically active)

29. Source: CSP, Statistics Estonia, Statistics Lithuania
Unemployed (% of economically active)
Latvia (average) 7.6
Latgale 9.1
Estonia average 6.2
North East Estonia 11.5
Lithuania average 7.1
Utena district 12.4
Average unemployment in country
in and region with highest
unemployemnt (% of ec.active)
During pandemics, unemployment in EE increased faster;
Every of Baltic countries has its "Latgale"
7.6
7.1
6.2
0
2
4
6
8
10
12
14
16
18
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Latvija Lietuva Igaunija
Profile of unemployed similar; In EE more open
to elastic working time and part time work.

30. 2021: in Latvia still minus 3K people
2022: refugees from Ukraine; Total count unclear.
Approximately:
LT >60K
EE >50K
LV around 30K, only 8K employed (this count is
decreasing; impact on employment around 1%)
Migration (per 1000 inhabitants)
30 Source: Eurostat, CSP, PMLP, NVA, Statistics Lithuania, Latvijas Banka
In Latvia there still is negative migration
-15
-10
-5
0
5
10
15
2015 2016 2017 2018 2019 2020 2021
Estonia Latvia Lithuania

31. What does it mean for economic
development?
31

32. Avots: Eurostat
-8
-6
-4
-2
0
2
4
6
8
10
2015 2016 2017 2018 2019 2020 2021
EU27 Estonia Latvia Lithuania
Real GDP (%, y/y) GDP per capita (PPP index, ES27=100)
Due to global processes, GDP growth was similar. In 2021 –
stronger growth in Estonia. Over time, Latvia's convergence to
EA GDP level has been slowest
87
71
88
30
40
50
60
70
80
90
100
2000 2003 2006 2009 2012 2015 2018 2021
Estonia Latvia Lithuania
Future tendencies similar.
Mild recession expected, inflation still high.

33. Government consolidated debt (2016.-2021, % of GDP)
88.1
95.6
18.1
44.8 44.3
0
20
40
60
80
100
120
EU Euro Area Estonia Latvia Lithuania
Avots: Eurostat.
Due to pandemics, government debt increased in all Baltic
countries; There was possibility to refinance with low interest
rates. Future borrowings – more expensive

34. What do we see in some indexes?
High Gini coefficient
and share of people
under risk of powerty
More educated
people, but shorter
lifespan
LV (only) 42th
happiest country in
the world
34

35. 35 Source: OECD
OECD Better life index – possible to chose what is important to
you

36. • They may be better than single
economic measure
• They do not decribe future.
Sometimes they neither
describe present
• Based on assumptions, may be
interpreted in various ways
• Depends on quality of statistical
data
36
But be careful with indexes

37. People in Riga – less satisfied with life than in other
European capitals
Satisfaction with life in Vilnius and Tallinn increase
rapidly during last years
People indicate that they do not appreciate just
economic benefits, but also various other: green
environment, transport, health care etc.
Satisfaction with life in your city
37 Source: Eiropas Komisija
Then why don't we just ask people where do they like to live?

38. 38
Quality
of life
Material living
conditions
Productive
activities
Health
Education
Recreation and social
contact
Economic and
physical security
Governance and
fundamental rights
Overall life experience
Nature and
environment
Quality
of life

39. Safety perceptions and trust across 83 European
cities (0-100 point scale; in 2019)
Governance quality and life satisfaction in a city
(0 – 100 points scale; in 2019)
39 Source: European Commission and SKDS survey data, Bank of Latvia calculations
In Riga low level of safety and trust;
Lower level of governance quality
Athens
Belgrade
Bucharest
Burgas
Helsinki
Istanbul
Marseille
Naples
Palermo
Riga
Rome
Skopje
Sofia
Tallinn
Vilni…
Warsaw
30
40
50
60
70
80
90
30 40 50 60 70 80 90
Trust
to
the
people
around
you
Perceived safety in the city
Aalborg
Bucharest
Helsinki
Irakleio
Naples
Palermo
Riga
Rome
Skopje
Sofia
Tallinn
Tirana
Torino
Vilnius
Warsaw
Zagreb
Zurich
50
60
70
80
90
100
30 40 50 60 70
Life
satisfaction
in
city
Governance quality in a city

40. Quality assessment of public transport system
and use of private road transport in the
European cities
Urban life satisfaction and population growth in
the European cities
40
People are using less public transport; Population growth
negative in Riga
Aalborg
Athens
Bucharest
Groningen
Helsinki
Leipzig
Lisbon
Luxembourg
Naples
Oslo
Ostrava
Palermo
Riga
Stockholm
Tallinn
Torino
Vilnius
Warsaw
-10
-5
0
5
10
15
20
25
55 60 65 70 75 80 85 90 95
Population
change
(%;
over
2012
-
2019)
Urban life satisfaction (2012 and 2019 average)
Helsinki
Riga
Rome
Tallinn
Vilnius
Warsaw
Zurich
0
10
20
30
40
50
60
70
80
30 40 50 60 70 80 90 100
Use
of
private
road
transport
(%)
General satisfaction with public transport in a city (0 - 100 points)

41. 41
Which aspects
of quality of life
are the most
important?
Material living
conditions
Productive
activities
Health
Education
Recreation and social
contact
Economic and
physical security
Governance and
fundamental rights
Overall life experience
Nature and
environment
Quality
of life

42. Student research competition held every
year, worth to participate!
More information: www.macroeconomics.lv