Data from Statistics Estonia show that the number of employed fell in the first quarter of 2014 by 0.7%. As the working age population shrank by 0.9% at the same time, the share of the working age people who were in employment was about the same as a year earlier. The unemployment rate fell, but this was because more people than before left the labour market and became inactive.

The flash estimate of Statistics Estonia show that Estonia’s economic growth was negative in the first quarter of 2014. The economic environment has long been weak, and the impact of this has been reflected in the falling number of employed. The labour market has so far been better than economic growth would suggest. This is partly because 3% of the employed work in the real estate and energy sectors, which data from Statistics Estonia show putting a brake on growth but still producing 16% of GDP. This means that these sectors use relatively little labour. On top of this, difficulties in transport and warehousing have been in the transit business rather than in passenger transport, where the majority of those employed in the sector work.

Although wage growth slowed slightly at the end of last year and the number employed fell in the first quarter of this year, growth in labour costs has not really slowed enough to reduce the imbalances that have built up in the labour market over recent years. The imbalances are visible in a fall in labour productivity and in the extent to which growth in wage costs outstrips that in company profits for the economy as a whole. The pressure on companies from low productivity and thin profit margins is increasing. If the recovery in external demand is delayed, wage expectations will need to decrease in the near future. For the Estonian economy to grow in the long term and remain competitive, labour needs to move to more productive companies. This needs companies to make more efficient investments in human capital and the state’s labour policy to encourage labour mobility between sectors.

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Additional information:
Hanna Vaga
Public Relations Office
Eesti Pank
Eurosystem
Tel: +372 6680 959, +372 5097 285
Email: [email protected]
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