The acceleration in wage growth is being driven by the industrial sector

Orsolya Soosaar
Economist at Eesti Pank

The average gross monthly wage was 1201 euros in the third quarter of 2017 and its rate of annual growth rose to 7.4% from 6.8% in the second quarter. Reasons why wage growth has increased include faster inflation, which has raised the wage demands of workers; growth in labour productivity, which has increased since the middle of last year; and increased demand for labour at a time when the number of people of working age is limited and labour shortages are tightening.

Wage growth accelerated most in the industrial sector, in construction and in jobs related to oil shale. In those sectors and in manufacturing, where wage growth has not yet taken off, labour shortages have increased and employers are recruiting new workers. This is shown by the rapid growth in the number of employees in various parts of the industrial sector and by other employment indicators and data sources like the employment expectations in the barometer survey of the Estonian Institute of Economic Research. It is hard to find the right employees at current wage levels. There has also been a rise in the share of companies saying that labour shortages are restricting the expansion of output.

Unfortunately the faster wage growth in the third quarter was not accompanied by productivity growth at the same rate that was seen in the first half of the year. This is partly because one-off factors that temporarily boosted productivity growth have faded away, as production has recovered in the energy sector for example and will not grow at the same rate in future. It may also partly be because the capacity of employers to use their employees more efficiently has been exhausted because investment has been smaller in recent years than previously. Additional labour will be needed for production to be increased, and labour shortages mean that this will raise the pressure on wages.

Yearly growth in the average wage


Eesti Pank observes and comments on wage developments as labour costs have a direct impact on the price of goods and services produced in Estonia and wage growth is an important indicator of price stability.

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