The coronavirus storm clouds have not yet dispersed from the Estonian labour market
Economist at Eesti Pank
The labour market review soon to be published by Eesti Pank finds that after a steep drop in employment and a sharp rise in unemployment in the second quarter of 2020, the labour market remained stable during the summer. The contraction in the Estonian economy in the first wave of the coronavirus pandemic was smaller than those in the majority of European countries, and the labour market did not follow the more pessimistic scenarios.
Employment fell by more in Estonia than it did in other European countries on average during the spring crisis and the reaction of the labour market was one of the strongest in the European Union given the extent of the contraction in the economy. This shows how Estonian companies adjust their numbers of employees if they fall into difficulties, and they did so despite the measures that were taken to preserve jobs and the wage compensation measures that were introduced very swiftly. However, companies cut jobs to a much lesser extent than their output declined, as the number of hours worked per employee also fell substantially.
All the data sources indicate that the service sector suffered more from the coronavirus crisis than the industrial sector did, especially areas connected to tourism like accommodation and catering. However, the industrial sector is not strongly positioned either, as registry data show that employment fell in industry over the year by about as much as it did in services. This was because the industrial sector had started cooling in the second half of 2019, before the virus crisis erupted. In the economy as a whole in the third quarter, the fall in employment slowed and hiring picked up, which is confirmed by the rise in the number of job advertisements in the Töötukassa database and the improved expectations of employers for employment.
The labour force survey showed that unemployment increased during the crisis to 7.1% in the second quarter of 2020 from 5% in the previous quarter, and the monthly unemployment data published by Eurostat indicate a small rise in unemployment in the third quarter as well. Unemployment rose by less than the contraction in employment because participation in the labour market declined. This may be partly a consequence of the restrictions brought in to stop the spread of the virus and of fear of infection, which can hinder participation in the labour market. Equally, a large share of the seasonal jobs in the service sector were not created this spring, and these are the jobs where young students usually work.
Weaker demand for labour and an increased amount of available labour caused wage growth to slow in the second and third quarters. The crisis affected wages most in tourism, like it did employment, especially in accommodation and catering, where the average wage fell. Data from the Tax and Customs Board showed that the growth in wages recovered a little in the third quarter, but the year on year growth rate remained slower than before the crisis.
The future development of employment and unemployment depends on the performance of businesses, which in turn depends on the further evolution of the coronavirus pandemic and the measures taken to stop its spread in Estonia and abroad. New travel restrictions are already being introduced in Europe to stop the second wave of the virus, and this will again affected the Estonian tourism sector. Companies probably have less fat left to cut after a poor summer season and so there is more risk of redundancies if they face difficulties. The government has so far stated that it will not continue paying the wage subsidy, so efficient social insurance measures will become more important as they can help those who lost their jobs to update their skills and knowledge and find new work.
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