Corporate profit grew faster than wages in the second quarter

Orsolya Soosaar
Economist at Eesti Pank
  • Growth in wages picked up and was close to the average rate of 2016
  • Real wages  grew more slowly because of inflation
  • Wage growth is being boosted by strong demand for labour

The average gross monthly wage was up 6.8% in the second quarter of 2017 on the same quarter of the previous year. The growth rate was faster than the 5.7% seen in the first quarter and was close to the average rate seen in 2016. Faster inflation has noticeably slowed the growth in real wages, meaning that the purchasing power of those earning the average wage is growing more slowly than previously.

Despite the rapid rise in wages, corporate profit also increased. Several factors have contributed to this, including increased foreign demand, a recovery in the oil shale sector affecting mainly mining and electrical energy production, and an increase in construction activities because of large investments in infrastructure. Wages are less volatile over the business cycle than profit is, and when the economy is strengthening profits increase faster than wages do to make up for earlier declines. For labour costs to approach the share of value added seen before the economic crisis or the European Union average, growth in profits would have to exceed that in wages for some time yet.

In future the growth in wages may be accelerated even further by strong demand for labour, which is normally seen when the economy is growing rapidly. Sentiment surveys by the Estonian Institute of Economic Research show that the share of companies expecting employment to increase has grown and a shortage of labour is being cited more frequently as a factor limiting production. The danger of overheating is particularly apparent in construction, where wage growth in the second quarter was still lower than the average for the economy as a whole. It has probably been restrained partly by the employment of labour from abroad.


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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Eesti Pank
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