The crisis has applied the brakes to wage growth

Orsolya Soosaar
Economist at Eesti Pank

Data from Statistics Estonia show that the average wage was 2.9% higher in the fourth quarter of 2020 than it was at the same time in 2019. The seasonally adjusted average wage was higher than in the third quarter. Wage growth in Estonia is much slower than it was before the crisis, as labour shortages are notably smaller than they were earlier.

There were over 55% more people registered as unemployed in the fourth quarter of 2020 than there were a year before. Having been reduced by the crisis, demand has not recovered at many companies, meaning that they still do not need to hire additional staff. The sentiment indicators of the Estonian Institute of Economic Research show some improvement in employer expectations for employment growth and in the share of employers noticing labour shortages, but these indicators were still lower in the fourth quarter than they were before the crisis. Different sectors are experiencing the demand for labour and the amount of available suitably qualified labour very differently, and this is affecting wage growth. Wages in the sectors that were hit most by the crisis, such as accommodation and food service, administrative and support services, and retail, were even lower than a year earlier.

The growth in the average wage will be restrained in the coming quarters by higher labour market slack, the postponed rise in the minimum wage, and the impact on the labour market of the restrictions introduced because of the second wave of the epidemic. Employment suffered relatively more in Estonia than in other European Union countries on average because of the crisis, but the reaction of wage growth to the state of the labour market has been an important channel for the labour market to readjust.

Additional information:
Hanna Jürgenson
Eesti Pank
Tel: 56920930
Email: hanna.jyrgenson [at] eestipank.ee
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