Developments in the labour market favour workers

Orsolya Soosaar and Natalja Viilmann
Eesti Pank Economists

Employment grew at a steady rate in the first half of 2013 despite the slow rate of economic growth. This is still evident even after correction is made for the natural shrinkage of the working age population and emigration, which are not taken into account in the labour market statistics for this year. The slowdown in growth in the first half of the year did not affect the labour market significantly as it was not broad-based and economic growth affects labour market indicators with a lag.

Detailed data by county from the population statistics show relatively high domestic internal migration. Labour markets in several counties, such as Ida-Virumaa, Valgamaa and Jõgevamaa are affected more by the large movement of population to other counties than by emigration. As a result, manufacturing companies face shortages of skilled labour, and their relocation has an impact on other businesses.

The employment rate, or the share of the working age population that is in employment, is currently almost as large as it was before the crisis, while unemployment has fallen. The number of people who don’t meet the criteria to be classed as unemployed but who would like to work or to work more hours also fell. The share of employees whose wages increased was notably larger in the first half of 2013 than it was last year. This shows that the recovery in the labour market has improved the lives of many people who suffered during the crisis.

Companies had to raise wages by more than last year in order to recruit new employees and to hold onto their existing staff. The shortage of qualified workers and the option of going abroad to work have strengthened the position of employees in the market. The unemployment rate has fallen to a level where wage pressure is increasing and the number of job-changers among new employees has increased. Although profits grew together with wages in the first half of the year, any continuation of wage growth over a longer term will lessen the ability of companies to maintain jobs if there is a temporary setback.

In the last three years unit labour costs have risen by more than 9% in total. The main risk linked to the rapid rise in unit labour costs is of wage pressure, which has already evident in the faster rises in service prices and a weakening in the price competitiveness of the exporting sector. This in turn could have a braking effect on economic growth.

For further information:
Ingrid Mitt
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