Inflation pressures from the labour market strengthened in the second quarter

Orsolya Soosaar
Economist at Eesti Pank

Estimates by Statistics Estonia show that employment growth accelerated to 3.3% in the second quarter of 2013. This assessment is based on the results of the Estonian Labour Force Survey, which uses the working age population figure unadjusted for migration. This year the population figures have equally not been corrected for the natural reduction in the working age population caused by changes in the age structure. This means the number of people employed is likely to be an overestimate but this does not greatly affect the labour market ratios, nor the quarter-on-quarter employment growth. Eesti Pank's calculations show that this growth was relatively fast, at 2.7% in seasonally adjusted terms. Although economic growth has remained modest in the last half year, the employment rate has reached 63%, which it is very close to the peak it touched before the crisis.

Employment growth in the second quarter was noticeably higher than real economic growth, which means that labour productivity fell. Statistics from the Tax and Customs Board indicate that wage costs grew rapidly, with the average salary paid out increasing by 7% in the second quarter of 2013. This implies that there was an increase in the gap between wages and productivity. The strong wage growth is probably a consequence of the reduced pool of available labour. The risk of the rapid growth in wages soon being passed through into prices is now larger than was earlier forecast.

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