The labour market remains favourable for employees

Orsolya Soosaar
Economist at Eesti Pank
  • The labour market favoured employees very much in the fourth quarter of 2017
  • The unemployment rate was 5.3%
  • Labour shortages have deepened for companies
  • Companies that cannot improve productivity or raise wages are losing competitiveness as employers

The Estonian labour force survey shows that the number of people in employment was 4.6% higher in the fourth quarter of 2017 than a year earlier and the number of employees was 4% higher. This is probably not due to any sharp acceleration in the growth in employment at the end of the year as the Tax and Customs Board reports that the number receiving a declared wage was up by 1.3% over the year in the same quarter. The Labour Force Survey estimates can be quite volatile from quarter to quarter. The full-year data in the Labour Force Survey found the number of waged employees grew 1.3%, which is about the same as in the data from the Tax and Customs Board, where it was 1.1%.

Last year was a good year for the labour market in Estonia. The participation of working age people in the labour market increased to 71.6%, while the unemployment rate fell to 5.8%. Unemployment was notably higher in the European Union on average at 7.7% than in Estonia. The share of people of working age participating in the labour market was smaller in the European Union at 65% than it was in Estonia.

Estonian employers are still concerned about labour shortages. The share of companies that consider labour shortages to be a factor impeding growth in production increased in the fourth quarter. At the same time companies were more optimistic about future increases in employment than they were in previous years. Labour shortages and higher consumer price inflation boosted the growth in wages in the second half of the year as the average wage declared to the Tax and Customs Board was up 8.5% in the fourth quarter.

Labour shortages are a consequence of the favourable position of the economic cycle, and this is amplified by the decline in the working age population. Employment has climbed in the decade since the major economic crisis and has added more than 90,000 people from its low point. If the external environment remains stable, the economy will probably adjust smoothly to the shortage of labour. Employees will leave jobs with low value added and low wages and it will not be possible to find new employees to replace them. Companies that cannot improve productivity or raise wages will disappear. This will be partly offset by Estonia becoming a more attractive destination for immigrants and returning emigrants, and by people’s health letting them remain longer in the labour market.


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