LABOUR MARKET REVIEW. Companies are again having difficulties in finding qualified labour



Orsolya Soosaar, Lauri Matsulevitš
Economists at Eesti Pank

The Estonian economy grew strongly in the first half of 2021 despite the new wave of Covid-19 and the restrictions introduced to stop the spread of the virus, but the labour market recovered more slowly. There were still fewer people in employment in the second quarter than there were before the pandemic, and unemployment was higher. Businesses were able to increase their output volumes by increasing the hours worked by employees, which is usual in the exit from a crisis. Growth in employment picked up in the summer months and unemployment fell, but the further recovery in the labour market continues to depend largely on how the pandemic plays out.

The pandemic has affected different sectors very differently and has pushed people to change sector. The number of employees and the value added created are now greater in some sectors than they were before the pandemic. This is the case in sectors like healthcare and information and communications. However, both employment and value added remain lower than they were before the pandemic in many other sectors. This is the case in sectors like accommodation and food service, and also in manufacturing. The restrictions on activity in spring 2021 generally had a lesser effect than a year earlier, except in accommodation and food service. Evidence of this is the broad use of wage compensation even though the conditions for qualifying for it were stricter than a year earlier.

As employment was lower in the first half of 2021 than it was before the pandemic, there was more labour available in the market. Even so, employers are increasingly worrying about labour shortages and are again hiring workers from abroad as much as they were before the pandemic. This is probably because many of the unemployed have a professional background in sectors that were affected badly by the pandemic, such as accommodation and food service. New jobs are mainly being created in other sectors however, and the skills and experience of local jobseekers often do not match the requirements of the new jobs.

As perceived labour shortages have increased, so the average wage has grown faster, and it was up over the year by 7.3% in the second quarter of 2021. Looking forward there are several factors that threaten to increase wage pressures further, including the expected rise of 12% in the minimum wage from a year earlier, the rapid rise in consumer prices, the declining labour market slack, and different rates of growth in employment in different sectors. The growth in labour productivity was greater than that in labour costs by the second quarter of 2021, but in future this may be reversed. There are not many options for easing wage pressures other than giving greater priority than before to helping jobseekers gain the skills they need to find a job. The situation before the pandemic when public sector wages were rising notably faster than private sector ones should also not be repeated.

Additional information:
Ingrid Schmuul
Communications Specialist
Eesti Pank
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