The Estonian economy has been in recession for a year and a half now, but the labour market has so far performed better than forecast and better than experience from previous economic crises would suggest. The number of jobs in manufacturing and in construction has been falling for some time now, but the service sector has helped hold overall employment high. It is forecast that the economy will soon start to recover but that it will not do so rapidly, and if labour costs continue to rise fast then it is probable that jobs will become harder to find.

Register data show that employment peaked in the second half of 2022 and that it started to fall in yearly comparison from this summer. Given the extent of the recession though, with GDP down 4.1% from its peak, the decline in employment has so far been quite limited. Further indications that some further cooling is to come in the labour market are given by the expectations of employers for employment becoming increasingly pessimistic throughout the year so that they are by now below their historical average, and also by the number of job vacancies advertised through Töötukassa falling.

The unemployment rate stayed very low for a long time, but the data from the labour force survey from Statistics Estonia show it rose sharply in the second quarter of 2023. The number of people unemployed rose mainly because the share of the population wanting to work increased though. The unemployment rate continued to rise during the summer months to 7.6% in August according to data published by Eurostat. Registered unemployment has also been on the rise since May. An increase in the number of people looking for work and a fall in the number of jobs available means there is increased competition for jobs and so there is less upwards pressure on wages. Survey data show that employers also feel that labour shortages have eased.

The growth in the average gross monthly wage accelerated in first half of 2023, but this was driven by a sharp rise in the minimum rate of pay for teachers, wage rises in internal security, and a new collective agreement in healthcare. Private sector wage growth slowed a little in the second quarter, but was still fast given the ongoing recession, and it increased labour costs as a share of GDP. Rapid growth in labour costs may threaten the competitiveness of exporting companies, as labour costs are a major part of production costs. The increase in labour costs in manufacturing in Estonia has not however been noticeably more than that in Latvia and Lithuania since before the pandemic, and it has been smaller than the increase in Poland and some other countries in Central and Eastern Europe. In a very general sense at least, the data do not indicate that wage costs have made manufacturing companies less competitive than companies in those countries.

Additional information:
Hanna Jürgenson
Communications Specialist
Eesti Pank
Tel: 5692 0930
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