Orsolya Soosaar, Lauri Matsulevits and Katri Urke, Economists at Eesti Pank

There was no resounding improvement in the state of the Estonian labour market last year. This was to be expected because changes in economic activity reach the labour market after some delay and the economy has been recovering from its long recession more slowly than expected. Growth in employment is also being restrained because businesses have reserves of labour since they did not reduce their employee headcounts to the same extent that output fell. A positive signal looking forwards is that employment is no longer falling as fast as it was in the register data of the Tax and Customs Board, and the expectations of employers for employment in the future have improved. The main risk factor now is how the war between the USA and Iran will affect energy prices and corporate sentiment.

There was little change overall during the year in the number of people receiving a wage under an employment contract in either the public or the private sector. It rose a little in the public sector because of an increase in the numbers working in healthcare and social care, while the number of employees in the private sector fell by 0.6%. Manufacturing and construction were doing noticeably well as the recovery in the external environment and lower interest rates meant that demand for new workers revived and the number receiving a wage increased slightly from month to month. The number earning a wage in services continued to fall meanwhile as the sector was hit later by the recession and domestic demand remained weak throughout 2025. The expectations of employers for further development in employment became more optimistic during 2025, but the recent start of the war between the USA and Iran has hit confidence again.

Unemployment remained throughout the year at 7.5%, which was the same as in the previous year. Registered unemployment has now been falling for two years and unemployment estimated from the labour force survey fell to 6.4% in the fourth quarter of last year. It did not fall because employment increased, but because the number of people participating actively in the labour market fell. The youth unemployment rate rose last year to 20.7%, and it has been persistently high since the pandemic. This is partly because of the various crises, which have impacted those entering the labour market because companies are not as keen to hire new staff as during good times. The labour market figures for young people are also affected by an increase in the share of those aged 15-19 within the 15-24 age group, as they are less likely to be active in the labour market or employed in a job since they are studying at school and are very probably only starting to look for their first job.

Wages rose more slowly last year, gaining 5.6% after rising by 8.1% in the previous year. The public sector contributed to this change because the collectively agreed pay rises in education and healthcare were small. Growth in public sector wages is expected to pick up again in 2026, as pay for teachers has already risen 10% and the minimum hourly pay in healthcare has risen 4.5%. Growth in private sector wages was slowed a little because of the timing of wage payments in response to tax changes in both the first and last quarters of last year. Wages were growing faster in the private sector in manufacturing and construction, which reflected the improved expectations of employers for employment and the greater demand for labour there.

The latest labour market review will soon be published on the Eesti Pank website.

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Hanna Jürgenson
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Eesti Pank
Tel 5692 0930
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