Orsolya Soosaar, Katri Urke, Lauri Matsulevitš and Kaspar Oja

The impact of the enduring recession on the labour market deepened in the second half of 2023 and the early part of 2024, but employment has not fallen as much as it did in earlier difficult times, and unemployment has risen little. It is not only in Estonia that the labour market has held relatively strong despite the recession, as the same effect has been observed in many advanced economies where the energy crisis and the impact of the war in Ukraine have weakened economic activity. The main explanation that has been put forward for this is that employers are being cautious about reducing staff because their experience from the recovery after the Covid-19 pandemic was that it was difficult to find new employees to replace those that had been laid off. The Eesti Pank forecast expects that the labour market will cool further in the first half of this year, but the overall impact of the recession on employment and unemployment will remain moderate.

Register data show that employment in manufacturing started to fall in the middle of 2022, and has continued to do so in the first months of this year. There are now 6% fewer people declared as receiving a wage in the sector than there were at the peak of employment. Employment in the services sector remained stable for a long time, but the recession has started to have an impact there too in the past six months. The number of employees in services has so far fallen little though. Forward-looking indicators unfortunately do not point to the labour market improving, but neither do they show the decline worsening. The expectations of employers for employment held stable in the second half of last year and the first half of this, but they were below the historical average and the number of jobs advertised through Töötukassa has fallen to around where it was at the start of the pandemic.

The labour force survey from Statistics Estonia and the monthly data published by Eurostat show the unemployment rate to have been very volatile in the second half of 2023. Unemployment rose to 7.3% in the third quarter of last year, but then fell back again in the fourth quarter. The fluctuations are largely caused by the behaviour of unemployed people, and whether they meet in full the definition of unemployed as being actively looking for work and ready to start work within a short time. The number of people registered as unemployed has been trending slowly upwards for a year, in contrast to the survey-based figure.

The average gross wage rose more slowly in the second half of 2023 than it did in the first half, but it still rose fast given the weakness in the economic environment, and it outpaced consumer prices. The rate of increase slowed in the industrial sector and at private companies in services. Wage growth will be reined back this year by slower growth in consumer prices and by the sluggishness of the recovery in the economy. Wage growth is also expected to slow in the state sector as the effect of last year’s collective wage agreements will disappear, and wage rises this year have been more modest. Wage increases will also be restrained because there are more job-seekers for each unfilled position, meaning there is greater competition for jobs than before. Despite wage growth slowing, the labour costs for producing goods and services in Estonia have risen fast, hurting the competitiveness of Estonian companies in export markets.

Additional information:
Hanna Jürgenson
Communications Specialist
Eesti Pank
Tel: 5692 0930
Press enquiries: [email protected]