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

The Estonian labour market remained broadly stable in 2024. The number of people in employment did not fall during the recession according to the labour force survey, which indicates that companies that reduced output may be able to increase it again as the economy recovers by using their internal reserves of labour. Improving productivity is an important way for companies to remain competitive and to reduce the inflation pressures that come from rising wages. The main risks to the labour market moving forward come from the trade war and the uncertainty it is causing, as demand for labour depends directly on the performance of businesses.

Register data show that employment fell over the whole year of 2024. The number of people earning a wage in the private sector was no longer falling as fast as it was earlier, but the number in the public sector no longer rose at the same rate. The number of employees started to grow slightly at the end of the year in manufacturing, which was the sector hit fastest and hardest by the recession and where employment fell in total by around 7%, as a recovery in economic activity and exports provided some support. Employment still fell though in several other parts of the private sector, including construction and retail. The number of people earning a wage in the public sector from public administration and education no longer rose as fast as it had earlier. Demand for labour increased further in healthcare though. The public sector and services have given support to growth in employment in other European countries as well in recent years, while the manufacturing sector has performed worse at the same time. Data from the labour force survey show that the share of employment in Estonia that is in the public sector is still around the average for other countries in Europe, even though it has increased in recent years.

The number of people unemployed was higher in 2024 than in the previous year largely because of more active efforts to find work, and less because of jobs disappearing. This is a sign of the resilience in the labour market, but also indicates that demand for workers was too weak for new jobs to be created at the same rate that the number of jobseekers is increasing. Comparison with other European countries shows that the level of unemployment in Estonia puts it among the countries with a high unemployment rate, alongside several of its major trading partners like Finland, Sweden, Lithuania and Latvia.

The average wage grew more slowly in 2024 at first than it did in 2023, though the growth picked up again at the end of the year. This is partly a consequence of the time-shifting of wages, as wages were paid out at the end of the year before income tax rose, though this does not entirely explain why growth in wages accelerated. Wage growth picked up most in the private sector, where the workloads of employees could increase a little as the economy recovered. The wage demands of employees may have been pushed up by their desire to compensate for the reduction in purchasing power that the anticipated rise in tax and inflation would cause. It is also possible that the shortage of employees with the appropriate skills may have been a factor, which is indicated by wages rising faster at a time when the number of jobseekers is higher than the average. The purchasing power of wages grew strongly throughout last year, and is now above its peak from before the recession. Eesti Pank forecasts that the growth in the purchasing power of households will be temporarily slowed this year by higher taxes and inflation, but it is expected that the elimination of the tax hump in 2026 will cause a substantial improvement in it.

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