Statistics Estonia estimates that the economy contracted by 3% last year, but there was no large-scale loss of jobs or rise in unemployment. Wage growth remained strong at the same time and outpaced the rise in consumer prices. The contraction in the labour market will come later than that in economic activity, and so unemployment can be expected to rise and employment to fall in the early part of this year.

Both the labour force survey and register data show that the recession has affected the labour market less than had been forecast. The labour force survey shows that the recession had essentially no negative impact on employment, which was almost 2% higher at the end of last year than it was a year earlier. The survey probably underestimated the increase in employment in 2022 caused by refugees from the war in Ukraine entering the Estonian labour market though, as the methodology used for the survey only takes them into account from 2023. Register data from the employment register and the Tax and Customs Board indicate falls in the fourth quarter of last year in the number of employment relationships and in the number of wage recipients, but given the depth of the recession, the fall was less severe than that in earlier crises, as it was between 0.6% and 1.8% in the fourth quarter. The register data suggest that job creation in the public sector and in various parts of the service sector supported employment.

Wages and the purchasing power of the average wage increased strongly in 2023 despite the recession. The rate of increase of the average wage slowed over the year, but Statistics Estonia still estimates it at 9.7% in the fourth quarter, and the average gross wage was 1904 euros. That purchasing power is recovering is of course good news for wage earners. However, wages rising more slowly than prices at the start of the crisis allowed businesses to maintain and even increase their profits, and probably helped preserve jobs, while the pressure on profits from rising wages increases the risk that unemployment will increase in the coming quarters.

The recovery in the labour market will follow the return to growth in the economy after a delay, and so it may be expected that employment will still fall at the start of this year and unemployment will increase. This is also indicated by surveys in January and February by the Estonian Institute of Economic Research, which found that the expectations of employers for employment and their perception of labour shortages remained below their historical averages. The Töötukassa database of new job advertisements does not yet indicate any increase in demand for labour either, and it has been at a similar level in recent months to what it was in 2020 when the labour market was affected by the pandemic. Given though that the data from Statistics Estonia show that the decline in industrial output has slowed, the rise in unemployment going forwards may be expected to remain moderate.

Additional information:
Hanna Jürgenson
Eesti Pank
Communications Specialist
Tel: 56920 930
Press enquiries: [email protected]