The labour market is taking time to recover, and wage growth will slow

Autori Orsolya Soosaar pilt

Orsolya Soosaar

Economist at Eesti Pank



The labour market indicators at the start of this year revealed the impact of the recession, but that impact has been more moderate than during earlier crises. The rise in unemployment has been driven more by the strong increase in labour market participation and the number of people of working age, while employment has fallen little. Wages decelerating but still rising fast reflects the increase in wages while inflation was high. If demand starts to grow for production, Estonian companies will be able to increase their output again with the employees they have.

Unemployment rose to 7.8% in the first quarter of this year in response to the recession, which is close to what was seen during the pandemic crisis. The high unemployment rate largely reflects the high labour force participation rate and the increase in the number of people of working age as a consequence of immigration. Employment has fallen during the recession less than it did during earlier crises, but the weak position of the economy has not encouraged the creation of jobs for the new arrivals. The labour force survey shows that employment was 0.5% less in the first quarter than it was a year earlier, while register data show a slightly larger fall of 2% in employment relations in the employment register, and data from the Tax and Customs Board show there were 1.1% fewer people declared as receiving a wage than a year earlier. Sectors such as manufacturing, construction and transport that were hit harder by the recession have lost more jobs.

Growth in wages is slowing, but at 8.8% it was still fast in the first quarter. Data from the Tax and Customs Board for April indicate growth in wages slowing further. Growth in wages slowed most in the first quarter in local government administration, as the wages of people working in education have risen rather less this year than they did last year. Wage agreements in healthcare apply from the second quarter, and so the slower growth in wages there is still ahead. Statistics Estonia put the average gross monthly wage in the first quarter at 1894 euros. The steep rise in the minimum wage has given a boost to wage growth in the private sector, but the economy remaining weak, productivity falling and inflation declining mean that growth in wages should generally slow.

Unemployment is expected to fall quite slowly in the near term, as employment has remained relatively strong during the recession and so companies should be able to increase their production without at first needing to hire additional employees. Employers have generally modest expectations for increases in employment in their responses to surveys by the Estonian Institute of Economic Research. The growth in labour in recent years will in the long term make it possible to create additional jobs and increase the size the Estonian economy.

Additional information:
Hanna Jürgenson
Eesti Pank
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