Labour shortages remain dominant in the labour market
Economist at Eesti Pank
Growth in the economy slowed in the first half of 2018 and signs of this were evident in the labour market, with employment growing more slowly than in 2017 for example. There are still a lot of vacant positions in the economy, but they are fewer in number than a year ago. Despite some calming of the labour market, labour shortages remain dominant. Employers say that finding employees remains a serious problem and the share of people of working age who are already in work is at historical peak levels.
Wages rose a little faster in the first half of 2018 than labour productivity did, which means that production in Estonia is becoming more expensive. At the same time though, wages have started rising faster in many of the newer member states of the European Union, and so production in Estonia is not rising in price relative to the competition as fast as it was a year ago.
Wages rose more slowly in the second quarter of 2018. This may be because the rules have been loosened for foreign workers, and people who have previously been out of the labour market have been participating more actively. Slower wage growth may also be a consequence of the income tax reform. The tax burden on workers earning up to the average wage fell notably, and this may have allowed employers to raise gross wages by less in 2018. The income tax reform also affected how wages were paid out in the summer months, and if this affected the estimate of the average wage, faster wage growth can be expected again in the second half of the year.
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