Larger wage rises are not offsetting the rise in consumer prices
Economist at Eesti Pank
Data from Statistics Estonia show that the growth rate in the average wage accelerated from 8.1% year on year in the first quarter to 10.1% in the second. Data from the Tax and Customs Board show the average declared wage increasing at a similar rate. Although the rapid rise in consumer prices has boosted growth in wages as well, wages are still rising more slowly than prices and the purchasing power of the average wage is decreasing.
Yearly wage growth was particularly fast in accommodation and food service at 18.6% as the sector recovers from the Covid pandemic. The average wage at companies in accommodation and food service was 62% of the average in the economy, and the share of the employees earning the minimum wage is also larger than the average in the sector. The rise in the minimum wage and the strong recovery in accommodation and food service mean that wages below the median have again risen fast in the first half of this year.
Wage growth moving forward will come under increased pressure from employees looking for wage rises to recover their purchasing power. Wage increases seem feasible at those companies where the prices of production outputs have risen faster than production costs. Wage growth will be restrained though by reduced confidence among employers given the great uncertainty about prices of raw materials and energy and about foreign demand. The economy will be weaker in the second half of the year than in the first, but staff shortages and rapidly rising consumer prices will keep wages growing at a similar rate to what they have been.
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