The new wave of the virus is slowing the recovery in the labour market



Orsolya Soosaar, Katri Urke, Lauri Matsulevitš, Kaspar Oja
Economists at Eesti Pank

The latest labour market review from Eesti Pank shows that employment in Estonia dropped sharply at the start of the pandemic crisis and then remained stable in the second half of last year. Estonia stands out in European comparison because although the decline in the Estonian economy in 2020 was smaller than those in most other countries in the European Union, the labour market reacted more strongly than on average in Europe.

The labour force survey from Statistics Estonia shows that 4.3% fewer people were employed in Estonian institutions and businesses in the second half of 2020 than a year earlier. The pandemic has affected different sectors very differently, as employment increased in healthcare and education for example while there were a fifth fewer workers than a year earlier in accommodation and food service, the sector that has been hit hardest by the crisis.

Demand from companies for labour decreased last year, but various factors softened the impact of this on Estonian residents. One was the steep fall in the number of hours worked per worker during the first wave of the virus, which showed that companies reduced work levels much more than they cut jobs. They were probably helped in this by the wage subsidies. Secondly, the number of residents of Estonia working abroad, particularly in Finland, rose, and thirdly the number of workers from outside the European Union employed at Estonian businesses dropped much more steeply than the number of permanent residents of Estonia employed.

Employment rose from 5% at the start of the Covid-19 crisis to 7.1% and did not change much in the second half of the year. Registered unemployment continued to rise in the second half of last year among the young, and also in Harjumaa and among service and sales staff. This indicates that demand for labour continued to fall in some parts of the services sector in the autumn, and that it is the workers with less protection than the average who have lost their jobs during the crisis.

The coronavirus pandemic has reduced wage pressures in Estonia. Although the average wage recovered when the emergency situation ended, it rose more slowly in the second half of last year than it did before the crisis in both the private and public sectors. Data on the wage distribution show that wages that are both below and above the average rose more slowly than previously. The average wage in accommodation and food service had not returned by the end of 2020 to where it was a year earlier.

It is still too early for the labour market data released so far to show the impact on the labour market of the tightened restrictions in 2021. These restrictions will undoubtedly have affected the decisions of businesses, but several circumstances are different from what they were during the emergency situation last year. There is now less uncertainty about the meaning of the restrictions, as businesses have adapted to the new circumstances and have the experience they gained last year. The upward trend in the share of the population that has been vaccinated gives hope that the restrictions will prove only temporary and that domestic clients at least will return quite quickly once the restrictions have been removed. Employment has by now fallen quite a long way and the sectors where there is a danger of further redundancies are counterbalanced by sectors where the number of employees is very likely to rise in future. The public sector is supporting growth in employment for example, as will construction once construction projects are relaunched. The wage subsidy will again soften the impact of the restrictions, though it is somewhat smaller than it was last spring.

Additional information:
Ingrid Schmuul
Communications Specialist
Eesti Pank
Tel: 668 0965, 5697 9146
Press enquiries: [email protected]