Payment of bonuses accelerated growth in wages
Economist at Eesti Pank
The average wage in the first quarter of this year was 8.1% higher than a year earlier according to Statistics Estonia. Data from the Tax and Customs Board show the increase in the average declared wage was a little larger at 9.3%. The rapid rise in consumer prices did not particularly boost growth in the average wage in the first quarter, and like in the previous quarter the growth was accelerated by an increase in irregular bonuses.
The wage expectations of workers are increased by higher prices for food and energy, and by a rise in the minimum wage. Additional wage pressures are found in those branches of the economy that have been affected least by the crisis and where there is still a shortage of qualified labour. Wage pressure is also increasing in the public sector, where the average wage rose by less last year than that in the private sector. The growth over the year in wages in the first quarter was fastest in public administration.
The capacity of employers to raise basic wages is limited though by uncertainty, difficulties in getting production inputs, and a notable rise in the prices of commodities. Corporate confidence dropped in Estonia earlier, when Russia invaded Ukraine, but the direct impact of this has not yet been seen in the labour market. Survey data from the Estonian Institute of Economic Research in April showed that uncertainty had reduced the share of companies planning to increase the size of their staff. The share of companies considering labour shortages to be the biggest factor restricting production also declined a little. If companies succeed in adapting quickly to the crisis and confidence improves, wage growth will remain fast and over time the purchasing power that the average wage has lost will be recovered.