The purchasing power of the average wage is 5% more than it was a year ago
Economist at Eesti Pank
The growth in wages slowed for the second consecutive quarter and data from Statistics Estonia show it was a little over 10% in the third quarter. Consumer prices were up by around 5% in the third quarter, and so the purchasing power of the average wage was 5% more than a year before.
The purchasing power of the average wage is still 4.8% less than it was in 2021, and it may be expected to recover further moving forwards. It is important that this happen over time though, as strong growth in wages will drive companies to raise their prices, making inflation come down more slowly.
It is also important that growth in wages be modest while the economy is in recession, so that jobs may be saved. Wages in Estonia have so far been flexible in comparison to those in other countries of the European Union. Collective negotiations over wages mostly happen in the public sector in healthcare and education, but are generally not encountered in the private sector. This means that if the position of the labour market deteriorates and unemployment rises, growth in wages will slow. The minimum wage, which covers all workers, will however rise next year by 13% to 820 euros. This will push companies to raise their lowest wages notably faster despite the difficult economic climate, and that will increase the risk of unemployment rising.