The purchasing power of the average wage was at its lowest last autumn
Economist at Eesti Pank
The average gross monthly wage was 1741 euros in the first quarter of 2023 and its rate of annual growth rose to 13.3% from 12.1% in the previous quarter. The real wage was down in annual comparison, but it has been recovering since the fourth quarter of last year. The main driver of the faster growth in wages was the rise in the average wage in education, where the minimum wage for teachers rose almost 24%, and in public administration, where wages rose for rescue board staff and police officers.
High overall inflation has so far helped companies raise the prices for their output, and so cope with wages rising by more than 10%. Corporate profits are usually the first to suffer if growth slows in the economy or if there is a downturn. There will be some delay before wage growth slows and jobs start to be cut, as it is hard to cut wages and it takes time to terminate contracts. Last year was unusual because there was a recession coupled with very high inflation. As inflation decelerates, continuing upward pressure on wages will push companies to optimise their production more, and probably also to give up some part of their profit.
Statistics Estonia is publishing information on the wage distribution from this year. The share of those earning the minimum wage in the first quarter was between 10% and 20% of all the employees observed. They are below 10% of employees in most sectors, but in real estate activities they are at least 30%, and in accommodation and food service at least 20%. Wages grew faster in the lower part of the wage distribution in the first quarter of this year than they did in the higher end, which means that the wage distribution is again becoming more equal.
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