Unemployment increased on account of higher participation
economist at Eesti Pank
Data from Statistics Estonia show that employment in Estonia remained high in the second quarter of this year despite the recession. The unemployment rate did reach 6.7% in the second quarter, but this was caused by the labour participation rate, which was at an all-time high. 745,000 people or 74.2% of people of working age participated in the labour force, which is nearly 30,000 more people than did at the same time a year ago.
Even though the economy continued to contract in the second quarter, the labour market overall remained stable. The labour force survey from Statistics Estonia showed that the number of people aged 15-74 who were employed was 3.2% higher than a year ago. The Tax and Customs Board data on declared wage recipients also show an annual increase, even though it is smaller than the survey data suggest. Both data sources indicate that the number of waged employees grew in the services sector, but fell in manufacturing and construction. This is in line with recent news about a decline in the output of several manufacturing branches as well as a decrease in the exports of goods.
In recent years, the labour market situation has been driven by labour shortages, but this issue started to ease some time ago due to more active labour force participation and a decrease in hiring by companies. A survey by the Estonian Institute of Economic Research shows that employers have become more pessimistic about the outlook of employment than on average. Fewer companies than before indicate that labour shortages impede the expansion of production. Data from Töötukassa show that the number of people registered as unemployed per one job advertisement has increased considerably. Going forward, these developments should soften the upwards pressure on wages and help reduce inflation in the future.