Unemployment is low but competition in the labour market may become tighter
Economist at Eesti Pank
Three factors are having a significant impact in the Estonian labour market this year, and these are the loss of momentum in growth in the economy, the loss of competitiveness in the oil shale sector, and the large number of foreign workers coming to work in Estonia for the short term. Even so the labour market has been in a very good position as overall labour shortages have been more of an issue than unemployment. Of all those aged 15–74, 68% were in employment, which is one of the highest figures in the European Union. Unemployment was only 5%, which is very low.
Signs built up though in the first half of the year that the cooling in the economy is also reaching the labour market. The worse outlook for exports affects the industrial sector above all, while demand for workers remained strong in services. The share of employers in manufacturing who expect to reduce the number of people they employ is larger than the share of those who expect employment to grow, and growth in employment has slowed in that sector. The reduced interest among employers in hiring new staff is also reflected by the low number of vacancies and by fewer employers citing labour shortages as the main obstacle preventing them expanding output.
Oil shale production, which is also part of the industrial sector has further been affected this year by a sharp rise in the price of CO2 quotas, which makes electricity produced in Estonia less competitive. Smaller production volumes mean that Eesti Energia is cutting its employee numbers by around 800. This shock has not yet impacted the labour market indicators, but experience from the previous crisis shows it will affect employment and unemployment in Ida-Virumaa substantially.
One of the main events in the Estonian labour market has been the change over some years in the trend for migration. Not only have more than 7000 more people moved to Estonia over the past year than have moved away from Estonia, but more and more foreigners have come to Estonia in recent years for short-term work. The number of valid registrations for short-term work was around 20,000 in the third quarter of 2019. Low unemployment and the natural decline in the number of people of working age mean that Estonia has generally benefited from this flow of labour, though it does come with risks. If the economy should suffer a setback and competition for jobs stiffen, the presence of short-term workers could make conditions harder for local people who are looking for a job.
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