Wages continue to rise fast despite the downturn in the economy
Economist at Eesti Pank
The average gross monthly wage was 1775 euros in the fourth quarter of 2022, which was 9.2% more than in the fourth quarter of the previous year. Although the economy contracted at the end of last year, the growth in the average wage still remained strong. The purchasing power of wages was lower over the whole of last year than it was in 2021 though.
If the economy had not contracted, high inflation would have pushed wages to rise even faster. The growth in wages is affected by the economic climate deteriorating, which makes companies less inclined to hire. This is shown by the sentiment survey of the Estonian Institute of Economic Affairs, and by the fall in employment.
Higher consumer prices increase the upwards pressure on collectively bargained wages, especially in the public sector. The lowest rate of pay for workers in healthcare is rising by 20% for example, and wage growth is accelerating in education. The minimum wage also rose from this year by 10.9%. Such wage rises also have an indirect impact on the private sector, as they shape the expectations of workers for wages in general and to some extent for their particular job. Even faster growth in wage costs can start to eat into competitiveness though.
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