Labour Market Review 1/2021
The labour market review by experts from Eesti Pank covers developments in the supply and demand of labour in Estonia, and the cost of it in wages. The central bank observes the labour market for two reasons. Firstly, labour is an important production input, as a change in the supply or activity of labour can directly affect potential growth. Secondly, events in the labour market can have a major impact on inflation.
As the euro area monetary policy targets price stability, and the Estonian economy is very open, the economy adjusts to changes principally through the prices and volumes of production inputs. For this reason it is important for the labour market to be flexible and for wage rises to correspond to productivity growth, as otherwise the increase in production costs could lead to excessive inflation.