The labour market has not adjusted to the weaker economic environment

Labour costs increased a little more slowly in the first half of 2014 than they had earlier, but still notably faster than the total value added created in the economy. There are several reasons why the rapid growth in labour costs in companies has not yet stopped. One is that there is no sense in companies reducing their numbers of employees if they expect demand to recover, because then they will need to hire new employees, which is costly. As the euro-area economy continues to grow slowly and several of Estonia’s main trading partners are struggling economically, the ability of companies to raise their profitability given the high labour costs will depend on whether they manage to find export orders from rapidly growing markets or to increase their market share there.

Any reduction in the speed of wage growth is being hampered by labour shortages. This is pushing companies to compete for labour much more than before with both local and foreign employers. The shrinking supply of labour and the ease with which workers can go abroad to find a job have made recruitment ever more difficult. Current employees may thus be retained to hedge against staffing risks, though if this continues for a long time at the expense of profits it will increase the vulnerability of companies.

The first signs appeared in the first half of this year that labour costs may have begun to adjust to the weakness in economic activity that has reigned for a long time. Data from the Labour Force Survey show that employment and hours worked per employee both fell slightly, while wage growth slowed in the second quarter. The adjustment has still been modest in scope though.

The decline in the working age population will affect the labour supply over the long term. The number of people of working age fell last year by 0.9%, mainly because of natural demographic processes like the fall in the number of young people. In the coming years, the small birth cohorts of the 1990s will be finishing their higher education studies and entering the labour market, and their low numbers will further reduce the supply of qualified labour. The small number of people entering the labour market can be offset by investments in human capital. This will require efforts to stop young people dropping out from  professional or higher education schools and to strengthen the connections between schools and the future employers.

The quality of labour is not determined only by the level of education of the young people entering the labour market. Rapidly developing technology means that further education and training for adults is essential for both those with jobs and those without. The share of employees who do further training is much smaller in Estonia than elsewhere in Europe. Only the half of people looking for work have registered as unemployed, which they must do to take training courses through Töötukassa, the unemployment insurance fund. In addition, there are many others who would like to work but are not actively seeking a job. This means there are many ways that potential economic growth could be raised through human capital.

Source: Bank of Estonia

Authors: Orsolya Soosaar, Natalja Viilmann, Economists at Eesti Pank

Farmers ask for employment incentives

The Estonian Gardening Union has sent the Ministry of Agriculture a note, asking for legal changes that would allow the farmers to alleviate the labor shortage by employing children and foreigners in less strict conditions.

The Gardening Union (Eesti Aiandusliit in Estonian), an organization of Estonian gardeners and farmers, has asked the social security tax for children who are working over the school holidays and the minimum wage requirement for seasonal migrant labor to be lowered. Estonian employers are currently forced to pay higher wages to migrant workers than their Finnish counterparts, reports Saarte Hääl.

“To our knowledge the government obliges employers to pay a worker from Ukraine 1.25 times the Estonian average wage. In Finland the same worker would get 30-40 percent less than that,” said Raimond Strastin from the Gardening Union. “We wish that Estonia would make the terms equal to those in the neighboring countries, with whom our companies have to compete with in the adjacent markets.”

Strastin said continuing emigration and the government’s anti-immigration policies mean that farmers are faced with increasing labor shortages and struggles with harvests. Strawberry farms alone could offer seasonal employment to around 200 people, he said.

Valdis Kaskema, owner of one of the largest strawberry farms in Estonia, said that farmers would be happy to employ children over the summer season but they currently lack the incentive to do so.

“Pupils are socially secure anyway, so why do we still have to pay a 33 percent social security tax on them?” he said.

Hiring the unemployed for a short time period is also out of the question because those workers would lose their unemployment benefits.

Kaskema, who this year employed seven Ukrainians, said that the costs on migrant workers are unreasonably high. The 1,500 euros that he said he spent on a single worker per month, is not in accordance with the average wage of an unskilled laborer in Estonia.

Guido Lindmäe, who runs Saaremaa’s largest vegetable farm, said that the situation is made worse by the trade networks who force the prices of local products down by stocking cheap foreign produce.

“This is good for the traders and the consumers but local vegetable farmers will run without profit and the wages in the farming sector remain low,” he said. “I am ashamed to pay my employees the minimum wage but I just cannot afford to pay them what they deserve.”

Source: ERR News

Record number of foreign students

The number of foreign students working towards a degree in Estonian universities is increasing each year. Students come from over 50 different countries, but best represented are Finland, Russia, Latvia, Ukraine, Georgia, Turkey, Nigeria and India.

Tallinn University of Technology is hosting 431 new students from all over the world this year. That is a more than 30 percent increase compared to the previous year and amounts to about half of all new foreign students in Estonian universities.

Tallinn University has 223 new students from abroad and the University of Tartu has 200. Compared to 2013, these figures are up by 33 and 34 percent, respectively.

The number of applications received from foreign students at the University of Tartu has almost doubled compared to last year, growing from 188 in 2013 to 349 in 2014. Tallinn University boasts an even greater rise, 579 against the 334 received a year before.

According to Ülle Tensing, senior specialist for international studies at the University of Tartu, “One can notice several reasons behind this rise, two new degree courses in English and more intensive marketing being perhaps the most important.”

Krista Must, a communication specialist for Tallinn University, told ERR News that their university has, in co-operating with the Study in Estonia program, marketed their courses in five target countries: Finland, Russia, Turkey, Latvia and Lithuania. In 2012 the university also opened a branch of law school in Helsinki. The school currently hosts 167 students, most of whom are Finnish citizens.

University of Tartu reports that the largest number of their foreign students also come from Finland, followed by Russia, Ukraine and India. “These are countries where the University of Tartu has deliberately marketed itself for some time now. I am glad that the number of students coming to Tartu reflects the work we have done,” said Eveli Soo, senior specialist for international marketing.

The number of exchange students, from programs such as Erasmus, has also increased. “Tallinn University usually hosts around 200 exchange students per semester,” Must said.

Source: ERR News

Estonia attracting foreigners

At a time when in the last five years, Estonian labour market has lost about 40,000 people and, according to forecasts, another 40,000 will be leaving in the next five years, more and more foreigners are being attracted to Estonia in the hope to find better life, writes Äripäev.

One of such foreigners is Finn Pauliina Purkola, owner of creative agency WTF Group, who moved to Estonia together with his husband this summer in order to escape the negativity and pessimism of Finland.

The difference is that people moving to Estonia from the West are usually business owners, while people coming from the East are looking for employment.

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The University of Tartu received a new physics building

The University of Tartu received the keys to a new physics building, the 13,000 square meter Physicum.

Construction work began two years ago, but the need for a new building was apparent before as no less than last five heads of the physics institute had worked on plans to build a new structure.

The building cost 16 million euros, 85 percent of which came from EU funding.

The current head of the Institute of Physics, Jaak Kikas, said the biggest advantage is that research and study are now united under one roof.

He said the new building is close to other University of Tartu science buildings, creating a mini science city, which could see expansion in the future.

Four science centers and 14 physics laboratories will move into the new building, offering new and improved opportunities in physics, materials science and nanotechnology.

Source: ERR News

7,600 job vacancies in 2Q

According to Statistics Estonia, there were 7,600 job vacancies in the enterprises, institutions and organisations of Estonia in the 2th quarter of 2014. The number of job vacancies increased by 6.3% compared to the previous quarter and by 0.4% compared to the 2nd quarter of 2013.

The rate of job vacancies, i.e. the share of job vacancies in the total number of jobs has remained stable in recent years, in the 2nd quarter of this year it was 1.4%. The rate of job vacancies was the highest in accommodation and food service activities and in administrative and support service activities (both 2.9%) and the lowest in real estate activities (0.1%).

The increase in the number of job vacancies was the biggest in construction and in agriculture, forestry and fishing activities. Compared to the 2nd quarter of 2013, there were 73% more vacancies in construction and 58% more vacancies in agriculture, forestry and fishing. This could be influenced by the lack of qualified labour, the seasonality of work, the wage level of the occupation.

In the territorial distribution of job vacancies and occupied posts no changes have taken place, the number of posts was still the highest in Harju county (incl. Tallinn). The rate of job vacancies was the highest in Harju and Pärnu counties (1.7% and 1.6%, respectively) and the lowest in Hiiu county (0.1%).

Out of the 7,600 vacancies of the 2nd quarter, 6,000 were in the private sector and the rest in the public sector. The rate of job vacancies was 1.1% in the public sector and 1.5% in the private sector. The public sector also includes companies owned by the state or the local government.

The movement of labour is characterised by labour turnover – in the 1st quarter of 2014, a total of 60,000 employees were hired or left their jobs. The labour turnover increased by 5.5% compared to the 1st quarter of 2013.

Diagram: The number of job vacancies and occupied posts

A job vacancy is a paid post that is newly created, unoccupied or becomes vacant when an employee leaves, and for which the employer is actively trying to find a suitable candidate from outside the enterprise, institution or organisation concerned.

The rate of job vacancies is the share of job vacancies in the total number of jobs (sum of occupied posts and vacancies).

The data are based on the job vacancies and labour turnover survey conducted by Statistics Estonia since 2005. In 2014, the sample included 12,267 enterprises, institutions and organisations.

Source: Statistics Estonia

Fazer to close Tallinn plant, lay off 95

Finnish food group Fazer announced yesterday it will close its plant in Tallinn in April, laying off 95 workers, reported Äripäev.

Fazer said the move is part of its strategy to consolidate its Baltic manufacturing operations to Latvia and Lithuania.

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