Slow economic growth has a visible impact in the labour market

In the second half of 2013 the first signs of slower economic growth having an impact in the labour market appeared. Employment in the second half of the year was at about the level of a year earlier and unemployment rose at the end of the year, but the decline in the working age population meant that the employment rate actually increased.

Despite the weak economic growth, wages grew rapidly in Estonia in the second half of 2013 and distinctly faster than productivity. Recent developments have reduced the likelihood of companies successfully increasing profitability with support from external demand. In consequence, a slowdown in the growth of labour costs can be expected soon and it is more likely to be sharper than was previously thought.

Wage growth accelerated in the second half of the year in the public sector, where wages started to rise after the crisis a bit later than those in the private sector. However, the state should not become the driver of wage growth. This is partly because it would make wage growth adjustment in the private sector, which is competing for the same supply of labour, harder, and partly because rapidly rising labour costs would make it harder for budget goals to be met. This risk is even greater when there is a lot of uncertainty about economic growth and fiscal revenues.

The second main source of wage pressures was again the shortage of qualified labour and the strengthening of the position of employees in wage negotiations, which is backed in some cases by the option of going to work abroad. Behind the shortage of labour and any reduction in it stands the high structural unemployment in Estonia. Although the budget for active labour market measures per unemployed person has increased in recent years, the spending on such measures is generally still low in international comparison. The participation of risk groups in the labour market is often hindered by problems that cannot be solved only through active labour market measures but need support from regional, educational and population policies.

If the rate of participation in the labour force remains unchanged, then the labour force will shrink by one fifth by 2040. The new population forecast from Statistics Estonia expects the reduced supply of labour could last for a long time and could be even more serious than was earlier forecast. This will make it even more important for the social security system to be designed to encourage people to participate in the labour market, and it should not reduce social support by the same amount that an additional earned income brings in to the family budget. This principle should be used for reassessing those benefits where not working is a condition for receiving the benefit, such as an early retirement pension, or where the marginal tax rates are very high, as with income support.

Source: Bank of Estonia

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

Government endorses 5.8 percent pension rise

The Estonian government on March 13, 2014 endorsed 1.058 as the value of the index of state pensions effective from April 1, 2014, which means that pensions will rise by 5.8 percent on average.

The value of the index is calculated to the extent of 80 percent based on the change in last year’s social tax receipts and to the extent of 20 percent based on the change in the consumer price index (CPI). According to data of Statistics Estonia, CPI rose 2.8 percent last year while figures available from the Finance Ministry show that 7.3 percent more social tax money than the year before flowed into pension insurance.

The index endorsed for 2014 is smaller by 0.6 percent than the calculated index because in the crisis years 2009-2011 the calculated value of the pension index was below 1.0 but pensions were not cut. The State Pension Insurance Act obliges the government to add or clear the part of index that was not increased or reduced within five years, and the reduction of 0.6 percent this year is the last reduction to offset the effect of the smaller receipts in 2009-2011.

The pension increase this year is estimated to take 62 million euros from the state budget.

The change would raise the old-age pension of a person with 15 years of pensionable service to 209.37 euros a month. With 44 years of pensionable service the new size of the state pension will be 353.33 euros a month.

Source: BNS / Estonian Review

Skype Eesti is most valued employer in Estonia

Skype went past the state-owned energy group Eesti Energia to take the title of Estonia’s most valued employer, it appears from an annual study of CV Keskus listing employers that are most valued by Estonian workers.

In addition to Skype and Eesti Energia, the 4,000 respondents participating in the survey also gave high scores to Elion, Swedbank, EMT, ABB and Playtech, CV Keskus, a recruitment services company, said.

In the ethnic Estonian segment remuneration on the desired level, chances of professional development, a pleasant human environment at work and suitable working conditions were named as the top criteria in appraising an employer. For men the salary number occupied the most important place. Women on the other hand gave professional development and suitable working conditions higher scores than men. Professional development and a pleasant human environment at work were valued highly by young respondents.

Source: BNS / Estonian Review

There are several job vacancies in IT sector

According to Statistics Estonia, there were 6,400 job vacancies in the enterprises, institutions and organisations of Estonia in the 4th quarter of 2013. Their number decreased by 3.4% compared to the same period of 2012, and by a fourth compared to the previous quarter.

The rate of job vacancies was 1.2% in the 4th quarter. The rate of job vacancies is the share of job vacancies in the total number of jobs (sum of occupied posts and vacancies).

The rate of job vacancies was the highest in information and communication activities (2.3%) and the lowest in mining and quarrying (0.2%).

The increase in the number of job vacancies was the biggest in manufacturing, where there were 1.4 times more vacancies compared to the 4th quarter of 2012.

56% of job vacancies and occupied posts are in Harju county (incl. Tallinn). The rate of job vacancies was the highest in Pärnu county (2.5%), but only 5% of all jobs (job vacancies and occupied posts total) are in Pärnu county.

25% of the job vacancies were in the public sector and 75% in the private sector. The rate of job vacancies was 1.1% in the public sector and 1.3% in the private sector. The public sector also includes companies owned by the state or local government.

Rate of job vacancies, 1st quarter 2005 – 4th quarter 2013

Rate of job vacancies

In the 3rd quarter of 2013, 81,200 employees were engaged and left their jobs in total (labour turnover). The labour turnover increased by 4.7% compared to the 3rd quarter of 2012.

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 data are based on the job vacancies and labour turnover survey conducted by Statistics Estonia since 2005. In 2013, the sample included 11,740 enterprises, institutions and organisations.

Source: Statistics Estonia

Fast wage growth continues

Although wages grew continually fast, there was some deceleration in the last quarter of 2013, as we expected. In the fourth quarter gross wages grew by 7.6% YoY and by 7.8% in 2013.

Real wage growth accelerated for the sixth quarter in a row reaching 6% YoY in the fourth quarter. In 2013 real wages grew by 4.9% as a result of accelerating nominal wage growth and decelerating CPI growth.

By economic activities wage growth was quite different. The average gross wages grew fastest in agriculture and forestry and transport sector (19% and 13%, respectively). These are the sectors which inhibited the GDP growth the most, according to the recent flash estimates. Wages decreased in professional, science and technical activities. Wage growth decelerated in approximately half of the economic activities.

Although the economic growth decelerated, fast growth in labour costs has increased the unit labour cost (ULC) of total economy. According to the flash estimates, the value added in manufacturing grew faster than labour cost per employee, meaning that the growth of ULC decelerated or even decreased.

The growth of ULC has accelerated in only a few of the EU countries, by far the most in Hungary and Estonia. In Sweden and Finland wage growth has been decelerating for some time now, while in Latvia and Lithuania wage growth has been accelerating. Labour costs in Sweden, Finland, Latvia and Lithuania are growing at a slower pace than in Estonia, which means that our cost competitiveness against these trading partners is deteriorating.

Accelerating wage growth did not increase the share of labour cost in turnover and value added last year. Nevertheless, enterprises have lost their profitability and it is lower than before the crisis. Labour costs have been growing faster than productivity since the beginning of 2011.

Lack of qualified labour is the main reason behind the fast wage growth. Unemployment rate has declined below the level which causes excess wage pressures. At the beginning of 2013 minimum wages were raised by 10% which also contributed to the wage growth, especially of small enterprises with less than 50 employees. Contribution of irregular premiums and bonuses decreased in the fourth quarter. There is a cyclical effect behind the fast wage growth, as well. Normally, gross wages grew close to the GDP nominal growth. However, wage growth lagged behind the GDP nominal growth after 2009 economic crises. In spite of the economic slowdown, wages have  started to recover. Wages respond to the economic slowdown with a certain delay. Now, wage growth has exceeded GDP nominal growth already for third quarter in a row.

As the lack of qualified labour will remain a problem in the near future, the pressure to raise wages will not fade soon, either. Cyclical effect will have some effect on wages for some time, as well. As inflation is expected to stay low in this year and the next, real wage growth will be rather fast (around 4.5%).

Source: Swedbank

The average Estonian salary was 1,028 euros in December

According to Statistics Estonia, in the 4th quarter of 2013, the monthly wages and salaries increased 7.6% compared to the 4th quarter of 2012.

Compared to the same quarter of the previous year, the growth of the average monthly gross wages and salaries was slightly slower than in the 3rd and 2nd quarters when the yearly growth was 8.8% and 8.5%, respectively. Without irregular bonuses and premiums, the average monthly gross wages and salaries increased 7.2% in the 4th quarter. Compared to the 4th quarter of 2012, irregular bonuses and premiums per employee grew 17.0% and influenced the growth of the average monthly gross wages and salaries by 0.4 percentage points. Real wages, which take into account the influence of the change in the consumer price index, increased 6.0% in the 4th quarter of 2013. Compared to the same quarter of the previous year, real wages increased for the tenth quarter in succession.

The average hourly gross wages and salaries were 5.99 euros in the 4th quarter of 2013, and hourly wages and salaries increased 8.3% compared to the 4th quarter of 2012.

According to the Wages and Salaries Statistics Survey, the number of employees as at the end of December was 2.4% lower than at the end of December 2012.

Compared to the 4th quarter of 2012, the average monthly and hourly gross wages and salaries increased the most in agriculture, forestry and fishing activities – by 19.3% and 21.4%, respectively.

The average monthly gross wages and salaries decreased compared to the 4th quarter of 2012 only in professional, science and technical activities (4.4%). In the same activities, the average hourly gross wages and salaries also decreased the most (4.1%).

The average gross wages and salaries were 962 euros in October, 968 euros in November and 1,028 euros in December.

In the 4th quarter of 2013, the employer’s average monthly labour costs per employee were 1,336 euros and the average hourly labour costs were 8.69 euros. Compared to the 4th quarter of 2012, the average monthly labour costs per employee increased by 6.9% and the average hourly labour costs by 7.6%

Compared to the 4th quarter of 2012, the average monthly labour costs per employee and hourly labour costs increased the most in agriculture, forestry and fishing activities – 19.0% and 22.8%, respectively.

Compared to the 4th quarter of 2012, the average monthly labour costs per employee decreased only in professional, science and technical activities (6.5%). The average hourly labour costs also decreased the most in these activities (7.2%).

Statistics Estonia conducts the Wages and Salaries Statistics Survey on the basis of international methodology since 1992. In 2013, the sample included 11,592 enterprises, institutions and organisations. The average monthly gross wages and salaries have been given in full time units to enable a comparison of different wages and salaries, irrespective of the length of working time. Calculations of the monthly gross wages and salaries are based on payments for actually worked time and remuneration for time not worked. The hourly gross wages and salaries do not include remuneration for time not worked (holiday leave pay, benefits, etc.). In short-term statistics, the average gross wages and salaries are measured as a component of labour costs. Labour costs include gross wages and salaries, employer’s contributions and employer’s imputed social contributions to employees.

Average monthly gross wages and salaries, 1st quarter 2009 – 4th quarter 2013 (euros)
Year 1st quarter 2nd quarter 3rd quarter 4th quarter
2009 784 776 813 752 783
2010 792 758 822 759 814
2011 839 792 857 809 865
2012 887 847 900 855 916
2013 900 976 930 986

Average monthly gross wages and salaries and monthly labour costs per employee, 4th quarter 2013

Average monthly gross wages and salaries and monthly labour costs

Average hourly gross wages and salaries and hourly labour costs, 4th quarter 2013

Average hourly gross wages and salaries and hourly labour costs

Source: Statistics Estonia

Price pressures caused by labour costs

Data from Statistics Estonia show that the average gross monthly wage increased by 7.6% year on year in the last quarter of 2013, and gross hourly wages by 8.3%. Although real growth in the economy has stopped, real wage growth accelerated in annual terms to 6.0%. Real wage growth was also boosted by slower inflation. The purchasing power of households is noticeably higher than a year ago, but if wage costs grow with different trends to the economy it will put pressure on the profitability of companies and push inflation up. Average gross wage growth did slow slightly in the fourth quarter in reaction to the slowdown in economic growth, but this was not reflected in hourly wages.

Wage growth was relatively broad-based and seen in most industries, but there were still large differences. The relation between nominal wage growth and value added growth was also different in different industries. The largest rises in labour costs per hour over 2013 were of 21.4% in agriculture and forestry, 14.7% in transport and storage, 11.4% in information and communications, 11.4% in water supply and waste handling, 11.3% in finance and insurance, and 9.1% in mining, while a smaller rise of 7.5% was seen in manufacturing and there was only a slight rise in the construction sector. Nominal wages rose strongly both in sectors where growth in value added could cover them, and also in sectors where value added grew only modestly or even declined.

Wage growth was again fast in the public sector, and hourly wages rose at an annual rate of 11.7% in education and 7.5% in medicine. The wage rise for medical staff was about the same as in the second and third quarters, while the rate of wage growth in education increased. Wage growth was again affected by one-off bonuses at national and municipal level, but their impact was less than in the third quarter.

As in previous quarters, wages rose on average significantly faster than output per hour or per worker. This should not necessarily cause companies to suffer any difficulty in making payments in the short term as it can partly be compensated for by slower growth in profits or in other costs. It was indeed noticeable that profit growth slowed sharply for Estonian companies in 2013 and profits shrank as a share of GDP. Rapid wage growth will start to affect the end prices of goods and services in the long term and prices are already rising faster for many services. Prices for services are expected to rise in 2014 partly because of economic growth but largely because of higher wages and increased rental prices for residential property.

Eesti Pank observes and comments on wage developments as labour costs have a direct impact on the price of goods and services produced in Estonia and wage growth is an important indicator of price stability.

Source: Bank of Estonia

Author: Natalja Viilmann, Economist at Eesti Pank

Estonian higher education among top 200

Estonia made the top 200 of the QS World University Rankings by Subject 2014 list with three specialties taught at the University of Tartu, spokespeople for the university said on Wednesday.

The list published by the global education consultancy Quacquarelli Symonds (QS) ranks 30 specialties taught at top universities in comparison with each other.

Of Estonian universities, the communication studies curriculum of the University of Tartu maintains the highest position,51–100, while University of Tartu’s modern languages, and history and archaeology curricula are both ranked in places 151–200 on the fresh scoreboard.

Martin Hallik, vice rector for academic affairs at the University of Tartu, said the high academic level of the university was receiving continued international recognition.

“The high-performing specialties underline that we are the only university in the Baltic countries belonging in the top 3 percent of universities and 70 percent of internationally acclaimed Estonian researchers are doing their research and teaching with us,” Hallik was quoted by the spokespeople as saying.

From 2011, the QS World University Rankings also ranks universities on the basis of individual specialties. The aim of QS World University Rankings by Subject is to provide the public with comparable data on the strengths of individual specialties.

QS looks at three indicators when compiling the rankings: the reputation of universities among researchers, the reputation of universities among employers, and the number of citations in publications, using the Scopus database as source. Data on more than 3,000 universities worldwide was analyzed for the 2014 release.

Source: Estonian Review / BNS

Unemployment increased slightly at the end of the year

According to Statistics Estonia, unemployed persons numbered 59,000 and the unemployment rate was 8.7% in the 4th quarter of 2013. Although the annual average unemployment rate was lower than in 2012, the decline of unemployment has slowed down.

According to the data of the Labour Force Survey, the estimated number of unemployed persons, which had been 53,000 in the 3rd quarter of 2013, increased by 6,000 persons in the 4th quarter. The unemployment rate was higher than in the 3rd quarter, but decreased slightly compared to the 4th quarter of 2012 (when the unemployment rate was 7.8% and 9.1%, respectively). The increase of unemployment in the last quarter of the year is an anticipated seasonal phenomenon which usually has a greater impact on the employment of men.

Although unemployment increased slightly at the end of 2013, the annual average unemployment rate (8.6%) was still 1.4 percentage points lower than in 2012 (10.0%).  The number of unemployed persons (59,000) decreased by 10,000 compared to the previous year. At the same time, the decline of unemployment has been gradually slowing down since 2011.

In 2013, the short-term unemployed (i.e. people who had been looking for a job for under a year) became predominant among the unemployed. They numbered 33,000 as an annual average, increasing by 2,000 compared to 2012.  There was a notable decrease (by 11,000) in the number of the long-term unemployed (i.e. people who had been looking for a job for one year or longer), they numbered 26,000 in 2013. The long-term unemployment rate was 3.8%. Long-term unemployment was higher among men, the elderly and the non-national population. The share of the very long-term unemployed (unemployed for two years or more) among the unemployed decreased from a third to a quarter, compared to 2012.

Although unemployment is higher among men than among women, it decreased more among men than among women during the previous year. The unemployment rate of men was 9.1% and that of women 8.2% in 2013.

In 2013, the youth unemployment rate (i.e. the share of unemployed persons aged 15–24 among the labour force of the same age) was 18.7% (20.9% in the previous year) or 2.5 times higher compared to the rest of the working-age population. The young unemployed numbered 11,000 in total. As the unemployment rate is calculated as a share of those young people who are economically active, but most members of this age group are still studying, the share of the unemployed among all young people aged 15–24 was 7.3%.

In the 4th quarter of 2013, the employment rate of the population aged 15–74 was 61.6%. It decreased by 1.1 percentage points compared to the 3rd quarter, but increased by 0.7 percentage points compared the 4th quarter of 2012 (when the employment rate was 62.7% and 60.9%, respectively). In 2013, the annual average employment rate was 62.1% (which is 1.3 percentage points higher than in 2012) and the estimated number of employed persons totalled 621,000. The annual average number of employed persons increased by 6,000 compared to 2012. The yearly growth in employment was most of all influenced by an increase in the number of persons employed in accommodation and food services, professional, scientific and technical activities, wholesale and retail trade, and arts, entertainment and recreation.

Employment grew in 2013 due to a decrease in the number of both the unemployed and the economically inactive persons. The economically inactive persons (students, retired persons, homemakers, discouraged persons, etc.) aged 15–74 numbered 320,000 in 2013, which is 7,000 persons less than in the previous year. Among inactive persons, the number of pension-aged and persons inactive due to studies decreased the most, associated to the decreasing generations of pupils and students, the gradual rise of official retirement age and lengthening working life. Discouraged persons, i.e. persons who have stopped seeking a job numbered 6,000 in 2013, which is 1,000 less than in the previous year.

The current data have been published based on the revised population figures of Statistics Estonia. In connection with the revision of population series for 2000-2013, based on the 2000 and 2011 censuses and various registers, the Labour Force Survey time series for 2000–2013 was recalculated.

Unemployment rate is the share of the unemployed in the labour force (the sum of employed and unemployed persons). Long-term unemployment rate is the share of people who have been unemployed for a year or longer among the total labour force. Employment rate is the share of the employed in the working-age population (aged 15–74). The estimates are based on the data of the Labour Force Survey. Statistics Estonia has been conducting the Labour Force Survey since 1995 and every quarter 5,000 persons participate in the survey. The Labour Force Survey is carried out by statistical organisations in all the European Union Member States on the basis of a harmonised methodology.

Persons aged 15–74 by labour status, 1st quarter 2000 – 4th quarter 2013

Persons aged 15–74 by labour status

Source: Statistics Estonia

Unemployment rate continues to decrease this year

Today Statistics Estonia published revised data on labour market. Before employment indicators were calculated without migration, now migration is included. The current data have been published based on the revised population figures of Statistics Estonia as well.

As we forecasted, employment rate declined to 8.6% in 2013. Although unemployment rate increased from 7.8% in the third quarter to 8.7% in the fourth quarter, it was due to seasonal factors. The number of unemployed persons decreased by 10,000 to 59,000 in 2013. There was a notable decrease in the number of long-term unemployed, but one of the reasons behind the decrease is people giving up job searches and becoming inactive. Although the number of unemployed persons decreased, the number of short-term unemployed increased. Deceleration of economic growth and capability of some corporations to retain jobs last year explain the increase in new people on the labour market looking for a job.

Estonia’s population is decreasing and as a result less people are entering the labour market. Population is decreasing due to negative natural growth and also negative net migration. Last year employment growth decelerated to 1%. In addition, according to revised data, where migration is included, employment is 13,000 smaller than earlier numbers indicated. Last year the number of Estonian residents working abroad decreased by 2000 people to 23,000, although the number actually might be larger. We expect the number to remain roughly the same level this year, but increase somewhat next year together with the recovery of the economies of the main countries of destination (primarily Finland).

Last year participation rate of the population aged 15-74 increased to its highest level (68%) of available statistics, while employment rate increased to 62.1%. Employment growth will decelerate this year and next year it may start decreasing. Unemployment rate will decrease to 8.3% this year. Unemployment rate has decreased beyond its natural rate causing wage pressures. Mainly due to the lack of qualified labour, companies are forced to raise wages.

Source: Swedbank

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