The slowdown in the economy is not yet reflected in wages

Data from Statistics Estonia show that the average gross monthly wage increased by 8.5% in the second quarter of this year to 976 euros. The sector that saw the most growth in the average monthly gross wage was mining, where the rise was 20%, and the form of company ownership that saw the highest growth was foreign owned companies, where the rise was 10%. Such rapid wage growth is in direct contrast to the very slow economic growth and lower productivity. If economic growth does not accelerate in the coming quarters, a slowing of wage growth is to be expected.

The acceleration in wage growth is broad-based and has several causes. First, the lower end of the wage scale was raised by an increase of 10% in the minimum wage, which affects not only minimum-wage employees but also the next ranks in the wage scale, if companies want to maintain their relative wage structure. Second, the new pay agreements for teachers and medical workers came into force in the spring. Several sectors, notably construction and transport, are affected by the stronger negotiating power of workers who have the possibility go to work abroad. Year-on-year wage growth accelerated in transport and warehousing from 8.6% in the first quarter to 15.4% in the second, and in construction it went from 6% to 12.7%.

The slower economic growth of recent quarters and the fall in productivity have not yet had an impact on wage growth. Unit labour costs grew in the first half of 2013 and the share of labour costs in the value added in the economy rose at the expense of profits. This is partly due to inertia in the labour market as it usually takes one or two quarters for labour costs to adjust to a reduction in economic activity. Wage growth of 7-8% may still be considered too fast when the real output produced by one worker is on average less than it was a year earlier.

A fall in the profit margins of companies increases the risk that capital will move to countries where it is possible to produce at more competitive prices and with higher profitability. As capital flows out, so too will jobs. Companies oriented to the domestic market are able to recover profitability to some extent by raising prices, but the result of this is higher inflation, which will lower the real purchasing power of consumer incomes. The ability of exporting companies to raise prices is limited by foreign competition. If an exporting company raised its prices it would lower its competitiveness and weaken demand for export products from Estonia.

Average wage growth adjusted for inflation, or real purchasing power growth, was 4.9% in the second quarter. Real wages have increased over the last two years, as the average gross wage growth has remained high and the growth rate of consumer prices has declined. This has left the purchasing power of the average wage very close to the peak reached before the crisis.

Author: Orsolya Soosaar, Economist at Eesti Pank

Read more from Bank of Estonia website

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Moody’s maintains A1 rating for Estonia

Moody’s Investors Service has affirmed Estonia’s A1 government bond rating and stable outlook, citing what it called resilient economic growth, moderately high wealth and long-term prospects for economic convergence with the core euro area.

“The rating is also supported by the government’s track record of fiscal rectitude and low gross government debt, which is forecast at 10.2% of GDP this year. Moreover, liquid financial assets equivalent to around 9% of estimated 2013 GDP provide a significant financial cushion in times of stress,” the rating agency said in a press release today.

The agency said the size of the nation’s economy, its extreme openness and vulnerability to external shocks are a threat to its current high rating, while the main long-term challenge is the demographic decline.

Estonia’s bond rating has remained unchanged since late 2002.

SOurce: Estonian Review / ERR

Russian kids at Estonian-language schools score better on standardized test

A doctoral dissertation has found that young Russians studying in Estonian-language schools get better scores on the PISA mathematics, reading and science test.

Russian children studying in Estonian schools scored 27 points better than their Russian-language school counterparts, said the paper by Kristiina Lindemann, a Tallinn University Ph.D. student.

According to data from the OECD, that is the equivalent of being half a school year ahead, writes Eesti Päevaleht.

Compared with the results of Estonian children, those learning in Russian lag an entire year behind, the dissertation found.

Lindemann cautioned against reading too much into the quality of schools as opposed to the aptitude of pupils. She said that although only a small percentage of Russian-speaking parents prefer schools where the language of instruction is Estonian, it was families with better socioeconomic backgrounds that tended to do so.

Another possible cause is that many math teachers at the Russian-language schools also attend training in St. Petersburg, where there is less focus on creativity and more emphasis on facts, said a math teachers association head, Hele Kiisel.

Source: Estonian Review / ERR

Estonia could start training Finnish firefighters

Finnish rescue authority is interested in Estonia providing regular training services to Finnish rescue workers, writes ERR.

Helsingin Sanomat wrote last week that Helsinki municipal rescue service was considering moving its training base to Estonia, more specifically to the Väike-Maarja vocational school.

One reason why Finns are interested  in conducting firefighting training in Estonia is the fact that Finnish law prohibits use of actual fire during firefighting training, but in Estonia there is no such a restriction.

Read more from BBN

The retail sales of goods in July was 324 euros per inhabitant

According to Statistics Estonia, in July 2013 compared to July of the previous year, the retail sales of goods of retail trade enterprises increased 5% at constant prices. In June the retail sales increased 3% compared to the same month of the previous year, while in July the retail sales’ growth accelerated to some extent.

In July 2013, the retail sales of goods of retail trade enterprises were 416.7 million euros, which was almost 324 euros per inhabitant. The retail sales in stores selling manufactured goods increased 10% compared to July 2012. The sales increased in most economic activities. Only the retail sales in stores selling textiles, clothing and footwear were 3% smaller than in July of the previous year. The retail sales of second-hand goods in stores and non-store retail sale (stalls, markets, direct sale) increased the most, where the retail sales increased more than half (69%) compared to July of the previous year. The sales increase in these stores does not significantly influence the retail sales of goods of retail trade enterprises, because the share of this economic activity is very small – 1.7% in July 2013. In July, a higher than average increase occurred in retail sales via mail order or the Internet (growth 34%), in stores selling household goods and appliances, hardware and building materials (growth 17%) and in non-specialized stores selling predominantly industrial goods (e.g. department stores) (growth 7%).

Retail sales in grocery stores have been rather stable during the recent months. In July, the retail sales of these stores increased 4% compared to July of the previous year.

The retail sales of automotive fuel increased 1% at constant prices compared to July 2012, compared with the previous month, the retail sales’ growth rate decelerated even more. The growth rate deceleration in retail sales of automotive fuel was influenced by the high reference base of July 2012 and deceleration in the price decrease of automotive fuel. If in June the annual price decrease of automotive fuel was 2.5%, then in July 0.1%.

Compared to the previous month, in July the retail sales in retail trade enterprises increased 5% at constant prices. According to the seasonally and working-day adjusted data, the retail sales increased 2%. During the seven months of 2013 (January–July), the retail sales in retail trade enterprises increased 5% at constant prices compared to the corresponding period of the previous year.

In July the turnover of retail trade enterprises were 494.3 million euros, out of which the retail sales of goods accounted for 84%. Compared to July 2012 and also compared to the previous month, the turnover increased by 6% at current prices.

Read more and thee the graph from Statistics Estonia 

Estonian average salary is 976 euros

According to Statistics Estonia, in the 2nd quarter of 2013, the average monthly gross wages and salaries were 976 euros and the average hourly gross wages and salaries were 5.71 euros. Compared to the 2nd quarter of the previous year, the average monthly gross wages and salaries grew 8.5% and the average hourly gross wages and salaries 8.1%. The yearly growth of the average monthly wages and salaries in the 2nd quarter was to some extent faster than in the 1st quarter.

The average monthly gross wages and salaries without irregular bonuses and premiums increased 7.9%. Real wages, which take into account the influence of the change in the consumer price index, increased 4.9% in the 2nd quarter of 2013. Compared to the same quarter of the previous year, real wages increased for the eighth quarter in succession.

According to the Wages and Salaries Statistics Survey, the number of employees as at the end of June was 0.6% smaller as in the same period of 2012.

Compared to the 2nd quarter of 2012, the average monthly gross wages and salaries increased the most in mining and quarrying (20.0%) and the hourly gross wages and salaries in agriculture, forestry and fishing activities (19.8%).

Compared to the 2nd quarter of 2012, the average monthly and hourly gross wages and salaries decreased only in arts, entertainment and recreation activities (5.9% and 6.1%, respectively).

The average gross wages and salaries were 957 euros in April, 954 euros in May and 1,014 euros in June.

In the 2nd quarter of 2013, the employer’s average monthly labour costs per employee were 1,320 euros and the average hourly labour costs were 8.66 euros. Compared to the 2nd quarter of 2012, the average monthly labour costs per employee increased by 8.4% and the average hourly labour costs by 8.2%.

Compared to the 2nd quarter of 2012, the average monthly labour costs per employee increased the most in mining and quarrying (20.8%) and the average hourly labour costs in agriculture, forestry and fishing activities (19.6%).

Compared to the 2nd quarter of 2012, the average monthly labour costs per employee and the hourly labour costs decreased only in arts, entertainment and recreation activities (5.2% and 3.0%, respectively).

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.

Read more from Statistics Estonia

Estonia had eurozone’s least expensive mobile calls in 2011

Estonian mobile phone users pay on average two and a half times less for their calls than users in the most expensive EU country do, according to new data from the European Commission.

The data for 2011 shows that customers in Estonia paid on the average six cents for a minute of phone call, compared with 14.6 cents a minute paid by customers in the Netherlands that topped the list as the most expensive country.

The country with the least expensive mobile phone costs in the EU was Lithuania, where consumers paid 1.9 cents per minute.

The EU average was 9.1 cents and there was a 774 percent difference between the cheapest and the most expensive.

According to the European Commission, these price differences cannot be explained by differences in quality, differences in the cost of providing the service, or by differences between countries in consumer purchasing power.

There are much smaller price differentials in other categories of basic goods and services in the European single market. For example, a liter of milk can be bought for between 69 cents and 99 cents no matter where in the EU, a price difference of 43 percent. An occasional purchase like an iPad is subject to only an 11 percent price difference across the EU.

“As these numbers clearly show, the 28 national telecoms markets in Europe today are not benefiting consumers like a single market would. It is critical for the whole EU to move quickly to build a real single market to achieve a truly connected continent,” European Commission Vice President Neelie Kroes said.

Kroes is about to present a new package aimed at strengthening the telecoms single market next month.

Source: Estonian Review via BNS news agency