Labour market review 1/2014

KEY DEVELOPMENTS IN THE SECOND HALF OF 2013 (Source: Bank of Estonia)

The trends in the second half of 2013 were rather contradictory for the Estonian economy. Economic growth was weak, but the weakness came mainly from certain individual industries. In Finland, the most important target destination for Estonian exports, there was negative economic growth that affected a lot of Estonian exporters. Although there was greater confidence in the recovery of the euro area, external demand was weak. The adjustment to an environment of weak demand was also reflected in the labour market, as 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.

Despite the weak economic growth however, wages grew rapidly in Estonia in the second half of 2013. The wage growth was mainly driven by the public sector, but there was no substantial slowdown in the rise in labour costs in companies in the private sector. Labour costs rose throughout the year distinctly faster than productivity. This is permissible in the short term, but not in the long term, unless there are changes in the structure of the economy. A short-term rise in unit labour costs when there is an unforeseen fall in output is quite normal. If demand recovers, then it may be possible to grow out of the imbalance so that productivity grows faster than wages for some time.

Recent political events have unfortunately reduced the likelihood of companies successfully increasing output with support from external demand. This means that the rise in labour costs will soon slow, and the risk that this will happen more sharply than previously forecast has increased. Labour costs can be adjusted through two channels, employment or wages. For the economy as a whole it is better if jobs are preserved, which requires a larger correction in wages.

Wage pressures came from several sources last year. Wages in the public sector started to rise after the crisis a bit later than those in the private sector, and so there was a feeling there that people were being left behind by rising incomes. However, the state should not become the driver of wage growth.

This is partly because it would make wage adjustment in the private sector, which is competing for the same supply of labour, harder, and partly because it would mean the state had more obligations that are difficult to escape, and this could threaten the balance of the state budget. For this reason it is important that public sector wage costs react quickly to adjustments in the labour costs of the private sector. The annual growth in unit labour costs approached 9% in the second half of 2013, implying a serious need for a correction. This growth also touches the three-year maximum growth rate set in the European Commission’s system of indicators that gives warning of imbalances, drawing on the long experience of many countries.

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. The labour supply will be a long-term problem, and the new population forecast by Statistics Estonia suggests that it could be even worse than previously predicted. If the rate of participation in the labour force remains unchanged, then it can be expected that by 2040 the labour force will shrink by one fifth. This will make it even more important for the social security system to be designed to encourage people to participate in the labour market, so that social benefits are not reduced 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.

Behind the shortage of labour and any reduction in it stands the high structural unemployment in Estonia. Reducing structural unemployment and raising the competitiveness of the long-term unemployed in the labour market will ease social problems, and it will also provide a way of increasing employment despite the unfavourable demographic situation. The risk of unemployment has so far been notably above average for young people and residents of Ida-Virumaa and is increased by low levels of education and by a lack of Estonian language skills. Statistics also show that unemployment is higher among non-Estonians. Although the budget for active labour market measures for each unemployed person has increased in recent years, the spending on such measures is generally still low in international comparison. The obstacles for risk groups in the labour market are often related to problems whose solutions will require not only active labour market measures, but also support from regional, education and population policies.

Read more from Bank of Estonia website

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160 new Porsches have been bought in Estonia in less than 2 years

Estonian Porsche dealer Auto 100 that is opening a new showroom next week in Tallinn says that the demand for Porsches in Estonia is so high that the they have asked the car maker to supply more cars for Estonia, writes Delfi.

Since the summer 2012 when Auto 100 signed a partnership contract with Porsche AG, 160 new Porsches have been bought in Estonia.

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G4S to set up its European shared services centre in Tallinn

Global security services provider G4S is following in the steps of several other multinationals such as Statoil Fuel & Retail or Kühne + Nagel and has decided to set up its pan-European shared services centre in Estonia, writes today’s Äripäev.

The move is expected to create about 100 jobs and bring the state up to one million euros in additional taxes a year.

The new centre will be providing services to 26 countnries in Europe.

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Without EU membership, Estonia would be 20% poorer – survey

Estonia, Latvia and Poland are the three countries that have benefited most from accession to the EU, according to a new survey by economists Nauro Campos, Fabrizio Coricelli and Luigi Moretti.

The survey showed that Estonia’s real GDP per capita in a ten-year period between 1998 and 2008 was 20% higher than the comparison group of countries that did not join EU.

Read more in BBN

The growth in retail sales continued

According to Statistics Estonia, in March 2014 compared to March of the previous year, the retail sales of goods of retail trade enterprises increased 5% at constant prices.

In March 2014, the retail sales of goods of retail trade enterprises were 385.4 million euros, which was 294 euros per inhabitant. The retail sales growth in stores selling manufactured goods, which decelerated significantly in February, accelerated again in March. While in February the retail sales of those stores increased 5% during the year, then in March the growth was 12%. Sales increased in most economic activities. Only the retail sales in non-specialized stores selling predominantly industrial goods (e.g. department stores) were 2% smaller than in March of the previous year. In March, the retail sales via mail order or the Internet increased the most (38% growth). A higher than average increase occurred also in stores selling textiles, clothing and footwear (32% growth) and in stores selling household goods and appliances, hardware and building materials (13% growth).

The retail sales in grocery stores increased 2% compared to March of the previous year, but compared with previous months the growth in retail sales decelerated to some extent. The deceleration of retail sales growth in those stores was influenced by the high reference base of March of the previous year.

The retail sales of automotive fuel decreased 2% at constant prices compared to March 2013.

Compared to the previous month, in March, the retail sales in retail trade enterprises increased 16% at constant prices. According to the seasonally and working-day adjusted data, the increase was 3%. During the three months (January–March) of 2014, the retail sales in retail trade enterprises increased 5% at constant prices compared to the corresponding period of the previous year.

In March the turnover of retail trade enterprises was 466.1 million euros, out of which the retail sales of goods accounted for 83%. Compared to March 2013, the turnover increased by 7% at current prices. Compared to the previous month, this indicator increased by 17%.

Retail sales volume index of retail trade enterprises and its trend,
January 2004 – March 2014 (2010 = 100)

Diagram: Retail sales volume index of retail trade enterprises and its trend

Source: Statistics Estonia

 

The gender pay gap is 25 pct

According to Statistics Estonia, in October 2013, the gross hourly earnings of female employees were 24.8% lower than the gross hourly earnings of male employees, and the gender pay gap grew by 0.2 percentage points compared to the previous year. The gender pay gap was almost non-existent in transportation and storage.

The gross hourly earnings without irregular bonuses and premiums were 4.58 euros for female employees and 6.09 euros for male employees. Compared to 2012, hourly earnings increased 7.0% for female employees and 7.2% for male employees, which was one reason for the minimal rise in the gender pay gap. The biggest gender pay gap in Estonia was recorded in 1994 – 28.9%.

The gender pay gap was almost non-existent in transportation and storage. In this economic activity, female employees had 0.2% higher hourly earnings than male employees. Compared to 2012, the number of both male and female employees in transportation and storage decreased, but the hourly earnings increased 13.8% for women and 10.8% for men – this is why the pay gap has disappeared. The share of male employees among all employees in transportation and storage was 71%.

In 2013 the gender pay gap was still the biggest in financial and insurance activities (41.8%). The pay gap decreased by 1.5 percentage points compared to 2012. The number of both female and male employees in financial and insurance activities decreased, but the gross hourly earnings rose 5.8% for women and 3.0% for men, which resulted in a lower gender pay gap. Men constituted 28% of employees in this economic activity.

Compared to 2012, the gender pay gap increased the most (by 14.9 percentage points) in other service activities (this includes laundries, dry-cleaning, beauty treatment etc.) and decreased the most (by 7.8 percentage points) in arts, entertainment and recreation. In both economic activities, there were big changes in the number of employees and hourly earnings.

The gender pay gap is influenced by the rises and falls in the gross hourly earnings of male and female employees in different economic activities, and by the level of hourly earnings of engaged and left employees. On the one hand, the gender pay gap increased slightly in 2013; on the other hand, the share of male employees among all employees fell from 48% in 2012 to 47% in 2013.

Statistics Estonia and Eurostat use a different methodology to calculate the gender pay gap. The gender pay gap published by Eurostat does not take into account the indicators of enterprises and institutions with fewer than 10 employees; it also excludes the earnings of employees in agriculture, forestry and fishing and in public administration and defence. With Eurostat’s methodology, the gender pay gap in Estonia is one of the biggest in the European Union (30% in 2012). According to Statistics Estonia, the gender pay gap in Estonia in 2012 was 24.6%, taking into account all enterprises and institutions and all economic activities.

Source: Statistics Estonia

The availability of payment services is good

The availability of the payment services of banks in Estonia is good because 97% of consumers have a bank account, compared to the European average of 86%, and access to internet banking is good. Eesti Pank statistics show that private clients and business entities held a total of 1.8 million bank accounts at the end of 2013, meaning that it is quite common to hold multiple accounts in Estonia. Around two million bank clients were users of an internet bank in the first quarter of 2014. Furthermore it is estimated that mobile apps for banking have been downloaded and installed over a quarter of a million times. The simple and convenient access to the internet and mobile payment applications means that payment services are accessible everywhere in Estonia and 99.6% of the payments made through banks in Estonia are initiated electronically.

Payment services and cash are available in 82% of Estonian districts1 through bank branch offices, bank buses, the post office bank or ATMs. Bank cards can be used for payment in around 20,000 points of sale and cash can be withdrawn from 821 ATMs, 112 of which also allow cash to be deposited. At the end of 2013 there were 140 bank branch offices in Estonia, 96% of them in towns. Although there are now 35% fewer branch offices than there were in 2009, and some of them have become cashless, the banks have replaced them with other solutions. These include the bank bus, which has 51 stops and 220 post bank offices across Estonia, and this means that the main banking services are available in even the smallest settlements.

Fees for payment services have not changed much in Estonia in the past few years. The main changes in the cost of payment services are from the differences between the payment channels, as payments in branch offices are more expensive than electronic payments. The banks are promoting offers and discounts for client segments, which has brought down the cost of many bank services and payment services. In most electronic channels young clients, including students, and pensioners can enjoy free intra-bank payments at the least.

The European Union wants to make it easier to open a bank account in another country and in future Estonian residents will be able to compare their bank fees with fees from all across Europe2. The prices of payment services in banks operating in Estonia can already be compared on the website minuraha.ee. The prices of payment services in other countries can be found from the price lists of the banks concerned. Research by Eesti Pank into the price lists of banks in Finland, Latvia and Sweden shows that the prices of payment services of Estonian banks are competitive against those of banks in other countries (the price comparison does not consider discounts or prices for packages of services). If price comparison becomes simpler across Europe in future, the biggest winners will be bank clients, who will have wider choice and more attractive offers as competition between the banks becomes tighter. If a local bank client finds a more attractive banking service provider abroad, then it will be possible to change bank.

Author: Rainer Olt, Eesti Pank Payment and Settlement Systems Department

Read more from Bank of Estonia website