Labour market imbalances have increased this year

Statistics Estonia’s data of wages, published today, shows that the gap between the growth of wages and productivity widened at the beginning of the year. That puts pressure on the business sector, especially in sectors with low profitability. Estonian enterprises are often price-takers on the global market and therefore may find it hard to raise prices when costs increase. 

In the first quarter of this year, real wages increased by an alarming 6.7% compared to the same quarter of last year. Wage earners’ real purchasing power has not grown that fast since 2008. 

The factors behind the fast wage growth are the same as before. Estonian employers face the lack of suitable labour. They also need to compete with the often higher wage level abroad, especially in Finland, where around 2.5% of Estonians are currently employed. Wages in the public sector are also increasing faster than the average. Wages were also pushed up by an 11% increase in minimum wages at the beginning of the year. 

In the first quarter, wages increased in all sectors. The annual growth of gross wages was at least 10% in agriculture, transportation/storage and mining, where the number of employees decreased. At the same time, the growth of wages was the smallest in the ICT and real estate sectors, where employment grew by more than 20%. 

We expect the growth of real wages to remain fast but decelerate somewhat in the second half of the year, also because the growth of consumer prices will accelerate.

Source: Swedbank

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