Labour force participation was high in 3Q

Data from Statistics Estonia show that employment grew by 1.1% year-on-year in the third quarter of 2014. As the working age population shrank, this means that the employment rate was 1.2 percentage points higher than a year ago. A record 69.1% of the working age population were participating in the labour market by either working or actively looking for a job while unemployed.

The growth in employment in the third quarter may have been affected by the introduction in July of the obligation to register employees, which brought employees out of the shadow economy and into official employment. Although the Estonian Labour Force Survey estimate of employment is supposed to cover everyone working, whether or not they have an official contract, responses may still be affected by people not having an official job.

The productivity of labour has risen in annual comparison in the first three quarters of this year, although more slowly than its long-term trend. Data from the Tax and Customs Board on average wages paid out suggest that labour costs grew faster than labour productivity. Productivity growth is the main driving force of economic development in the long term, and raising Estonian living standards to the level of the western members of the European Union depends on it. Eesti Pank’s forecast in September predicted that labour productivity growth will accelerate in 2015–2016 together with the recovery in the external environment. Eesti Pank will publish a new forecast in December.

Source: Bank of Estonia

Author: Orsolya Soosaar, Economist at Eesti Pank

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