Available labour resources are in ever-shorter supply

The labour market favoured employees in the fourth quarter of last year. Data from Statistics Estonia show annual growth in employment accelerating to 2.3% from 1.3% in the third quarter. The unemployment rate fell at the same time to 6.3%, which is well below the average for the past decade.

Data from the Tax and Customs Board also indicated an increase in employment, showing an even faster increase in the number of people receiving a wage than that shown in the Estonian labour force survey in the second half of 2014. The increase in employment was affected to some extent by the requirement for registration of employees. The figures from Töötukassa, the unemployment insurance fund, for unemployment did not show any fall in registered unemployment in the fourth quarter. The difference in the figures from Statistics Estonia and Töötukassa could arise because the unemployed made more active use of Töötukassa services.

Employers faced ever-shorter supplies of available labour resources in 2014. A larger share of value added had to be allocated as wage costs to cover retention and recruitment of staff, meaning that there was a reduction in profits. Faster economic growth came mainly from increased use of the labour force and only to a small extent from labour productivity. Such growth will not be possible to maintain in the longer term in an ageing society. However, the persistent large differences in productivity between Estonia and the Nordic countries show that there is large potential for growth from investment in the knowledge and skills of staff.

Source: Bank of Estonia

Author: Orsolya Soosaar, Economist at Eesti Pank

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