The purchasing power of those earning the average wage grew quickly

Data from Statistics Estonia show that the average gross monthly wage increased by 5.3% over the year in the fourth quarter of 2014, and the gross hourly wage by 6%. This growth was faster than in the previous quarter. The fall in consumer prices meant that the growth in the purchasing power of the average wage also accelerated to 5.8%.

The rise in the average wage continues to be affected by the obligation for companies to register employees, which has increased the number of workers with declared wages who had earlier been paid unofficially. This brought down the growth in the average wage because the additional workers were on average earning close to the minimum wage, according to data from the Tax and Customs Board. Without the obligation to register employees, the growth in wages would probably have been even faster.

At around 7.5%, growth in the average wage was faster in government and local government employment, with wages rising 10.1% in the health sector and 8.9% in public administration. Wage rises in these jobs are unlikely to have been affected by the obligation to register employees. Average wages in the private sector rose more slowly, increasing by a little over 7% in Estonian-owned companies, but by a more modest 2.5% in companies with foreign ownership. Wages in manufacturing rose by 4.4%, which was below the average.

Growth in the average wage will be boosted this year by the rise of 11% in the minimum wage. The minimum wage rose around twice as fast as the average wage did in 2014 and will do so again in 2015.

Net wages, which is the amount left after taxes, will rise faster this year as the tax-free minimum income is raised from 144 euros to 154 euros a month and income tax is lowered from 21% to 20%. These changes will raise the net wages of an employee on the minimum wage by around 1.7%, and those of someone on the average wage by 1.1%. For jobs where the employer and employee negotiate over a net wage, this will reduce costs to the employer and help to slow the growth in labour costs.


Eesti Pank observes and comments on wage developments as labour costs have a direct impact on the price of goods and services produced in Estonia and wage growth is an important indicator of price stability.

Source: Bank of Estonia

Author: Orsolya Soosaar, Economist at Eesti Pank

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: