Wage growth accelerated

• Wage growth picked up as labour market tightened further in the third quarter
• Remarkable surge in employees’ purchasing power supports consumption

According to Statistics Estonia, average wage amounted to 1,045 euros, up by 6.9% annually. As labour market has tightened, workers’ bargaining power has increased and growing labour costs are biting into enterprises’ profitability.

 

Wages increased in almost all sectors. Wage growth was the fastest in sectors where the average wage level is the lowest, e.g., accommodation and food services, education, entertainment, and real estate. The rapid growth of wages in these sectors was supported by a substantial increase in the minimum wage, a political agreement to raise the wages of teachers, and strong domestic consumption that lifts the sales of enterprises who sell their products and services in the domestic market.

Average wage decreased in a relatively small sector of administrative and support service activities where average pay was lower than last year in a few small enterprises. Average wage in construction grew only by 1%, probably due to the registration of previously unofficially employed workers who still receive part of their pay in an envelope.

Households’ real purchasing power will grow markedly this year. The growth of gross wages will probably remain fast in the fourth quarter and smaller labour taxes and deflation will result in a remarkable surge in households’ purchasing power. Net wages were up by 7.7% in real terms in the first nine months of the year.

Wage growth will also be fast next year as the lack of suitable labour remains a concern. An agreed 10% increase in the minimum wage in 2016 will also have an impact. The growth of wages in real terms will slow in 2016 compared with 2015 as prices will start growing and labour taxes will be lowered less than this year.

Source: Swedbank

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