Estonian labour market review

Key developments in second half of 2015

Growth has been slow in the Estonian economy for several years now and it slowed further in 2015. Despite this, the demand for labour remained strong as employment grew and growth accelerated in the payroll of the whole economy as a share of GDP.

Part of the reason for this contradiction may be that the slowdown in GDP growth was not broadly based, as certain sectors made a significant contribution to the slowdown, but do not account for a large share of employment. In the longer term the supply of labour in the economy depends on the number of residents of working age and how actively they participate in the labour force.

The number of people of working age has been declining in Estonia for a long time now, and this trend continued in 2015. This was more than offset however by increased participation in the labour force, and overall the amount of labour in the economy grew. People are encouraged to participate in the labour market by the increased chances of finding a job and by the steadily rising wage level. Annual growth in the second half of 2015 was as fast as in the first half, but this was because of extraordinarily high employment in the third quarter.

The estimate of employment may to some extent have been boosted by the delayed effect of the registration of employees. Estimates of employment based on data from companies put employment growth slower than in 2014, but most of them still show positive growth. For the year as a whole it was only full-time equivalent employment in the wage survey that fell. At the same time, demand for labour calculated from the number employed may be overestimated as there was an increase in the number of those in employment who were working part-time, and the number of hours worked in the whole economy grew more slowly than employment did. Increased employment led to a fall in unemployment for 2015 as a whole.

Unemployment in Estonia is markedly lower than in Latvia or Lithuania, and the reasons behind this are analysed in Box 3 of this report. The percentage of the long-term unemployed in total unemployment fell in the second half of the year. In the last quarter of the year both the labour force survey and the data on registered unemployment showed a rise in the number of short-term unemployed. Data on registered unemployment from Töötukassa, the unemployment insurance fund, gave a slightly less optimistic picture than the labour force survey.

The number registered as unemployed increased quarterly from the second quarter to the fourth and there was also a rise in the number of those whose working relationships were ended as they were made redundant. More people entered the register because of redundancy than did so in 2014, but still substantially fewer than in 2013. Unit labour costs continued to grow fast in yearly terms in the second half of the year. Wages grew fastest in the public sector, specifically in local government administration, but wage growth was lower in Estonian private companies.

Data on wages paid out show wage growth to have been fastest in the lower part of the wage distribution, probably because of the sharp rise in the minimum wage. The quarterly growth rate of the index of labour costs gives reason to think that growth in labour costs is slowing, as it fell notably at the end of 2015. Labour productivity fell in the second half of 2015, while yearly growth in unit labour costs was about as fast as in the first half of the year at 5.6%. This rise came from both the fall in productivity and the growth in labour costs per employee. In contrast to what was forecast, it may be noted that no adjustment in labour costs has yet taken place. Sentiment surveys show indeed that the expectations of companies for employment rose at the end of 2015 and the start of 2016 together with the share of companies complaining of labour shortages. In the longer term, rising unit labour costs mean shrinking profit margins for companies, and that in turn will make those companies more vulnerable in future to negative shocks.

Read more from the report made by the Bank of Estonia

Increases in bonuses are in contradiction to shrinking profits

  • Higher wages and lower consumer prices increased the capacity of households to consume
  • The growth in average wages in manufacturing accelerated from 5.4% to 8% in the fourth quarter of last year
  • Companies have had to pay out an ever bigger part of their value added created in recent years
  • The wage distribution has become more equal in recent years

Data from Statistics Estonia show that the average gross monthly wage was up 8.1% on a year earlier in the first quarter of 2016.This means average wage growth was faster than at the end of 2015. Growth in the average monthly wage accelerated faster than growth in the average hourly wage, which indicates that variable pay components like bonuses and overtime contributed to the faster growth. Higher wages and lower consumer prices increased the capacity of households to consume.

The employer ownership model that saw the fastest wage growth was foreign-owned private companies, where wages rose by 10.2%. Wage growth at foreign-owned companies was still lower in 2014-2015 than at Estonian-owned private companies. Growth in average gross monthly wages in the public sector did not speed up. In recent years the state has been able to manage wage growth in areas under its control, but wages have risen quite fast, by close to 8%, in areas under local government administration.

Changes in the average wage have varied quite widely in different fields of activity, ranging from –5.1% to +22.9%. Wages rose fastest in administrative and support activities, which covers services like rental services, labour exchange, travel agency services, security, maintenance including cleaning, and the like. Several of these were probably affected by the rise in the minimum wage, which was 10.3% this year, though this only explains a part of the increase. It can be seen from the enterprise statistics that profits increased in this sector in 2015, which probably allowed employers to pay bonuses. The growth in average wages in manufacturing also accelerated to 8% from 5.4% in the fourth quarter of last year even though profits were down last year and growth in value added was weak.

The wage distribution has become more equal in recent years. Data from the Tax and Customs Board showed that the median wage1paid out in 2015 was 80% of the average wage, which is two percentage points more than in 2009. Among wage recipients, 37% got the average wage paid out or more, which is two percentage points more people than in 2009. The data published by Statistics Estonia on average gross income also show that over time the crude gender income gap has narrowed. This has probably been helped by the minimum wage rising faster than the average wage, wages in education and healthcare rising faster than the average, and competition with foreign employers, because the relative wage gain from working abroad is largest in the lowest part of the wage distribution.

Companies have had to pay out in wages an ever bigger part of their value added created in recent years. In 2014 labour costs were already bigger in Estonia as a share of value added than the European Union average adjusted for structural economic differences, and faster wage growth at the start of 2016 means the difference has become wider. Paying generous bonuses is not in line with shrinking profits, which indicates that companies may be doing better than the statistics indicate.

1 The median wage is the wage which half of employees earn more than and half earn less than.

Source: Bank of Estonia

Author: Orsolya Soosaar, Economist at Eesti Pank

Loans and leases to companies grew in April, 7 pct over the year

  • Loans and leases to companies grew fast in April (7%), just like in the preceding months
  • The stock of housing loans increased in April at the same rate as in recent months, 4% over the year
  • The average interest rate on long-term corporate loans has fallen this year
  • Deposits continued to grow strongly in April and did so by more than loans and leases

The portfolio of loans and leases to Estonian companies and households grew at the same rate in April as in the preceding months.The total value of the portfolio was 6% higher in April than a year earlier. The total volume of loans and leases increased during the month by 56 million euros to 16.3 billion euros.

Growth accelerated in the early months of the year in the volume of corporate loans and leases and it was relatively fast in April as well, at 7%. Some 880 million euros of new long-term loans were issued to companies in the first four months of the year, which is approximately one quarter more than a year previously, though some of this was refinancing earlier loans. The majority of the new long-term loans were to companies in real estate and manufacturing.

The stock of housing loans was 4% larger in April than a year earlier, meaning it grew at the same rate as in the preceding months.Activity in the housing loan market has declined a little though, and 10% fewer new housing loans were issued in March and April than a year before. The volume of other loans to households again grew faster than the volume of housing loans because of strong growth in car loans, and it was up 7% over the year in April.

The average interest rate on long-term corporate loans has fallen this year, if a sharp spike in March caused by individual transactions is excluded. The average interest rate for loans issued to companies was 2.1% in April, while the average interest rate for housing loans issued was 2.3%.

The volume of loans that were long-term overdue remained small. The volume of loans overdue by more than 60 days declined slightly in April and made up 1.3% of the loan portfolio at the end of the month.

Growth in corporate and household deposits remained fast in April. Total deposits were up 8% over the year at 10.8 billion euros. Corporate deposits have been increasing faster than household deposits since the second half of last year. Like before, deposits by both companies and households individually grew faster than loans and leases.

Source: Bank of Estonia

Author: Mari Tamm, Economist at Eesti Pank

Construction volumes increased in the 1st quarter

According to Statistics Estonia, in the 1st quarter of 2016 compared to the same quarter of the previous year, the total production of Estonian construction enterprises in Estonia and foreign countries increased 3%. If only the Estonian construction market is taken into account, the construction volumes increased 5%.

In the 1st quarter of 2016, the production value of construction enterprises amounted to 374 million euros, of which the production value of building construction was 289 million euros and the production value of civil engineering was 85 million euros. Compared to the 1st quarter of 2015, the volume of building construction increased 12% and the volume of civil engineering decreased about a fifth.

The domestic construction market was still influenced the most by a fall in civil engineering volumes. There was also a decrease in repair and reconstruction work in building construction. At the same time, new building construction continued to grow.

The construction volume of Estonian construction enterprises in foreign countries decreased 8% compared to the 1st quarter of 2015, influenced mainly by the construction of buildings. Construction volumes in foreign countries accounted for 9% of the total volume of construction in the 1st quarter of 2016.

According to the Register of Construction Works, in the 1st quarter of 2016, the number of dwelling completions was 990. The same number of new dwellings was also completed in the same period a year ago. More than a half of the completed dwellings were situated in blocks of flats. The majority of completed dwellings were situated in Tallinn.

There is still a demand for new high-quality dwellings in a good location. In the 1st quarter of 2016, building permits were granted for the construction of 1,347 dwellings, which is more than a half more than in the 1st quarter a year ago. The most popular type of building was a block of flats.

The number of completed non-residential buildings was 304 with a useful floor area of 118,000 square metres – this consisted primarily of new commercial and storage premises. Compared to the 1st quarter of 2015, both the useful floor area and the volume of completed non-residential buildings decreased.Diagram: Construction volume index and its trend

Source: Statistics Estonia

Estonian salaries grew 6 pct per year

According to Statistics Estonia, in 2015, the average monthly gross income per employee was 1013 euros. The increase continued at the same rate as in the previous years, i.e., at 6% per year.

In 2015 compared to the previous year, the increase in gross income was fastest in Jõgeva, Lääne, Viljandi, Võru and Põlva county (7% increase). In other counties, gross income increased 6%, except for in Ida-Viru county where the increase was 5%.

The average monthly gross income exceeded 900 euros in 8 counties and it exceeded 1,000 euros in Harju, Tartu and Hiiu county. In the other counties, the gross income was lower. In the past years, the gross income has been lowest in two counties: Ida-Viru (in 2004–2009) and Valga county (2010–2014). In 2015, the lowest gross income was earned yet again in Ida-Viru county (847 euros).

Among local government units, the average monthly gross income per employee was highest in the rural municipalities of Harju county. For years now, the highest gross income there is earned in Viimsi rural municipality, where the average monthly gross income per employee was 1,442 euros in 2015. In the capital, Tallinn, the monthly gross income in 2015 was nearly 1,100 euros. The gross income was one of the highest also in the rural municipality of Vormsi in Lääne county. On the lower end of the ranking of gross income we find three rural municipalities of Tartu county, where the gross income was below 700 euros per month (the rural municipalities of Piirissaare and Peipsiääre and the city of Kallaste).

Map: Average monthly gross income per employee in local government units, 2015

In 2015, men earned on average 270 euros per month more than women. Although the gross income of men was higher than that of women, the gross income of women increased more compared to the previous year (7% increase for women, 5% for men). In the past years, the difference between the gross incomes of men and women has started to decrease a little, as the gross income of women has increased faster.

In 2015, the number of persons earning gross income did not increase significantly. There were in total 1,630 additional earners of gross income, making the total of gross income recipients a little over 520,000 persons. In most counties, the number of gross income recipients decreased, except for in Harju, Tartu and Pärnu county. The number of gross income recipients decreased mostly for the population aged 24 and under, which was compensated for by an increase in the number of income recipients among the elderly (aged 63 and over). While a year ago, the number of gross income recipients in the younger age group decreased 2% compared to the previous year, the decrease accelerated in 2015, reaching 7%. The number of income recipients aged 24 and under decreased in all counties, while the relevant number among persons aged 63 and over increased in all counties.

Diagram: Young and elderly recipients of gross income, 2003–2015

The analysis is based on the data of the Estonian Tax and Customs Board as at 31 March 2016. The average monthly gross income per employee is calculated by dividing the monthly average sum of disbursements with the monthly average number of persons receiving disbursements.

Source: Statistics Estonia (see better graphs here)

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The volume of aquaculture production sold fell in 2015

According to Statistics Estonia, in 2015, the total amount of commercial fish and crayfish sold by aquaculture enterprises was 795 tonnes, with a total value of 3.3 million euros. Compared to 2014, the amount of fish and crayfish production sold has decreased 8% and the monetary value of production – 3%.

In the last five years, there has been an increase in the volume of aquaculture production sold. Compared to the slump of 2011, the production of aquaculture increased two times in 2015. While in 2014 the volume of aquaculture production sold was at a 20-year high (865 tonnes), the production of 2015 ranked second in terms of volume.

Rainbow trout accounts for the biggest share in the production of aquaculture sold. In 2015, 558 tonnes of rainbow trout was sold, with a total value of 2 million euros. Nevertheless, the share of rainbow trout in aquaculture production has decreased due to several new species having been introduced in fish farms: in the last five years, from 85% to 70%, respectively. The decline in the share of rainbow trout has been influenced by an increase in the sales volumes of promising species like the Arctic char, the African sharptooth catfish, sturgeons (the Siberian and Russian sturgeon) and the wels catfish, but also the European eel and common carp, which have been farmed in Estonia for a long time already. The sale of carps like the grass carp and silver carp has also increased.

In 2015, the European crayfish was sold in the amount of 0.6 tonnes, which is 2.6 times more than in 2014. The monetary value of production sold, however, has not increased at the same rate: the value was 1.6 times higher in 2015 than in 2014.

The amount of caviar sold in 2015 totalled 7.3 tonnes, which is 2.4 times more than in 2014. The value of production almost doubled as well: last year, the value of caviar sold totalled 197,000 euros last year, while in 2014 it was 93,000 euros.

In 2015, 7% of the total production of commercial fish was exported – 8 percentage points less than in 2014. The European eel and (to a lesser extent) sturgeons were the main species exported.

Statistics Estonia collects aquaculture data by surveying all enterprises with the principal or secondary activity of aquaculture. The frame of the surveyed enterprises is compiled based on the register of enterprises recognised by the Estonian Fish Farmers Association and the Veterinary and Food Board, and on the data of the Statistical Profile.

Source: Statistics Estonia

Estonian immigration exceeded emigration in 2015

According to Statistics Estonia, 15,413 persons immigrated to and 13,003 persons emigrated from Estonia in 2015. Net migration was 2,410 and natural increase -1,336, meaning that immigration compensated for the population decrease which occurred due to negative natural increase.

The most active group of external migrants was the group of 20–39-year-olds. In most age groups immigration exceeded emigration with the exception of the age groups of 10–14-year-olds and 25–29-year-olds. The number of men among the migrants exceeded that of women, but net migration indicates that the number of women who remain abroad exceeds that of men.

52% of the immigrants and 69% of the emigrants were citizens of Estonia, therefore the back-and-forth mobility of citizens of Estonia continues to constitute the majority of the external migration. 21% of the immigrants were EU citizens and 27% were citizens of third countries. 15% of the emigrants were EU citizens and 10% were of other citizenship. The EU citizens that immigrated were younger than the immigrants that were of Estonian or other citizenship, which, in the case of citizens of Estonia could be explained by the fact that they were mostly returning migrants. Of the citizenships that were most represented in external migration, the only number to decrease as a result of net migration was that of Estonian citizens. The increase was biggest for the persons holding citizenship of a third country. As a result of external migration, the biggest foreign citizenship groups that remained in Estonia were those of Ukraine, Russia and Finland. The immigration and emigration of EU citizens and people with undetermined citizenship balanced each other out.

Most of the persons whose migration country is known have gone to Finland or come from there. The main destination countries include other highly developed European countries such as the United Kingdom and Germany. The main source countries of immigration are, in addition to Finland, also Ukraine and Russia. By birth country, 49% of the immigrants are from Estonia, 11% from Russia and 8% from Ukraine. 68% of the emigrants were born in Estonia, 9% in Russia and 4% in Finland.Diagram: Immigration by citizenship, 2015

Diagram: Emigration by citizenship, 2015

As of 2016, Statistics Estonia calculates external migration based on the residency index: a person’s transition from resident to non-resident is emigration and the opposite is immigration (when it is not the case of birth or death). As a result, migration flows have increased and this must be taken into account when comparing 2015 migration data to that of previous years. As a result of the changes, the Estonian external migration reflects reality more accurately; however, the country of origin and destination of many immigrants and emigrants remains unknown.

Source: Statistics Estonia