The labour market would gain from removing the barriers

Given the exceptionally good position of the economy and the increasing demand for labour, the rise in the rate of wage growth to 7.5% can be seen as moderate. The ability to find suitable work and favourable pay conditions have increased the labour supply. Migration statistics show that workers have also been found from outside Estonia. Estimates by companies show though that they are able to offer jobs to substantially more people than are currently in work.

The state could ease the problem of labour shortages by supporting the supply of labour. Although many reforms have already been passed, and a very large share of people of working age are already in the labour market, the time is right to reduce barriers to labour market participation even further. Rules on retirement and pensions should be made flexible for workers more quickly, rather than in a couple of years. Child care options immediately after parental benefits end would help mothers return to the labour market faster. Help could also be given to make returning from abroad as simple and painless as possible. Increased return migration indicates that many of those who earlier moved abroad are thinking of returning to Estonia.

The rise in the average wage has also been driven by some temporary factors. Faster wage growth has been particularly noticeable in public administration and social insurance, which may have been due to bonuses paid for the end of the presidency of the European Union and benefits paid as part of the reform of the administration. These should not affect base wages in the general government sector and so more moderate wage growth may already be expected in the current quarter.

Source: Bank of Estonia

Author: Orsolya Soosaar, Economist at Eesti Pank