Salaries increased by 7.3 pct in a year

According to Statistics Estonia, in 2018, the average monthly gross wages and salaries of enterprises, institutions and organisations were 1,310 euros, having increased by 7.3% compared to 2017. The average monthly gross wages and salaries increased in all economic activities, being the highest in the 2nd and 4th quarters.

In 2017, the annual increase in the average monthly gross wages and salaries was 6.5%, while in 2018, the growth increased slightly, being at the same level as in 2016. In 2018, the annual increase in the average monthly gross wages and salaries was the slowest in the 2nd quarter (6.4%), accelerating near the year-end. Real wages, which take into account the influence of the change in the consumer price index, increased slower in comparison with 2017 than the monthly gross wages and salaries, which was due to growing consumer prices. Compared to 2017, real wages rose by 3.7%. In 2018, real wages increased 0.7 percentage point faster than in the previous year.

In 2018, compared to the previous year, irregular bonuses and premiums increased 25% per employee. The average monthly gross wages and salaries excluding irregular bonuses and premiums increased 6.5%. Irregular bonuses and premiums affected the year-over-year increase in average monthly gross wages and salaries by 0.8 percentage points.

In 2018, the average monthly gross wages and salaries continued to be the highest in information and communication (2,172 euros) and in financial and insurance activities (2,154 euros), and the lowest in accommodation and food service activities and other service activities.

Compared to 2017, the average monthly gross wages and salaries increased the most in other service activities (incl. activities of organisations, repair of personal and household goods, services) and in arts, entertainment and recreation. The year-on-year growth in these economic activities is due to a change in Statistics Estonia’s wage statistics methodology, according to which since 2018 also non-profit organisations with less than 50 employees are included.

Additionally, the wages and salaries increased in education (13.1%), wholesale and retail trade (10.8%), water supply; sewerage, waste management and remediation activities (10.2%). The annual average monthly gross wages and salaries increased in all economic activities. The increase was the slowest in administrative and support service activities (1.2%).

In the public sector, including state and municipal institutions and enterprises, the average monthly gross wages and salaries amounted to 1,393 euros (year-over-year growth 10,1%), and in the private sector, including enterprises owned by Estonian and foreign private entities, to 1,283 euros (year-over-year growth 6.4%).

In 2018, by county, the average monthly gross wages and salaries continued to be the highest in Harju (1,455 euros) and Tartu (1,289 euros) counties and the lowest in Hiiu (944 euros) and Saare (987 euros) counties. The average monthly gross wages and salaries increased in all counties. The year-over-year growth in monthly gross wages and salaries was the fastest in Saare, Jõgeva and Rapla counties and the slowest in Võru county.

According to the Wages and Salaries Statistics Survey, in 2018, compared to the previous year, the number of employees converted to full-time units increased 5%. The number of employees in full-time units increased the most in other service activities, arts, entertainment and recreation activities and in real estate activities. The change in these three economic activities is largely due to the inclusion of non-profit organisations with less than 50 employees in the wages and salaries survey.

In 2018, the average monthly labour costs per employee were 1,756 euros and the hourly labour costs 11.61euros. Compared to 2017, the average monthly labour costs per employee increased 6.6%.

Read more from Statistics Estonia

37,700 unemployed in Estonia

According to Statistics Estonia, in 2018, the labour force participation rate was 71.9%, the employment rate was 68.1% and the unemployment rate was 5.4%. The number of long‑term unemployed was the lowest of the last 20 years.

In 2018, the annual average number of active persons in the labour market was 702,400, which is 3,600 more compared to 2017. The number of employed persons was 664,700, increasing by 6,100 compared the previous year. The annual average number of unemployed persons was 37,700, which is 2,600 less than in 2017.

Unemployment decreased in all age groups. The unemployment rate among 25–49-year-olds was 4.5% and among 50–74-year-olds it was 5.2%. One of the goals of Estonia 2020competitiveness strategy is bringing the unemployment rate among young people (15–24-year-olds) down to 10%. In 2018, the goal was not yet fulfilled, but the unemployment rate among young people decreased year-on-year, and was 11.8% in 2018. The European Union average unemployment rate in the 1st to 3rd quarter of 2018 stood at 7%, indicating that Estonia is among the countries with lower unemployment.

In 2018, the number of long-term unemployed (who have been looking for work for 12 months or longer) was 9,400, which is the lowest of the last 20 years. The last time that the number of long‑term unemployed was at a record low was in 2008. Compared to 2017, the number of long‑term unemployed decreased by 4,100 in 2018. The long-term unemployed are considered to have the highest risk of poverty among unemployed persons. The reason is that staying out of the labour market for a long time can have an impact on the person’s work skills and habits.

The number of inactive persons in the labour market continues to fall. In 2018, the number of inactive persons in the labour market was 274,300. The main reasons for being inactive were retirement (88,400), studies (65,000), illness or disability (59,800) and maternity or parental leave (26,000). The decrease in the number of inactive persons is affected by the Work Ability Reform as well as the increasing activity of retirement-aged persons in the labour market. It is also possible to provide data on persons available to work but not seeking by reason of inactivity. These are persons who are not actively looking for work but are available for work immediately if work was offered. There were 30,800 such persons in 2018. Among them, retirement-aged persons (7,300) and persons inactive due to illness or disability (7,600) were the most numerous.

Part-time working has become more popular. In recent years, the number of part‑time workers has been on constant increase. It reached a record-high number in 2018, with 82,000 part-time workers, which is 10,900 more compared to 2017. Women are the most likely to work part-time (54,700), and there were 27,300 men working part-time.

The number of underemployed persons has also increased. A person is underemployed if he/she works part-time but would like to work more and is available for additional work immediately (within two weeks). In 2018, the number of underemployed persons was 7,300, which is 2,600 more than in 2017.

Read more from Statistics Estonia

Employment of older persons is at a record high

According to Statistics Estonia, in the 3rd quarter of 2018, the unemployment rate was 5.2%, the employment rate was 68.2% and the labour force participation rate was 72%. The unemployment rate remained low and is similar to that of economic boom years. The employment rate and the labour force participation are even higher than during the boom years. Employment of older persons is at a record high.

The labour market indicators did not change significantly compared to the same quarter of 2017. It is notable, however, that activity in the labour market among older persons, i.e. 50–74-year-olds, continues to grow. In the 3rd quarter, the employment rate of older persons reached 59.1%, which is the highest of the century. The labour market participation rate of older persons was 61.3% and their unemployment rate was 3.6%. Compared to the 3rd quarter of the previous year, the number of employed persons among age group 50–74 increased by 4,500 and the number of unemployed persons decreased by 3,000.

In the 3rd quarter of 2018, the indicators for 25–49-year-old persons, which is the most active group in the labour market, did not change significantly; their labour force participation rate was still high (88.1%).

The labour force participation rate of young people, i.e. 15–24-year-olds, was 46%. Although in recent years this figure has been stable, in the 3rd quarter of this year, the number of employed persons decreased and the number of unemployed persons increased in this age group.

Read more from Statistics Estonia

Slower growth in wages may prove temporary

  • Wage growth was slowed by the effect of the tax reform, which changed how holiday pay is paid out and raised the average net wage
  • Upwards pressure on wages remains high
  • Wage inequality and poverty wages have declined in Estonia in recent years

Data from Statistics Estonia show that the average gross monthly wage was up 6.4% over the year in the second quarter of 2018, which is a slower rate of growth than the 7.7% in the previous quarter. The shortage of available labour kept upwards pressure on wages high, and the slower wage growth can be at least partly explained by the impact of the tax reform, which changed how holiday pay is paid out and so allowed employers to restrain the growth in gross wages a little as employees received more in their pay packets.

The new tax system made it less favourable for employees to receive holiday pay during the month in advance of their holiday, as the temporary rise in their pay would lower their tax-free allowance. The data indicate that employers agreed more frequently than last year to make all monthly payments the same size. This change had a particularly notable impact in the slower wage growth in education. Wage growth may be faster than expected in the next quarter though, as people receive more in wages during the holiday months than they did last year.

Wage inequality and in-work poverty have declined in Estonia in recent years. This has been helped by the rapid rise in the minimum wage over several years and by rises in family benefits. The risk of falling into poverty is substantially smaller for those in work than it is for the non-working. The risk of poverty is higher for single parents and those with low work intensity, and it declines with higher levels of education.

Source: Bank of Estonia

Author: Orsolya Soosaar, Economist at Eesti Pank

 

See graph here

2Q unemployment rate the lowest in 10 years

• Employment rose rapidly but only among the part-time workers
• The unemployment rate decreased more than expected
• The shortage of labour has reached the levels of last economic boom 

Employment rose rapidly but only among the part-time workers 
The number of the employed rose significantly, by 2.0%, or by 13,000 persons, over the year, in Estonia. Employment rose among the part-timers in the services’ sector and the manufacturing. According to the Estonian Tax and Customs Board, who has more detailed data on employment by sectors, employment increased the most in the construction sector.

The unemployment rate decreased more than expected 
Employment rose due to lower unemployment, the number of the inactive remained at last year’s level. The number of the unemployed decreased by the same amount as was the increase in the employment, 13,000 persons. Unemployment shrank among the short-term unemployed (up to 6 months). The unemployment rate (5.1% in Q2) would have been even lower without the ongoing work ability reform (that motivates people with a disability to look for a job). Around a third of the registered unemployed were people with decreased working ability in July.

The shortage of labour has reached the levels of last economic boom 
A shortage of labour was the most important factor restricting business for 30% of manufacturing, 36% of service companies and for 61% of construction companies in July. While the labour market indicators look more and more like during the last economic boom, the number of the working-age people is much smaller: -70,000 compared with 2006-2007.

The shortage of labour keeps wage growth rapid 
Employees feel more and more secure in the labour market. The number of employees who have left their jobs on their own initiative is growing and the rate of job vacancies is on the rise. Therefore, wage pressures will persist. Tax data show that gross wage growth remained strong in the second quarter, close to 6%, year-on-year.

Employment should continue growing in the second half of the year. Companies plan to increase the number of workers in the following months, according to a survey by the Estonian Institute of Economic Research. As demand for labour grows, but the supply of labour is limited, at least short-term, the number of job vacancies should grow. It seems that the negative impact of the work ability reform on the unemployment rate will be smaller than expected and the unemployment rate will be smaller in 2018 than in 2017.

Source: Swedbank

The number of people of working age rose

  • The growth in employment has been boosted by a rise in the number of entrepreneurs
  • The Work Ability Reform raised unemployment by less than forecast as demand for labour is strong
  • The number of people of working age rose for the first time in more than 20 years

The Estonian labour force survey found that the unemployment rate in Estonia rose in the first quarter of 2018 to 6.8%, as people engage more actively in the labour force. Employment rose at the same time, though at a slower rate than previously. The state of the labour market has not deteriorated from the second half of last year. Registry data suggest that the wide volatility in labour market indicators can largely be explained by the variability in the quarterly assessments of the labour force survey.

Employment was raised strongly both last year and at the start of this year by a rise in the number of one-person businesses and businesses with employees. The labour force survey shows the number of waged employees to be slightly lower than it was a year earlier. Registry data from the Tax and Customs Board show that 1.6% more people received a declared wage in the first quarter of 2018 than in the same quarter of the previous year. There was a rise in the number of employees in the private sector and a fall in the number in government institutions.

Without the Work Ability Reform, participation in the labour force would have increased more slowly and the number unemployed would have fallen. The number registered as unemployed has risen since the Work Ability Reform was launched. Now around one third of the 33,000 registered unemployed in Estonia have reduced ability to work. Leaving out random fluctuations from quarter to quarter, there has been no clear upward trend in the total unemployment rate in recent years. This is because the reform was well timed, as people with reduced ability to work can find a job more quickly at times of labour shortages than otherwise.

The updated estimate by Statistics Estonia is that the number of people aged 15-74 did not fall in 2017, but in fact rose by 0.1%. This is partly because Estonia has become a more attractive place to work for foreign labour, and partly because residents of Estonia who had previously gone to work abroad temporarily are returning. The improved migration balance means there is a larger supply of labour in the Estonian labour market and the wage pressures caused by labour shortages have been eased. The experience and skills of workers coming from abroad offer opportunities for businesses to develop.

Source: Bank of Estonia

Author: Orsolya Soosaar, Economist at Eesti Pank

Growth in net wages leapt sharply

  • Growth in the gross wages of people earning minimum wage was slowed down by lower negotiated wages, but net wages increased considerably owing to the income tax reform
  • The cut in income tax initially benefited employees more than employers
  • Pay rises in the general government exceeded those of the private sector. If this gives a signal to the private sector, labour costs may start to accelerate, and wages would move out of line again with productivity growth

The smaller rise in the minimum wage slowed down the growth in gross wages, but the income tax reform more than offset the impact on current net wages. The minimum wage rose by 6.4% this year, which is much slower than the rate of close to 10% seen in recent years. The declared gross monthly wage of people earning minimum wage rose more slowly in the first months of 2018 than it did on average in 2017. Without the income tax rebate system for the low-paid that applied last year, which is not reflected in statistics for current wages, the rise in the tax-free threshold to 500 euros meant that those earning the minimum wage saw a rise of 18% in the pay they received.

The cut in income tax initially benefited employees more than employers. As the gross wage is generally fixed in employment contracts, it is to be expected that a fall in the tax rate will lead the net wage to rise. Over the longer term a large cut in the tax rate could reduce wage rises agreed in wage negotiations. The effect of this would slow down the growth in labour costs for employers. Employers will probably benefit less from the reform as the general shortage of labour gives employees a stronger hand in wage negotiations.

The fast rate of wage growth in the general government increases the risk of faster growth in private sector labour costs as well, meaning that the wages will move further out of line with growth in productivity again. Wages in the general government continued to rise fast, although temporary factors from last year should not have had an impact any longer. Wage growth in local government, which accelerated to 12% in the first quarter, reflected faster growth in education, but wage growth also remained strong in public administration. This may have been affected by the reform of administration, under which many employment contracts were terminated and signed.

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