Estonia’s wage growth 7 pct in 3Q

• Wage growth remained rapid in the 3rd quarter at 7%, over the year.
• We expect average gross wage to slow to around 5% in 2017.

In the 3rd quarter of 2016, the average monthly gross wage was 1,119 euros in Estonia, up by 7.1% over the year. Net average wage grew also rapidly, by 6.8% in real terms. The growth of gross wages will probably remain around 7% in the remaining months of the year as labour market remains tight. There were about 9,500 job vacancies in Estonia in the 2nd quarter of 2016. The number of job vacancies exceeded 9,000 last time in 2008.

The rapid growth in the average wage is supported by a lack of suitable labour, a 10% increase in the minimum wage, a political agreement to raise the wages of teachers and healthcare workers, and strong domestic consumption that lifts the sales of enterprises selling their products and services in the domestic market. The average gross wage increased in all sectors, except mining, which has been hurt by low energy prices.

The growth of wages in real terms will slow dramatically in 2017, as nominal growth of wages will be somewhat slower and prices will rise. This, in turn, will limit households’ consumption. The substantially slower growth of wage-earners’ purchasing power will be smoothed by a higher employment rate and an increase in social transfers to pensioners and families.

SOurce: Swedbank

Estonian unemployment rate 7.5 pct in 3Q

• Employment decreased by 1.2%, over the year, in the third quarter.
• The unemployment rate jumped to 7.5% in the third quarter.
• Employment is expected to marginally decline and the unemployment rate to grow in 2017.

Changes in the third quarter’s labour market data were larger than expected. Employment decreased by 1.2%, over the year. Employment declined in the construction, energy, and manufacturing industries. The construction sector has been hit by lower volumes of infrastructure construction. The energy sector has had to reduce output due to low energy prices. In the second quarter, the decline in the employment in the secondary sector was offset by a strong growth in the employment in services. In the third quarter, the number of employees in the services’ sector was only marginally higher than one year before.

Employment is expected to marginally decline in 2017. Working-age population is shrinking and surging labour costs motivate organisations to increase the efficiency of their production processes. Employment in the construction sector should increase, though, as the volume of public construction projects is expected to grow substantially next year. The outlook of the energy sector should also improve as the price of oil is expected to gradually move higher.

The number of inactive decreased by 3.5%, over the year, in the third quarter. Major drivers of this decline, in addition to the tight labour market, were an increase in the retirement age and rearrangement of the social benefits system regarding people with disabilities; these people are now entitled to certain benefits only if they work or actively look for work. The unemployment rate increased to 7.5% in the third quarter (5.2% in the third quarter of 2015). 53,000 people were actively looking for a job; around half of them had been seeking employment for less than 6 months. At the end of October, there were 5,000 people with reduced working ability looking for a job through the Estonian Unemployment Insurance Fund. As many of them might find it hard to find a suitable job, the unemployment rate is expected to grow next year.

Source: Swedbank

Bus drivers’ minimum wage to rise 18 pct in 3 years

Following a year of negotiations, the Estonian Transport and Road Workers Trade Union (ETTA) and the Union of Estonian Automobile Enterprises arrived at a a sectoral agreement that will raise bus drivers’ minimum monthly income by 18 percent to 945 euros in three years.

Under the agreement concluded, bus drivers’ minimum monthly income and hourly wage, respectively, will increase to 835 and 3.50 euros next year, 895 and 3.75 euros in 2018, up to 945 and four euros in 2019.

ETTA’s initial demand was for bus drivers’ minimum monthly income to be increased from 800 to 900 euros immediately.

Read more from ERR News

Unemployment insurance premiums to remain unchanged until 2020

The government decided on Thursday to leave the rate of unemployment insurance premiums at the current level of 2.4% for the coming four years.

The premium of 2.4% is made up of a contribution of the insured person amounting to 1.6%, and a contribution of the employer, amounting to 0.8% of the employee’s gross pay.

According to an estimate of the Estonian Unemployment Insurance Fund, a combined rate of 2.4% means that premiums collected will total €166.8m next year, €178m in 2018, €189m in 2019, and €200m in 2020.

One of the reasons for the decision not to change the premiums is the Work Ability Allowance Act that entered into force this year. This law states that a person’s ability to work is to be assessed and the work ability allowance granted and paid by the Estonian Unemployment Insurance Fund using only unemployment insurance funds. This means that the availability of sufficient funds has to be guaranteed, otherwise the work of the Unemployment Insurance Fund to cover its targets wouldn’t be sustainable.

Unemployment insurance is compulsory in Estonia. The Unemployment Insurance Fund (Töötukassa) has the task to provide labor market services, pay labor market benefits, and pay unemployment insurance benefits to those looking for a new job.

The fund also has the task to help employees in the case of lay-offs, as well as to support employees’ claims upon the insolvency of their employer.

Source: ERR News

Head of Estonian tax authority to begin working in Nortal

Marek Helm, current director general of the Estonian Tax and Customs Board (MTA), will be joining the software and business consultancy company Nortal as director of the company’s public finance and change management team in mid-January 2017.

According to Nortal founder and CEO Priit Alamäe, Helm has carried out extensive reforms and necessary transformations in one of the most important public authorities in Estonia for which there is strong demand globally. “Effective tax collection and transparent public finance management is becoming more relevant globally,” said Alamäe in a press release. “By uniting Helm’s experience with our knowledge and references, we are creating an international center of competence and export capability while preserving a recognized leader for Estonia.”

Helm said that he has worked in the public sector for over 20 years and feels that the time has come to put himself to the test in the private sector. “Nortal is a company with growing ambition and international scope that exports Estonian e-government success stories,” said Helm. 2I’m glad that with my expertise and experience I can contribute to the company’s continuous expansion to export markets that are of great importance to Estonia.”

The MTA’s current director general noted that he would be handing over the management of the state authority to his successor with peace of mind. “This is a fantastic organization and a professional close-knit team that serves the Estonian society and is a great partner for taxpayers,” Helm said.

“During the past few years, Nortal has made significant investments to develop internationally recognized competence in the field of complex e-government reforms,” explained Nortal’s CEO. “Our aim is to address a client’s needs as a whole by offering holistic service concepts that include everything from legislative drafting, organization and process re-design to the implementation of new technologies and change management. Marek Helm’s long-term experience in public sector reforms and creating more effective processes, where knowledge-based and well thought through change management plays an important role, fits perfectly with Nortal’s plans and strategy.”

Helm has led the MTA as director general from December 2011. Prior to that position, he was deputy secretary general for public governance policy at the Ministry of Finance from 2009-2011, led the founding of the joint internal security office under the Ministry of the Interior from 2007-2009, deputy secretary general for internal security of the Ministry of the Interior from 2006-2007 and director of the Ministry of the Interior’s Internal Security Department in 2006. From 2004-2006, Helm held the position of deputy director general of the MTA and in 2003-2004, deputy director general of the Customs Board in the customs enforcement and pre-trial investigation fields.

Nortal is an international strategy consultancy and software solutions company focusing on e-governance, health care, telecommunications, production and logistics. It operates in nearly 20 countries and employs 530 specialists. Nortal posted sales revenue of 45 million euros in 2015.

Source: ERR News

Estonian economy is becoming more labour-focused

At the Äriplaan 2017 conference on Wednesday, Governor of Eesti Pank Ardo Hansson spoke of the increased share of labour-dependent sectors in the Estonian economy, which is also illustrated by the growth in wages in recent years. This means that the market is moving ever more decisively away from business models based on cheap labour.

“In the wake of economic growth comes a change in the structure of the economy, as the share of those sectors that are based on labour has increased, and the rises in wages of recent years have been in line with changes that make the economy more focused on labour. Our working age population has been shrinking at the same time. Taken together, this means that upwards pressure on wages will remain for the time being. Business models that are built on cheap labour cannot survive for long in such circumstances, and they will be squeezed out of the market over time. It can already be seen that the lower the wage is in any sector, the harder it is for employers there to find staff”, Mr Hansson explained. He added that it is equally possible that market pressure and overly optimistic expectations have pushed companies to raise wages to a level that could lead to a reaction at some point.

The assessments by exporting companies of their own competitiveness have deteriorated in recent years as labour costs have risen, but there has been some small improvement this year. Corporate investment activity increased in the first half of the year, which gives hope that growth may pick up in the economy. “Investment alone is not enough to guarantee faster growth. Some other countries have seen their economies grow as fast as the Estonian economy with lower levels of investment. We still have room to make more efficient use of investment”, added Mr Hansson.

He emphasised that faster economic growth depends primarily on the competitiveness of companies in foreign markets, and so it is necessary to continue developing targeted products for export. “Corporate competitiveness and production potential need support from economic policy not just in Estonia but throughout Europe. Reform of labour and product markets and the business environment would help to ensure this, but such reforms are stalled in Europe. The central banks of the euro area can use monetary policy to support the economy, but this alone will not create sustainable growth”.

There will be minor gains for the global and European economic climates next year, but forecasts indicate the increase in economic activity in Estonia’s neighbourhood will be small.

Source: Bank of Estonia

There were 9,500 job vacancies in Estonia in Q2

According to Statistics Estonia, there were about 9,500 job vacancies in the enterprises, institutions and organisations of Estonia in the 2nd quarter of 2016. The previous time when the number job vacancies exceeded 9,000 was in 2008. The number of job vacancies increased by 15% compared to the previous quarter and by 13% compared to the 2nd quarter of 2015.

The rate of job vacancies, i.e. the share of job vacancies in the total number of jobs, was 1.7% in the 2nd quarter of 2016, being 0.2 percentage points bigger than in the previous quarter and in the 2nd quarter of 2015.

The rate of job vacancies was the highest in accommodation and food service activities (3.7%), administrative and support service activities (3.5%) and information and communication (3.3%); and the lowest in agriculture, forestry and fishing (0.3%), water supply (0.7%), construction (0.8%) and real estate activities (0.8%).

The total number of posts and the number of vacant posts continued to be the highest in manufacturing and wholesale and retail trade. Compared to the 2nd quarter of 2015, the number of job vacancies grew the most in real estate activities, accommodation and food service activities and in electricity, gas, stream and air conditioning supply. Year-over-year, the number of job vacancies dropped the most in agriculture, forestry and fishing, mining and quarrying and other service activities.

70% of the vacant posts were in Harju county (including Tallinn), followed by Tartu county (9%) and Ida-Viru county (5%). The rate of job vacancies was still the highest in Harju county (2.1%) and the lowest in Viljandi (0.7%), Hiiu (0.8%) and Rapla counties (0.8%).

7,200 job vacancies (76%) were in the private sector and 2,300 (24%) in the public sector. In the 2nd quarter of 2016, the rate of job vacancies was the highest in foreign private sector institutions (2.5%) and state institutions (2.1%) and the lowest in Estonian private sector organisations (1.5%) and local governments (1.1%).Diagram: Rate of job vacancies by economic activity, 2nd quarter, 2015–2016

The movement of labour is characterised by labour turnover (the total of engaged employees and those who have left), which amounted to 73,000 in the 1st quarter of 2016, denoting an 8% increase compared to the previous quarter and a 19% increase compared to the 1st quarter of 2015. Compared to the 1st quarter of 2015, the largest increase in labour turnover occurred in mining and quarrying, water supply, agriculture, forestry and fishing, and information and communication.

The data are based on the job vacancies and labour turnover survey conducted by Statistics Estonia since 2005. In 2016, the sample includes 12,603 enterprises, institutions and organisations; the data of randomly selected units are imputed to the total population separately in each stratum. As of the 2nd quarter of 2016, Statistics Estonia uses the data of the Employment Register of the Estonian Tax and Customs Board to pre-fill the survey questionnaires.

The number of job vacancies is the total number of job vacancies on the 15th day of the second month of a quarter. A job vacancy is a paid post that is newly created, unoccupied or becomes vacant when an employee leaves, and for which the employer is actively trying to find a suitable candidate from outside the enterprise, institution or organisation concerned.

Source: Statistics Estonia
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