Wage pressures expected to ease a bit next year

Wage growth is rapid and broad-based. The average gross wage amounted to EUR 1,419, up by 7.4%, over the year, in the second quarter. Wage growth was broad-based, in terms of sectors and levels. Tax Authority’s wage data show that the average gross wage increased among all wage deciles, by around 8%, over the year, in the first half of 2019.

Wage growth in the public sector has exceeded wage growth in the private sector in the past year. Private sector, exposed to global competition, has found it harder lifting its labour costs as rapidly.

As export demand and Estonia’s economy are expected to grow at a slower pace next year, demand for labour should ease, at least in the exporting industry. So, wage growth should moderate, from very high levels (from 8.1% in 2019 to 6.5% in 2020 and 5.5% in 2021). Wages in the public sector are also expected to grow at a slower pace, due to fiscal constraints in the budget.

Source: Swedbank

Employment of 50–74 year olds the highest in 10 years

According to Statistics Estonia, the employment of 50–74 year olds keeps growing. The number of employed people of that age group is the highest in 10 years.

According to Statistics Estonia, in the 2nd quarter of 2019, the unemployment rate was 5.1%, the labour force participation rate 71.7% and the employment rate 68.1%. According to estimates, 667,700 persons were employed and 35,700 were unemployed. The labour market indicators did not change very much compared to the same quarter of 2018.

The number of 5074-year-old employed people (232,500) has continued to increase: by 9,600 compared to last year. In the second quarter of 2019, the employment rate of 5074-year-old population was 59.2% and the unemployment rate 4.7%. The number of unemployed persons decreased by 2,100 compared to the same quarter of 2018. 127,700 of the employed were women and 104,800 men. Compared to the previous year, the number of employed women has increased by 3,400 and employed men by 6,200.

The employment rate for persons aged 25-49 was 83.3% and their unemployment rate was 4%. Compared to the last year, these indicators have not changed very much. The employment rate of 1524-year-old persons was 39.5% and the unemployment rate 14.1%. The high unemployment rate of young people can be explained by the summer season when young people start looking for work and are available to start work within two weeks.

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Labour shortages could ease somewhat next year

According to Statistics Estonia, labour market remained tight but did not improve further in the 2nd quarter. The number of the employed and the number of the unemployed stayed at last year’s level. Employment’s quarterly data are very volatile in Estonia. Employment has increased by +1.0% in the first half of the year, mostly in the services’ sector. The unemployment rate remained low, at 5.1% in the 2nd quarter, slightly above the 4.7% in the first quarter.

The number of job vacancies and the number of persons leaving on their own initiative remains high. The scarcity of labour is more pronounced in the services’ sector (around 1/3 of the companies reporting the scarcity of labour as their main concern) and less acute in manufacturing (1/4 of companies highlighting finding suitable work force as their main challenge). Without foreigners, labour market would be even tighter. There are around 20,000 foreigners working on short-term contracts in Estonia, around 80% from Ukraine.

Wage pressures could ease a bit next year
As export demand and Estonia’s economy are expected to grow at a slower pace next year, demand for labour should ease, at least in the exporting industry. So, wage growth could moderate, from very high levels. Wages in the public sector are also expected to grow at a slower pace, due to fiscal constraints in the budget.

We expect employment to remain at current levels and the unemployment rate to stay low, slightly above 5%, in 2020. The average gross wage should increase by around 8% in 2019, 6.5% in 2020, and 5.5% in 2021.

Source: Swedbank

Over 10,000 job vacancies

According to Statistics Estonia, in the 1st quarter of 2019, there were approximately 11,450 job vacancies in the enterprises, institutions and organisations of Estonia. This trend has continued since the 1st quarter of 2017.

Compared to the 1st quarter of 2018, the number of job vacancies increased by 8% and compared to 4th quarter of 2018, by 9%.

The total number of posts (vacant and occupied) was 608,150 in the 1st quarter of 2019, having increased by nearly 2% compared to the previous quarter. The economic activities of manufacturing (18%), wholesale and retail trade (15%) and education (10%) continued to have the largest shares in the total number of posts. Manufacturing and wholesale and retail trade are the biggest employers in Estonia – in the 1st quarter of 2019, there were respectively nearly 1,500 and 1,800 job vacancies in these activities. Manufacturing and wholesale and retail trade were followed by public administration and defence with 1,100 vacant posts.

The rate of job vacancies, i.e. the share of job vacancies in the total number of posts, was 1.9% in the 1st quarter of 2019, which is 0.1 percentage points higher than in the 1st quarter of 2018. In the 1st quarter, the rate of job vacancies was highest in information and communication (3.7%) and in financial and insurance activities (3.0%) and lowest in agriculture (0.8%) and in mining and quarrying (0.2%).

In the 1st quarter, 27% of the vacant posts were in the public sector. The rate of job vacancies was highest in enterprises owned by foreign private entities (2.6%) and in state institutions and enterprises (2.1%). The rate of job vacancies was 2% in municipal institutions and enterprises and 1.6% in enterprises owned by Estonian private entities.

Most of the vacant posts were available in Harju county (75%), including Tallinn (64%), followed by Tartu county (8%) and Pärnu (4%) and Ida-Viru (3%) counties. The rate of job vacancies was highest in Harju (2.4%) and Jõgeva (2.4%) counties and lowest in Hiiu (0.2%) and Põlva (0.4%) counties.

The movement of labour is characterised by labour turnover (the total number of engaged and left employees), which amounted to nearly 90,000 in the 1st quarter of 2019, having decreased by 10% compared to the previous quarter. However, compared to the 1st quarter of 2018, labour turnover stayed at the same level. In the 1st quarter of 2019, both the number of employees hired and the number of employees who left their job remained highest in manufacturing, wholesale and retail trade and construction. 12% of all the employees who left their job were employees who left on the employer’s initiative.

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Shortage of labour and hike in the minimum wage

In the first quarter of 2019, the average full-time gross wage amounted to EUR 1341, up by 8.0%, in a year. The average gross wage increased in almost all sectors. Wage growth was more rapid in construction, where volumes have grown markedly in recent years. The average wage was the highest in finance, energy, and ICT in the first quarter. A rapid growth in the average wage is supported by a shortage of labour and a hike in the minimum wage. Minimum wage will rise to EUR 540 in 2019, up by 8.0%, over the year.

Consumption grew in line with wages
The average net wage rose by around 6% in the first quarter, over the year, around the same rate as the growth of retail sales. The average real net wage grew by around 4%. That is much less than last year when net incomes where substantially lifted by an income tax reform. Due to a strong wage growth and higher social transfers, families’ assessment of their financial situation is the highest on record and well above the level of the previous economic boom.

The stock of deposits is growing fast (+9.5%, over the year, in April 2019), but many households still have no or very limited financial reserves. According to the Bank of Estonia, 40% of households have less than EUR 1000, and a fifth of families less than EUR 100, in savings. 51% of families manage to save, according to the Estonian Institute of Economic Research.

Wage growth is expected to stay rapid
The number of job vacancies and the number of persons leaving on their own initiative remained high. Thus, wage pressure will persist. The average gross wage should grow by around 7% this year. Rapid wage growth hurts exporters more than companies who sell their goods or services in the domestic market as Estonian companies are usually price takers in the global market, unable to pass higher costs to their customers. Estonian companies’ assessment of their competitiveness has deteriorated since the second half of last year, in all markets, in and outside the EU.

Source: Swedbank

Estonia’s employment rate is 67.5 pct

• The unemployment rate declined, and the employment rate slightly increased in the first quarter.
• According to Swedbank’s forecast, labour market should remain tight this year, so wage pressures persist.

Labour market remains tight
According to Statistics Estonia, labour market indicators improved further in the first quarter of 2019. The employment rate reached 67.5% and the unemployment rate dropped to 4.7%. The employment rate of Estonia is already one of the highest in the EU. In 2018, among the 20-64-year-olds, Estonia held the fourth position in the EU, below Sweden (82.6%), Czech R. (79.9%), and Germany (79.9%).

Without the work ability reform (that motivates people with a disability to look for a job), the unemployment rate would be even lower. Around one third of the unemployed who are officially registered have reduced work ability. Statistics Estonia’s data on the number of the unemployed seems too small in the first quarter as the number of the officially registered employed exceeds that and all of the unemployed persons are not officially registered.

The Unemployment Insurance Fund’s registry shows a surge in redundancies. According to the respective database, more than 1000 persons lost their jobs in the first quarter, including many bus drivers, miners, bankers, and seamstresses. The labour market remains tight, however, and many companies have already shown interest in hiring them. According to Statistics Estonia, there were over 10 000 vacancies in the labour market in the fourth quarter of 2018.

Employment increased more than expected
In the first quarter, the number of the employed persons grew by 11,000, over the year. Employment rose among the part-time workers and in the services’ sector. The share of the part-time workers has climbed to 14%.

The shrinking of working-age population has paused in Estonia in 2018-2019 due to higher immigration. Among the 15-74-year-old immigrants, 42% were Estonian citizens, 11% were Russians and 9% were Ukrainians in 2018.

Wage pressure will persist
The number of job vacancies and the number of persons leaving on their own initiative remains high. The shortage of labour was the main factor restricting business for a fifth of manufacturing and a third of services’ and construction companies in April 2019. Thus, wage pressure will persist. In 2019, we expect the employment rate to remain high and the unemployment rate to stay low. The average gross wage should grow by around 7% this year. Tax data shows that the growth of the average gross wage has not decelerated (+8.5%, over the year, in the first quarter). 

 

Source: Swedbank

Estonian salaries increased by 6.8 pct

According to Statistics Estonia, in 2018, the average monthly gross income per employee was 1,234 euros, which is 79 euros more than in 2017. Gross income has been on the rise since 2011.

The average monthly gross income per employee was highest in Harju county (1,375 euros) and lowest in Ida-Viru county (996 euros). Ida-Viru was the only county where the gross income was below 1,000 euros.

In approximately a quarter of the municipalities, employees earned more than the Estonian average monthly gross income. Similarly to previous years, the top ten included mainly the municipalities of Harju county. The average monthly gross income was highest in Viimsi (1,711 euros) and Rae (1,704 euros) rural municipalities. In Tallinn, the average gross income per month was 1,348 euros. The gross income was below 1,000 euros in four cities of Ida-Viru county (Narva, Kohtla-Järve, Sillamäe and Narva-Jõesuu) and in Valga rural municipality.

Employees aged 25–49 earned the highest average monthly gross income (1,382 euros). The average monthly gross income of 50–62-year-old employees (1,135 euros) was slightly below the average for Estonia. For employees aged up to 24 and 63 and over, the average income was below 1,000 euros.

In 2018, the average monthly gross income of men was 1,386 euros, and of women, 1,095 euros. Of counties, the biggest gender gap in gross income was in Hiiu county, and of municipalities, in Viimsi rural municipality – 402 and 483 euros, respectively. As the dataset does not enable distinguishing between full-time and part-time employees and analysing by economic activities, the reasons for the difference in men’s and women’s monthly gross income do not appear from the data.

In 2018, the number of employees receiving gross income was 535,405. Compared to the previous year, the number increased by 6,670 persons. The increase was largest in the age group of 63-year-olds and over. The number of young income recipients, which had decreased in previous years, increased by 554 persons in 2018. Of income recipients, 6% were young people and 9% were older people.

Read more from Statistics Estonia