Estonian wage growth accelerated

• Monthly gross wages amounted to 1,082 euros, +5.8%, yoy, in Q2.
• At the same time, net wages were up by 7.3% in real terms because of 0% inflation and lower labour taxes.

The growth of gross wages accelerated from 4.5% in Q1 to 5.8% in Q2. Irregular bonuses and premiums increased by 2.9% per employee and contributed to the growth of wages by 0.1 percentage points.

Wages increased in almost all sectors, except for construction which has been hit by low demand. Construction volumes have decreased for two years by now. The largest increases in average monthly wages took place in sectors that sell their products and services mainly in the domestic market, such as real estate, agriculture,  tourism, entertainment, education, and healthcare.

Households’ real purchasing power will grow markedly this year. Although the growth of gross wages will slow a bit compared to last year (+5% in 2015, according to our forecast), smaller labour taxes and deflation will result in a remarkable surge in the households’ purchasing power. Net wages were up by 7.1% in real terms in the first half of the year.

A rise in wages and social benefits will support private consumption, which will be the biggest contributor to GDP growth in 2015. Consumption is a thankworthy support to Estonia’s economic growth as exports and investments remain weak. Consumption-fuelled growth cannot last long, however. Therefore, if export sales will not improve, the growth of wages will slow.

Source: Swedbank

Unemployment decreased further

• In Q2, employment up by 1.7%, yoy, and unemployment rate down to 6.5%.
• In 2016, employment is expected to fall a bit.

Estonia’s labour market tightened further in the second quarter, but at a slower space. The annual growth of employment slowed from 2.9% in Q1 to 1.7% in Q2. The number of inactive and unemployed declined compared to last year. The inactivity decreased the most among the retirees and those studying at school or university. Unemployment rate decreased to 6.5% in the second quarter (7.0% in Q2 2014).

The Estonian Unemployment Insurance Fund’s data shows that unemployment has declined at a slower space in recent months. Seasonally adjusted figures show even a slight increase in unemployment in Q2. Unemployment rate has reached a level where an additional decline of the rate is already difficult. There are around 44 000 unemployed in Estonia currently, out of which 11 000 have been looking for a job for more than 2 years. The number of people who have become unemployed recently, has grown. Some sectors, who face weak export demand and low output prices, find it hard to keep up with current wage growth.

Employment will grow this year due to the labour registration obligation, which will push up official employment statistics in the first half of the year. Also, strong consumption supports employment in the services sector. In 2016, employment is expected to fall a bit because of a lower supply and demand of labour. More expensive labour encourages investment in machinery. Some enterprises might decrease the number of employees because of low (export) demand, i.e., agriculture and specific sectors of the manufacturing industry. Unemployment rate is expected to remain low, however, although it might increase marginally next year due to decreasing working-age population and problems in certain sectors.

Source: Swedbank

Minister promises to regulate foreign doctors

Health and Labour Minister Rannar Vassiljev said he will come out with proposals on how to regulate the growing number of medical doctors from outside the EU, who are working in Estonia.

The Ida-Viru central hospital employs 160 doctors, of whom a fifth are from other former Soviet Union states, and most have arrived in recent years, Postimees reported.

Tarmo Bakler, the CEO of the hospital, said they have received more doctors from outside the EU than from the University of Tartu, which has Estonia’s biggest medical school.

Bakler said foreign doctors in Estonia are partially unregulated, which gives way to different interpretations of existent laws.

Currently, foreign doctors have to have completed a three-year residency period. Doctors in Russia must only complete a one year program in Russia, before receiving their medical licenses. That has hindered some from coming to work in Estonia, but the requirement can be substituted for an exam at the University of Tartu, or for work experience.

Source: ERR via Estonian Review

Report : smart immigration policy helps boost economic development

Estonia can use both employment reforms and other reforms as well as migration wisely and in suitable proportions as levers for improving the outlook of its economic development, a study examining the country’s options in migration policy compiled by the National Audit Office says.

“If Estonia wants to be successful in the international competition for attracting people who have the capacity to generate income, it has to guarantee for such people a suitable working and living environment that proceeds from a broad view of the world,” the study finds.

According to forecasts, the number of working-age people or people aged 20-64 in Estonia will decrease by approximately 50,000 in the next five years and by as much as 165,000 by 2040. At the same time, the number of people aged 65 and over will increase by approximately 24,000 by 2020 and by more than 88,000 by 2040.

“As someone has to maintain our pension and health insurance system as well as our state and society as a whole, we all have to figure out how to generate the income that can be used to meet society’s demands in order to preserve the standard of living and guarantee the economic development of Estonia,” the reports says.

The implementation of reforms will make it possible to bring a bigger share of the inactive part of the population to the labour market and to increase productivity, but the initiation of reforms in the nearest future will only generate results in the distant future and their impact may not be sufficient. This means that although a rather sizeable part of the state’s need for workforce can be covered internally in Estonia, it is unlikely that domestic sources can provide the entire workforce needed for the development of Estonian economy, the National Audit Office says, adding that Estonia also needs a more active and successful approach to smartly using the skills and knowledge that can be offered by the people who come to work and live in Estonia from other parts of the world.

Source: Baltic News Service

Most job vacancies in public administration

According to Statistics Estonia, there were 7,300 job vacancies in the enterprises, institutions and organisations of Estonia in the 1st quarter of 2015. The number of job vacancies increased by 0.6% compared to the previous quarter and by 1.3% compared to the 1st quarter of 2014.

The rate of job vacancies, i.e. the share of job vacancies in the total number of jobs, was 1.3% in the 1st quarter of 2015, which is the same as in the previous quarter and in the 1st quarter of 2014.

The rate of job vacancies was the highest in public administration and defence and compulsory social security (2.5%) and the lowest in mining and quarrying (0.2%).

The highest share of vacant and occupied posts in the total number of jobs was held by manufacturing (20%), wholesale and retail trade (16%) and education (10%).

The rise in the number of job vacancies was the highest in education where there were 37% more job vacancies than in the 1st quarter of 2014.

56% of vacant and occupied posts were in Harju county (including Tallinn), followed by Tartu county (11%) and Ida-Viru county (8%). The rate of job vacancies was still the highest in Harju county (1.6%) and the lowest in Hiiu county (0.04%).

73% of the job vacancies (i.e. 5,300) were in the private sector and 27% were in the public sector, while in the 1st quarter of 2014 the corresponding shares were 76% and 24%. In the 1st quarter of 2015, the rate of job vacancies was 1.3% in both the public and the private sector. The public sector includes companies owned by the state or local governments.Diagram: Rate of job vacancies, 1st quarter 2006 – 1st quarter 2015

The movement of labour is characterised by labour turnover. In the 4th quarter of 2014, a total of 68,000 employees were hired or left their jobs, which is a 10.3% increase compared to the same period of 2013. In the 4th quarter of 2014, the largest increase in labour turnover compared to the 4th quarter of 2013 occurred in accommodation and food service activities and in real estate activities (57.5% and 45.8%, respectively).

The data are based on the job vacancies and labour turnover survey conducted by Statistics Estonia since 2005. In 2015, the sample includes 12,376 enterprises, institutions and organisations; the data of randomly selected units are imputed to the total population separately in each stratum.

The number of job vacancies is the total number of job vacancies on the 15th day of the second month of the 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

Higher wages support consumption

In Estonia, monthly gross wages amounted to 1,010 euros, up by 4.5% in Q1, yoy.
Net wages jumped by 7% in Q1 because of lower labour taxes and deflation.

The growth of gross wages decelerated from 5.5% in 2014 to 4.5% in Q1 2015. Irregular bonuses and premiums decreased by 15.6% per employee in Q1 of 2015, yoy. Without irregular bonuses and premiums, the average monthly gross wages grew by 5.3%.

Wages increased less due to worse economic situation in some sectors. Another possible reason behind the deceleration in the growth of wages was the introduction of the labour registration obligation from July 1st 2014, which increased the official number of employees in sectors, where wages are smaller (tourism, domestic trade, construction, etc.).

Gross wages increased the most in the real estate sector, followed by the public sector (education, health care). Average gross wages decreased in the construction and mining, and did not change in the energy and logistics sectors, compared with the same period last year. Households’ real purchasing power will grow markedly this year. Although the growth of gross wages will slow a bit, smaller labour taxes and very low inflation will result in a remarkable surge in the households’ purchasing power. Net wages were up by 7% in the first quarter, year on year.

Average wages were pushed higher by a 10%-increase in minimum wages in January. A rise in pensions and other social benefits will further support private consumption, which will be the biggest contributor to GDP growth in 2015. Retail trade volumes rose by as much as 8%, year on year, in the first quarter.

SOurce: Swedbank

Continuing wage pressures ahead

Annual growth in employment accelerated to 2.9% in the first quarter of 2015, while unemployment stood at 6.6%. The low comparison base from the first quarter of 2014 played a part in the rapid annual growth in employment. Seasonally adjusted employment was unchanged from the previous quarter.

Data from the Tax and Customs Board also showed that the number receiving taxed wage income increased in the first quarter, and official data put the rise at 1.8%. The number employed by the general government continued to fall, having started to do so in the second half of 2012, and the number of businesses registered in the commercial register rose. The number receiving wages from private companies was boosted by the employment register that was launched in July 2014.

Although unemployment was a little higher than in the previous quarter at 6.6%, seasonal factors can explain the difference, and if they are taken into account, then unemployment actually fell. Employment contracts are often changed and ended at the turn of the calendar year, and many seasonal workers in construction or agriculture for example are without work during the winter months. A little over 60% of the unemployed in Estonia are registered with Töötukassa, the unemployment insurance fund, and the data show that the number registered as unemployed is now falling at a slower rate after falling rapidly for a long time. Seasonally adjusted registered unemployment has been generally stable for half a year.

The main source of risks in the quarters ahead is continuing wage pressures, which can be seen in the notably faster growth in wages than in productivity. If this continues it could lead to a rise in unemployment. The disappearance of less productive jobs is a part of the development of the economy, but if rapid wage growth leads more jobs to lose profitability than are created, structural unemployment rises.

In the short term, employment will be boosted by the increase in economic growth resulting from the strengthening of the European economy, which will allow labour resources to be used more efficiently than earlier. In the long term, shrinking labour resources make it important to create the conditions for growth in productivity and to engage as much as possible of the working age population in the labour market. In this context the high labour force participation rate of the first quarter was particularly welcome.

Source: Bank of Estonia

Author: Orsolya Soosaar, Economist at Eesti Pank

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