Despite weak GDP growth, demand for labour remained strong

  • The rise in employment did not slow down in the second half of 2015
  • Unemployment was low in 2015 at 6.2%, but the number of registered unemployed rose in the second half of the year
  • Productivity fell in the second half of 2015 while yearly growth in unit labour costs remained fast. Labour costs increased at the expense of corporate profits, making employers more vulnerable to negative shocks in the future

Despite slower GDP growth, the demand for labour remained strong in the second half of 2015 as employment grew and growth accelerated in the labour share of GDP. Part of the reason for this contradiction may be that the slowdown in GDP growth was not broadly based, as certain sectors made a significant contribution to the slowdown, but do not account for a large share of employment.

The labour force survey shows employment grew in the second half of 2015 at the same rate as at the start of the year at 2.8%, but this was because of extraordinarily high employment in the third quarter. The estimate of employment may to some extent have been boosted by the delayed effect of the registration of employees. Estimates based on data from companies put employment growth slower than in 2014, but only one survey showed employment decreasing.

Increased employment led to a fall in unemployment for 2015 as a whole to 6.2%. Data on registered unemployment from Töötukassa, the unemployment insurance fund, gave a slightly less optimistic picture than the labour force survey. The number registered as unemployed increased quarterly from the second quarter to the fourth and there was also a rise in the number of those whose working relationships ended, including those who were made redundant. More people entered the register because of redundancy than did so in 2014, but still substantially fewer than in 2013.

The working age population shrank in 2015 but participation in the labour force increased at the same time and in total the labour force in the economy increased. People are encouraged to participate in the labour market by the faster rise in wages than in social benefits and pensions. The low unemployment rate also means the chances of finding work are better, which in turn encourages people to participate in the labour force. Without this growth in the labour force, unemployment would be even lower and wage pressures even higher than they have been so far.

Labour costs continued to grow fast in the second half of 2015. Wages grew faster in the public sector, including in healthcare and education, but wage growth was lower in Estonian private companies. The main source of wage pressure was the tightness of the labour market illustrated by the low unemployment rate and the high share of the working age population in employment, though it also came from collective wage agreements in the public sector. Data on wage payments from the Tax and Customs Board show wage growth to have been faster among the lower paid, mainly because of the rise in the minimum wage. Wage growth slowed a little at the end of last year, but comparison of different indicators for labour costs does not yet give a clear message that wage growth has started to adjust to the weaker economic environment.

Labour productivity fell in the second half of 2015, while yearly growth in unit labour costs was about as fast as in the first half of the year at 5.6%. In contrast to what was forecast, it may be noted that no major adjustment in labour costs has yet taken place. Surveys of employer sentiment indicate that at the end of 2015 and the start of 2016 there was an increase in the share of companies expecting employment to rise. There was also an increase in the share of companies that consider labour shortages to be a factor impeding production. This suggests that labour shortages and the resulting pressure on wages will remain in the near future. In the longer term, rising unit labour costs mean shrinking profit margins for companies, and that in turn will make those companies more vulnerable in future to negative shocks.

Source: Bank of Estonia

Auhtor: Orsolya Soosaar, Economist at Eesti Pank

Jobbatical enables to find a short-term job in abroad

Estonian woman Karoli Hindriks has invented “a company that blends the concept of a job and a sabbatical, matching employers and talent for short-term jobs that might involve sending a software developer from Sweden to Thailand for a three-month jobbatical”.

One of the lucky ones was to get a job through jobbatical was Björn Lapakko from Minnesota, USA.

‘I wasn’t really looking for anything at the time but at the same time I wasn’t 100 per cent happy,’ he recalls. ‘One day, my intern suggested that I check out this website, Jobbatical.’

All of a sudden, his lifelong dream to come to Europe, not just as a backpacker but as someone who could contribute to the economy and sustain a lifestyle, became a more tangible possibility. Previously, he had applied for a few positions in Europe but when his US citizenship came up, he was promptly removed from the running. ‘Jobbatical offers a unique job hunting platform being from another country is never a shock to employers… they actually embrace it.’

Matching talented people who want to take a break from their ordinary jobs with companies who are looking for helping hands for specific projects around the world is the shorthand description of what Jobbatical does. Over its first year, 1 200 companies across 40 countries have used Jobbatical and 7 000 job applications have yielded over 300 job matches.

Read more about the company from investinestonia.com

Jobbatical

The number of job vacancies decreased in 4Q

According to Statistics Estonia, there were almost 6,600 job vacancies in the enterprises, institutions and organisations of Estonia in the 4th quarter of 2015. The number of job vacancies decreased by 25.5% compared to the previous quarter and by 8.4% compared to the 4th quarter of 2014. In 2015, the number of job vacancies was the largest in the 2nd and 3rd quarters.

The rate of job vacancies, i.e. the share of job vacancies in the total number of jobs, was 1.2% in the 4th quarter of 2015, being 0.1 percentage points less than in the same quarter of 2014. The rate of job vacancies was the highest in financial and insurance activities (2.7%) and in the economic activity of information and communication (2.4%). The largest increase in the number of job vacancies was recorded in financial and insurance activities, where the number of job vacancies doubled compared to the 4th quarter of 2014.

The lowest rate of job vacancies (0.1%) was observed in three economic activities – in agriculture, forestry and fishing, in mining and quarrying and in construction.

The highest share of both vacant and occupied posts in the total number of posts was recorded in manufacturing (19%), wholesale and retail trade (16%) and education (10%).

57% 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 the highest in Harju county (including Tallinn) (1.6%) and the lowest in Hiiu county (0.2%).

71% of the job vacancies were in the private sector and 29% were in the public sector. The rate of job vacancies was 1.4% in the public sector and 1.2% in the private sector. The public sector includes companies owned by the state or local governments.Diagram: Rate of job vacancies, 1st quarter 2006 – 4th quarter 2015

The movement of labour is characterised by labour turnover (the total of engaged employees and those who have left), which amounted to 88,000 employees in the 3rd quarter of 2015, denoting a decrease of 0.9% compared to the 3rd quarter of 2014, but a 14.4% increase compared to the previous quarter. In the 3rd quarter of 2015, the largest increase in labour turnover compared to the 3rd quarter of 2014 occurred in real estate activities (46.2%) and in information and communication (33.0%).

The data are based on the job vacancies and labour turnover survey, conducted by Statistics Estonia since 2005. In 2015, the sample included 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

Wage growth his faster than productivity growth

  • The average gross wage rose more slowly in the last quarter of 2015, but still did so faster than productivity
  • The average net wage increased about 1.5 percentage points faster than the gross wage did because of the cuts in the income tax and unemployment insurance rates
  • The average wage rose fastest in 2015 in local government employment, which partly reflects the wage rises in healthcare and education
  • An increased share of households think it probable that unemployment will rise, which probably means that expectations for wage rises have been lowered

Data from Statistics Estonia show that the average gross monthly wage was up 6.4% on a year earlier in the fourth quarter of 2015. Wage rises slowed slightly over the year and seasonally adjusted over the quarter.

The average net wage increased about 1.5 percentage points faster than the gross wage because of the cuts in the income tax and unemployment insurance rates. This difference will be smaller in 2016 because the income tax rate did not change other than a rise in the tax-free threshold from 154 euros a month to 170.

Wages rose fastest in local government employment, where they were up by 8.4%. This is in part a reflection of the wage agreements in healthcare and the government’s decision to raise the average wage in education. Wages in private companies in Estonian ownership, where the majority of waged employees work, rose by 6% over the year as a whole, which is markedly slower than the 7.9% seen in 2014. This has clearly been helped in part by the cuts in labour taxes and the fall in consumer prices, which have together increased the purchasing power of employees. Slower wage growth is in any case to be expected as productivity growth is very low.

Wage growth might be lifted in 2016 by a rise in the minimum wage from 390 euros to 430. The higher the minimum wage climbs in relation to the median wage1, the greater the effect it has in raising average wages, because it affects more employees. In the public sector, wages for employees in healthcare will continue to rise because the agreement signed in 2014 covers two years. The Ministry of Education and Research expects that the average wage for teachers will rise by 4.8% in 2016. Wage rises may be restrained by the expectation of households that unemployment may start to rise, as this may affect the expectations of employees for wage rises. The decline in the profits of the corporate sector over recent years indicates that the pressure to hold back wage rises is high.

The flash estimate from Statistics Estonia put GDP growth in the last quarter of 2015 at 0.7% over the year. Increasing employment and low inflation mean that wage growth at the end of 2015 was faster than productivity growth. As the three-year average growth in unit labour costs in Estonia was higher than the threshold for the Alert Mechanism Report, the European Commission recently carried out a thorough investigation to find the causes of this and the dangers from it. The European Commission identified the causes of rapid wage growth as including labour shortages, wage competition with Finland and rapid rises in the minimum wage. As the Estonian labour market is flexible and the reforms to social insurance will increase the labour supply in the future, the Commission found that wage pressures will ease. This is in line with Eesti Pank’s forecast.


1 The median wage is the wage which half of employees earn more than and half earn less than.

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

Estonian salaries increased by 6 pct in 2015

According to Statistics Estonia, the average monthly gross wages and salaries were 1,065 euros and the average hourly gross wages and salaries were 6.51 euros. Compared to 2014, the average monthly and hourly gross wages and salaries increased by 6.0%. The monthly gross wages and salaries were highest in the 4th quarter.

When the annual increase of the average monthly gross wages and salaries were 5.9% in 2014, then in 2015 the growth of monthly gross wages and salaries remained stable. The average monthly gross wages and salaries were the highest in the 4th quarter (1,105 euros), increasing 6.4% compared to the 4th quarter of 2014 and 5.8% compared to the 3rd quarter of 2015.

Compared to the 4th quarter of 2014, the end-of-year irregular bonuses and premiums increased by 3.1% per employee and influenced the growth of average monthly gross wages and salaries by 0.2 percentage points. Without irregular bonuses and premiums, the average monthly gross wages and salaries increased 6.6% in the 4th quarter of 2015.

Real wages, which take into account the influence of the change in the consumer price index, increased, due to the continued decrease in consumer prices, faster than the average monthly gross wages and salaries compared to the 4th quarter of 2014 (6.9%). Real wages have increased from the second half of 2011 for the eighteenth quarter in succession.

In the 4th quarter of 2015, the average gross monthly wages and salaries grew the most for the second quarter in a row in three economic activities – in real estate activities (16.2%), in accommodation and food service activities (14.8%) and in arts, entertainment and recreation (14.6%). In the previous quarters, the growth of the monthly gross wages and salaries have been the fastest in the economic activities with lower monthly gross wages and salaries than the average monthly gross wages and salaries. In real estate activities, the average monthly gross wages and salaries increased the most also in year-to-year comparison: in 2015 it grew 14.0% compared to 2014. The average monthly gross wages and salaries did not increase in the 4th quarter of 2015 in two economic activities – in construction and in finance and insurance activities, the monthly gross wages and salaries decreased 1.6% and 1.9%, respectively.

According to the Wages and Salaries Survey, the number of employees (reduced to full-time units), have decreased by 2.4% in the 4th quarter of 2015 compared to the same quarter of 2014. The number of employees decreased the most in lower paid economic activities – in 10 out of 11 economic activities that are paid below the average monthly gross wages and salaries. The number of employees increased the most in finance and insurance and in information and communication activities (18.2% and 11.2%, respectively).

The average monthly gross wages and salaries were 1,066 euros in October, 1,093 euros in November and 1,160 euros in December.

In the 4th quarter of 2015, the average hourly gross wages and salaries were 6.67 euros and they increased by 5.0% compared to the 4th quarter of 2014. The average hourly gross wages and salaries increased the most in accommodation and food service activities (14.8%), real estate activities (13.2%) and in arts, entertainment and recreation (13.2%). The average hourly gross wages and salaries did not increase in three economic activities: construction, other service activities and finance and insurance activities.

In the 4th quarter of 2015, the average monthly labour costs per employee were 1,492 euros and the hourly labour costs were 9.67 euros, which have increased 6.3% and 5.1%, respectively, compared to the 4th quarter of 2014. The largest increase in monthly and hourly labour costs occurred in real estate activities (monthly 16.8% and hourly 15.5%).

Average monthly gross wages and salaries and their change compared to same period of the previous year, 1st quarter 2013 – 4th quarter 2015
Year Period Average gross wages and salaries, euros Change compared to the same period of the previous year, %
2015 I 1010 4,5
II 1082 5,8
III 1045 6,9
IV 1105 6,4
Year 1065 6,0
2014 I 966 7,3
II 1023 4,8
III 977 5,0
IV 1039 5,3
Year 1005 5,9
2013 I 900 6,3
II 976 8,5
III 930 8,8
IV 986 7,6
Year 949 7,0

Diagram: Average monthly gross wages and salaries and their change by economic activity

Statistics Estonia conducts the Wages and Salaries Statistics Survey on the basis of an international methodology since 1992. In 2015, the sample includes 12,074 enterprises, institutions and organisations. The average monthly gross wages and salaries have been given in full time units to enable a comparison of different wages and salaries, irrespective of the length of working time. Calculations of the monthly gross wages and salaries are based on payments for actually worked time and remuneration for time not worked. The hourly gross wages and salaries do not include remuneration for time not worked (holiday leave pay, benefits, etc.). In short-term statistics, the average gross wages and salaries are measured as a component of labour costs. Labour costs include gross wages and salaries, employer’s contributions and employer’s imputed social contributions to employees.

Read more from Statistics Estonia (see better graph here)

The Estonian employment rate was 65.2 pct in 2015

According to Statistics Estonia, the unemployment rate was 6.2%, the employment rate was 65.2% and the labour force participation rate was 69.4% in 2015. The unemployment level was significantly lower and the employment rate and labour force participation rate higher than in 2014. Compared to 2014, labour market indicators improved thanks to the results of the first three quarters, whereas in the 4th quarter the situation changed.

The data of the 3rd quarter of 2015 showed that the main labour market indicators, i.e. the labour force participation, unemployment and employment rate, were nearing a level similar to that of the economic boom. In the 4th quarter, both the labour force participation rate and the employment rate were higher than in the same quarter of the previous year, but the unemployment rate as well as the total number of unemployed persons did not decrease anymore. While in the 4th quarter of 2014 the unemployment rate was 6.3% and the estimated number of unemployed persons was 42,700, then in the 4th quarter of 2015 the corresponding indicators stood at 6.4% and 43,900.

In 2015 compared to 2014, labour market indicators improved thanks to the results of the first three quarters. Despite the fact that, compared to 2014, the total number of working-age persons (15–74-year-olds) decreased by 8,000, the number of persons actively participating in the labour market increased by 9,000, reaching an estimated 683,100 persons. The employment rate rose from 63% to 65.2% and the unemployment rate dropped from 7.4% to 6.2%. Thus, the number of inactive persons continued to decline as well, dropping to an estimated 300,500 persons by 2015. The number of persons employed has consequently increased on account of both unemployed persons and economically inactive persons who have entered the labour market.

There continue to be significant cleavages in labour market indicators depending on the place of residence, sex, age and ethnic nationality. In 2015, the highest employment rate (71%) was recorded in Harju county and the difference compared to Põlva county which had the lowest employment rate (47.6%) exceeded 20 percentage points. In addition to better job opportunities, the result was also influenced by a different age structure. Harju county also had the lowest unemployment rate (5.2%).

In 2015 compared to 2014, both the employment rate of males and that of females improved, but similarly to a previous couple of years the employment rate of males has grown faster, making the employment gap between males and females reach 8 percentage points. While in recent years the unemployment rate of males has been slightly higher than that of females, then in 2015 the gap became nearly non-existent: the unemployment rate was 6.2% for males and 6.1% for females.

In 2015 compared to 2014, the unemployment rate dropped considerably among both young people (15–24-year-olds) and those in prime working age (25–49-year-olds). The unemployment rate of elderly people (50–74-year-olds), however, remained practically the same. The unemployment rate continued to be the highest (13.1%) among young people, which indicates that entering the labour market and staying there is a serious problem for the young. At the same time, a large share of young people is still studying and is not planning to seek employment in the near future.

The employment rate has risen both for Estonians and non-Estonians, but the difference compared to 2014 has remained in the range of 5–6%, with the rate being higher in the case of Estonians. Estonians also had a lower unemployment rate, but the gap between Estonians and non-Estonians has narrowed in recent years. In 2015, the unemployment rate was 5.4% for Estonians and 8% for non-Estonians.

What could be mentioned as the possible reasons for the improved labour market indicators in 2015 compared to 2014 is the impact of the Employment Register on employment, the economic growth of 2014 and the planned Work Capacity Reform. The noticeably slower economic growth in 2015 has also probably already influenced the labour market indicators of the 4th quarter of 2015.Diagram: Unemployment rate of Estonians and non-Estonians, 2005–2015

The unemployment rate is the share of the unemployed in the labour force (the sum of employed and unemployed persons). The employment rate is the share of the employed in the working-age population (aged 15–74). The labour force participation rate shows the share of the labour force in the population aged 15–74. The estimates are based on the data of the Labour Force Survey.

Statistics Estonia has been conducting the Labour Force Survey since 1995 and every quarter 5,000 persons participate in the survey. The Labour Force Survey is carried out by statistical organisations in all the European Union Member States on the basis of a harmonised methodology.

Source: Statistics Estonia

Estonian unemployment rate on the rise

• Employment and unemployment both increased in Q4 of 2015.
• In 2016, we expect unemployment rate to grow and employment to decline a bit.

Unemployment rate increased a bit to 6.4% in the last quarter of 2015 (6.2% in 2015 as a whole). The number of unemployed increased in the last quarter by 1,000 persons over a year to 44,000. Registered unemployment rate has exceeded previous year’s level since August 2015 (the unemployment insurance fund’s data). In January 2016, the number of registered unemployed exceeded previous year’s level by 1,700 persons.

Unemployment rate in Estonia was still low compared to other countries in Europe, where unemployment rate ranged from 25% in Greece and 21% in Spain to below 5% in Germany (November 2015 data from Eurostat).

The annual growth of employment decelerated to 1.4% in Q4 (+2.6% in 2015 as a whole). The number of inactive declined compared to the previous year. The inactivity decreased the most among the retirees, partly because of a higher retirement age.

In 2016, employment is expected to fall a bit, especially in a few export-related sectors that have been struggling with low demand and/or output prices (mining/shale oil industry, transport, manufacturing). A state reform will reduce labour in the public sector. A reduction in the number of public workers and the reorganisation of the social benefits system of the disabled (forcing them to find a job) will lift the number of the unemployed, at least temporarily.

Source: Swedbank

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