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

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