The purchasing power of those earning the average wage grew quickly

Data from Statistics Estonia show that the average gross monthly wage increased by 5.3% over the year in the fourth quarter of 2014, and the gross hourly wage by 6%. This growth was faster than in the previous quarter. The fall in consumer prices meant that the growth in the purchasing power of the average wage also accelerated to 5.8%.

The rise in the average wage continues to be affected by the obligation for companies to register employees, which has increased the number of workers with declared wages who had earlier been paid unofficially. This brought down the growth in the average wage because the additional workers were on average earning close to the minimum wage, according to data from the Tax and Customs Board. Without the obligation to register employees, the growth in wages would probably have been even faster.

At around 7.5%, growth in the average wage was faster in government and local government employment, with wages rising 10.1% in the health sector and 8.9% in public administration. Wage rises in these jobs are unlikely to have been affected by the obligation to register employees. Average wages in the private sector rose more slowly, increasing by a little over 7% in Estonian-owned companies, but by a more modest 2.5% in companies with foreign ownership. Wages in manufacturing rose by 4.4%, which was below the average.

Growth in the average wage will be boosted this year by the rise of 11% in the minimum wage. The minimum wage rose around twice as fast as the average wage did in 2014 and will do so again in 2015.

Net wages, which is the amount left after taxes, will rise faster this year as the tax-free minimum income is raised from 144 euros to 154 euros a month and income tax is lowered from 21% to 20%. These changes will raise the net wages of an employee on the minimum wage by around 1.7%, and those of someone on the average wage by 1.1%. For jobs where the employer and employee negotiate over a net wage, this will reduce costs to the employer and help to slow the growth in labour costs.


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

Households’ purchasing power grows rapidly

Households’ purchasing power is growing rapidly

In the 4th quarter of 2014, the average monthly gross wages were 1,039 euros (+5.3%, year on year). In 2014 as a whole, average gross wages increased to 1,001 euros (+5.5%).

The deceleration in the growth of wages was anticipated as enterprises’ economic results were modest last year. During the first nine months of 2014, the latest data we have currently, enterprises’ sales and total costs decreased by around 1%, total profits remained at around the previous year level, but labour costs increased by 8%. This trend is unsustainable in a longer term.

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

The growth of wages was broad-based in 2014, reaching 5% to 10% in three quarters of sectors. At the same time, the growth of employment varied substantially. For example, in finance and insurance, wages increased by 10% last year, while the number of employees decreased by 20%.

In 2015, gross wages will probably grow a bit less than in 2014 due to weak external economic environment. Minimum wages will grow again 2 times faster than the average wages in 2015 (+10% and +5%, respectively), lifting wages at the lower end. Households’ purchasing power will rise substantially this year, as labour income taxes were lowered by around 1.6 percentage points in January and inflation will be low. Higher wages of public workers and a rise in pensions and other social benefits will also support private consumption and thereby, economic growth.

Source: Swedbank

University of Tartu to develop ‘space grease’

The Estonian Materials Technologies Competence Centre (MATECC) has just signed an agreement with the European Space Agency to develop a nanotechnology lubricant suitable for extreme conditions.

Shuttles and equipment used in space consist of numerous elements and have several friction-prone details, the surface of which must be greased to ensure smooth operation. Due to extreme temperature, pressure and radiation conditions, conventional oils and greases cannot be used in space. Hence, special materials must be developed to achieve a sufficiently long action time and reliability required for space applications.

Now that Estonia is about to become a full member of the European Space Agency, Estonian enterprises also get the chance to contribute to space-related development. Researchers involved in the activities of the Estonian Materials Technologies Competence Centre have been studying friction mechanisms and the characteristics of materials on the nanoscale for several years already and developed novel additives to lubricant oils together with the industry. The acquired knowledge and experience will be also used in the new cooperation project with the European Space Agency, the university’s press office reports.

Martin Järvekülg, Research Fellow in Materials Science at the University of Tartu and Project Manager of the Estonian Materials Technologies Competence Centre, said that the aim of the cooperation between the centre and the European Space Agency is to develop a lubricant based on the combination of nanoparticles and ionic liquids.

“The novel lubricant must be effective under both normal pressure and under vacuum, both in high and low temperatures,” said Järvekülg. If the researchers succeed in combining the strengths of liquid and solid lubricants in the new compound material, the results of the project can be also used elsewhere, where the extreme environment or the specifics of application place higher demands on the materials.

Source: ERR News via Estonian Review

Estonia among the most talent-ready countries in the world

According to the global graduate business school, INSEAD, Estonia is among the most talent-ready countries in the world.

The second edition of the Global Talent Competitiveness Index, created by INSEAD, in partnership with Singapore’s Human Capital Leadership Institute and Adecco, placed Estonia 19th in the index, just ahead of Japan and right after Belgium.

The index measures the countries’ ability to attract and incubate talent. According to INSEAD, in the ranking of 93 countries, European states continue to dominate the list with 16 of them in the top 25.

“Switzerland maintains its number one spot, while four non-European countries are among the top ten: Singapore, the United States, Canada and Australia,” INSEAD said in a statement.

“By virtue of their small size, Switzerland, Singapore and Luxembourg – the top three – have no choice but to be open economies,” INSEAD added. “They show a high degree of openness in terms of trade, investments and people, where their small population, geography and lack of natural resources have meant that they have had to play the game of globalisation from early days.”

“Other countries which have realised that an attractive talent pool encourages multinational corporations to invest within their borders include the Nordic countries which are all in the top 20.”

In a video interview, the authors behind the index specifically singled out Estonia, by pointing out that it has made into the top 20, surpassing France (23), for example.

The top 20 talent-ready countries are:

1. Switzerland

2. Singapore

3. Luxembourg

4. United States

5. Canada

6. Sweden

7. United Kingdom

8. Denmark

9. Australia

10. Ireland

11. Norway

12. Netherlands

13. Finland

14. Germany

15. Austria

16. New Zealand

17. Iceland

18. Belgium

19. Estonia

20. Japan

INSEAD is one of the leading graduate business schools, with campuses in Europe (Fontainebleau, France), Asia (Singapore), and the Middle East (Abu Dhabi).

Source: ERR News via Estonian Review

Available labour resources are in ever-shorter supply

The labour market favoured employees in the fourth quarter of last year. Data from Statistics Estonia show annual growth in employment accelerating to 2.3% from 1.3% in the third quarter. The unemployment rate fell at the same time to 6.3%, which is well below the average for the past decade.

Data from the Tax and Customs Board also indicated an increase in employment, showing an even faster increase in the number of people receiving a wage than that shown in the Estonian labour force survey in the second half of 2014. The increase in employment was affected to some extent by the requirement for registration of employees. The figures from Töötukassa, the unemployment insurance fund, for unemployment did not show any fall in registered unemployment in the fourth quarter. The difference in the figures from Statistics Estonia and Töötukassa could arise because the unemployed made more active use of Töötukassa services.

Employers faced ever-shorter supplies of available labour resources in 2014. A larger share of value added had to be allocated as wage costs to cover retention and recruitment of staff, meaning that there was a reduction in profits. Faster economic growth came mainly from increased use of the labour force and only to a small extent from labour productivity. Such growth will not be possible to maintain in the longer term in an ageing society. However, the persistent large differences in productivity between Estonia and the Nordic countries show that there is large potential for growth from investment in the knowledge and skills of staff.

Source: Bank of Estonia

Author: Orsolya Soosaar, Economist at Eesti Pank

Unemployment decreased and employment increased in 2014

According to Statistics Estonia, the unemployment rate was 7.4% and the employment rate was 63% in 2014. Unemployment has decreased and employment has increased since 2011, but these changes have gradually slowed down.

In 2014, the annual average number of unemployed persons was 50,000, which is 9,000 less compared to the previous year. The annual average unemployment rate (7.4%) was 1.2 percentage points lower than in 2013 (8.6%). Compared to the highest unemployment rate of the last decade (16.7% in 2010), unemployment has decreased more than twice. In 2014, the unemployment rate in Estonia was relatively low, compared to other European Union countries.

The decrease in unemployment continued at the end of 2014. In the 4th quarter of 2014, the unemployment rate was 6.3% and the estimated number of unemployed persons was 43,000 (which was, respectively, 2.4 percentage points and 16,000 persons less than in the 4th quarter of 2013).

The long-term unemployed (i.e. people who had been looking for a job for one year or longer) numbered 23,000 in 2014, of which those who had been looking for a job for at least two years numbered 12,000. Compared to the previous year, the number of the long-term unemployed decreased by 14% (the number of those who had been looking for a job for at least two years decreased by 25%) and the number of the short-term unemployed (i.e. people who had been looking for a job for under a year) decreased by 17%. The long-term unemployment rate was 3.3% in 2014.

The youth unemployment rate (i.e. the share of unemployed persons aged 15–24 among the labour force of the same age) was 15.0% in 2014 (18.7% in 2013). Although unemployment decreased faster among young people compared to other age groups, the youth unemployment rate was still two times higher than the total unemployment rate. The demographic decrease in the size of the youth population facilitates the decrease in youth unemployment (the size of the age group 15–24 has decreased by more than a quarter in the last ten years). In 2014, the young unemployed numbered 8,000 in total. The unemployment rate of 15–24-year-olds is calculated as a share of only those young people who are economically active (i.e. employed or unemployed), but most members of this age group are still studying. As a result, the share of the unemployed among all young people aged 15–24 was only 5.7%.

The labour market is facing structural changes, resulting in an increase in the number of older employed persons and a decrease in the number of younger employed persons. During the last ten years (2004–2014) the number of older employed persons (aged 50–74) increased by 39,000, whereas the number of young employed persons (aged 15–24) and the number of employed persons in middle working age (aged 25–49) both decreased by 8,000.

In 2014, the employment rate of the population aged 15–74 was 63.0%, which is close to the level seen during the last economic boom. The unemployment rate increased by 0.9 percentage points compared to 2013. In the 4th quarter, the employment rate of the population aged 15–74 was even higher at 63.6%, which is two percentage points higher compared to the 4th quarter of 2013. In addition to the economic growth, various factors contributed to the increase in the employment rate, including the decline in population, the unequal size of population groups, the gradual increase in retirement age, etc. As the size of the population declines, there are fewer persons competing for the same number of jobs, which leads to a fall in unemployment and a rise in the employment rate. In the context of the decline in the working-age population, the annual average number of employed persons increased modestly (by 3,500) compared to 2013,  and totalled 625,000 in 2014. As the size of the population has constantly declined since the previous economic boom, the number of employed persons in 2014 was 5% (i.e. by 33,000 persons) smaller, compared to the peak in the labour market in 2007.

The yearly change in employment was most of all influenced by an increase in the number of persons employed in information and communication, accommodation and food services, retail trade, health, and transportation and storage (postal and courier activities), as well as by a decrease in the number of persons employed in agriculture, manufacturing and financial and insurance activities.

The employment rate of the population aged 20–64, which is a Europe 2020 indicator, was 74% in 2014. After the economic crisis, the employment rate has been gradually moving towards the target level set for Estonia –76%.

Economically inactive persons (students, retired persons, homemakers, discouraged persons, etc.) made up 32% (317,000 persons) of the population aged 15–74 in 2014, which was 3,000 less than the year before. Among inactive persons, the number of pensioners and persons inactive due to studies decreased the most. The number of persons inactive due to health problems increased. Discouraged persons, i.e. persons who have stopped seeking a job, numbered 6,000 in 2014 (their number grew to 7,000 in the 4th quarter).Diagram: Number of employed persons

The unemployment rate is the share of the unemployed in the labour force (the sum of employed and unemployed persons). The long-term unemployment rate is the share of people who have been unemployed for a year or longer among the total labour force. The employment rate is the share of the employed in the working-age 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.

Starting from the 1st quarter of 2015, Statistics Estonia will not publish the quarterly Labour Force Survey data on economic activities and occupations; the respective data will be published once a year. Statistics Estonia will continue to publish quarterly employment data by economic activity as part of business statistics, national accounts statistics and the statistics on job vacancies and labour turnover.

Source: Statistics Estonia

Estonia’s labour market is tightening

• The unemployment rate decreased to 7.4% in 2014.
• Employment increased by 0.6%.

By sectors, employment grew the most in transportation and storage, tourism, ICT, and public sectors. The number of employees decreased in administrative activities, manufacturing, agriculture and finance.

The potential pool of additional labour is shrinking. The working-age population and the number of unemployed both decreased by 9000 persons in 2014. The employment rate of the working-age population (63.0%) increased to a rate last seen during the previous peak of the cycle in 2008. The employment rate has increased because employment has grown but also because the working-age population has decreased and the retirement age has been raised.

Finding additional labour among the economically inactive people (retired persons, students, persons inactive due to health reasons, etc.) is also becoming more difficult. The number of economically inactive decreased by 3000 persons in 2014. Among them, the number of pensioners and the number of people on maternity leave or studying decreased the most. At the same time, the number of persons inactive due to health reasons increased.

Labour shortage is the most important constraint in increasing one’s production volumes for 18% of enterprises in the service sector, for 8% of enterprises in the manufacturing sector, and for 3% of companies in the construction sector, according to a survey by the Estonian Institute of Economic Research in January.

Employment is expected to decrease marginally this year because of lower supply of and demand for labour (the latter thanks to investment in higher efficiency). Shale oil and food industries will probably reduce their labour force after the recent dramatic drop in the prices of oil, and lower prices and smaller export volumes of food products. But so far, the impact of smaller revenues in these sectors on total employment has been limited (around 0.05% of employment).

 

Source: Swedbank

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