Flash comment: Estonia – The shortage of labour keeps wage growth rapid

SwedbankThe shortage of labour keeps wage growth rapid

• The shortage of labour is on the same level as in the years of the previous economic boom.

• During the next two years, according to Swedbank’s forecast, the gross wage growth should stay at 5-6%, employment rate will remain high and unemployment rate low.

Labour market remains tight

According to Statistics Estonia, labour market indicators did not change significantly compared to the same time last year. In the third quarter, employment rate was 68.2% and unemployment rate was 5.2%. While during the previous economic boom, unemployment rate was even lower, employment rate remains at a record height. Compared to EU member states, employment rate in Estonia is one of the highest. Noticeably, the employment rate of 65+ is at a record height and the highest in EU.

Employment rose only among part-time workers

In the third quarter, the number of employed persons was the same as in the third quarter of the previous year – 666,600 persons. Compared to the same quarter last year, employment among part-time workers increased and employment of full-time workers decreased. Due to the shortage of labour, it is easier to find a part-time job for persons who cannot or do not want to work full time. Without work ability reform (that motivates people with a disability to look for a job), unemployment rate would have been even lower.

The shortage of labour is on the same level as during the previous boom

The shortage of labour was the main factor restricting business for third of manufacturing and service companies and for 60% of construction companies in October. These numbers are similar to those of the previous economic boom. There is, however, one remarkable difference in the labour market – since 2006-2007, labour force has decreased by around 70,000 people.

Wage pressure will persist

The number of job vacancies and the number of persons leaving on their own initiative are high. Thus, the wage pressure will persist. In the next two years, we expect that gross wage growth should stay at 5-6%, employment rate will remain high and unemployment rate low.

For more information about this report, please contact Ms. Marianna Rõbinskaja, marianna.robinskaja@swedbank.ee, +372 888 7925.

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