Number of Workers Goes Down, Labor Costs Go Up, Says Labor Market Review ({{commentsTotal}})

Source: Photo: Postimees/Scanpix

The Bank of Estonia's second labor market review for 2014 released Tuesday concludes that whereas Estonia's labor force is continually decreasing, employers' expenditure on labor is still greater than the added value the workers generate.

The review shows that the number of working-age people in Estonia is decreasing due to continuing emigration and a drop in the number of people reaching adulthood. This trend is nothing new: last year the total of working-age people decreased by 0.9 percent.

The review says that the best way to ensure that Estonia still has a sufficient number of skilled workers is to invest in the people. Effort should be made to stop students from dropping out of colleges and universities. Adults, both employed and unemployed, must be ensured sufficient access to retraining and further education courses.

Review shows that the increase of labor costs has slowed down a little. However, employers are still spending more money on workers than added value these generate for the companies.

The reasons for the soaring costs are varied. Many employers are hoping for the recovery of demand for their products and have so far refused to lay people off. But the complicated economical situation means that the demand remains low and the success of individual companies will eventually come down to their ability to find new export partners in growing markets or increase their current market share.

Meanwhile, in the context of labor shortage, wages will continue to increase. Employers will have to compete with each other for skilled workers more than ever, not only in Estonia but in a wider international labor market.

The decreasing supply of skilled workers and the ease with which they can relocate to another country will make recruiting increasingly complicated. Providing incentives for current employees to stay with the company can reduce the risk of labor crisis but, if this is done on the expense of profits, may increase financial vulnerability.

There are a few signs that the labor market has started to adapt to the current economic climate. According to the review, both the total number of people currently employed and the average length of the working week per employee have gone down. The increase of the average wage has also slowed down in the second quarter of 2014. These are, nevertheless, very moderate adjustments.

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