Economist: Coronavirus crisis has slowed Estonia's wage growth

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Bank of Estonia coat of arms. Source: Siim Lõvi /ERR

Wage growth in Estonia is much slower than it was before the crisis as labor shortages are notably smaller than they were in previous years, Bank of Estonia (Eesti Pank) economist Orsolya Soosaar has said, commenting on recently published average wage data.

On Tuesday, Statistics Estonia published data showing the average gross wage in Estonia for 2020 which was €1,448 per month, 2.9 percent higher than the year before.

The nearly 3 percent increase is the first time in ten years the increase has been so modest. Since 2011, the annual growth rate has steadily been over 5 percent and has even risen above 7 percent in several years, Statistics Estonia reported on Wednesday.

Trade, accommodation, catering and arts and entertainment saw a drop in the average wage.

The economist said: "Data from Statistics Estonia show that the average wage was 2.9 percent higher in the fourth quarter of 2020 than it was at the same time in 2019. The seasonally adjusted average wage was higher than in the third quarter.

"There were over 55 percent more people registered as unemployed in the fourth quarter of 2020 than there were a year before. Having been reduced by the crisis, demand has not recovered at many companies, meaning that they still do not need to hire additional staff.

"The sentiment indicators of the Estonian Institute of Economic Research show some improvement in employer expectations for employment growth and in the share of employers noticing labor shortages, but these indicators were still lower in the fourth quarter than they were before the crisis.

"Different sectors are experiencing the demand for labor and the amount of available suitably qualified labor very differently, and this is affecting wage growth.

"Wages in the sectors that were hit most by the crisis, such as accommodation and food service, administrative and support services, and retail, were even lower than a year earlier.

"The growth in the average wage will be restrained in the coming quarters by higher labor market slack, the postponed rise in the minimum wage, and the impact on the labor market of the restrictions introduced because of the second wave of the epidemic.

"Employment suffered relatively more in Estonia than in other European Union countries on average because of the crisis, but the reaction of wage growth to the state of the labor market has been an important channel for the labor market to readjust."

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Editor: Helen Wright

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