Central bank: Employment remained stable in second half of 2020

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

According to Bank of Estonia (Eesti Pank) economists, a recent labor market survey shows that employment in Estonia fell sharply last year at the beginning of the coronavirus crisis and then remained stable in the second half of the year.

"In European comparison, it is striking that although the decline in the Estonian economy in 2020 was smaller than in most other European Union countries, the labor market reacted more strongly to the crisis than elsewhere in Europe," economists said in a press release.

The analysts pointed out that according to the labor force survey of Statistics Estonia, 4.3 percent fewer people were employed in Estonian institutions and enterprises in the second half of 2020 than a year earlier.

"The coronavirus crisis has affected industries in very different ways -- employment in healthcare and education increased, while the number of employees in the most affected accommodation and catering was about a fifth lower than a year earlier," the experts added.

"Corporate demand for labor decreased last year, but the impact of the decline in demand on the Estonian population was mitigated by several factors. First, the large decrease in working hours per employee during the first wave of the virus showed that companies made far fewer redundancies than their production volumes changed. This was likely thanks to wage compensation," the economists said.

Secondly, according to the Bank of Estonia, the number of Estonian residents who worked abroad, especially in Finland, increased. "Third, the number of employees recruited from outside the EU in Estonian companies decreased much more sharply than the employment of Estonia's permanent residents," the experts added.

"Unemployment increased from 5 percent to 7.1 percent at the beginning of the coronavirus crisis and all in all did not change much in the second half of the year. Registered unemployment continued to rise in the second half of the year among young people, as well as in Harju County and among service and sales workers," the central bank analysts said.

According to the economists, this shows that in some fields of the service sector the demand for labor also decreased in the fall and that less insured workers have lost their jobs in the crisis.

"Wage pressure has decreased in Estonia as a result of the coronavirus crisis. Although the average wage recovered at the end of the emergency situation, it increased more slowly in the second half of the year than in the pre-crisis period in both the private and public sectors," the analysts said.

They pointed out that data on the distribution of wages show that both lower and higher than average wages grew more slowly than before. "The average salary in the accommodation and food service industry had not returned to the level of the previous year by the end of the year," the central bank analysts said.

"It is too early to look at the impact of the tougher spring 2021 restrictions on the labor market in the labor market data published so far. Although the restrictions will undoubtedly affect companies' decisions, many factors are different this time compared to last year's emergency situation. At present, there is less uncertainty about the meaning of the restrictions, as companies have been able to adapt to the new situation and have experience from last year," the analysts added.

According to them, the rising share of vaccinated residents also provides the expectation that the restrictions will remain temporary and at least domestic customers will return quite soon after that. "Employment has now fallen quite a bit, and in contrast to industries where there is a risk of further redundancies, there are also areas where the number of workers is likely to increase in the future," the economists said.

They pointed out that, for example, employment growth is supported by the public sector and, given the resumption of construction projects, by the construction sector. "This time, the effect of the restrictions will be mitigated by the state wage compensation, which is somewhat lower than last spring," the experts said.

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Editor: Kristjan Kallaste

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