In the first quarter, the average gross monthly salary in Estonia was €1,894, an 8.8 percent increase compared to the same period last year. In the fourth quarter of 2023, the average salary was €1,904 per month.

According to Statistics Estonia, the median salary in the second quarter was €1,641, compared to €1,524 during the same period in 2023. The median salary represents the point at which half of the employees earn less and half earn more.

"Although the average gross monthly salary was higher in the second quarter than in the first, wage growth has slowed over the last four quarters. This is clearly reflected in the data for the second quarter of this year," said Eveli Voolens, head of the social statistics team at Statistics Estonia.

Voolens explained that the highest average gross monthly salaries were in the fields of information and communication (€3,468), financial and insurance activities (€3,163) and electricity, gas, steam and air conditioning supply (€3,138).

On the other hand, the lowest average gross monthly salaries were in accommodation and food service activities (€1,262), other service activities (€1,314) and real estate activities (€1,396). "Compared to a year ago, the largest salary increases were in the healthcare and social work sectors, as well as in other service activities," she added.

Average wage over €2,300 in Tallinn

The highest average gross monthly salary was recorded in Tallinn (€2,339) and Harju County (which includes Tallinn, €2,233), followed by Tartu (€2,039). The lowest salaries were found in Valga County (€1,509), Hiiu County (€1,525) and Saare County (€1,535).

"Although salaries in most Estonian counties are still below the national average, wages continue to rise. Compared to the same period last year, salaries have increased the most in Ida-Viru County (9.4 percent), Hiiu County (8.6 percent) and Valga County (8.5 percent)," the analyst noted.

The median salary was highest in Tallinn (€1,899), followed by Harju County (including Tallinn, €1,828) and Tartu County (€1,713). The lowest median salaries were in Valga County (€1,297), Saare County (€1,320), and Ida-Viru County (€1,322).

Since the first quarter of 2023, Statistics Estonia has used data from the Tax and Customs Board's employment register and income and social tax declarations to report average salary figures. This data includes individuals employed under an employment contract, the Public Service Act, and a service contract.

Economist: salary growth outpacing inflation

Bigbank's chief economist Raul Eamets, commenting on the average wage figures, emphasized that wage growth is more important than the absolute wage level. "The average wage increased by 7.2 percent compared to the second quarter of last year. While this is lower than the 8.8 percent growth in the first quarter, it is still significant. It's also important to note that wage growth is outpacing inflation, meaning that people's real incomes are increasing," he explained.

According to Eamets, the wage growth itself is not surprising, given that employment rates remain high and unemployment is low. "When labor market indicators are strong, employers must consider employees' demands for pay raises because there aren't long lines of unemployed people waiting for jobs."

Eamets also highlighted the potential impact of the proposed defense tax on employee wage costs, as suggested by the Minister of Finance. "If implemented, this could increase the pressure on employees to establish their own limited liability companies (OÜ) to manage tax burdens. Already today, many sectors and professions, such as real estate, taxi services and management and accounting services, see individuals operating as sole proprietors or through OÜs to optimize taxes," he added. "The share of under-the-table wages is also likely to grow in sectors where cash transactions are more common."

Wage growth in Estonia is expected to continue, albeit at a slower pace. In June, the average wage reached €1,939, considering the annual seasonal fluctuations. The quarterly wage growth of 1.2 percent translates to an annual growth rate of 5 percent, with a year-on-year increase of 7 percent. This means that most of the growth over the past year occurred in previous quarters.

Luminor's chief economist, Lenno Uusküla, noted that the purchasing power of the average wage continues to rise. "With a 2.7 percent inflation rate over the past year through June, this results in a purchasing power increase of 4.4 percent. However, there is still a 3.9 percent lag from the peak in 2021," he added.

Uusküla also pointed out that the proportion of mandatory expenses in the consumer basket remains very high, as the prices of these goods and services have risen the most, along with higher mortgage payments. This has significantly reduced the amount of disposable income in family budgets, leading to a perceived decline in the standard of living.

"Not all employees have seen equal wage increases. Over the past year, wages have grown the most in the healthcare and social care sectors, with an 11.3 percent increase in the second quarter compared to the same quarter last year. Wages in other service activities and real estate activities have also increased by more than 10 percent," said Uusküla.

According to Uusküla, wages in Estonia will continue to grow this year, and wage increases will continue to outpace inflation. "We are slowly returning to the level we were at in mid-2021, but it will take time. New tax changes are also delaying this recovery," he added.

Modest salaries growing faster courtesy of minimum wage hike

Swedbank's senior economist, Liis Elmik, noted that wage growth was faster at the lower end of the pay scale due to the increase in the minimum wage at the beginning of the year.

"Wage growth in the public sector remained faster than in the private sector, although the gap has significantly narrowed. The average salary in the public sector increased by 8 percent year-on-year, while in the private sector it rose by 7 percent. The fastest wage increases were in the healthcare sector, where a collective agreement-driven wage hike took place in April. Salaries in education also grew more than the average," Elmik said.

According to Swedbank's forecast, the average gross wage is expected to grow by 7 percent this year. "Wage growth is slowing significantly due to decreased demand for labor and the poor economic situation of companies, which prevents them from raising wages as much as before. The challenging state of public finances also limits wage increases in the public sector," said Elmik.

Elmik also noted that the purchasing power of the average net wage will only increase by 2 percent this year.

"Next year, wage growth will slow further, inflation will accelerate and tax hikes will take an additional bite out of consumers' wallets. As a result, the purchasing power of the average net wage will decrease by 2 percent in 2025. The purchasing power of the average wage earner will only return to pre-high inflation levels by 2026, when the average net wage is expected to rise significantly due to the removal of the so-called tax hump," said Elmik.

"The average pension increased by 11 percent year-on-year in the second quarter. Pensions have seen strong growth in recent years. While the average net wage is expected to catch up with price levels by 2026, the purchasing power of the average pension has already recovered," Elmik added.

Elmik also pointed out that higher prices and uncertainty about the future are affecting household behavior – people are buying fewer and cheaper goods. Swedbank's card payment data shows that consumption was cautious during the summer months.

The article was updated to add comments from economic experts.

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