"Low unemployment and a rise in the number of vacancies in the economy indicate that there is still a shortage of labor in the labor market," Bank of Estonia economist Orsolya Soosaar said in a press release. "This has been eased to some extent by the migration balance, which is positive for the second year in a row as more people come to Estonia than leave."

Another factor that eased the shortage was that the number of people who were inactive in the labor market because of illness or injury fell throughout 2016 and at the start of this year, Soosaar said. "This is probably because of the work ability reform that is being introduced, which makes the benefits received by those who are partially able to work dependent on their participation in the labor market," she added.

Like the statistics published on Monday for the labor market survey, data from the Estonian Unemployment Insurance Fund (EUIF) shows that the work ability reform contributed to the increase in the number of people entering the labor market. The fund had 8,166 people registered as having reduced working capacity at the end of April, which is around half as many as one year prior. On average, some 1,500 additional people with reduced capacity for work were registered in the first four months of 2017, while an average of 900 people with reduced capacity for work left the register each month, of whom just over half found employment. The introduction of the work ability reform will affect the labor market further in the future.

Although companies had to take on additional staff so as to expand output, labor productivity increased at the start of the year as well, Soosaar said. "This is indicated by recently released data for manufacturing output and exports, which showed strong growth at the start of 2017," she noted. "Increased labor productivity is of great importance for further growth in the Estonian economy and the maintenance of competitiveness, as there are few ways that the number of working people can be raised."

This will require investment in human capital by companies and a government policy that facilitates the movement of employees to more productive jobs, Soosaar said. The new measures from the EUIF for people who have a job and the plan to remove the fringe benefit tax on accommodation for workers who have come from further away are steps in this direction.

The Estonian labor force survey showed that the number of people in employment was 2.7 percent higher in the first quarter of 2017 than in the same quarter of last year. The share of the working-age population in employment was 66.3 percent in seasonally adjusted terms, which is the highest figure in recent decades.

Statistics Estonia puts the unemployment rate at 5.6 percent, which is one percent lower than in the first quarter of last year.