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Share of labor costs in GDP decreases first time in six years

The Bank of Estonia is the country's central bank.
The Bank of Estonia is the country's central bank. Source: (Martin Dremljuga/ERR)

The share of labor costs in the gross domestic product (GDP) in the first six months of this year decreased for the first time in the last six years, which enabled companies to increase profit and investments.

The gap between labor productivity and wages decreased in the first half of 2017: growth in productivity accelerated and was faster than wage growth for the first time in a number of years. This was an important turn, as from 2013 to 2016 the whole economy’s labor costs share of GDP increased from 46 percent to 50 percent. For the first time since 2011, the unit cost of labor by the beginning of 2017 declined for a longer period than two consecutive quarters, and the profit of companies increased, the Bank of Estonia said in a statement on Monday.

Real unit labor cost decreased by 2.1 percent in the first quarter and by 0.8 percent in the second quarter. The decrease in the first quarter was caused by the acceleration of economic growth and the deceleration of the growth of the wage fund. While in the second quarter the growth of the wage fund accelerated, from 4.6 percent to 8.3 percent, it remained below economic growth in current prices.

The increase in the nominal unit labor cost, which measures the increase of labor costs per one created real added value, decelerated less than the real indicator. This is due to the larger price growth of goods and services produced in Estonia, which was aided by the acceleration of inflation in the external environment. A faster nominal unit labor cost increase compared to foreign partners may hinder the capability of exporters to compete on external markets on the basis of prices.

The growth of real unit labor cost decelerated in most areas of activity in the first half of 2017. The most noteworthy change on the basis of audited data took place in construction, where the increase in production volumes and price growth stopped the increase in the share of labor costs in added value that was observed in 2016. In the processing industry, which is the main exporting area of activity, the growth of real unit labor cost decelerated in 2016, but started accelerating again in the second quarter of 2017.

Editor: Dario Cavegn

Source: BNS

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