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Bank of Estonia: Labor productivity grew faster than labor costs in 2017

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

According to the Bank of Estonia, labor productivity grew faster than labor costs in 2017, while wage growth accelerated the most in public administration and the construction sector.

"The year 2017 was successful for Estonian businesses as profits increase once again after many years. Labor productivity increased more than labor costs for the first time in many years. While in the first half of the year, the faster growth of the economy was based mostly on the improvement of labor productivity, then in the second half of the year, the growth happened more thanks to greater labor," economist at the central bank Orsolya Soosaar said in a press release.

According to Soosaar, greater labor demand in turn boosted salary growth as free labor is lacking on the labor market. The growth of productivity, which was weaker than salary growth, in the last few years is not specific to Estonia, but was also characteristic of neighboring Latvia and Lithuania. However, labor productivity grew more than in Estonia there in 2017.

The growth of the number of employees accelerated in most fields of activity in the second half of the year, especially in the industrial sector. The number of vacancies and the labor expectations of companies increased significantly already a few quarters ago. The companies were optimistic that labor will continue growing, but it is difficult as the share of employed persons among working-age people is already very high. From among EU countries in 2017, it was only in Sweden that the indicator was higher than in Estonia, Soosaar said.

Salary growth accelerated in the second half of the year in the state's domain, especially in public administration -- likely due to the conclusion of the Estonian presidency of the Council of the European Union and the administrative reform. Salary growth accelerated noticeably also thanks to an increase in investment activity in the drastically enlivened construction sector.

Even though the growth of the nominal wage accelerate in the second half of the year, the growth of real wage remained moderate compared to the previous years. There was a similar situation in many European countries in 2017 -- salary growth accelerated, but price growth accelerated even more. Greater exceptions were Hungary and the Czech Republic, where the growth of real wages accelerated significantly.

Regardless of the fact that in Estonia, a greater share of working-age people are participating in the labor market compared with other European countries, activity increased even further in the second half of 2017. The unemployment rate was lower than the previous year despite the fact that the work ability reform will bring to the labor market people who will have greater difficulties in finding work. Considering the high level of the rate of participation in the workforce and low unemployment, it is likely that wage growth will accelerate also in the future and profit growth will decelerate when labor demand increases.

Editor: Dario Cavegn

Source: BNS

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