Swedbank economist: Positive net migration won't solve labor shortage

Swedbank Estonia chief economist Tõnu Mertsina.
Swedbank Estonia chief economist Tõnu Mertsina. Source: (Siim Lõvi/ERR)

While positive net migration has a positive impact on employment in Estonia, it will not solve the labor shortage problem, Swedbank chief economist Tõnu Mertsina said on Thursday.

The positive net migration of the last four years has brought 15,700 people to Estonia, while a negative rate of natural increase has caused a decrease in population of 5,800. According to Mertsina, it is positive that Estonia's population has increased in recent years with the support of net migration, but the birth rate is still far from the population replacement rate.

"Net migration, which has been positive for four consecutive years already, is aided by the fast rise of Estonia's standard of living," Mertsina said in a press release.

"According to purchasing power parity (PPP), our GDP per capita has reached 79 percent in relation to the EU average; it stood at only 42 percent at the beginning of the previous decade and at 65 percent at the beginning of this decade,'' he continued.

He added that wage difference has also declined rapidly — while Estonia's net salary was 5.4 times lower than the EU average in 2000 and 2.6 times lower in 2010, then now, it is approximately two times lower. Differences with Finland, however, have been 5.7-fold, 3.6-fold and approximately 2.5-fold, respectively.

Positive net migration has a positive impact on Estonia's employment, the economist noted. Although the number of people between the ages of 20 and 64 is decreasing, this decline has decelerated over the last four years. Last year, 89 percent of the net migration fell within this age group.

Mertsina said that Estonia, suffering from labor shortage, has found relief from foreigners, who in recent years have entered the labor market with a short-term work permit and temporary residence permit. A total of 22,500 such foreigners arrived in Estonia last year.

"At the same time, when we look at the age structure of the population, the share of people aged 20-64 is declining, and the share of those over 65 is increasing," he continued. "The decrease in the share of young people, while the share of older people is increasing, has in the last 14 years caused a situation in which fewer people will enter the labor market over the upcoming decade."

Working-age population on decline

According to Mertsina, the demographic labor market pressure index has improved in the last six years, but there are still fewer young people entering the labor market than the number of older people leaving the market. In addition, the rate of dependents, that is the number of non-working-age residents per working-age resident, has also increased — while 10 years ago, the rate of dependents was 48 percent, it had risen to 56 percent by 2018.

He noted that the share of working-age people has been decreasing for the last seven years and currently stands at 59.4 percent, approximately as high as 30 years ago — when the share of young people was significantly higher and the share of older people lower.

According to the latest estimate by Statistics Estonia, the share of this age group will decline to 55 percent by 2030, meaning that the share of dependents will also increase. However, this will bring with it a greater redistribution need and greater pressure on the state budget.

Mertsina said that the current population forecast of Statistics Estonia is nevertheless too pessimistic, for example, the actual population at the beginning of this year was higher by 20,000 to 23,000 people than the estimate. "At the same time, even if Statistics Estonia were to readjust its forecast to be more positive, this will not have a significant impact on the proportions with current immigration," he said.

Editor: Aili Vahtla

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