SEB Analyst: wage increases expected, but some companies reaching pay limit

SEB economist Mihkel Nestor.
SEB economist Mihkel Nestor. Source: ERR

Last quarter's wage increases were expected, SEB economic analyst Mihkel Nestor said on Wednesday, but rising wages are pushing some industries to the limit.

Statistics Estonia announced earlier on Wednesday that the average monthly gross wage in Estonia in the second quarter of this year rose to €1,419, an increase of 7.4 percent compared with the same quarter of 2018 .

Speaking to BNS, Nestor said: "The average wage figures for the second quarter were relatively consistent with expectations. The labor market has been seeing effectively full employment already for some time, which means that when a company needs additional workers, they either have to be found abroad or bought over from competitors."

The analyst observed that according to the revised population estimate, by 2025 the size of the population group of 20 to 29 year olds will be smaller by almost 25,000 people, or 17 percent in comparison with today's group.

"With fewer new job seekers coming into the market, the only option that employers have is to clench their teeth and try and remain in wage competition. Definitely there are companies for whom today's pay level is already beyond their means, which is why in our forecast we have reckoned with a slight increase in unemployment in the coming few years," Nestor said.

The first problems have already surfaced in the manufacturing industry, which in addition to the layoffs reported in recent months are demonstrated by the fact that in absolute terms the nationwide average salary is moving further and further away from the average salary in the manufacturing industry, Nestor added.

Economist Orsolya Soosaar at Estonia's Central Bank echoed the same thoughts. In a statement she said: "For some time now, the rapid increase in public sector wages has supported average wage growth. In the second quarter, wages in both the state and local governments increased more rapidly than in the private sector. Wages and salaries increased rapidly in public administration, education and health care. 

"In the public sector, good command of the Estonian language is very important in most cases and therefore employers have to find new employees in the local workforce. A shortage of local labor increases the power of public sector employees in wage bargaining more than in many other private sector activities, where employers can also recruit from abroad."

The average monthly gross wages were €1,411 in April, €1,400 in May and €1,445 in June.


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Editor: Helen Wright

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