Analytics, Banks, Direct Speech, Employment, Estonia, Labour-market

International Internet Magazine. Baltic States news & analytics Tuesday, 20.08.2019, 19:28

Unemployment has fallen to almost the same low level as in the economic boom

Orsolya Soosaar, Economist at Eesti Pank, 15.02.2019.Print version
Unemployment fell in the final quarter of last year to 4.4% in Estonia, which is the same low level as in the economic boom. As the unemployment figure has fallen however, so the indicators for the functioning of the labour market have improved.

The labour market is running hot, as unemployment is falling and labour shortages are increasing. This is pushing companies to raise wages faster, squeezing profit margins or passing higher costs on to customers. Wages have increased in Estonia as a share of value added created in recent years, and the share of profit has declined. However, this has happened much less than it did in the economic boom of 2007. Wages rose then as a share of value added created by 4.8%, but in the first three quarters of 2018 the rise was only of 1.5%.


Labour cost pressures were smaller than in 2007, which may be because the fall in unemployment has been accompanied by an improvement in the efficiency of matching job seekers and vacancies in the labour market. This suggests, that the average rate of unemployment over the business cycle, or NAWRU, has fallen. Evidence of this is that there has been no notable increase in the number of positions vacant in the past year, and the vacancy rate has held at 2% of jobs. When unemployment was at a similar rate in 2007, the vacancy rate was twice what it is now. The low number of long-term unemployed indicates that structural unemployment has fallen. As well as the labour market functioning well, wage pressures have been eased since last year by workers hired from abroad. It is easier for companies to find additional employees than it was in 2007.


Some cooling can probably be expected in the Estonian labour market as lower confidence indicates that economic growth is slowing in Estonia’s main export markets. The strength of the labour market means households can currently earn more income from work than they typically can, and the government receives more in tax revenues. As times are better than average, it would be wise right now to build up buffers that could be used to soften the impact of any later decline in the economy.






Search site