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

Although growth has slowed in Estonia’s partner economies and many risks have increased, rapid wage growth and labour shortages will continue to cause difficulties for companies in the years ahead. However, higher incomes and changes in tax policy are leading ever more people to prefer to work part time.

Workers in Estonia have started to choose a reduced workload and it is probable that the number of people working part time will rise, as people who are currently not active in the labour market may choose instead to take a part-time job. People today are motivated by having more free time rather than just by higher incomes. Equally, the current income tax system reduces the incentive for workers in certain income brackets to earn extra income.

The unemployment rate in Estonia is 4.4%, which is close to the lowest levels seen during the economic boom. Strong demand for labour and the limited supply of it will continue to drive the rapid wage growth seen in Estonia in recent years. It is expected that wages will rise by 7.5% this year and by 5-6% in the next two years.

Corporate profits will not increase at the same rate as labour costs, and this may reduce the capacity for the economy to grow in future. This makes it important that the new government set balancing the economy as one of its priorities, even in the good times.