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

The employment rate among permanent residents is very high in Estonia compared to other European Union countries and the historical average, which will limit future employment growth more and more. Compared to the Estonian labour force survey, which is used to assess residents’ behaviour in the labour market, companies’ reports showed a larger growth in employment. The difference can be attributed to the fact that foreign labour contributed to employment growth more than it has before.

Because labour demand was high and labour supply was limited, wage growth exceeded productivity growth in the second half of 2018. Wage growth was the fastest in the public sector (education and healthcare), but in the fourth quarter of the year it was also fast in construction and the industrial sector. Wages would probably have risen even faster in 2018 without the effect of the income tax reform, which significantly increased the net wages of employees who earn below the average wage. Wage growth in the private sector was also dampened by the use of foreign labour, because it meant that shortages of local labour were less of a problem for companies looking to hire people.