1.
Flash comment: Estonia
Economic commentary by Economic Research Department Nov 25, 2011
Real wage growth positive in 3Q after three years of decline
Average monthly gross wage, According to Statistics Estonia, average monthly gross wage
annual growth increased by 6.6% yoy in 3Q, up from 4.2% in 2Q. Real wage
25% growth reached 1.3% yoy. This is slightly slower and less broad-
nominal grow th based than we had expected. We believe that wider wage growth
real grow th
20% has been delayed due to uncertainties in the main export markets
as well as increasing labour supply (labour activity has been at
15%
record-high levels throughout this year).
10% The fastest wage growth was seen in mining with 13.4% (7.7% in
real terms), followed by wholesale and retail trade with 12.6%
5% (6.9%) and real estate activities with 11.7% (6.1%). These figures
probably indicate a structural shift – fast wage growth was possible
0%
on the account of fewer lower-waged employees as employment
2006 2007 2008 2009 2010 2011
-5%
declined in these sectors in 3Q. Retail sector was also impacted by
tourism high season – there has been record high number of
-10% tourists this year – which means that thriving companies are more
willing to pay higher wages and employ more workers.
The largest employment sectors, manufacturing and construction,
reported average wage growth of 6.7% and 6.4%, respectively
(1.3% and 1.1% in real terms). Wage growth in construction sector
is relatively low considering the rapid employment growth (27% in
3Q). There are signs of a possible structural shift in manufacturing
– as employment growth is strong, growing wages point to growing
number of higher-waged and higher-qualified employees. However,
since manufacturing has reported the strongest gains in
productivity, we expected faster wage growth because of that. The
main reason behind more modest wage growth is probably high
level of uncertainties in the main export markets which in turn adds
uncertainties to production expectations. Thus, companies are not
keen to raise wages.
Outlook
Real wage growth this year will most probably remain below 1% on
average, despite accelerating wage growth expectations for 4Q.
High inflation in the beginning of this year consequently had a
dampening effect on real wages. However, as inflation has slowed,
we expect real wage growth to accelerate in 4Q. Next year, we
forecast growth to be higher than this year and also to become
more broad-based (i.e. positive growth to be seen in most
economic activities).
Annika Paabut
Chief Economist
+ 372 6 135 440
annika.paabut@swedbank.ee
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