Real wage growth in Estonia decelerated to 1.1% in the second quarter of 2012, down from 2.4% in the first quarter. Nominal wage growth slowed to 5% annually, while inflation remained higher than wage increases. Wages increased the most in construction, arts and entertainment, and accommodation and food services due to strong domestic demand and labor shortages. Manufacturing wages rose 4% as qualified labor became scarce. The economic research department expects average gross wages to increase 6.5% for the year, with real wage growth of 2.3%, though higher inflation could limit real wage growth.

1. Flash comment: Estonia
Economic commentary by Economic Research Department August 30, 2012
Real wage growth decelerates in 2Q
Average monthly gross wage According to the data released by Statistics Estonia, the average
25% monthly gross wage increased by 5% in annual comparison in the
second quarter, reaching 900 euros. Real wage growth, at the
20%
same time, slowed from 2.4% in the first quarter to 1.1%, affected
15% by slowing nominal wage growth as well as delay in the inflation
deceleration.
10%
5%
The largest increases in real wage were observed in domestic
demand related sectors – arts, entertainment and recreation (9%)
0% construction (8%), and accommodation and food service activities
2006 2007 2008 2009 2010 2011 2012
-5% (5%). Wages in the construction sector are affected by high
investment growth (mostly due to public sector investments) as well
-10%
as qualified labour shortage (many workers who lost their job
nominal grow th real grow th
during the crisis years have now found work in the Nordic countries
where the wage level is considerably higher). Accommodation and
food service activities, however, are benefiting from the strongly
growing number of tourists which allows the companies to raise
wages and create jobs.
Average real wage in export-dependent manufacturing was up by
4%, affected by growing shortage of qualified labour.
We expect the average gross wage growth to reach 6.5% on
average this year, assuming wage growth in the services sector will
accelerate during the second half of the year. Wage growth is also
continuously affected by already visible qualified labour shortage
problem in the economy. Real wage growth is expected to reach
2.3% on average, but slower growth is increasingly more likely due
to growing risks regarding higher inflation.
Annika Paabut
Chief Economist
+ 372 6 135 440
annika.paabut@swedbank.ee
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