Central Bank of Estonia economists report muted 2025 labour market and slower wage growth as labour market review is prepared

Economists at the Central Bank of Estonia (Eesti Pank) published an assessment indicating there was no strong improvement in Estonia’s labour market in 2025, with the delayed pass-through from the economy’s prolonged recession and firms’ labour reserves weighing on hiring. They noted a tentative easing in the pace of employment decline in administrative register data and improved employer expectations, while flagging the war between the United States and Iran as a key risk via energy prices and corporate sentiment. Employment changed little overall, with wage earners rising slightly in the public sector due to healthcare and social care, while private sector employee numbers fell 0.6%. Manufacturing and construction saw a modest revival in demand for workers as the external environment improved and interest rates declined, but the number earning a wage in services continued to fall amid weak domestic demand. Unemployment was 7.5% through the year; registered unemployment has been declining for two years, and labour force survey unemployment fell to 6.4% in the fourth quarter, attributed to lower labour market participation rather than higher employment. Youth unemployment rose to 20.7%. Wage growth eased to 5.6% from 8.1% the year before, with smaller collectively agreed pay increases in public sector education and healthcare, while public sector wage growth is expected to pick up in 2026 following a 10% rise in teacher pay and a 4.5% increase in minimum hourly pay in healthcare. Eesti Pank said its latest labour market review will be published on its website soon.