Central Bank of Estonia reports wage growth slowed to 5.9% in Q2 and sees signs of labour market stabilisation

The Central Bank of Estonia published an analysis of revised Statistics Estonia data showing wage growth slowed to 5.9% in the second quarter, with the sharpest deceleration in the public sector. It also highlighted continued labour market weakness, with unemployment at 7.8% in the second quarter and employment falling further, while pointing to indications that conditions are starting to stabilise. Slower wage growth in healthcare and education was linked to a new collective agreement that raised hourly wages by less than in recent years and to only modest teacher pay increases. Since the second quarter of 2021, average wages have increased by broadly similar amounts across the private and public sectors, with rises of 44% in the state sector overall, 42% in local government administration, 45% at Estonian-owned private companies, and 44% at foreign-owned private companies, while public administration wages rose by 40%. The analysis tied the moderation in wage growth to the economy’s prolonged recession and sluggish recovery, alongside a higher-than-average number of jobseekers, and noted that wage income increased as a share of total income during the recession; it also expects economic growth to exceed wage growth as the recovery progresses and corporate profits rebound. On labour market dynamics, the unemployment rate spike to 8.6% in the first quarter of 2025 was described as temporary and potentially influenced by statistical variance. Stabilisation signals cited include a steady decline in registered unemployment, an employment rate that has stopped falling, and improved business expectations for employment in manufacturing and construction; employment is forecast to grow slowly and unemployment to decline slowly as firms that avoided redundancies during the downturn initially have capacity to raise output without new hiring.