Central Bank of Estonia reports wage growth slowed to 6.1% and unemployment rose to 8.6% in the first quarter

The Central Bank of Estonia published an update on labour market conditions showing that average wage growth slowed to 6.1% year on year in the first quarter, while unemployment rose sharply to 8.6%. The bank links the wage slowdown to a still-weak economic backdrop and greater slack in the labour market, with slower wage increases in both the public and private sectors. Wage growth eased from 8.3% in the previous quarter, when one-off effects from higher income tax rates led some private firms to bring forward payments of wages, bonuses and holiday pay. That effect faded in the first quarter and may also have reduced some January wages in cases where pay had been advanced. Public sector wage growth also moderated and is expected to remain subdued in coming quarters as collective wage agreements in education and healthcare become more modest. The rise in unemployment was driven by falling employment, with tax register data showing the number of people receiving a wage continuing to decline; the bank also notes that registered unemployment may understate labour market weakness because jobseekers are not required to register and may be less motivated to do so once unemployment benefits lapse. Eesti Pank expects an economic recovery to slow the decline in employment and improve labour productivity, pointing to stronger first-quarter results in areas including foreign trade, manufacturing, retail and construction, while forecasting continued growth despite the effects of the trade war.