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As recently issued data show, the Estonian activity of the working-age population (the
economy is broadly developing according to our seasonally adjusted activity rate increased from
expectations: in the first quarter, GDP and 66.2% in the fourth quarter of 2009 to 66.7%) and
employment continued to decline and weather conditions, which had a negative effect on
unemployment to increase. Some factors caused not only construction and related industries, but
results to be worse then projected – e.g., domestic also on household spending (and, hence, on the
demand and, consequently, employment suffered retail sector).
because of a cold and prolonged winter. However,
there were some positive developments, such as an Chart 1. Labour market indicators, 1Q 2005 - 1Q 2010
increase in exports, industrial production, and 20%
seasonally adjusted average wages. In this report,
we discuss the issues concerning the labour 15%
market, as this also reflects the state of the overall
10%
economy. The GDP-related themes will be the
subject of our next monthly letter in July. 5%
Economic Research Department. Swedbank AB. SE-105 34 Stockholm. Phone +46-8-5859 1000.
E-mail: ek.sekr@swedbank.com www.swedbank.com
Legally responsible publisher: Cecilia Hermansson, +46-8-5859 1588.
Maris Lauri, +372 6 131 202. Elina Allikalt, +372 6 131 989. Annika Paabut, +372 6 135 440.
The Estonian Economy
Nr 2 • 9 June 2010
all the working-age population able to work started persons is very small; hence, the error might be
to look for a job). In addition, the number of relatively large).
discouraged people and students increased too.
However, the beginning of 2010 reversed some of The activity rate will start to decline, thus affecting
those tendencies: the number of discouraged unemployment figures, but one-off increases are
people fell sharply (over one-third from the level in possible as well.
the fourth quarter, and a smaller but important
decline was seen in the number of those studying Developments differ strongly among
(8.5% quarter on quarter). Moreover, contrary to sectors
expectations, the number of retired persons The primary sector (agriculture, forestry, mining,
decreased despite the general aging process. etc.) covers 5.5% of total employment and has
largely maintained its position throughout the crisis:
Chart 2. Active population, 1Q 1996 - 1Q 2010
as of the first quarter of 2010, employment
69% 720 increased by 4.7% year on year; however, it has
68% 710 fallen by about 8% in total compared with the latest
700 economic peak.2 The annual growth is mostly the
67%
690
result of employment growth in mining and
66% quarrying, and probably in forestry, which are
680
65% enjoying earlier recovery from the crisis and
670 benefiting from electricity export growth. But the
64%
660 slow downward trend will inevitably continue as the
63%
650 sector becomes more technology oriented.
62% 640
61% Chart 4. Structure of employment, 1Q in 2007 – 2010
630
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
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The Estonian Economy
Nr 2 • 9 June 2010
earlier, so the total decline has been 36% since household demand has remained weak; some
2007), in metalworking (about 30%), in different improvement is probable only at the end of the year
chemical industries (which only began to suffer from at the earliest.
falling demand in 2009), and in the production of
transport equipment. However, employment Employment in the public and social services sector
continued to increase not only in companies (including education, health, etc.) has been rising
producing electronics, and other machinery and despite budgetary restraints. This has occurred
equipment, but also in paper processing and related mostly because many public sector institutions were
industries. Still, those industries employ a relatively still increasing employment in the early phase of the
small number of workers, and very few of them crisis: after budget cuts were introduced in mid-
were untouched by the fall of global demand in 2009, cutting wages was generally preferred over
2009. The main exporting sectors are expected to cutting employment. In addition, there was also
start increasing employment already this year, and, some job creation in the public sector last winter. As
besides the above-mentioned industries, the of now, a further increase in public sector
production of transport equipment, wood and timber employment is very unlikely.
processing, and the food industry may be among
those hiring more workers, as export and Chart 5. Gross monthly wages, 1Q 2006 – 1Q 2010
(Annual growth)
production figures improve. The production volumes
in those sectors are close to or above pre-crisis 30%
level; with diminished jobs during 2008-2009, (and 25%
increased productivity), the need to increase
employment becomes clearer. Several companies 20%
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The Estonian Economy
Nr 2 • 9 June 2010
existing workers will have been exhausted. As the economy has stabilised and begun to show
However, employment growth will be slow. signs of recovery, unemployment is becoming
increasingly long term, as new jobless claims
Chart 6. Registered unemployment and job vacancies, 24th decline. This process clearly indicates that cyclical
week 2009 – 22nd week 2010 unemployment is transforming into structural
(3-week averages)
unemployment. Structural unemployment bears
3,000 high direct and indirect costs for the economy and
society as it leads to higher social spending and
2,500
falling tax revenues.
2,000
Chart 8. Structure of unemployment, 1Q in 2005- 2010
1,500 100% 25%
> 24
90%
1,000 months
80% 20%
500 12-23
70%
months
0 60% 15%
2009 W24 2009 W34 2009 W44 2010 2010 W11 2010 W21 50% 6-11
Vacancies in Estonia Vacancies in abroad months
40% 10%
New unemploy ed
Source: Estonian Unemploy ment Insurance Fund. 30%
<6
20% 5% months
10%
Unemployment becoming more structural Unemp-
0% 0%
The characteristics of unemployment in Estonia are loy ment
1Q 05 1Q 06 1Q 07 1Q 08 1Q 09 1Q 10 rate, rs
very similar to those in other countries: the most
Sources: SE, Swedbank calculations.
affected are people with lower qualifications and the
younger generation. For the 15-24 age group, the
unemployment rate reached 40.6% in the first Average wage increase in first quarter due
quarter; for the 50-74 group, it was 13.5%; and, for to structural change in employment
the rest, 19.3%. However, Estonian unemployment
Contrary to expectations, gross monthly wages
is much higher among men than women: for the
declined only by 2.3% and hourly wages by 2.7%
former, the unemployment rate is 25.2%, including
on a year-on-year basis in the first quarter. This
26.9% in towns. The reason is that the crisis
means that both measures increased in seasonally
affected mostly sectors where traditionally male
adjusted terms (0.8% and 0.4%, respectively). As
employment dominates, viz., construction, and
base wages and bonuses were not increased, but
related manufacturing industries.
rather cut, only a structural change in employment
can be behind this growth. It means that higher
Chart 7. Unemployment rate, 1Q 2004 – 1Q 2010
qualifications (and higher wages) are now taking
30% bigger shares in than in the past. This is explained
for example with the fact that as of the first quarter
25%
of 2010, the share of blue-collar workers had
declined to 52.6% from 54.5% a year earlier and
20%
55.5% two years ago.
15%
Monthly wage declines may accelerate in the
second and third quarters as many employees in
10%
the public service sector will have unpaid vacations
(see above). This structural shift affects the average
5%
gross wage level in 2010, but an actual increase in
payments is expected only in 2011.
0%
2004 2005 2006 2007 2008 2009 2010
Urban settlement Women
Source: SE. Rural settlement Men
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The Estonian Economy
Nr 2 • 9 June 2010
Chart 9. Wage growth, annual growth (n.s.a. and s.a.) increase in the flexibility of labour market,
(seasonally adjusted) encouragement of businesses, etc. However, the
25% tight budget situation makes it difficult to find the
appropriate policies to implement. As of now, very
20% strong efforts should be made to ensure that
unemployed with inadequate education/training
15%
levels will have the opportunity to improve their
10%
education and training. While much has been done,
a more flexible approach (e.g., allowing people to
5% acquire new professions instead of just adding
higher qualifications) is needed, so that those
0% previously working, for example, in construction can
2006 2007 2008 2009 2010 find jobs in sectors with a better growth outlook.
-5%
Swedbank
Economic Research Department Swedbank’s monthly newsletter The Estonian Economy is published as a service to our
SE-105 34 Stockholm customers. We believe that we have used reliable sources and methods in the preparation
Phone +46-8-5859 1028 of the analyses reported in this publication. However, we cannot guarantee the accuracy or
ek.sekr@swedbank.com completeness of the report and cannot be held responsible for any error or omission in the
www.swedbank.com underlying material or its use. Readers are encouraged to base any (investment) decisions
on other material as well. Neither Swedbank nor its employees may be held responsible for
Legally responsible publisher
losses or damages, direct or indirect, owing to any errors or omissions in Swedbank’s
Cecilia Hermansson, +46-88-5859 1588
monthly newsletter The Estonian Economy.
Maris Lauri +372 6 131 202
Elina Allikalt +372 6 131 989
Annika Paabut +372 6 135 440
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