Wage growth was rapid in the fourth quarter of last year (+7.3%, over the year), but uneven, and lagged price rises. Swedbank estimates that the average net wage will increase by 6% this year, but consumer prices will increase even more.
The average wage increased in all economic sectors. In the fourth quarter, the average net wage grew by 6 percent, but consumer prices increased by 9%, year-on-year. In two years, the average gross wage has increased by a tenth. Wage growth varies a lot in different sectors. In IT and healthcare, wages have risen by a fifth in two years, while in accommodation and catering only 3 percent.
Economic growth will slow this year
The war in Ukraine is exacerbating the problems that plagued the economy already before the war: rapid price increases and supply chain shortages. The war means higher prices, lower sentiment, and slower growth in our export markets. Some companies will be hit harder than others, especially in the sectors of transport, logistics, tourism, and manufacturing. But the share of those that would suffer markedly is small in the economy and employment.
As economic growth in Estonia is still expected to continue this year and many job vacancies remain unfilled, we expect relatively rapid wage growth to continue. Labor shortages are most acute in construction. The labor shortages in construction could even worsen if the Ukrainian workers go home to join the army and no new people join in, as adult men are now banned from leaving Ukraine. There were around 30,000 Ukrainians in Estonia at the start of the year, many of them working in the construction sector. At the same time, Ukrainian women who flee to Estonia can alleviate the labor shortages in services. The government is discussing options to ease their work-related paperwork.
Prices will grow faster than wages this year
The sharp shortage of labor and the rise in the minimum wage (+12% in January 2022) will keep wage growth rapid this year. Swedbank estimates that the average net wage will increase by 6 percent this year. In recent months, the net wage of Swedbank’s customers has increased even more 8 percent, year-on-year. However, the purchasing power of wage earners will decrease this year, as price increases will outpace wage growth. Purchasing power last declined in 2009-2010, when wages fell more than prices.
According to preliminary data, the annual increase in consumer prices in February was the fastest in the last 25 years, above 12% over the year, and it seems that prices would grow even more rapidly in March. The global prices of many commodities, including gas, oil, metals, and wheat, have risen sharply in recent days, with Russia, Belarus and/or Ukraine being important suppliers.
