OREANDA-NEWS. March 11, 2014. Data from Statistics Estonia show that the average gross monthly wage increased by 7.6% year on year in the last quarter of 2013, and gross hourly wages by 8.3%.

Although real growth in the economy has stopped, real wage growth accelerated in annual terms to 6.0%. Real wage growth was also boosted by slower inflation. The purchasing power of households is noticeably higher than a year ago, but if wage costs grow with different trends to the economy it will put pressure on the profitability of companies and push inflation up. Average gross wage growth did slow slightly in the fourth quarter in reaction to the slowdown in economic growth, but this was not reflected in hourly wages.

Wage growth was relatively broad-based and seen in most industries, but there were still large differences. The relation between nominal wage growth and value added growth was also different in different industries. The largest rises in labour costs per hour over 2013 were of 21.4% in agriculture and forestry, 14.7% in transport and storage, 11.4% in information and communications, 11.4% in water supply and waste handling, 11.3% in finance and insurance, and 9.1% in mining, while a smaller rise of 7.5% was seen in manufacturing and there was only a slight rise in the construction sector. Nominal wages rose strongly both in sectors where growth in value added could cover them, and also in sectors where value added grew only modestly or even declined.

Wage growth was again fast in the public sector, and hourly wages rose at an annual rate of 11.7% in education and 7.5% in medicine. The wage rise for medical staff was about the same as in the second and third quarters, while the rate of wage growth in education increased. Wage growth was again affected by one-off bonuses at national and municipal level, but their impact was less than in the third quarter.

As in previous quarters, wages rose on average significantly faster than output per hour or per worker. This should not necessarily cause companies to suffer any difficulty in making payments in the short term as it can partly be compensated for by slower growth in profits or in other costs.

It was indeed noticeable that profit growth slowed sharply for Estonian companies in 2013 and profits shrank as a share of GDP. Rapid wage growth will start to affect the end prices of goods and services in the long term and prices are already rising faster for many services. Prices for services are expected to rise in 2014 partly because of economic growth but largely because of higher wages and increased rental prices for residential property.

Eesti Pank observes and comments on wage developments as labour costs have a direct impact on the price of goods and services produced in Estonia and wage growth is an important indicator of price stability.