Eesti Pank: Slower wage growth helps preserve jobs
Wage growth accelerated to 8.5% in the first quarter in local government employment, which includes a lot of jobs in education and in healthcare institutions. Wage rises in government administration have kept pace with those in Estonian private companies, but in the first quarter they slowed from almost 7.5% to 5.4% in the government administration and to 4.8% in private companies. This was still a rapid rate of wage growth given that the economy grew by 1.2%.
As the economy has grown weakly in recent years, the slowing of wage rises is to be expected. If labour costs increase rapidly at a time when corporate profits are falling, employers will sooner or later start to reduce the number of jobs. Fluctuations in unemployment can be damped in times of slow growth if companies are able to control labour costs during the good times. Wage flexibility is important for Estonia because we have a single monetary policy shared with all the euro area and the economy is very open. The economy can adjust and price competitiveness can be preserved only through wages.
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