Central bank: employees should calm their wage expectations

13.04.2012, 10:26

Estonian central bank Eesti Pank says in its new labour market overview that employees should calm down their over-optimistic wage claims.

Referring to the recent strikes where trade unions demanded higher wages, Eesti Pank economist Natalja Viilmann said that the current economic environemnt was too uncertain to allow excessive wage claims.

She said it could increase inflationary pressure and threaten the economic balance.

The central bank’s latest Labour Market Review reveals that employment soared in comparison with the recent past and also with other European countries.

The labour participation rate posted a record and unemployment declined notably. At the same time, the share of the long-term unemployed among the unemployed increased, making up about 60 percent by the end of 2011.

The inhibition in economic growth at the end of 2011 may increase the share of the long-term unemployed even more in the future.

Being unemployed for a long time reduces the likelihood of finding a job and increases the risk of such people losing hope of ever becoming employed again. Thus, the main task of labour market policy is to increase the competitiveness of the long-term unemployed.

Along with the recovery of employment, average wage growth accelerated in 2011. It started in the private sector, where it was also faster. Labour productivity soared when the economy started to recover, but its growth rate has been declining ever since. Productivity even dropped in the last quarter of 2011 due to the deceleration in economic growth. Should it slow in the coming quarters as well, wage growth is likely to exceed labour productivity growth again. This may pressure companies to either increase the price of their products or to reduce wage costs by decreasing the number of their employees.