The Estonian economy grew strongly in the first half of 2021 despite the new wave of Covid-19 and the restrictions introduced to stop the spread of the virus. But according to the Bank of Estonia, the labor market has recovered more slowly. Enterprises have been able to increase their production volumes by increasing the hours worked by employees. Employment growth resumed in the summer months and unemployment fell, but the further recovery of the labor market continues to depend largely on the course of the pandemic. Now it’s time to act.

The pandemic has affected different sectors very differently and has pushed people to change sectors. The number of employees, and the added value created, are now greater in areas such as healthcare and ITC. However, in many sectors, both employment and value-added remain lower than in 2019. This is the case in sectors such as hotels, catering, and manufacturing. Restrictions on activity in spring 2021 generally had a smaller effect than a year ago, except for hotels and catering. Proof of this is the extensive use of wage compensation, even though the conditions for qualifying were stricter than a year earlier.

Employers are increasingly concerned about labor shortages and are again hiring workers from abroad at rates no lower than in 2019. This is probably due to the fact that many of the unemployed have a professional background in sectors severely affected by the pandemic, such as hotels and catering. However, new jobs are created mainly in other sectors: the skills and experience of job seekers often do not match the needs of new jobs.

Since the shortage of perceived labor increased, the average wage grew faster and increased by 7.3% in the second quarter of 2021. There are several factors that threaten to further increase wage pressures. Among them, the projected 12% increase in the minimum wage and the rapid rise in consumer prices. Labor productivity growth was higher than labor cost growth in the second quarter of 2021, but this trend could be reversed in the future. There aren’t many options for easing wage pressures, other than helping job seekers acquire the skills they need to find employment.