Swedbank estimates that wage growth in Estonia will slow down significantly this year, as the demand for labor has decreased and the poorer economic situation of businesses does not allow wages to be raised as fast as before, while the difficult state of public finances limits the rise in wages in the public sector.
“Wage growth continued to slow in the second quarter. The median wage rose by 8 percent year on year. Wage growth was faster at the lower end of the pay scale due to the increase in the minimum wage at the beginning of the year,” Liis Elmik, senior economist at Swedbank Estonia, said in a press release.
She pointed out that wage growth in the public sector was still faster than in the private sector, although the gap with the private sector has narrowed significantly. Average wages rose by 8 percent in the public sector and by 7 percent in the private sector over the year. Wages rose fastest in the health sector, where a pay rise agreed in the collective agreement took place in April. Wages in education also rose more than average.
Swedbank forecasts that average gross wages in Estonia will grow by 7 percent this year.
“This year, the purchasing power of the average net wage will increase by only 2 percent. Next year, wage growth will slow down, price increases will accelerate, and tax hikes will wipe an extra piece off consumers’ wealth. Therefore, the purchasing power of the average net wage will decrease by 2 percent in 2025. The purchasing power of the average wage earner will reach the level before the rapid rise in prices only in 2026, when the average net wage will increase significantly due to the abolition of the so-called tax hump,” the economist said.
The average pension increased by 11 percent year on year in the second quarter. Pensions have grown rapidly in recent years. While the average net wage is expected to catch up with prices by 2026, the purchasing power of the average pension has already been restored.
“People’s confidence decreased again in August. Respondents’ opinion of their family’s financial situation has worsened. Faster price increases and higher unemployment are anticipated. Higher prices and uncertainty about the future are influencing household behavior — people are buying less and opting for cheaper goods. Swedbank’s card payment data indicates that consumption remained cautious also during the summer months,” Elmik said.
According to Statistics Estonia, the average monthly gross wages and salaries in the second quarter of 2024 totaled 2,007 euros, 7.2 percent more than in the same quarter the year before. The median wages were 1,641 euros in the second quarter of this year and 1,524 euros in the same quarter of 2023.
Source: BNS
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