TALLINN - Average gross monthly wages grew nearly 20 percent in the first quarter of 2008 compared with the same period last year despite the drastic economic slowdown, fresh data has shown.
The result raises fears that persistent wage growth will undermine Estonia's efforts to remain competitive and boost exports as domestic demand contracts and the nation's economy slows to near-zero growth.
Statistics Estonia announced that the average gross monthly salary amounted to 12,337 kroons (788 euros) over the quarter, which is 19.5 percent higher than last year in the same period.
Wage growth for the entire year 2007 was 20 percent.
As a result of the faster than expected growth, labor productivity was negative 's minus 1.1 percent 's for the first quarter (considering GDP fell to 0.4 percent for the same period). Analysts said that if real wages continue to rise faster than labor productivity, many companies' international competitiveness will suffer in the long term.
The Finance Ministry said a shortfall of qualified labor and employees' lofty demands are behind the result. Also, double-digit inflation is causing employees to demand commensurate wage increases, the ministry said.
Indeed, real wage growth 's which factors in inflation 's amounted to only 7.6 percent for the first quarter.
The ministry stated it had expected that wages would decelerate faster. A drastic reduction in wage growth is extremely important for the preservation of Estonia's international competitiveness and developments of the labor market as a whole play a very important roll in the adaptation of the economy, the ministry said.
Bank analysts said that wage growth would eventually fall throughout the year.
Annika Paabut of Hansabank Markets forecast the average wage growth this year would eventually drop to 12 percent.
"We are expecting a fall in the number of employees in the construction sector, as well as companies that have lost its competition advantages due to cheap output," Paabut told the Baltic News Service.
She said the wage growth was not surprising, as there was a degree of inertia carried over from 2007. Adapting wages with the new economic realities would take place, though with some delay.
"At the same time there are clear signs that the growth of wages is decelerating, above all in sectors of lower activity such as the real estate and construction sector and manufacturing industry," said Paabut.