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Wage levels have further to fall

  • 2009-09-25
  • Staff and wire reports
TALLINN - Estonian Development Fund CEO Ott Parna warns that the unemployment rate will probably remain high for years to come, even if Estonia's economy starts growing again in the near future, reports news agency LETA. He said this is based upon experience from Finland, where an economic decline in the early 1990s raised the unemployment rate to 15 percent, falling below 10 percent only in 2000.

"People will be made redundant, fired from simpler jobs and the new and more productive jobs will be more complicated," explained Parna.
Director of the Estonian Institute of Economic Research Marje Josing said that the decline in average pay is still in the early phases. Analysts say that wages in Estonia are too high; the overall economy has fallen to 2005 levels, but wages have not even reached 2007 levels.

President Toomas Hendrik Ilves says that the "Estonian economy today is certainly not the same as in the recent 'booming economy'." Ilves addressed the issue of productivity, admitting that it still lags far behind well-developed European countries. "We need changes now as new growth will not take the same course as previously. There will never be such a flow of cheap funds experienced a couple of years ago," he said.

Estonia still has a structural problem with the labor force, says Parna. "There are not enough good workers, good engineers and there is nothing to offer those doing simple labor 's certainly not well-paid work, but also work in general," he explained. He adds that Estonia has to set itself greater tasks in employee development. While currently less than 10 percent of employees are provided re-training, in his estimation this should be 25-40 percent.

One reader's comment on news Web site bbn.ee reads "A few years ago, when salaries started to rise, and you asked a general manager about productivity, you were told, 'what is productivity? We still have low salaries, why should we work more and still have less than you in Germany.' Even [local] experts admit that a lack of productivity is one reason for Estonia's slow recovery. The general attitude among the Estonian workforce, and even middle- and top management remains: first pay more, and then we work more. This thinking has to change."

SEB's macro analyst Ruta Arumae said at the Palga Paev 2009 conference "There is no hope that salaries will increase in the next two or three years," as salaries exceed productivity by 21 percent.
At the moment business profits are still at the 2005 level while salaries are at 2008 levels. "In order to continue paying such salaries profit levels need to recover. That in itself is a process which takes time," she said.