Hiring resumes as recovery continues

TALLINN - Employment recovery follows economic growth, said Eesti Pank’s economist Natalja Viilmann in a comment on the second quarter labor market report released last Friday, reports news agency LETA. “Against the backdrop of the recent quarter’s rapid economic growth, the Estonian labor market has shown sufficient flexibility in enabling manufacturers to comply with increasing demand in the domestic and the external market,” Viilmann said.

Thanks to the dynamic economic expansion, employment showed the fastest growth of recent years in the second quarter of 2011. According to Statistics Estonia, the number of employed increased by 44,000 (7.8 percent), year-on-year, in the second quarter. This is the most intensive job creation in Estonia’s history. The general number of employed was 602,600 people.
Manufacturing, construction and trading created most of the new jobs. Rapid added value growth on account of labor productivity continued in the manufacturing sector, which leads the way in the exporting sector. Approximately a fifth of the employment growth can be attributed to the return of the former inactive workforce to the labor market, which is also why the labor market participation rate has increased to one of the highest levels in recent years - to 67.5 percent among those aged 15-74.

Rapid job creation cut the general number of the unemployed by 36,000 over the year, whereas 8,000 formerly inactive people entered the labor market. Compared to the second quarter of 2010, the unemployment rate dropped from 18.6 percent, to 13.3 percent. The general number of the long-term unemployed declined, whereas the number of discouraged and those who have been unemployed for a very long time increased.

According to Eesti Pank’s forecast, the rapid employment growth will slow in the longer term. On the one hand, the rapidly growing demand will decline, while on the other hand, supply will be constrained by a lack of necessary skills and qualification.
Since risk of growth in unit labor costs may reappear, it is important to observe the ratio of productivity and wage growth. Labor market flexibility is gaining more and more importance in respect to labor force mobility, working time and wage setting. The more flexible the labor market, the faster the drop in unemployment.