Th, 1.06.2023
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So how much poorer than Finns are we, actually?

Tõnis Oja
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While by gross domestic product dwellers of Finland are thrice as rich as us, in purchasing power Estonia is beaten by 1.5 times only.

Lately, various media reports have featured families trickling back home from Finland. A reason for doing that is surely the shrinking economy – eating away at the Finnish labour market. A factor also, however, is the living standards not being as different as felt at first glance.

Last year, Estonia’s gross domestic product (GDP) per person was €9,800 while that of Finland was more than thrice that i.e. €30,300. Different three times are also our salaries – €3,200 as compared to out €1,023.

The gap in values of wealth is even wider. According to a fresh report by the Swiss bank Credit Suisse, inhabitants of Estonia have assets worth $40,856 (€32,685), while in Finland the figure stands at $196,621 (€157,297) per grown-up.

This includes both financial assets i.e. savings and investments, and also non-financial assets beginning with real estate. Here, one naturally needs to consider that while our people have had a bit over 20 years to amass their wealth, the Finns have had a century to do that, or even more.

Not long ago, Estonian Institute of Economic  Research scientific officer Leev Kuum pointed to a fact that by purchasing power parity (PPP), the Finnish GDP only outdoes our by 1.5 times.

While Finland’s GDP per person regarding PPP is 112 percent as compared to EU average i.e. slightly above the European average, Estonia’s percentage is 72. Those to our South share our same level – Latvia at 67 and Lithuania at 74 percents of EU average. Again serving to show that Lithuania is the new Baltic leader.

PPP means that by states the price of the same item or service may greatly vary. «Usually, the differences are the greatest with goods and services not trading on world market,» underlined LHV economist Heido Vitsur.

Price differences are felt the strongest with alcohol and tobacco products, as well as lots of services – something that helps Estonia attract dozens and hundreds Finnish tourists.

«Figuratively speaking, in Finland one will pay more for a hamburger or apartment than in Estonia,» said Nordea Bank chief economist Tõnu Palm. «Therefore, to gain an equal real purchasing power, Finland’s wages just have to be higher,» he added.

Heido Vitsur said Finnish prices tend to be very high. Over there, last year’s PPP related GDP was by quarter lower than the actual one; in Estonia, due to the lower prices of majority of services and certain goods, it was higher by a fourth.

«If one day our price level (as well as income level) levels out with that of Finland, that gap would no longer be,» stressed Mr Vitsur.

Even so, the economists say a couple of indicators are not sufficient to for comparing living standards. «Price parity calculated GDP per person is a much better indicator of actual consumption level and I could not offer a better indicator than that,» said Mr Vitsur. Actual consumption level shows use of all goods and services and according to this the difference is 1.8 times.

According to Mr Vitsur, people moving to Finland naturally need to consider the price level difference, but – alas – the purchasing power parity calculated GDP is not the only or main criterion to decide to move.

«But for those just working in Finland it is no longer as important to consider the price difference, as the commuters do indeed earn money in the high nominal GDP Finland, but do most of their spending in the cheaper Estonia,» said Mr Vitsur.

«Mainly, the decision to move – to Finland, for instance – is taken on the basis of how much the pay differs for work one is qualified for, and whether the job is at all on offer at home,» he added.

According to the economist, we also have to consider that thanks to the strong labour unions, legal labour in Finland has no ultra-low wages – as opposed to Estonia – and therefore Finland is very attractive for the low paid Estonians.

Various indicators

GDP per person

Estonia            €9,800

Finland           €30,300

Assets per grown-up

Estonia            €32,685

Finland           €157,297

GDP per person according to price parity

Estonia            72 percent of EU average

Finland           112 percent of EU average

Average salary

Estonia            €1,023

Finland           €3,200

Sources: Eurostat, Credit Suisse

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