Salary rally to end

Photo: Stanislav Moshkov

It is usually impossible to draw too many conclusions looking at economic development by decade, while this time around, salary advance lasted for exactly ten years in Estonia. The last time average gross salary fell compared to the same period the previous year was in the first quarter of 2010, while this year’s first quarter will probably be the last to see considerable salary advance for some time to come.

Comparing this year’s Q1 average to the figures from the last quarter of last year, Estonians’ gross salary also fell in the first quarter of 2020. This is entirely commonplace, however, as the year’s end brings Christmas and other bonuses.

Analyst for Statistics Estonia Karina Valma explained the drop through irregular bonuses drying up. “Compared to Q4 of 2019, irregular bonuses were down by 37 percent that is typical of the year’s beginning,” Valma explained in a press release.

The second quarter’s average salary figures are in turn embellished by holiday pay that people usually receive toward the start of summer. That is why Q2 salaries might also appear deceptively high despite cuts. Just as with other statistical indicators, it needs to be kept in mind what average salary calculations entail.

Some sectors continued to do well. Salaries grew by almost 16 percent in information technology, with salary advance clocked at 5-6 percent in construction.

Not just the effects of the crisis

The already slowing economy has begun to affect salaries in other sectors. Registered unemployment stood at 5.3 percent at the start of the year, having grown a little more than 0.5 percent on year. The number of unemployed continued to grow in February to reach 5.6 percent after which it slowed down again until the emergency situation.

Salary advance was held back by wholesale and retail where full-time equivalent monthly salary fell by 8.7 percent on year. The number of full-time equivalent workers also fell by 15 percent, likely due to reduced workload and staff.

“It is probable salary cuts in commerce were also affected by other factors than the crisis as monthly statistics show average pay was falling already in January and February,” Orsolya Soosaar, economist for the Bank of Estonia, said.

“The coronavirus crisis hit salaries in other affected sectors, such as transport and warehousing and accommodation and catering, while these effects were not as serious as in commerce.”

Such a sharp decline in wages and number of employees in commerce baffles several analysts as it does not seem to have an obvious reason.

It needs to be kept in mind that new stimuli came to affect employers and employees when Estonia declared an emergency situation. On the one hand, these are tied to the government’s aid measures, such as the Unemployment Insurance Fund’s salary benefit that probably resulted in ex post facto changes to wage calculations.

On the other hand, we cannot overlook the fact that the emergency situation doubled the number of sick leave certificates issued to nearly 100,000. Only a part of that growth can be explained through the medical effects of the epidemic. Rumor has it more than one company that has resorted to layoffs has also stood out in terms of number of sick leave certificates issued to its employees.

It is likely that the question of what comes next is even more important for most people. Registered unemployed numbered 50,600 on Tuesday. More than 120,000 people have been paid salary benefits.

Reduced expectations

A survey commissioned by Swedbank showed that the coronavirus emergency situation has already caused 17 percent of people to lose in income, while 62 percent are worried it might happen. A survey by the Salary Information Agency and CVKeskus.ee suggests that workers’ salary expectation median – the sum half of people expect to be paid more than and half less – has dropped from €1,500 last spring to €1,300 this year.

Statistically speaking, the state’s salary benefit organization affects the formation of average salary in terms of what grounds companies have for applying for the instrument. Average salary is calculated as a full-time equivalent. One possible reason for applying for the salary benefit was the need to cut employees’ hours. The average pay of a person whose hours and pay have both been cut by 30 percent remains unchanged statistically.

Swedbank’s forecast suggests the average gross salary will grow by 0.5 percent this year, remaining close to this year’s average of €1,407. “Salary advance will probably slow down faster in the private sector,” senior economist for Swedbank Liis Elmik wrote. “While salary, capital and rental income will take a hit in the crisis, the government is unlikely to reverse pension and social benefits hikes. The situation of households will be made easier by price advance slowing down.” However, it needs to be kept in mind that we’re merely dealing with a forecast that applies to the average person.