The situation on the labor market, despite the economic downturn, remains favorable from the point of view of workers. Therefore, we can assume that with the resumption of economic growth, we will soon again be faced with a labor shortage, writes economic analyst at SEB Bank Mihkel Nestor.
According to economics textbooks, economic growth and the labor market go hand in hand. When demand decreases, the need for labor also decreases. Even though the economic downturn has ended, Estonia’s GDP is still 6% below its 2022 peak. This is a significant drop.
If we consider the history of Estonia, such a serious decline in GDP could entail a decrease in the employment rate by a couple of percent. However, this did not happen. At the start of 2022, the employment rate was 69%, and in the third quarter of this year it was 69.1% among people aged 15-74. What is especially strange is that during this period more than 50,000 refugees from Ukraine arrived in Estonia, whom the weakened economy apparently could easily absorb.
It is difficult to give a definitive explanation for this contradictory situation, but several factors can be identified. First, the economic decline in Estonia over the past two years has been somewhat illusory. Although real GDP declined, the economy grew nominally (in regular euros) thanks to high inflation. The increase in the money supply allowed employers to maintain wages even as there was less work for employees.
Secondly, Estonia has long suffered from labor shortages, which have hampered business and economic growth during good times. While the shortage of skilled workers is often discussed in the media, the problem is even worse for low-wage positions. Previous difficulties in recruiting unskilled personnel may explain why Ukrainian refugees found it relatively easy to find work. In an environment where companies were not starved of cash, many chose to retain existing employees in the hope that they would soon be able to offer them more work.
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Source: www.dv.ee
