Data from Statistics Estonia show that the average gross monthly wage was up 7.5% over the year in the third quarter of 2018. The rate of wage growth in recent quarters has been affected by the income tax reform. Labour shortages are being eased by workers hired from abroad, and this has reduced the upwards pressure on wages.
Strong wage growth and the data released yesterday on the operating results of companies indicate the economy was running well in the third quarter. The wage survey showed both the average wage and the number of people in work rising in the third quarter, and the same trend is shown in the data from the Tax and Customs Board and the enterprise statistics.
The rate of wage growth in the past two quarters has been affected by the income tax reform. The slower wage growth in the second quarter and then the faster growth in the third can partly be explained by holiday pay being taken more evenly over the summer months than it was last year. This was done to avoid fluctuations in the tax-free threshold and consequent higher tax liabilities. The average yearly rise in the average wage was 7% in the past two quarters, which was a little lower than in the second half of last year and at the start of this.
Wages would probably have risen a little faster if the rules on hiring workers from abroad had not been loosened in recent years. Registrations of temporary workers from abroad have increased in the past year, and this has helped to ease labour shortages, especially in construction and manufacturing. Hiring additional workers from abroad helps reduce the growth in labour costs at a time of rapid economic growth and so helps restrain inflation. It also reduces the fluctuations in unemployment as a large share of the workers from abroad are working in Estonia temporarily.