According to Bigbank Chief Economist Raul Eamets, wage growth in Estonia will continue as the labour market remains healthy and the expected tax increase may change the tax behaviour of the population. /nginx/o/2024/02/28/15917987t1hda1f.jpg)
Salary growth Photo: Shutterstock BNS August 26, 2024, 10:43
According to Bigbank Chief Economist Raul Eamets, wage growth in Estonia will continue as the labour market remains healthy and the expected tax increase may change the tax behaviour of the population.
According to salary statistics published on Monday, the average salary in Estonia in the second quarter of this year was 2,007 euros.
A more accurate indicator than the arithmetic mean is the median salary, with the same number of workers receiving higher and lower salaries. The median salary in the second quarter was 1,641 euros. The highest salary was in Tallinn, and the lowest in Valga County, where the median salary was 64 percent of Tallinn's.
"Perhaps more important than the size of wages is their growth. The average wage has grown by 7.2 percent compared to the second quarter of last year, which is lower than the 8.8 percent wage growth in the first quarter, but still significant. It is also important that wage growth is outpacing inflation, which means that people's real incomes are growing," Eamets said.
He said the wage growth was not surprising because employment remained high and unemployment was muted. According to the Labour Force Survey, employment rose by almost 8,000 in the second quarter compared with the first quarter, while unemployment fell by 1,000.
"When the labour market indicators are good, employers have to take into account the desire of workers to increase their salaries, because there is no queue of unemployed people at the door," Eamets explained.
"If a tax on employees' wages is introduced, the pressure on employees to shift tax costs onto the shoulders of employees will probably increase. There are already many industries and professions where people work as self-employed or as limited liability companies in order to optimize taxes. For example, in real estate, taxi services, management and accounting services, and so on," Eamets believes.
According to him, the share of payments in envelopes is also likely to increase in regions where more cash is moved. "As with the potential taxation of corporate profits, people's payment behavior will not remain the same when taxes change, but will look for all possible ways to pay less tax. Therefore, tax forecasts based on today's profit figures or labor costs may prove to be untenable," Eamets added.
