Labour cost adjustment in Estonia during and after the crisis

The Wage Dynamics Network (WDN) is a research network run by the European Central Bank and the national central banks (NCBs) of European countries, with the aim of studying price and wage-setting by companies, and the features and sources of labour cost dynamics. Eesti Pank has carried out wage and price setting surveys before on three occasions in 2005, 2007 and 2009. The second and third waves of the survey were carried out within the framework of the WDN and similar surveys were conducted simultaneously in a large number of European countries. In 2014, 25 European NCBs conducted a new round of WDN surveys, the purpose of which was to collect information on adjustment in labour practices and wage and price setting mechanisms in 2010–2013, and also in 2008–2009 for some countries. The aim of this report is to give an overview of labour cost adjustment practices in Estonia following the WDN survey conducted in 2014. The paper is entirely descriptive, and it covers a broad range of topics. Section 1 gives some background information about the performance of the Estonian labour market during the crisis and discusses several institutional features and changes of the Estonian labour market. Section 2 briefly describes the survey design. The rest of the paper focuses on firms’ behaviour towards wage and price setting and labour cost adjustment. Section 3 describes the negative shocks experienced by firms and investigates how firms adjusted to these shocks. Section 4 discusses issues of labour market flexibility by describing the opinions of firms about labour market institutions and obstacles to hiring. Section 5 deals with price adjustments through the frequency and timing of price changes. Finally, section 6 briefly summarises the main findings of the survey