Research from the University of Tartu [1] has found that the pay gap between Estonians and non-nationals has widened since the end of the 1980s. Based on the Estonian Labour Force Survey and the longitudinal ‘Path-of-a-generation’ survey, the study analyses the wage differences between Estonian and foreign men since 1989.[1] http://www.ut.ee/index.aw/set_lang_id=2
A recent study reveals a substantial pay gap between the earnings of Estonians and non-nationals that is not explained by observable differences, such as education or occupation. According to the study findings, a non-national with similar characteristics to an Estonian earns on average 10%–15% less.
Research from the University of Tartu has found that the pay gap between Estonians and non-nationals has widened since the end of the 1980s. Based on the Estonian Labour Force Survey and the longitudinal ‘Path-of-a-generation’ survey, the study analyses the wage differences between Estonian and foreign men since 1989.
Russians comprise by far the largest community of non-nationals in Estonia: Russian-speaking minorities constitute around 30% of the Estonian population. The majority of these moved to Estonia during the Soviet period.
Estimates of pay difference
Wages differ due to personal and job characteristics, which can be observable and unobservable. Data can capture observable characteristics, such as different occupations and education. However, some unobservable factors, such as personal motivation, can also cause a pay difference. This portion is called the unexplained pay gap. The unobserved portion may also include discrimination as a factor although its exact proportion as part of the total wage gap is unknown. The researchers therefore attempted to break down the pay gap using regression analysis.
In recent years, the total pay gap has ranged between 5% and 10%, with foreign workers at a disadvantage to Estonians. Some two to four percentage points of this wage difference are caused by inadequate language skills – many non-nationals do not speak Estonian, which is the only official language in Estonia.
Non-nationals are mainly concentrated in regions where workers earn higher than average wages, and are not predominantly found in lower paid occupations and sectors. In light of this, foreign workers appear to have, on average, the characteristics which would seem to favour higher salaries; nevertheless, they earn less than Estonians do.
Wage differential of ethnic Russians
Looking at the wage differential of ethnic Russians in Estonia, the unexplained pay gap was very low at the beginning of the 1990s, but it increased up to the middle of the 1990s. Following a sharp reduction of the pay gap to around 5% in 1995, it then stabilised at a level of about 15% for some years, with a peak of 25% in 2003. Since then, the unexplained wage differential has declined somewhat.
Unexplained wage differential of ethnic Russians in Estonia (%)
Note: The above wage differential is based on the model 6 in the source article including the highest number of control variables.
Source: Leping and Toomet, 2007, p. 10
Unexplained wage differential of ethnic Russians in Estonia (%)
Most of the Russian-speaking population is located in the northern Harju County, which encompasses Tallinn, the capital of Estonia, and also in the northeastern Ida-Viru County. In the Harju region, the wage difference is even higher than in Estonia in general. There, the unexplained pay gap is around 20%, meaning that a foreign man with similar observable characteristics, such as education, occupation, economic sector and family status, earns 20% less than an Estonian man.
Explanatory factors
The results indicate that ethnic minorities in Estonia receive lower pay for similar work. The authors of the study suggest that the reasons for this situation are discrimination, accumulation of a different human capital related to schools, cultural background and, to a certain extent, measurement errors. However, the research did not find that direct discrimination – that is, lower pay for equal work – was the main explanation for the wage difference.
According to the authors, the pay gap is more likely due to entry barriers to the labour market through, for example, screening on hiring, meaning that Estonian managers prefer to employ Estonians due to their similar cultural background. In Estonia, most company managers are Estonian; other nationalities therefore face a lower probability of being hired. In addition, they are also likely to be paid less.
Moreover, the study favours the explanation of separate social network effects. As foreign nationals and Estonians have separate social networks, this situation might create prejudices and mistrust. Separate social networks might lead to different access to job vacancies and restrict the access of foreign workers to better jobs. Thus, the network structure might be the reason for and also the result of segregation. This, however, requires further analysis.
Commentary
The research brings to the fore a real problem with regard to the integration of non-nationals into Estonian society and working life. It is clear that policymakers should focus on the issue of the language skills of Russian-speaking minorities and their integration into Estonian society and the labour market.
It should be noted, however, that the authors have not considered the citizenship of non-nationals, in particular of ethnic Russsians, which represents an essential indicator of income differences, according to the study Monitoring integration in Estonia (EE0607019I). Accounting for citizenship could potentially explain some of the wage difference and shed more light on reasons for the pay gap.
Source
Leping, K.-O. and Toomet, O., Why do Russians earn so little: Estonia during the political and economic transition, University of Tartu, 2007.
Epp Kallaste, PRAXIS Centre for Policy Studies
Eurofound recommends citing this publication in the following way.
Eurofound (2007), Significant pay gap between Estonians and non-nationals, article.
