Salaries continue to decline

The economic decline has slowed in Estonia, but average wages are still falling as a result of the recession. There are reports of some companies cutting workers’ salaries without consulting trade unions. For instance, the Prisma Peremarket supermarket chain decided to reduce the salaries of 700 employees by 12%–15% because of bad economic results. The trade union did not agree to the changes and alleges that employees faced a choice between a salary cut or losing their jobs.

Background

The economic crisis has had a major impact on the Estonian labour market and economy. The unemployment rate in the first quarter of 2010 reached 19.8%, the highest since the country gained independence in 1991. According to Statistics Estonia (Statistikaamet), in 2009 the gross domestic product (GDP) fell by 14.1% compared to the previous year. However, the decline started to slow down in the first quarter of 2010, when GDP fell by 2% compared to the first quarter of 2009.

The crisis has forced many employers to reduce wages and lay off employees in order to survive. According to the Estonian Unemployment Insurance Fund (Eesti Töötukassa), the number of people entitled to employer insolvency benefit increased almost six times between 2007 and 2009 (rising from 1,141 to 6,709 people). The number of registered unemployed people entitled to unemployment insurance benefit increased even more dramatically, from 6,467 in 2007 to 54,970 in 2009.

While the situation is showing signs of stabilising as the fall in GDP has gradually slowed and the unemployment rate is dropping, the average wage is still falling as a result of the recession. The average gross income in the first quarter of 2010 (EEK 11,865 or €759 as at 11 June 2010) was lower than in the fourth quarter of 2009 (EEK 12,259 or €784) – this was the fifth quarter in a row when average salaries have fallen (see figure).

Percentage change in average monthly gross wages compared to the situation one year earlier, 2007–2010

Percentage change in average monthly gross wages compared to the situation one year earlier, 2007–2010

Source: Statistics Estonia, authors’ calculations

In addition to changes in the general pay level, there are reports that individual companies are cutting workers’ salaries without previous agreement with trade unions.

Case of Prisma Peremarket

In February 2010, the executive director of Finnish-based supermarket chain Prisma Peremarket declared that Prisma had managed to make a profit despite the poor economic circumstances in 2009. He also emphasised that in spite of these difficulties Prisma had not cut employees’ basic salaries and had managed to avoid redundancies. Prisma also announced that it would open two new supermarkets in Estonia in 2010, creating more than 200 new jobs.

However, in May the Finnish media announced that Prisma had reduced the salaries of 700 Estonian employees by between 12% and 15% because of bad economic results. The trade union and the confederation to which it belongs, the Estonian Trade Union of Commercial and Servicing Employees (ETKA), opposed such a significant salary cut and suggested a compromise reduction of between 8% and 12%. Trade union representatives pointed out that the company had already stopped paying extra for seniority in 2009, and that an additional salary reduction of up to 15% would significantly reduce employees’ income. Trade unions were dissatisfied with the lack of communication and negotiation with the employer.

The unions alleged that the employer had refused to start any social dialogue. Instead, employees had been given a choice between a salary cut and losing their jobs. Prisma denied this, saying that all changes were in accordance with legislation. According to Prisma, 650 employees had signed the salary reduction agreement and employees who did not were not laid off. Prisma also pointed out that the pay levels in the company are higher than in most other companies in the sector and that while most other employers in the sector had been forced to cut salaries in 2009, Prisma had managed to maintain pay levels for longer.

Commentary

Trade unions have in some cases agreed to wage reductions in order to maintain jobs, but there have been several reports of individual companies reducing salaries without prior agreement with the trade unions. In addition, most of the collective agreements that were in effect before the crisis (in 2007–2008) have been put on hold, freezing wage levels. This includes the national minimum wage agreement.

Liina Osila and Kirsti Nurmela, PRAXIS Centre for Policy Studies

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