The Estonian Economy - June 2016
Who will pay for our pensions?
• Estonia’s workforce is shrinking and ageing rapidly
• Employment’s contribution to growth largely exhausted
• Shrinking and ageing population will pressure the labour market and public finance

Estonia’s workforce is shrinking and ageing rapidly
Estonia’s working-age population has been shrinking by around 7,000 persons a year during the past 10 years because the number of deaths is exceeding the number of births, and, until 2015, because of negative net migration. Between 2004 and 2015, Estonia lost around 20,000 people because of external migration. Estonia’s population is also getting older. This is not only because the birth rate is too low, but also because people live longer.

Employment’s contribution to growth largely exhausted
Since the last economic and financial crisis in 2008-2009, Estonia’s economic growth has largely relied on higher employment. Half of the increase in the number of employees took place in the age group of the 50-74-year-olds. As employment growth is expected to stabilise in 2016-2017, the contribution from accrued labour will diminish. Therefore, economic growth needs to rely more on growing investment volumes, which would not only lift the amount of capital in the economy but also increase productivity.

Shrinking and ageing population will pressure the labour market and public finance
Finding suitable labour is difficult for Estonian employers. The demand for labour has increased while the supply of labour is decreasing. Therefore, wage pressures persist even as enterprises’ sales and profits have decreased. The shrinking and ageing population will also increase public spending needs. Growing social and health care costs mean less room for public investments to enhance the state’s competitiveness.



PDF Who will pay for our pensions?

For more information about this report, please contact Ms. Liis Elmik, liis.elmik@swedbank.ee, +372 888 7206.

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