Wednesday, October 10, 2007

Inflation and employment

A very, very, very good and critical post on Estonian economy.

It is worthwhile noting that as
  1. there are very limited opportunities for further growth in total employment (there is practically no people without work left) and
  2. our competitiveness falls as wages grow quicker than productivity and
  3. the government is not willing to let in immigrant workers,
then we clearly run into problems in keeping up the growth. I expect the EU funds to help to postpone the problems for a couple of years and help to bring about the soft landing, but the remedy of excess funding to a country with significant capacity problems is definitely questionable as Edward Hugh notes. We might just get even higher wages and more employment in construction sector increasing the problems for all exporting industries. So once the EU money runs out (in 2013), we really need to think how you make all those brick-layers into competitive and innovative entrepreneurs. By that time half a generation has grown up where doing simple jobs on a construction site earns you much more than working in any intellectually demanding work (but hey, at least we don't have any Ukrainian temporary workers here).

Adding to that, i see problems facing us also from the demand side. If you are in an industry who targets people in ages 20 and over, the hard times start arriving in 2010. Up until 2009 each year gives you 24 000 new potential customers, the number starts falling in 2010 and in 2018 you have to get your bucks from only 12 000 new clients. As you see, this coincides with the fall in demand from EU money. What this really means to the economy... well, i don't know. We'll see...

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