Last year Elcoteq, the Finnish electronics contract manufacturer, increased its Estonian salaries by 15 per cent but still had to bring in Hungarian workers to staff its Tallinn plant. This year Elcoteq is putting 300 of its 2,200 workers on compulsory leave because wage costs have made the production of mobile phone components uncompetitive at the plant.

Declining industries such as textiles are suffering even more from wage inflation. In Narva on the Russian border, Swedish-owned Kremholm – which less than five years ago employed 4,500 people – will cut its workforce again to 1,100 in July as it outsources production of ready-made fabrics to Asia because of rising costs.