Effects of economic crisis on labour market

An analysis by Statistics Estonia focuses on the impact of the economic crisis on the Estonian labour market. The current situation regarding unemployment and use of active and passive labour market policy measures are discussed, while proposals for further policy developments are outlined. The unemployment rate in Estonia has risen steeply and to deal with its consequences immediate action should be taken.

The article on Labour market trends during the crisis (146Kb PDF) by Statistics Estonia (Statistikaamet) analyses the current labour market problems and trends in unemployment, concluding with proposals on how to tackle the situation. The analysis is based on quarterly data of the Labour Force Survey (LFS) from 2008 and 2009, as well as registry data of the Estonian Unemployment Insurance Fund (Töötukassa, EUIF).

Men and non-nationals most affected

The Estonian labour market has been undergoing rapid changes in light of the economic recession. The unemployment rate has almost tripled between the first quarter of 2008 when it stood at 4.1% and the first quarter of 2009 when it amounted to 11.4%. The biggest impact has been on young people aged 15–24 years: their unemployment rate increased from 7.5% to 24.5% over the same period, exceeding even the EU27 average, which had been twice as high as the rate in Estonia in 2008. Unemployment is particularly problematic among young men: at the beginning of 2009, their unemployment rate was almost twice as high as that of young women, at 30.1% compared with 17.1% respectively. Compared with overall employment, the difference between men’s and women’s unemployment is not as high, with 13.8% of men and 9% of women being unemployed in the first quarter of 2009. Another group at risk are non-Estonian nationals, whose unemployment rate reached 17.6% in the first quarter of 2009, compared with 11.3% among Estonian nationals. The respective unemployment rates stood at 6.5% and 3.1% a year earlier.

Trends in registered unemployment

The depth of the crisis has increased nearly fourfold in terms of the number of registered unemployed people between July 2008 and June 2009, while the number of available job openings decreased by the same amount. By the end of June 2009, the proportion of registered unemployed people reached 10.2% of the labour force. The share of male workers among registered unemployed persons increased from 43% in June 2008 to 55% in June 2009.

A problematic aspect is that almost half of the registered unemployed persons are without any sufficient education or qualification, which significantly reduces their competitiveness in the labour market. Over the past year, mostly construction workers (16%) and skilled metal and machine workers (9%) have lost their work.

Before registering as unemployed, most persons (71%) had been working in Estonia. However, the number of people who lost their job while working abroad tripled in the past year. The most common reasons for ending an employment relationship were layoffs (35%), expiration of fixed-term employment contracts (16%) or on an employee’s own initiative (11%).

Problems relating to unemployment

The shortage of jobs on offer represents a problem for all registered unemployed people – 80% of them have not received any job offers. Due to the fact that employers often do not inform EUIF of filled vacant positions, in 36% of cases the vacancies offered through EUIF to unemployed persons are already filled.

Another issue is the economic survival of unemployed people over time. For many of them, the period for receiving unemployment insurance benefits (generally 180 days, or a maximum of 360 days) will come to an end by the end of this year, which endangers the economic capacity of unemployed people to cope with basic living needs. Moreover, only 45% of all registered unemployed persons are eligible for unemployment insurance benefits. All other unemployed people receive a state unemployment allowance of EEK 1,000 (about €64 as at 27 November 2009) or have to apply for a subsistence benefit (€64 for the first and €51 for every next family member) from their local government. Therefore, the income level of unemployed people is often very low.

Thirdly, Estonia’s expenditure on active labour market policies has been modest and consistently declining since 2003. By 2007, the expenditure had declined to 0.15% of gross domestic product (GDP), which is the lowest in the EU.

Recommendations

To ease the situation, resources from European structural funds need to be used more actively to reduce unemployment and create new jobs in Estonia. In addition, good practices and recommendations from other countries should be taken as guidance on how to sustain employment and reduce unemployment during the economic crisis. Preventive measures to maintain employment should also be implemented. For example, enterprises should be supported to help maintain or create jobs. Furthermore, the implementation of effective and properly targeted active labour market policies and the enhancement of public employment services are also recommended.

Liina Osila and Kirsti Nurmela, PRAXIS Centre for Policy Studies

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