Problem of acute labour shortage and migrant workers

A number of recent surveys have revealed a serious shortage of labour in Estonia. To solve this problem, the proposal to bring in foreign labour has been put forward. However, the social partners, including the government, are more in favour of improving the productivity of employees in Estonia than encouraging the entry of cheap and unskilled workers from abroad into the labour market.

Studies uncover labour shortage problem

Several recent studies have confirmed the severe shortage of workers in the Estonian labour market, which has been a topical issue for some time in the media and among employers (EE0605029I, EE0607019I, EE0608019I, EE0609029I). Statistics Estonia (Statistikaamet) has estimated that if the current demographic trends continue, by 2012 there will be no employees to meet the requirements of the growing economy and the rising demand for workers. Moreover, the problem is becoming more serious due to the migration of Estonian workers to other European countries, mostly to Finland, Sweden, Germany and Denmark.

The Estonian Institute of Economic Research (Eesti Konjunktuuriinstituut) has found that 44% of industrial enterprises cite a shortage of labour as the main problem hindering production growth. Nevertheless, it has not yet had a major impact on the competitiveness of companies.

Migrant workers a solution to labour shortage

Although several solutions have been put forward on how to solve the existing labour shortage, the possibility of attracting foreign labour has been one of the most topical issues for the social partners, foreign experts and media.

The International Monetary Fund (IMF) and other foreign experts have suggested bringing in foreign labour, simplifying procedures for hiring employees from other countries and issuing work permits. According to foreign experts, the lack of qualified workers and intense competition for employees is the largest obstacle for economic growth.

Furthermore, the labour shortage has been the main cause of the extraordinarily rapid increase in wages in Estonia. The IMF suggests employing foreign workers to slow down the ongoing increase in wages and to thus lower the inflation rate. The high rate of inflation is currently a major problem for Estonia in meeting targets to join the eurozone.

The suggestions to bring in foreign workers evoked two kinds of reactions. Industrial sector employers regard it as an opportunity to hire cheap labour and to gain a competitive advantage in the market. Until now, there have been numerous cases of foreign workers being hired from countries such as Belarus, Ukraine, Poland, Russia, Romania and Armenia, among others.

However, the government is not in favour of the idea of encouraging cheap and unqualified foreign labour to enter the labour market. The Ministry of Economic Affairs and Communications (Majandus- ja Kommunikatsiooniministeerium, MKM) has established a working group to provide the government with suggestions concerning bringing in foreign labour.

Proposals of working group

The working group has proposed that a wage criterion be applied to employees migrating to Estonia for short-term employment of up to six months’ duration. In other words, employers can bring in foreign labour for a short period, only if they agree to pay these workers a salary corresponding to the average salary of the sector. This criterion would be applied in the case of specialists and skilled workers but it would not be applicable for seasonal workers in agriculture. The decision has also been approved by the Estonian Employers’ Confederation (Eesti Tööandjate Keskliit, ETTK) and the Confederation of Estonian Trade Unions (Eesti Ametiühingute Keskliit, EAKL). Moreover, the working group has stressed the need to simplify the procedure of registering short-term employment. All of the proposals of the working group are expected to be presented to the government at the beginning of 2007.

The study by MKM recommends several solutions to solving the labour market crisis. In addition to foreign labour, active labour market policies and increasing the productivity of workers by improving their qualifications are the most significant measures proposed. The study also underlines the limitations in the effectiveness of active labour market policies. The number of inactive and unemployed people has decreased to the lowest level in the last 12 years; the female unemployment rate is already lower than the European average and the youth unemployment rate has also decreased significantly.

Improving qualifications levels

The Ministry of Social Affairs (Sotsiaalministeerium) puts an emphasis on raising productivity as an important factor in maintaining economic growth. In order to improve productivity, it is important to offer products and services with a high added value, and for that purpose highly qualified employees are required. The productivity rate of the current Estonian labour force is only 56% of the EU average level.

Employers have stressed the need to improve the system of vocational education in order to educate workers to the level required by the labour market, instead of bringing in skilled workers from other countries. ETTK has specifically referred to the need for specialised workers in certain sectors. At present, the educational system delivers employees with unclear educational orientation, whereas employees with specific skills and qualifications are needed.

Although EAKL has approved of the decisions to bring in qualified workers from abroad, it also supports the idea of first looking for employees with appropriate qualifications in Estonia before turning to foreign labour markets. The organisation also highlights the importance of encouraging qualified Estonian employees who have left the country to work in other European countries to return home. To enable such a process, a more uniform and solid wage policy is needed to attract these workers back to Estonia.

Marre Karu and Kirsti Nurmela, Praxis Centre for Policy Studies