EMCC European Monitoring Centre on Change

Tackling the recession: Estonia

  • Observatory: EMCC
  • Topic:
  • Published on: 13 July 2009



About
Country:
Estonia
Author:
Kirsti Nurmela
Institution:

Disclaimer: This information is made available as a service to the public but has not been edited or approved by the European Foundation for the Improvement of Living and Working Conditions. The content is the responsibility of the authors.

The current recession is exerting increasing impact on the Estonian economy and the labour market. Unemployment rate has increased to 11.4% in the first quarter which is the highest level during the last eight years. Number of employed persons has decreased by 6.8% compared to the situation one year ago. As a result, arrangements to maintain jobs are of crucial importance. Most of the support measures for companies are a permanent feature of the system while there are no new measures introduced as a reaction to the current recession, though, several proposals have been made.

1. Measures taken by government to assist businesses and protect jobs

Support to businesses

What formal or legal arrangements (such as job subsidies, bank guarantees, loans or special credit facilities) are in place in your country for supporting firms which are at risk of having to reduce employment? (Please include only measures which are aimed principally at maintaining employment as opposed to those which are aimed, for example, at increasing competitiveness or supporting investment.)

There are only two measures which aim at maintaining employment. A complex of support measures aeuro" enterprise reorganisation aeuro" is provided for enterprises in economic difficulties. The purpose is to keep the enterprise from going bankrupt and making it again a profitable business. Another legal arrangement used as an alternative to redundancies is the possibility to temporarily reduce working hours or send workers to partly paid leave (so-called forced leave) (see also point 2 below). There are no new measures introduced as a result of the current economic recession.

Some additional measures have an implicit impact on maintaining employment. Those are, for example, measures that support the creation and also maintaining employment in companies. These include start-up and development grants aimed at supporting the start-up and survival of small businesses with higher growth potential and technology investments in manufacturing industry. These support measures are co-financed from the European structural funds and managed by Enterprise Estonia (EttevAµtluse Arendamise Sihtasutus, EAS).

Other types of measures are primarily aimed at supporting businesses with credit and loan by Credit and Export Guarantee Fund KredEx. These include a business loan guarantee, guarantee for bank guarantee and leasing guarantee which all help enterprises develop and change their activities according to the changing demands of the market. The exporting activities of companies are also financed, with credit risk guarantee, preshipment risk guarantee and investment guarantee encouraging the enterprises to enter new markets and expand their activities.

The third types of measures provided by EAS as well, support the exporting activities of companies (e.g. joint marketing, export marketing and mobility grants etc.) and product development (e.g. product development grants). As a result of these measures, enterprises that have experienced fall in work volume are supported in finding new clients and markets outside Estonia or developing new types of products that have more market. Thus, in case of success, companies are able to maintain employment.

Are the arrangements or measures concerned permanent features of the system in your country or have they been introduced in the recent past specifically to combat the effects of the present recession? Please give an indication of the number of firms receiving support of this kind and the number of jobs protected as well as the source of funding.

Both the enterprise reorganisation procedure and support of EAS and Kredex are permanent features of the system. Even though the Reorganisation Act, which regulates these procedures, was introduced only recently (the act took effect on 26 December 2008), the preparation of the act had already started earlier. Thus the act was not initiated with the aim of combating the recession.

An analysis conducted prior to the implementation of the new act estimated that about 12.5% of all the companies going bankrupt would have been eligible for the reorganisation procedure in 2006 and about 800 jobs per year could be maintained as a result of the procedure. There is no information on the number of firms that have undergone the reorganisation procedure until now. In absolute figures it is expected that companies making use of the measure would be increasing in the near future as a result of increasing number of bankruptcies in the current recession (Ministry of Justice, 2008).

Do the measures apply generally across the economy or are they specific to particular sectors or regions? Please indicate the sectors and/or regions concerned.

Almost all legal persons governed by private law are eligible for the reorganisation procedure, except credit institutions, insurance undertakings and other similar bodies for whom special regulations apply. Reorganisation procedure is not allowed in case of legal persons governed by public law.

Most of the measures by EAS and Kredex are applied generally across the economy, though in some cases, the support is targeted at specific groups (for example a program for technology investments in manufacturing industry by EAS).

Is there government support available for companies which introduce short-time working arrangements, give a temporary period of leave to workers or implement similar measures to enable workers to retain their jobs where there is insufficient work for them to do? If so, please give an indication of the extent of the support concerned and the number of companies, and the workers they employ, receiving support.

There is no government support for companies introducing short-time working arrangements or forced leave. All related expenses are covered by the companies.

Are there plans or proposals to introduce measures of the various kinds indicated above in order to assist businesses and protect jobs? If so, please describe them briefly.

Some proposals have been made to assist businesses and protect jobs, mostly related to the tax system. For example, the Estonian Development Fund (Eesti Arengufond) has proposed that entrepreneurs who are maintaining or creating jobs, should be offered tax incentives for a certain time period (e.g. temporary exemption from labour taxes). The Estonian Taxpayers Association (Eesti Maksumaksjate Liit, EML) has suggested that the Taxation Act and Income Tax Act should be changed, so that the additional expenses of enterprises with tax arrears would be reduced, helping them to maintain workplaces and cope with the economic difficulties. According to the estimations of EML, inflexible treatment of enterprises with tax arrears could increase the number of bankruptcies, raise unemployment and reduce tax income.

Some proposals were also made in a tripartite agreement between the social partners and several ministries with the aim of maintaining employment. These include for instance, providing employers with an opportunity to combine reduced working time with additional training measures during a one-year period and introducing job-sharing principles in companies. Also, providing training sessions for entrepreneurs on possibilities of maintaining jobs (i.e. possible alternatives to redundancies) were proposed (EE0905019I).

Support to workers

What formal or legal measures (such as partial unemployment benefit or similar kinds of social transfer) are in place in your country to support workers who have been put on to short-time working by employers or who have been given temporary leave with reduced rates of pay (i.e. who still formally have jobs but who are either not working or working reduced hours)? Please describe the measures concerned and indicate the scale of support provided. Please also give any figures available for the number of workers receiving payments of this kind as well as the source of funding.

There are no support measures in Estonia supporting workers who have been on short-time work, though some proposals have been made. Workers are eligible for statutory remuneration which is paid by the employer (see also point 2 below).

Are the measures concerned permanent features of the system in your country or have they been introduced in the recent past specifically to combat the effects of the present recession?

N.A.

Has the coverage of the social benefit system which provides income support to workers who lose their jobs been widened in the present recession in order to ensure that those concerned are protected (such as, for example, through a relaxation of the rules and regulations governing the payment of unemployment benefits or other forms of social transfer or through an extension to workers not previously entitled to support)?

Eligibility for unemployment insurance benefits was planned to be widened on the account of those who have terminated their employment relationship voluntarily with the introduction of the new Employment Contracts Act on 1 July 2009 (see also EE0901019I). However, with the current disagreements in the government and increasing financial difficulties of the Unemployment Insurance Fund (TA¶A¶tukassa) due to rapidly increasing unemployment levels, these provisions are likely to be postponed.

Workers losing their jobs can benefit from some earlier changes introduced to the unemployment insurance system already in 2006. First, the main eligibility criterion aeuro" a reference period for counting previous employment experience aeuro" was extended from 24 months to 36 months. Now, working 12 months during the previous 36 month-period gives eligibility to unemployment insurance benefits. This was introduced to protect the persons experiencing multiple unemployment spells. Also, the persons receiving unemployment assistance benefits no longer loose their employment record during the receipt of assistance benefits. The aim of this amendment is to give the unemployed incentives to accept short term job offers and thereby later fulfil the necessary qualification period for insurance benefits (see also EE0610019I and EE0703019Q).

Are there any plans or proposals to provide income support for those working short-time or on temporary leave? If so, please describe them briefly.

A proposal to support workers on temporary leave was made already in 2007 when difficulties occurred in the Estonian railway sector. Seven Estonian trade unions submitted a proposal to the government that employees on partially paid leave should receive additional financial support from the Unemployment Insurance Fund. The proposed benefit was 50% of the previous salary and would be financed from the reserves of the Unemployment Insurance Fund (EE0706019I). Despite the proposals, the unemployment insurance system remained unchanged. At the time when the proposal was made, the Estonian Unemployment Insurance Fund experienced an extensive increase in cash stock due to the rapid economic growth and very low unemployment (EE0711029I). However, currently the Unemployment Insurance Fund is facing difficulties with maintaining financial sustainability due to the rapidly growing unemployment levels. Thus most probably proposals to use the reserves of the fund would not find support in the current situation.

2. Action taken by companies to maintain workers in employment

What action, if any, has been taken by companies during the present downturn to keep workers in jobs in situations where the work for them has declined? Please describe briefly cases where companies have introduced short-time working (such as fewer hours per days or fewer days per week), temporary periods of leave or other means of maintaining people in jobs.

In the current economic situation, introducing short-time working or temporary periods of leave have become rather common in Estonia. Employers are allowed to implement temporary leave or reduced working hours for up to three months per one year according to the Employment Contracts Act. The possibility is offered to companies that are facing difficulties due to reduced work load and who have the consent from both employees and the Labour Inspectorate (TA¶A¶inspektsioon). Another measure recently emerged to keep people in jobs is reducing pay levels (see also point 3 below).

How extensive has such action been in terms of the number of companies and workers concerned and the sectors in which it has occurred?

According to the Labour Inspectorate, 977 applications to implement forced leave or reduced working time have been satisfied during the first three months of 2009. This affects 29,389 workers (about 5% of employed persons as at first quarter 2009 according to Statistics Estonia). During 2008, applications where satisfied most often for workers in metalworking (8,298 workers), mining (5,996) and textile (653).

However, there is no information on the actual number of workers sent on forced leave or working at reduced hours. Not all companies that have received authorisation from the Labour Inspectorate have made use of the possibility (e.g. after receiving new orders and increasing work load). Also, it is not possible to give a direct estimation of the number of jobs protected as a result of the measure because after the end of the period of forced leave or reduced working time, the enterprise is also allowed to make redundancies in case it is necessary.

Have particular types of company (e.g. multinationals or domestically-owned firms) or firms in particular sectors been more prepared to take this kind of action than others?

According to Labour Inspectorate, the largest number of applications to implement forced leave or reduced working time came from metalworking, construction, retail and wholesale trade in 2008.

Has the action in question typically entailed a reduction in pay? If so, please give an indication of the typical extent of this.

Upon reducing working time, pay level will be reduced accordingly. According to the Employment Contracts Act, working time in these cases can not be less than 60% of the usual working time for the employee. In case temporary forced leave is implemented in the company, employees will be paid at least 60% of the minimum wage. Currently the minimum wage stands at EEK 4,350 per month (about a,¬278 as at 13 May 2009) (EE0712019I).

To what extent has this kind of action been accompanied by the provision of training or education to the workers concerned aeuro" i.e. how far have companies taken advantage of the lack of work to improve the skills of their work force?

There is no information collected in Estonia on if and how many companies make use of the period of forced leave or reduced working time to improve the skills or knowledge of the workers concerned. It is to be expected that the practice is not common as implementation of forced leave or reduced working time usually means that the enterprise is in economic difficulties and thus further expenses on the training of workers is not feasible. Also, there is no statutory requirement to provide training to the workers concerned during the period of forced leave or reduced working time. Though, there have been proposals to extend the period of reduced working time to one year instead of the current three months in case it is combined with additional training measures during the period (EE0905019I).

3. Joint action taken by companies and trade unions to maintain jobs

How far has the kind of action described in Section 2 above been the subject of collective agreements between companies and trade unions? Please give summary details of the content of some of the most important collective agreements.

According to the Employment Contracts Act, employers must have the consent from the trade union representative or the employee trustee, if there is elected one, for implementing forced leave or reduced working time. However, this is mostly done through individual negotiations rather than in the framework of collective agreements.

To what extent has other action been taken under collective agreements to reduce business operating costs so as to avoid job losses? Has there been an increase in instances of trade unions, or worker representatives, agreeing to accept cuts in pay, or to work longer hours without additional pay, in order to maintain employment levels? If so, please give an indication of the extent of such agreements and describe briefly typical cases.

There has been increasing number of cases of trade unions or employer representatives making agreements of wage freeze or even cuts in pay in order to maintain jobs. There is no information to give a reliable indication of the extent of such agreements, but some specific cases could be pointed out. For instance the national minimum wage level was not increased in 2009 (EE0902039I). Also the minimum wages in 2009 of employees with higher education working in the public sector and police, boarder guard and rescue service officials remained on the level of 2008. Moreover, the sectoral agreement in transportation concluded in 2007 (EE0801019I) remains unfilled in terms of 2009 minimum wage increase because of the economic difficulties of the sector. Also, pay levels in the public sector have been lowered and currently (in May 2009) further cuts are discussed though there is no agreement yet on the matter. There have been reports in the media of some enterprise level wage cuts as well (e.g. in journalism, shipping, post, chemical industry, road construction etc.). Though there is no information collected on the extent of such agreements in the economy on the whole.

Are such agreements more prevalent in some sectors than others?

There is no information to assess the prevalence of such agreements across sectors.

What other forms of action have trade unions taken, apart from strikes and other action designed to put pressure on employers, in order to try to prevent job losses and maintain employment levels? How effective has such action been?

Trade union actions have mostly been targeted at initiating negotiations and reaching agreements with the employer to maintain jobs in the enterprise. According to media reports, the discussions have been mainly around freezing or reducing pay levels or implementing reduced working time. However, there is no information on the extent of such practice or on the number of jobs retained through such agreements. Thus it is not possible to assess the effectiveness of the actions of trade unions in this respect.

4. Measures to provide income support

To what extent do collective agreements include provision for higher rates of compensation in the event of workers being made redundant than they are entitled to under national legislation? How far do collective agreements providing more generous compensation than the statutory amount vary between sectors?

There is no information collected on the contents of collective agreement on a regular basis. However, a research by Kallaste (2004) on collective agreements registered at the Ministry of Social Affairs indicated that 39.4% of all 66 analysed collective agreements included provisions on redundancy benefits/ remuneration upon termination of employment contract. 92.3% of these agreements included better conditions to workers than they are entitled to under national legislation. However, the results would differ somewhat if all concluded collective agreements could be analysed. As there is no control over registration of the agreements, it may be assumed that only collective agreements from companies with more active trade unions have registered their agreements and thus these agreements may be representing better results. There is no information on the difference between sectors

Has there been an increase in the number of collective agreements which include such provision during the present downturn?

There is no more recent information collected on the contents of collective agreements.

To what extent are redundancies being concentrated on older workers, i.e. taking the form of early retirement, in the present downturn? Is there any evidence that the use of early retirement as a means of effecting reductions in employment has increased in importance during the present downturn

There is no evidence that early retirement is increasingly used as a means of effecting reductions in employment. According to the data from the Social Insurance Board (Sotsiaalkindlustusamet), the number of pensioners making use of early retirement has been increasing steadily since 2005 and no marked changes could be pointed out in 2008 data. Also, the proportion of older workers among all persons made redundant has not been increasing. Instead, according to data from the Unemployment Insurance Fund, the share of younger workers (aged up to 24 years) among all persons made redundant has been increasing from 6% in 2008 to 13% in the first quarter 2009.

5. Lessons from research studies

Have any studies been undertaken in the past in your country on the effectiveness of attempts made in previous periods of recession to maintain employment levels similar to those covered here? If so, please outline the studies concerned and their main findings.

Estonia saw an economic decline in the end of 1990s as a result of the financial crisis in Russia. However, there is no analysis on the effectiveness of attempts made during that period to maintain employment. There have been no further periods of recession after the beginning of 1990s and adoption of market economy.

If partial unemployment benefit, short-time working or similar schemes which provide income support to those working short hours are a permanent part of the social security system in your country, please briefly describe any studies which been undertaken on their effects and the main conclusions to emerge from them.

There is no income support to those working short hours in Estonia.

References

Ministry of Justice, Saneerimismenetluse majanduslikud mAµjud ja nende hindamine Eestis [The economic effects of reorganisation procedure and their evaluation in Estonia (in Estonian, 183 Kb, PDF)], Tartu, 2008.

Estonian Development Fund, Valge paber Riigikogule. Tervikpakett kriisi A¼letamiseks ja uuele kasvule aluse panekuks [White Paper to the Riigikogu. Package for overcoming the crisis and founding the new growth (in Estonian, 741 Kb, PDF)], Tallinn, 2009.

Labour Inspectorate, 2008. aasta tA¶A¶keskkonna A¼levaade [2008 overview of the working environment (in Estonian, 432 Kb, PDF)], Tallinn, 2009.

Kallaste, E., AmetiA¼hingute mAµju tA¶A¶tingimustele Eestis [Trade unions' impact on working conditions in Estonia (in Estonian, summary in English, 568 Kb, PDF)], Tartu, 2004.

Kirsti Nurmela, PRAXIS Center for Policy Studies

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