Estonia: Social partner’s involvement in unemployment benefit regimes

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

Social partner involvement in the unemployment benefit system in Estonia is clearly institutionalised in the tripartite supervisory board of the Unemployment Insurance Fund, which has a role across all phases of the system, including development, implementation, management and monitoring of the programmes. Some changes have been introduced in the unemployment benefits system, including in the qualifying conditions for unemployment insurance benefits and a slight increase in unemployment assistance benefits. Recently, discussions have emerged on the balance of the role of the tripartite supervisory body and the government in the unemployment benefit system in Estonia.

1. The characteristics of the UB system in the country

1.1. Recent changes/transformations of the UB system

To reflect the main changes in the UB system in Estonia, three main categories are considered: changes in the main qualifying conditions, changes in the benefits, and funding.

• Regarding the Unemployment Insurance (the UI system came into force on 1 January 2002):
• Qualifying conditions

Date of introduction: 1 January 2007

Who took the initiative: Ministry of Social Affairs

The content of the change: the period during which persons has to have been employed at least 12 months was extended from 24 months to 36 months. Also, people no longer lose their years of service necessary for eligibility of UI.

The aim pursued: to improve social protection for those who experience repeated short unemployment spells and motivate acceptance of short-term work without the fear of losing job seniority required for UI benefit.

Date of introduction: 1 July 2009

Who took the initiative: Ministry of Social Affairs

The content of the change: the period during which one has to have been employed to be eligible for UI was extended by the period of pregnancy and maternity leave, adoptive parents leave or parental leave.

The aim pursued: to improve the social protection of parents of small children.

Social partner views: trade unions have supported an increase in social protection, including protecting those who leave employment voluntarily. Widening eligibility to UI was agreed by the social partners in 2009 and was supposed to take effect since 1 January 2013 (EE0907029I), although, in 2012, the parliament has initiated discussions to drop these changes and keep the current situation. The main argument is the sustainability of the social insurance system, since widening eligibility would considerably increase expenses on UI (€32-34 million according to Unemployment Insurance Fund).

• Changes in the size of benefits

Date of introduction: 1 January 2007

Who took the initiative: Ministry of Social Affairs

The content of the change: a minimum level of daily UI benefits was defined, which was equal to the daily rate of UA benefits. About two years later, since 1 July 2009, the minimum rate was raised to 50% of the national minimum wage.

The aim: to improve social protection for unemployed, ensuring a minimum income level. Also, since it was decided to raise UA benefit as well (see also below), it was necessary to keep the flat rate benefit and minimum level of insurance-based benefit at an equal level.

Social partner views: trade unions have supported an increase in social protection, including an increase in UI benefits. Raising the level of UI benefit was agreed by the social partners in 2009 and was supposed to take effect since 1 January 2013 (EE0907029I), although these changes were abolished due to tight budget conditions. As a result, only the minimum level of UI was increased.

• Changes in funding

Date of introduction: 1 August 2009

Who took the initiative: Ministry of Social Affairs, Unemployment Insurance Fund (EUIF)

The content of the change: the maximum rate of UI premiums was increased. Until then UI premiums remained below the maximum rate and were increased gradually (EE0908019I).

The aim: ensure sustainability of EUIF in the situation of increasing unemployment.

Social partner views: an increase in the UI premiums was agreed in a tripartite discussion between employers’, trade unions’ and government representatives. With the decreasing unemployment, the trade union and employer representatives in the supervisory board of the EUIF have made a proposal to reduce the insurance premiums, although government has declined keeping in mind the tight budget situation (EE1112019I).

• Regarding the UA:

Although each year the amount of the flat-rate benefit is set with the State Budget Act, the benefit has not changed during 2007-2012.

Date of introduction: 1 January 2013 (the change was introduced already on 1 July 2009)

Who took the initiative: Ministry of Social Affairs

The content of the change: the flat-rate UA benefits will be tied to minimum wage – the benefit must be at least 50% of the minimum wage (currently the minimum rate is around 23% of the minimum wage).

The aim pursued: to raise the social protection of the unemployed and move closer to the minimum level of social insurance accepted by ILO conventions as well as Council of Europe.

Social partner views: trade unions have supported an increase in social protection. Raising the level of UA benefit was agreed by the social partners already in 2009 although it was not implemented then and was postponed to take effect since 1 January 2013 due to budgetary constraints (EE0907029I).

• Regarding the SA:

There have been no major changes in the SA benefits system. The subsistence level has increased gradually from €31.96 per month in 2002 to €76.70 in 2012. The subsistence level is set each year in the State Budget Act.

1.2. The main characteristics of the UB system as it is now

1.2.1. Unemployment Insurance.

All employees, public servants, persons providing services based on the contract under the law of obligations or non-working spouses accompanying an official serving in a foreign mission who have paid UI premiums are covered.

Persons who are not covered include: self-employed persons, members of management or controlling bodies, some specific higher level categories in the public sector (including members of the government, parliament etc) and persons who have reached pensionable age or are receiving early-retirement pensions.

• Eligibility:

To be eligible a person must:

• be registered as unemployed in the public employment service;
• have worked and made contributions for at least 12 months during the previous 36 months;
• not have left their job or service voluntarily or upon agreement, lost their job because they did not perform as agreed, lost the confidence of their employer or behaved in an indecent manner.
• Duration:

Maximum duration of UI benefit is:

• 180 days in case of a contribution period of less than 56 months;
• 270 days in case of a contribution period of between 56 and 110 months;
• 360 days in case of a contribution period of more than 110 months.

There is no minimum duration set.

• Replacement rates:
• The amount of benefit depends on previous average gross earnings:
• 50 % of the previous gross earnings during the first 100 calendar days of unemployment;
• 40 % of the previous gross earnings after that.

Maximum rate: three times the national average daily gross earnings in the previous calendar year.

Minimum rate: 50 % of the minimum wage of the previous year.

• Financing:

100% from the UI benefit trust fund, which is formed by UI premiums of employees. This is administered by the state.

• SP involvement:

National level trade union confederations: Estonian Trade Union Confederation (EAKL) and Estonian Employees’ Unions’ Confederation (TALO) with one member each.

National level employers’ confederation: Estonian Employers’ Confederation (ETTK) with two members.

These are the only national level social partners in Estonia, who engage in national level bargaining, collective agreements etc. There is no representativeness requirement set.

1.2.2. Unemployment Assistance.

• Coverage:

All registered unemployed who do not fulfil the eligibility criteria for UI or who have exhausted their UI benefits are covered.

• Eligibility:

To be eligible a person must:

• be registered as unemployed in the public employment service;
• have been employed or engaged in activity equal to work (e.g. studying) for at least 180 days during the 12 months prior to filing an application with an employment office;
• have income less than 31 times the daily UA rate.

• Duration:

Up to 270 days (210 days in case the reason for termination of the previous employment was violation of the duties of employment, loss of confidence or indecent act).

• Replacement rates:

In 2012, around 22% of the national minimum wage and 8% of gross average wage. From 2013 the replacement rates will be increased at least to 50% of minimum wage.

• Financing:

100% from state budget.

• SP involvement: Yes/No. If Yes, specify briefly:

Yes.

National level trade union confederations: Estonian Trade Union Confederation (EAKL) and Estonian Employees’ Unions’ Confederation (TALO) with one member each.

National level employers’ confederation: Estonian Employers’ Confederation (ETTK) with two members.

These are the only national level social partners in Estonia, who engage in national level bargaining, collective agreements etc. There is no representativeness requirement set.

1.2.3. Social Assistance.

There is no direct relationship between Social Assistance (SA programmes and UB system and social partner involvement. As a more indirect relationship, municipalities have the right to refuse the payment of SA benefits to people in working age and capable for work, but who do not study or work, and who have repeatedly refused to accept suitable work.

2. SP involvement in the UB regime

2.1. The development phase

In Estonia, Social Partners participate in the development phase of the unemployment benefits system. Most often of the initiative to participate comes from the social partners themselves. In 2009, for instance, a tripartite discussion was initiated which covered the reform of labour law and also included discussions on the UI and UA aspects (see also 1.1 above).

Any changes in UI premiums are discussed and agreed in the supervisory board of the EUIF, which is a tripartite body.

In most cases, the process first includes informing social partners of the changes by sending the draft document of the respective changes in legislation. The social partners then send their feedback to these initial documents.

With the changes that were adopted in 2009, a tripartite negotiation was also initiated with the social partners. The main aim of the process was to negotiate labour law reform (the new Employment Contracts Act was adopted as a result), but discussions also evolved around UI and UA systems. Even though agreements were reached in the negotiations, the changes were not adopted after all due to budgetary constraints at the time – some were postponed until 2013 and some were cancelled (EE0907029I). Also, the parliament is currently discussing cancellation of another agreement that was reached in the tripartite negotiations – that is widening the eligibility of UI.

As far as planning any changes in UI premiums is concerned, social partners are involved in the process through the tripartite supervisory board of the EUIF.

When providing feedback to draft legislation, social partners participate in the formal process of coordination of the draft legislation. Initiation of tripartite negotiation processes (as the one on 2009) has not been a common practice in Estonia. In case of discussions on UI premiums, social partner participation is legitimated through a stable tripartite body within the EUIF.

In most cases, involvement of social partners is on an ad-hoc basis, on national level only, depending on any larger changes planned in the UI or UA systems. In case of UI premiums, involvement is regular and predictable (changes in UI premiums are discussed each year in the supervisory board of EUIF).

The proposals of social partners are not always considered. For instance, with the tripartite negotiations in 2009, agreement was reached, but was mostly not implemented in the end (see also point 2.1.2 b above). Thus, it is difficult to consider the effects in such circumstances.

2.2. The implementation phase

The supervisory board of the EUIF is a tripartite body, including members of trade unions and employer organisations. The competences of the supervisory board include appointing and removing chairman and members of the management board of the EUIF as well as proposing the rate of UI premiums for collecting contributions. Since EUIF is responsible for the payment of both UI and UA benefits, social partners are involved in the implementation of both types of benefits.

In terms of appointing and removing members of the management board, the decisions of the tripartite supervisory board of EUIF are mandatory. In proposing rates UI premiums, the role of social partners is advisory (based on the proposal of the supervisory board, the government sets the rates for UI premiums for the following year).

In terms of being involved in the work of supervisory board of EUIF to whom the management board reports to, the social partners are involved throughout the process.

2.3. The management phase

Social partners in Estonia are involved in the management phase through their participation in the supervisory board of the EUIF. EUIF is responsible for the management of both UI and UA benefits. Following answers are provided proceeding from this system.

Unemployment benefits system is not organised through the social partner organisations themselves. Thus, no specific sections of social partner organisations are dedicated to the UB programmes.

Only national level employer and trade union confederations are involved in the supervisory board of EUIF. There are two national level trade union confederations with one member from each organisation and one national level employers’ confederation with two members appointed from the organisation.

The tripartite supervisory board is part of the EUIF in terms of its financial autonomy as well.As members of the supervisory board of EUIF, social partners are also involved in proposing the finances allocated for active labour market measures through the foundation of labour market services and benefits and approving temporary employment programmes.

2.4. The monitoring phase

Social partners are involved in the monitoring phase, although it is mostly monitoring rather than evaluation in terms of effectiveness of the UB system. The main focus of social partners is the monitoring of the receipt and use of funds of the EUIF, including the use of UI premiums and size of finances allocated to UI payments as well as finances allocated to payment of UA benefits and other financial support to unemployed. Such monitoring is in the competence of the supervisory body of EUIF.

The process is regular (the supervisory body meets regularly) and the social partners have an equal vote in the supervisory body of EUIF.

There is mostly no public output of these processes. The most direct one is the report on the receipt and use of funds, which is approved by the tripartite supervisory board of the EUIF. Nevertheless, monitoring results can also reflect in the proposal made to the government to raise or reduce UI premiums (e.g. increase in UI premiums has been proposed when the expenses on UB system have been increasing faster than the income from UI premiums during the crisis). Also, the supervisory board establishes the annual plan of EUIF and approves the budget, which can reflect these monitoring results.

Monitoring the SP involvement in the UB system

There is no specific evaluation or monitoring system established for the social partners’ role in the UB system. At the same time, considering that the main form of social partner involvement is through a tripartite body, the system itself presupposes that the different parties in the process monitor each other and negotiate all the issues. According to the Unemployment Insurance Act, a resolution is adopted if more than half of the members of the supervisory board vote in favour of the resolution.

3. Final observations

3.1. Public debates and policy discussion

A recent discussion has evolved around the role of the supervisory board of EUIF and its impact on the processes of the EUIF. In the end of 2011, government made two major decisions without the prior agreement with the supervisory board. First, it was decided not to change the rate of UI premiums, even though it was proposed by the supervisory board to reduce the tax rate due to improving economic situation, reducing unemployment and increasing reserves of the EUIF. Next, government made the decision to consolidate the reserves of the EUIF under the control of the state treasury, despite the opposition of different parties, including the supervisory board of EUIF. As a result, both trade unions and employers’ organisations recalled their representatives from the supervisory board as a sign of protest (EE1112019I).

In January 2012, parliament also initiated discussions with the purpose to change legislation so that in case the supervisory board will not reach an agreement in their decisions in time, the government is allowed to make the decisions related to budget and management board of EUIF solely. The social partners have opposed these changes as reducing further the role of the tripartite supervisory board. While discussions in the parliament over these changes continue, social partners have gathered again as a tripartite supervisory board of EUIF in the end of March. The chair of the supervisory board, Mr Harri Taliga has expressed hope that this will give an opportunity to continue discussions over the problems within the supervisory body.

3.2. Research

There are no academic contributions in Estonia treating specifically social partner involvement in the UB regime.

4. Commentary

4.1. Assessments and comments

In Estonia, the social partner involvement in the UB system is very clearly institutionalised within the tripartite supervisory body of the Unemployment Insurance Fund (EUIF). The body has a role across all the phases: development, implementation, management and monitoring of the programmes. At the same time, the extent and regularity of how social partners are included vary across the phases. For instance, in the first – development – phase, social partners need to take initiative for themselves rather than being regularly included.

4.2. Perceived strengths and weaknesses

The main strength of the system lies in the presence of the tripartite supervisory board of the EUIF, which enables the regular inclusion of social partners in the whole process. At the same time, recent discussions over the role of the supervisory board and the protest of social partners through resigning from the supervisory board have shown weaknesses of the system. Thus, discussions need to be held over what is the role of the supervisory board and what is the role of government decisions as well as to which extend government can make decisions on behalf of the supervisory board and what are the preconditions for this.

Kirsti Nurmela, Praxis Center for Policy Studies