New national action plan to tackle economic crisis

The Ministry of Social Affairs in cooperation with the Estonian Unemployment Insurance Fund  has introduced a new national action plan for 2009–2010 to tackle the economic crisis. The aims of the plan are to reduce unemployment and support the creation of new jobs. About €45 million will be directed to the employment programme, which should help to create over 5,000 jobs and boost the economy. Employers have welcomed the plan but trade unions have expressed some concerns.

Dramatic rise in unemployment

In March 2009, a tripartite agreement was reached in Estonia on measures to maintain jobs (EE0905019I). However, the unemployment rate still kept rising, thus forcing the government to take further action. According to the Estonian Unemployment Insurance Fund (Töötukassa), 76,542 registered unemployed people were recorded on 1 October 2009, which represented 11.7% of the labour force. Real unemployment – as recorded by Statistics Estonia (Statistikaamet) in the Labour Force Survey – is even higher, reaching 92,200 unemployed persons in the second quarter of 2009. This is more than three times higher than the number of unemployed people recorded a year ago (27,300).

Moreover, the number of unemployed people is expected to increase even further due to the simplified redundancy and firing regulations that took effect with the new labour law in July 2009 (EE0802019I, EE0901019I, EE0907029I). In addition, according to the Unemployment Insurance Fund, fewer than half of registered unemployed people are eligible for unemployment insurance benefit and, for many, the right to receive unemployment insurance benefit has already expired or will expire soon.

Details of new action plan

A new action plan is scheduled to be implemented in the second half of 2009 and in 2010. According to the plan – introduced by the Ministry of Social Affairs (Sotsiaalministeerium) in cooperation with the Unemployment Insurance Fund – over EEK 700 million (about €45 million as at 21 October 2009) will be directed to the employment programme, which should eventually help to create more than 5,000 new jobs. The plan includes measures to:

  • predict unemployment and alleviate the consequences of job loss;
  • raise the qualifications of persons seeking work;
  • foster an active approach and employability;
  • support the creation of new jobs;
  • remove barriers to entering employment;
  • optimise accessibility to employment services, improving their quality and making them more user friendly.

While some of the measures in the new action plan were also covered by the tripartite agreement earlier in 2009 – for instance, introducing a system of training vouchers – a number of new initiatives have also been proposed. The latest provisions include, for example, introducing apprenticeship training for low-qualified unemployed workers and developing career services.

Business start-up support

In order to support the creation of new jobs, the business start-up system has been further developed. In 2010, a support package will be introduced whereby the applicant will receive training, counselling (including follow-up counselling) and, if necessary, professional in-service training. Moreover, in 2009, mentor clubs are being created for entrepreneurs who have received business start-up support. This facility will continue through 2010.

Wage subsidy for hiring unemployed people

The main measure to create new jobs is the wage subsidy for employers. The employers that hire an unemployed person will receive a wage subsidy amounting to 50% of the employee’s salary – but no more than the national minimum wage of EEK 4,350 (€278) – for a period of one year. This provision had already been introduced; however, to tackle the economic crisis, the conditions for eligibility have been widened – the requirement for the unemployment period has been reduced by three months to nine months rather than a year.

Improved unemployment services

To improve the services provided to unemployed people, the Unemployment Insurance Fund will hire more consultants and will continue to develop electronic services. In addition to applying for redundancy benefits, it will be possible to register as being unemployed and apply for benefits through electronic information channels; notification of services and vacant positions will also be available through this medium. To reach rural areas of Estonia, the consultants will provide counselling in areas with poor connection to the cities; the mobile services are being implemented in the third and fourth quarters of 2009.

Reactions of social partners

The social partners have voiced different reactions to the planned measures. According to the Estonian Employers’ Confederation (Eesti Tööandjate Keskliit, ETK), the measures represent a positive step by the government that will help to boost the economy and tackle the financial crisis. Furthermore, ETK agreed that the wage subsidy measure will provide considerable support for employers in times of recession. However, the Estonian Trade Union Confederation (Eesti Ametiühingute Keskliit, EAKL) expressed concern over a possible misuse of wage subsidies by employers, by deliberately firing employees to hire unemployed persons with lower costs or hiring employees only for the one-year period of the wage subsidy.

Liina Osila and Kirsti Nurmela, PRAXIS Centre for Policy Studies

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