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Labour Market Reforms and Outcomes in Estonia

Author

Listed:
  • Zuzana Brixiova

    (United Nations Development Programme Swaziland, Lulinga House 5th floor, Mbabane, Swaziland)

  • Balázs Égert

    (1] Economics Department, OECD, Paris, France[2] EconomiX, University of Paris-X Nanterre, Paris, France.[3] CESifo, Munich, Germany.[4] William Davidson Institute, Michigan.)

Abstract

The unemployment rate in Estonia rose sharply in 2010 to one of the highest levels in the EU, after the country entered a severe recession in 2008. While the rate declined relatively rapidly in 2011, it remained high especially for the less educated. In 2009, the Employment Contract Law relaxed employment protection legislation and sought to raise income protection of the unemployed to facilitate transition from less to more productive jobs while mitigating social costs. Utilising a search model, this paper shows that increasing further labour market flexibility through reducing the tax wedge on labour would facilitate the structural transformation and reduce the long-term unemployment rate. Linking increases in unemployment benefits to participation in job search or training programmes would improve the unemployed workers’ incentives to search for jobs or retrain and the medium term labour market outcomes. Social protection schemes for the unemployed should be also strengthened as initially intended to give the unemployed sufficient time to search for adequate jobs or retrain for new opportunities.

Suggested Citation

  • Zuzana Brixiova & Balázs Égert, 2012. "Labour Market Reforms and Outcomes in Estonia," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 54(1), pages 103-120, March.
  • Handle: RePEc:pal:compes:v:54:y:2012:i:1:p:103-120
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    References listed on IDEAS

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    1. Jan Hanousek & Evžen Kočenda, 2011. "Public Investment and Fiscal Performance in the New EU Member States," Fiscal Studies, Institute for Fiscal Studies, vol. 32(1), pages 43-71, March.
    2. Andrea Bassanini & Romain Duval, 2006. "Employment Patterns in OECD Countries: Reassessing the Role of Policies and Institutions," OECD Economics Department Working Papers 486, OECD Publishing.
    3. Annabelle Mourougane & Lukas Vogel, 2009. "Speed of Adjustment to Selected Labour Market and Tax Reforms," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 51(4), pages 500-519, December.
    4. Nicola Duell & David Grubb & Shruti Singh, 2009. "Activation Policies in Finland," OECD Social, Employment and Migration Working Papers 98, OECD Publishing.
    5. Jan Babecký, 2008. "Aggregate Wage Flexibility in New EU Member States," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 2(2), pages 123-145, September.
    6. Eamets, Raul & Masso, Jaan, 2004. "Labour Market Flexibility and Employment Protection Regulation in the Baltic States," IZA Discussion Papers 1147, Institute for the Study of Labor (IZA).
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    Citations

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    Cited by:

    1. Raul Eamets, 2013. "Labour market and labour market policies during great recession: the case of Estonia," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-25, December.
    2. Fidrmuc, Jarko & Klein, Caroline & Price, Robert & Wörgötter, Andreas, 2013. "Slovakia: A Catching Up Euro Area Member In and Out of the Crisis," IZA Policy Papers 55, Institute for the Study of Labor (IZA).
    3. Lilas Demmou, 2012. "Matching Skills and Jobs in Estonia," OECD Economics Department Working Papers 1007, OECD Publishing.

    More about this item

    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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