Labour market mobility during a recession : the case of Estonia

The paper investigates the dynamics of worker flows and the duration of different labour market states during the recent boom and bust of 2001-2010 in Estonia. We find that labour market adjustment has mostly taken place through massive worker reallocation, resulting in a high unemployment rate. Despite high worker flows from employment to unemployment, labour market mobility has fallen in many ways during the recession: job tenure and unemployment spells have increased, while job-to-job transitions and mobility across industries and occupations have fallen. The unemployed with the lowest level of education and non-Estonians have the lowest mobility to enter employment and run the highest risk of long-term unemployment. There is evidence of softer ways of adjustments to the crisis, where more workers are engaged in remote work, part-time work or jobs that do not match their skills. Internal migration has small potential to alleviate the high unemployment. The current crisis has hit the country more evenly across its regions than the Russian crisis did. Unemployment has increased similarly in all regions and unemployment inequality has dropped. Even so, there are some signs of marginalisation. The situation is worst in the north-eastern part of the country with unemployment hitting 25%