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Labour Market Flexibility in Estonia: What more Can be Done?

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  • Zuzana Brixiova

    (OECD)

Abstract

In mid-2008, high employment and low unemployment rates characterised the Estonian labour market in comparison with the average of the EU15 countries. While aggregate outcomes improved during 2000-07, large inequalities persisted across regions, ethnic groups, and workers with different skill levels. As Estonia entered recession in 2008, the unemployment rate almost doubled between the 2nd and the 4th quarter, and is expected to rise further in 2009 and 2010. More flexible labour markets will be a key adjustment mechanism during the recession as well as in the medium term if Estonia is to become a knowledge-based economy. Given the currency board arrangement and low synchronisation with the euro area, flexibility is also needed to cushion asymmetric shocks. In December 2008, parliament adopted the new Employment Contract Act, deregulating employment protection while increasing income security of the unemployed. This paper discusses options for removing the remaining barriers that impede worker reallocation across jobs, sectors, and regions into more productive activities. La flexibilité du marché du travail en Estonie : comment l'améliorer ? Au milieu de 2008, le marché du travail estonien se caractérisait par un taux élevé d’emploi et un faible taux de chômage par comparaison avec la moyenne de l’UE15. De fortes inégalités persistaient entre régions, groupes ethniques et travailleurs de niveaux différents de qualification. Lorsque l’Estonie est entrée en récession en 2008, le taux de chômage a presque doublé entre le 2e et le 4e trimestre, et il devrait encore augmenter en 2009 et 2010. Une plus grande flexibilité du marché du travail constituera un mécanisme essentiel d’ajustement durant la récession et à moyen terme dans la perspective d’une économie fondée sur le savoir. En décembre 2008, le parlement a adopté la loi sur l’emploi, qui a déréglementé la protection de l’emploi tout en renforçant la sécurité du revenu pour les chômeurs. Ce document a pour thème l’élimination des obstacles résiduels au redéploiement des travailleurs entre emplois, secteurs et régions, au profit des activités plus productives.

Suggested Citation

  • Zuzana Brixiova, 2009. "Labour Market Flexibility in Estonia: What more Can be Done?," OECD Economics Department Working Papers 697, OECD Publishing.
    • Handle: RePEc:oec:ecoaaa:697-en
    DOI: 10.1787/224177441445
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    Cited by:

    1. World Bank, 2011. "Challenges to Enterprise Performance in the Face of the Financial Crisis : Eastern Europe and Central Asia," World Bank Publications - Books, The World Bank Group, number 2316, April.
    2. Zuzana Brixiova & Margaret H. Morgan & Andreas Wörgötter, 2010. "On The Road to Euro: How Synchronized Is Estonia with the Euro zone?," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 7(1), pages 203-227, June.
    3. Anis Chowdhury, 2012. "Structural Adjustment and Crises –Which Way Now?," Institutions and Economies (formerly known as International Journal of Institutions and Economies), Faculty of Economics and Administration, University of Malaya, vol. 4(1), pages 85-118, April.
    4. Lilas Demmou, 2012. "Matching Skills and Jobs in Estonia," OECD Economics Department Working Papers 1007, OECD Publishing.
    5. Jaan Masso & Kerly Krillo, 2011. "Labour Markets In The Baltic States During The Crisis 2008-2009: The Effect On Different Labour Market Groups," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 79, Faculty of Economics and Business Administration, University of Tartu (Estonia).

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • 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

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