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

  • Zuzana Brixiova

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.

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File URL: http://dx.doi.org/10.1787/224177441445
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Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 697.

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Date of creation: 11 May 2009
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Handle: RePEc:oec:ecoaaa:697-en
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  1. Annabelle Mourougane & Lukas Vogel, 2009. "Speed of Adjustment to Selected Labour Market and Tax Reforms," Comparative Economic Studies, Palgrave Macmillan, vol. 51(4), pages 500-519, December.
  2. Leping, Kristian-Olari & Toomet, Ott, 2008. "Emerging ethnic wage gap: Estonia during political and economic transition," Journal of Comparative Economics, Elsevier, vol. 36(4), pages 599-619, December.
  3. David Grubb & Shruti Singh & Peter Tergeist, 2009. "Activation Policies in Ireland," OECD Social, Employment and Migration Working Papers 75, OECD Publishing.
  4. Milan Vodopivec & Andreas W�rg�tter & Dhushyanth Raju, 2005. "Unemployment Benefit Systems in Central and Eastern Europe: A Review of the 1990s1," Comparative Economic Studies, Palgrave Macmillan, vol. 47(4), pages 615-651, December.
  5. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
  6. 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.
  7. Brixiova, Zuzana & Li, Wenli & Yousef, Tarik, 2009. "Skill shortages and labor market outcomes in Central Europe," Economic Systems, Elsevier, vol. 33(1), pages 45-59, March.
  8. Charles Kroncke & Kenneth Smith, 1999. "The wage effects of ethnicity in Estonia," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(1), pages 179-199, March.
  9. 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.
  10. Vodopivec, Milan, 2000. "Worker reallocation during Estonia's transition to market : how efficient and how equitable?," Social Protection Discussion Papers 21612, The World Bank.
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