OECD Reviews of Labour Market and Social Policies

ISSN :
2074-3408 (online)
ISSN :
2074-3416 (print)
DOI :
10.1787/20743408
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This series of country-specific reviews of labour makret and social policies examines policies and institutions and makes recommendations for improvements.
 
OECD Reviews of Labour Market and Social Policies: Estonia 2010

OECD Reviews of Labour Market and Social Policies: Estonia 2010 You do not have access to this content

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Author(s):
OECD
Publication Date :
10 May 2010
Pages :
124
ISBN :
9789264082120 (PDF) ; 9789264082113 (print)
DOI :
10.1787/9789264082120-en

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OECD's comprehensive 2010 review of labour market and social policies in Estonia. It finds that since Estonia regained its independence in 1991, its labour and social policies have been marked by a strong commitment to fiscal prudence, flexible markets, and work incentives. Labour market performance steadily improved during the mid-1990s and beyond, until the advent of the global economic crisis in 2008. Estonia was not well prepared for the slowdown and its economy has been hit especially hard. The downturn has required painful policy adjustments. Today, Estonia’s public social spending remains among the lowest in the OECD; its social programmes support persons in need, but the benefits they receive are usually modest and some of the jobless receive no benefits. However, the country offers one of the world's most generous parental-benefit programmes and has begun to phase in a three-tier pension system. 

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  • Click to Access:  Abbreviations
  • Click to Access:  Assessment and Recommendations
    After regaining its independence in 1991, Estonia achieved a quick transition to a market economy through fundamental restructuring. This involved the dismantling of almost all big enterprises, which had accounted for the bulk of employment in the Soviet period, giving way to an emerging SME sector that is now predominant. From the beginning of this transformation, the country’s public policies have been characterised by a strong commitment to fiscal prudence, flexible markets for products, capital and labour, and a social policy stance that emphasises work incentives more than the redistribution of incomes through cash transfers.
  • Click to Access:  High Employment but an Unequal Society
    Before the present economic downturn, Estonia registered a long period of economic growth which resulted in a rapid increase of employment notably for youth, women and elderly persons. Living standards rose more than in most transition countries, even though they remain significantly lower than the OECD average. During 2006 and 2007, a boom in construction and investment activity led to distortions in resource allocations and relative wages in large parts of the economy. The labour force is mostly well-educated, but employment remains too concentrated in low-skilled activities. Important regional disparities persist and the integration of ethnic non-Estonians continues to be a difficult challenge. Despite the recent long period of rising incomes for almost all groups, the income distribution remains less equal than average for OECD countries and many residents are at risk of relative poverty.
  • Click to Access:  Flexibility with Limited Security
    Estonia’s flexible labour market allows companies to rapidly adjust to changing market conditions, but income security for the unemployed and the protection against violations of labour law remain limited. Recent labour market reforms have addressed several institutional problems, but the public employment service still suffers from a number of shortcomings that hinder effective assistance to job seekers. Improved activation measures are needed to ensure that those who become unemployed do not lose contact with the labour market. This chapter reviews Estonia’s principal labour market policies against the benchmark of the Reassessed OECD Job Strategy.
  • Click to Access:  Annex 2.A1
    To compare the rigidity of employment protection regulation across countries and over time, the OECD developed a method for calculating employment protection strictness for 21 basic items on a scale from 0 to 6, with 0 representing total flexibility and 6 the highest possible rigidity (Venn, 2009). Each score is weighted in order to obtain aggregate indices for three main areas: 1) employment protection for regular workers against individual dismissal; 2) regulation of temporary forms of employment; and 3) additional requirements for collective dismissals. Based on these three indices, an overall score can be calculated representing the rigidity of a country’s employment protection as a whole. Table 2.A1.1 contains a description of the employment protection scores for Estonia based on the 2008 Employment Contracts Act that entered into force on 1 July 2009.
  • Click to Access:  Challenges of Social Policy
    Estonia’s social protection system is well developed but not very generous. It has been designed to keep costs at a moderate level and to preserve work incentives. Social spending relative to GDP is lower than in any OECD country except Korea and Mexico. Some increase in spending has been foreseen for the near future, but several planned reforms were postponed or cancelled in 2009 in order to give budgetary room for supporting the rising numbers of unemployed people during the economic downturn. The latter challenge was considered to exclude improvements of the generosity of various benefits in the short term.
  • Click to Access:  Annex 3.A1
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