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Giving people better opportunities to participate in the labour market is a key policy objective in all OECD and EU countries. More and better employment increases disposable income, strengthens economic growth and improves well-being. Well-tailored labour market and social protection policies are a key factor in promoting the creation of high quality jobs and increasing activity rates. Such policies need to address pressing structural challenges, such as rapid population ageing and evolving skill needs, including those needed for the green transition. They should also foster social inclusion and mobilise all of society.
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The Estonian labour market has performed relatively well over recent years placing the country among the top performers in the European Union (EU) both in terms of employment and activity rates. In 2019, the employment rate among 15‑64 year‑olds rose to 75.2%, well above the EU average of 68.4% and above its highest value prior to the Global Financial Crisis.
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Despite Estonia’s good labour market performance, a considerable share of the population lacks solid labour market attachment, facing a number of obstacles limiting their access to good jobs. Overall, the institutional set-up of ALMP provision produces good results and its key features have proven their effectiveness. Nevertheless, the system could benefit from more co‑operation among stakeholders and across policy fields. While the regulatory set-up of ALMP provision permits flexible policy responses, it is complex, making its administration burdensome and causing complexity in budgeting and financing. The Unemployment Insurance Fund has increased its outreach to potential jobseekers over recent years. Despite these efforts, population groups who are furthest from the labour market remain difficult to reach. The ALMP basket is overall appropriate, but some ALMPs are not sufficiently well targeted to the groups they are designed for.
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In 2019, Estonia was among the top performers in the European Union in terms of employment and labour market participation. Although the early figures from 2020 show that the COVID‑19 crisis had a strong impact on Estonia, the economy also already shows early signs of recovery. Despite comparatively robust labour market fundamentals, some structural challenges persist. Demographic trends are likely to limit the extension capacity of the labour market, skill mismatches are common and the unemployment insurance system leaves many unemployed with a low level of or even without benefits, thereby contributing to a high risk of poverty among the unemployed. Some population groups are particularly vulnerable in terms of labour market outcomes and face a high risk of unemployment.
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The current system of ALMP provision in Estonia supports good outcomes in the labour market and the stakeholders tend to be satisfied with the broad set-up of the system. Nevertheless, the stakeholders should consider reducing some of the complexity in the regulations and revise the co‑operation practices within the system of ALMP provision as well as with other policy fields.
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The provision of active labour market policies has significantly improved in Estonia over the past decade. The incentives for the jobseekers to contact the Estonian public employment service have increased, the employment service has increased its efforts to advertise its support, expenditures on active labour market policies have increased, the package of policies has been revised to match the labour market needs and the employment service has developed strategies to network with other institutions to support the clients holistically. Nevertheless, discrepancies in the capacity of different institutions can potentially cause some gaps and overlaps in the overall support provided to people weakly attached to the labour market.
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One quarter of 15‑64 year‑olds in Estonia are only weakly attached to the labour market (they do not work, or work only some months a year, work on unstable employment contracts or have low earnings) and might achieve better labour market outcomes through active labour market policies. While all regions in Estonia are home to a significant share of people with weak attachment to the labour market, counties in the country’s East and South are particularly concerned. Skills obstacles, family-related obstacles and obstacles to integrate into the society (very long periods out of employment, migratory background, etc.) are particularly widespread among groups with weak labour market attachment. Almost all of persons weakly attached to the labour market face at least one labour market obstacle, three‑quarters face at least two obstacles and close to 40% face three obstacles or more. The correlation between different labour market obstacle types is overall low, suggesting that “typical” profiles of people with needs for active labour market policies may be insufficient to reflect the diverse life circumstances of people with weak labour market attachment in Estonia.
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Only 40% of people who are weakly attached to the labour market are in contact with the Estonian public employment service. However, the referral rate to active labour market policies is high (80%) once the contact has been established. Due to the recent Work Ability Reform, the share of people in contact with the public employment service and the share of people participating in active labour market policies are markedly higher among people who have long-term health issues. At the same time, the outreach and coverage of (well-targeted) active labour market policies is lower among the groups that face labour market integration obstacles related to low skills or caring responsibilities or who face particularly high obstacles to integrate into the society. These results suggest that active labour market policies in Estonia are generally well-targeted, but might not reach all the groups that would benefit from such support.