Estonian Human Development Report

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Figure 6.4.1. Labour market flexibility at the micro and macro levels Institutional - Labour market regulations - Labour policy - Labour taxes - Trade unions Flexibility of wages Macro level Labour market flexibility not implemented in Estonia today, based on an ideology that supports a general liberal market economy and the idea of a “thin state”. One of the results of this ideology is a relatively low tax burden, and therefore, scant opportunities for influencing the economy, because the state just does not have sufficient resources and corresponding policy instruments. Based on the currency board system, the possibilities for the central bank to affect the money supply and to restrain inflation are also quite limited. Therefore, the flexible labour market is the only economic “buffer” for adjustment, and as Estonia’s relatively short economic history to date demonstrates, it has fulfilled its role quite well. Subsequently, we will examine four aspects of labour market flexicurity. Labour market flexibility Workers’ flows - Flows between labour market states - Occupational and functional mobility - Geographic mobility Job flows - Creations of jobs - Destruction of jobs Flexibility of working hours Micro level The labour market flexibility is a topic that has been much discussed in the press and which different authors treat very differently. Labour market rigidity is the most serious problem of the Estonian economy. This is often mentioned (see for example Ansip, 2008) in connection with Estonia’s 163 rd ranking among the 181 countries in the World Bank’s Ease of Doing Business Index. 37 At the same time, we should remember that by using only one indicator, the picture is very one-sided and we are not considering all the aspects of labour market flexibility. Labour market flexibility can be assessed at micro and macro levels. At the macro level, the flexibility of the labour market is measured by legislation and regulations and the flexibility of wages; the latter also reflects the influence of trade unions. The aforementioned international indexes reflect this aspect of labour market flexibility. At the micro level, or at the worker and company level, flexibility is indicated by how often workers move between different labour market stages, for instance, how easy it is to move from unemployment to employment. In addition, the flow of workers also includes functional flexibility or occupational mobility, or how often people change their occupation, or how simple it is for companies to replace workers with each other, etc. The third aspect of worker mobility is geographic mobility. Job flows show how many companies create new jobs or eliminate old jobs during a given time period (usually one year). The last element at the company level is the flexibility of working hours or to what extent flexible work schedules, part-time work, overtime, etc are implemented (see Figure 6.4.1.). There is a paradoxical situation in Estonia, where according to the macro indicators, i.e. the OECD Employment Protection Legislation Index, the Estonian labour market is rigid and overregulated, but when we examine data from the company level, it turns out that the labour market is flexible (see Eamets, Masso 2005). Similarly, according to the World Bank’s Ease of Doing Business Index and the Heritage Foundation’s Index of Economic Freedom, the Estonian labour market is rigid and overregulated. However, the fact is often ignored that the rigidity indicators operating at the state level are established by regulations or laws. In many other European countries, very minimal requirements are established at the legislation level and the majority of regulations are left for the social partners to agree upon. In other words, many international indices do not reflect the actual regulation of the labour market in the countries were the influence of trade unions is the strongest. In order to see the actual flexibility of the labour market, it would be necessary to analyze the macro data. Below, we try to fill this gap in the description of Estonia’s labour market. Let’s examine two aspects of labour market flexibility – the flow of workers between different labour market states and the number of jobs created and eliminated in companies. Firstly, let’s see how people move between different labour market states. People have three different states in the context of the labour market – employed, unemployed or inactive. The employed are those who have jobs; the unemployed are looking for jobs; and the inactive are not looking for jobs and are not employed. 38 Since people are constantly moving from unemployment to employment, they become unemployed or someone leaves the labour market, or become inactive, there is a constant flow in the labour market and this is called labour market mobility. 39 The number of flows in the labour markets differs by year. Great changes in the economy/society (reforms, crises) cause an increase in labour market mobility, while during stable periods, there is less movement between various labour market states. Based on various flows, a matrix can be constructed. The first letters of the English-language words are used a labels – E for employed, U for unem- 37 To assess the severity of the labour market regulations, various indices have been used, the most famous being the Organization for Economic Development and Cooperation (OECD) Employment Protection Legislation (EPL) Index, the sub index on the severity of employment laws in the World Bank’s Ease of Doing Business Index and the sub index for economic freedom indicators in the Heritage Foundation’s Index of Economic Freedom. 38 The exact definitions of the three situations can be found in Statistics Estonia compendiums dealing with ETU methodology, see Statistics Estonia: 2006 Labour Market in Figures. 39 A separate issue is the geographical mobility of the workforce, which was not examined here. | 140
ployed, and I for inactive. 40 Flows are indicated by the combination of the corresponding letters, or EU means moving from employment to unemployment, and IE from inactivity to employment. In total, there are nine potential flows. A person’s situation in the labour market is assessed during one year, for instance from January to January. Or, if a person was unemployed in January 2000 and employed in January 2001, 41 we get one movement from unemployment to employment. In reality, as we move diagonally along the matrix we see flows within the same state, or “stable” states. In other words, if a person was unemployed in July 2006, and still unemployed the next year, then he or she was in the same situation throughout the year and a real flow did not occur. In principle, he or she may have ended up in another state at some time during the year, but this method does not consider this. There is one exception: within employment (EE flow, or job-to-job flow) we can speak of movement in a certain sense, because a person may change jobs during the year without leaving employment. When analyzing empirical data, it is important to know what percentage of all employed people or all unemployed people changed their status. This shows us the ratio of flow compared to the number of people that are in the specific labour market state. The corresponding percentages are shown in following table. Job flows Job flows are not defined as the physical movement of jobs, for instance from Estonia to countries with cheaper labour such as China, but the creation or destruction of jobs within companies. Using the data from the Business Register, a job is eliminated when, compared to the previous January, the job no longer exists in January of the following year. The creation of jobs is the opposite. Five indicators are used – the job creation rate, job destruction rate, net change, and the gross rate or change between the two and excess job reallocation rate, i.e. the gross effect subtracted from the absolute value of the net effect. The higher the net effect, the more volatile or flexible the labour market, the more jobs are eliminated and new jobs created. Examining the dynamics of the net effect in Estonia (Figure 6.4.2.), we see that this has constantly fluctuated at about 20%. When good times prevail in the economy, it is slightly less than 20%, for instance, the corresponding indicator was 19.1% in 2006 and during the economic recession of 1999 the corresponding indicator was 21.7%. When we put the Estonian indicators into an international context (Figure 6.4.3.), we see that labour market volatility is lower in Estonia than in the Nordic countries, but at the same level as the US. We can observe that job flows in Lithuania and Poland are slightly higher compared to that of Estonia. Job creation and destruction indicators for the old EU member states are many times smaller than the corresponding indicators for Estonia. Therefore, the flow of people between various labour mar- Table 6.4.1. Flows of workers between various labour market states Employment to employment (EE) 16.8 11.8 9.6 10.3 10.3 10.1 Employment to unemployment (EU) 5.4 6.1 5.2 4.1 2.6 1.6 Employment to inactivity (EI) 6.1 5.7 5.3 4.5 4.7 3.6 Unemployment to employment (UE) 53.5 53.3 55.5 69.0 70.9 86.5 Unemployment to inactivity (UI) 13.1 12.8 25.6 25.0 23.6 13.5 Inactivity to employment (IE) 11.0 5.4 5.6 6.3 6.8 7.6 Inactivity to inactivity (II) 3.5 2.3 3.8 3.2 2.6 1.6 Source: Estonian Labour Force Survey 1996/1997 1998/1999 2000/2001 2002/2003 2004/2005 Figure 6.4.2. Job flow indicators in Estonia (% of unemployment) 25 20 15 10 5 0 -5 1996 1997 1998 1999 2000 2001 Source: J. Masso’s calculations based on Estonian Business Register data ket states and the statistics for the destruction and creation of jobs do not confirm that Estonia is characterized by a very rigid labour market. There is definitely some statistical information noise in this data, because the relabeling of jobs and redistribution of functions within companies are reflected ostensibly as job destruction or creation. But similar bias exists in all databases that reflect register data. In addition, Eamets & Masso, 2005, have given violations of the labour laws as the reason for job mobility. Although it is relatively complicated to lay off workers according to the law, a large number of workers leave their jobs by “mutual agreement”, which usually means that the worker often does not receive the benefits he or she is entitled to (unless a special agreement is reached). In summary, it can be said that an analysis of the micro indicators confirms our assertion – Estonia’s labour market is flexible and operates as a kind of buffer for balancing the economy. This is proven by the relatively large flows between labour market states and the high rate of job creations and destructions. The final indicator is the rapidly increasing unemployment rate under conditions of the economic recession during the third quarter of 2008. 2002 2003 2004 2005 Creation rate 2006/2007 Destruction rate Net change Gross rate Excess job reallocation rate 40 In English, E for employment, U for unemployment and I for inactivity. 41 Before 2000, changes in situations were examined from January to January. As of 2001, movement has been defined as a change in situation compared to the same month of the previous year. Therefore, all the movements for a year are totalled by month and then an average obtained. Arithmetically: average annual movement = total (January-January, February-February, ….)/12 141 |
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Estonian Human Development Report
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Estonian Human Development Report T
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4.2. Ethnic differentiations in sat
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Preface This year, the Estonian Hum
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CHAPTER 1 Estonian Human Developmen
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Figure 1.1.3. Life expectancy in co
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Figure 1.2.2. Life expectancy at bi
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to reality. The greatest inaccuracy
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Figure 1.2.9. Internal migration ev
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12. Marksoo, A. 1992. “Dynamics o
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Table 1.3.1. PISA 2006 study result
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Table 1.3.2. Number of students in
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1.4. The gross domestic product and
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Figure 1.4.3. Estonian GDP (right a
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1.5. Changes in the Estonian Human
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2.2. Health of Estonian residents i
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Table 2.2.4. Differences in life ex
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Figure 2.4.1. Healthy life years of
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Figure 2.4.4. Various accidents, tr
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2.5. Lifestyle and behaviour as a s
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Figure 2.5.5. Smoking in Estonia in
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Figure 2.6.1. Overview of the compo
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Table 2.6.2. Use of specialized med
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dren. The majority of services are
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Figure 2.8.2. How much a health dis
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2.10. Policy recommendations aimed
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CHAPTER 3 Quality of life and life
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Table 3.2.1. Characteristics of liv
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Table 3.2.4. An assessment of the e
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Figure 3.2.4. Difference in the job
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Table 3.2.6. Agreement with stateme
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Figure 3.3.1. Satisfaction with lif
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Figure 3.3.4. Percentage of people
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Figure 3.4.1. Types of quality of l
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Figure 3.5.1. Percentage of teenage
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Figure 3.5.4. Percentage of respond
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Arieh A., Conti C., Kutsar D., Nicg
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Figure 3.6.2. Subjective quality of
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Pieper, A. Sixsmith, Care related q
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Figure 3.7.1. The placement of Euro
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Figure 4.2.1. Life satisfaction by
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Table 4.2.1. Factors forming genera
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Annexes Annex 4.2.1. Socio-demograp
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Figure 4.3.1. Changes in the assess
Page 92 and 93: Figure 4.3.4. Attitudes of the Esto
Page 94 and 95: olds considered themselves to be pa
Page 96 and 97: Table 4.4.3. Agreement of the Russi
Page 98 and 99: Table 4.5.2. The prospects of non-E
Page 100 and 101: Figure 4.5.4. Certainty of Estonian
Page 102 and 103: mote equal opportunities. At the (e
Page 104 and 105: CHAPTER 5 Quality of life in a cons
Page 106 and 107: Figure 5.2.1. GDP and AIC per capit
Page 108 and 109: Figure 5.2.3. Distribution of consu
Page 110 and 111: Figure 5.2.4. Indexes of environmen
Page 112 and 113: Table 5.3.1. Comparison of countrie
Page 114 and 115: Figure 5.3.3. Comparison of types o
Page 116 and 117: Table 5.3.5. Connections between po
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Page 120 and 121: Table 5.4.3. Young people’s asses
Page 122 and 123: Figure 5.4.6. Time spent on the con
Page 124 and 125: Table 5.4.6. The perception of prob
Page 126 and 127: 5.6. Summary To briefly summarize t
Page 128 and 129: Table 6.2.1. Objective and subjecti
Page 130 and 131: Figure 6.2.4. Relationship between
Page 132 and 133: Figure 6.2.7. Difference between th
Page 134 and 135: Figure 6.3.1. GDP, government secto
Page 136 and 137: Figure 6.3.3. Employed 15-74-year-o
Page 138 and 139: Figure 6.3.8. Percentage of social
Page 140 and 141: References 1. Aaviksoo, A., G. Paat
Page 144 and 145: Figure 6.4.3. Creations of jobs ind
Page 146 and 147: Figure 6.4.5. Public expenditures o
Page 148 and 149: Figure 6.4.6. Ratio of the particip
Page 150 and 151: 6.5. Cities as development engines
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Page 154 and 155: have been underfinanced or are not
Page 156 and 157: Table 7.1. Factors that favour and
Page 158 and 159: Table 7.2. Potential economic devel
Page 160 and 161: Authors Chapter 1 Ene-Margit Tiit,
Page 162 and 163: Margit Keller (PhD) is a Senior Res
Page 164 and 165: Special prizes Estonian Human Devel
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Page 172 and 173: Honorable mentions Estonian Human D
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Page 176 and 177: Estonian Human Development Report A
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Estonian Human Development Report

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