DEVELOPMENT

4.3
Labour market
Reelika Leetmaa, Andres Võrk
From the viewpoint of economic competitiveness
and development of companies, the existence of an
educated and skilled labour force is important along
with the ability of the labour market to adapt to
changes in the economic environment, technologies
and demographics. The existence of the labour force
is dependent primarily on the size of the population,
its aged-based structure and the ability of the working
aged population to work. A person’s resources, which
are comprised of the following, are a precondition of
their ability to work: good health; relevant education;
sufficient know-how; physical, mental and social
capabilities; values, motivation and satisfaction with
work; as well as the corresponding working conditions
and a work environment (see also Ilmarinen 1999). If
people’s resources and working conditions create the
prerequisites for their employment and for the labour
market’s ability to adapt, employment and social policies
create the environment that affects whether, under
changing conditions, people have the opportunity and
motivation to provide high-quality labour, and whether
it is beneficial for employers to hire people.
The ability of the labour market to adapt means that
employers have the opportunity to increase and reduce
the number of employees, their working hours and wages.
It also assumes that the people who are in danger of losing
their jobs have the opportunity to constantly improve
their skills and knowledge and are assured sufficient
income while they are unemployed. The flexibility provided
to the employers, and the employees’ opportunities
for supplemental training, along with social guarantees,
support structural changes in the economy, which are
needed due to changes in the economic environment or
long-term technological and demographic processes. An
adaptable labour market creates the preconditions for
the competitiveness of companies and countries, as well
as an increase in productivity and employment and the
reduction of poverty (Caballero et al. 204; Seifert, Tangian
2007; Muffels et al. 2008).
Since the flexibility of the labour market, which
forms the basis of the labour market’s adaptability, has
also been dealt with in previous human development
reports (Eamets and Leetmaa 2009, Eamets 2011), only a
concise survey of the nature of labour market flexibility is
provided in this sub-chapter. The European Union’s “flexicurity”
policy stresses the importance of four institutions
– flexible labour laws, efficient social protection, effective
active labour market policies, and a lifelong learning system
– in ensuring the adaptability of the labour market. 1
Various indicators for measuring the flexibility and institutions
of the labour market have been created, which
can be used to describe the Estonian labour market and
compare it to those in other countries. However, it should
be taken into account that, unlike economic competitiveness
and economic freedom, which are measured with
the help of various indices (see 4.1) comprised of several
sub-components, no yardsticks for measuring the competitiveness
and flexibility of labour markets have been
created. Instead, various numerical indicators are used,
which may generally be divided into two groups.
The first group includes measures that provide
information about the human activities in the labour
market, and are based primarily on surveys. Basically,
these are indicators related to processes and outputs.
They describe the participation of the working age
population in the labour market, their working hours
and employment based on sectors and occupations, as
well as unemployment, poverty, income inequality, etc.
Today, the main source of information for these indicators
is the labour studies based on the methodology
of the International Labour Organisation (ILO). This
group of dimensions includes, for example, the ILO’s
18 Key Indicators of the Labour Market (KILM), as
well as the indicators for employment and unemployment,
as well as the assessments of the availability of
skilled labour and competent top specialists included
in the various sub-indices compiled by the International
Institute for Management Development (IMD) in
Lausanne.
The second group includes dimensions that primarily
characterise the labour market institutions in each
country, such as expenditures for labour market services
and unemployment benefits, as well as the strictness
of the labour market regulations. These indicators are
usually based on administrative statistics, on the regulations
dealing with the labour market, or opinion polls
conducted among business managers. For instance, the
strictness of the legislation regulating the start and finish
of the employment relationship is measured by the OECD
Employment Protection Legislation Indicator (EPL), the
rigidity of employment by the sub-index of the World
Bank’s Doing Business Index (DB), and labour freedom
by the labour market sub-index of the Heritage Foundation’s
Index of Economic Freedom (HF labour freedom
sub-index). In the comparison of states, the Strictness of
Eligibility Criteria Index developed by the Danish Foreign
Ministry and later supplemented by the OECD is also
used (Venn 2012).
1 The aforementioned are also considered to be the most important institutions influencing the functioning of the labour market in labour
economics, in addition, taxes on labour and the influence of labour unions are mentioned.
Estonian Human Development Report 2012/2013
165