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was at the best working age (20 to 64), based on the population projections made by Eurostat in 2010, this will decline to 56% by 2030. The impact of population ageing could partially be compensated by an increase in the employment rate. In order to achieve this compensation, the employment rate in the 20- to 64-year age group would have to increase from the current 70% to 78%, which is comparable to the current employment rate in Sweden, Iceland and Switzerland. If, for example, Estonia’s employment rates were to achieve levels similar to Sweden, by age group, it would be possible to keep the total number of employed persons at the current level, (almost 609 thousand employed persons in 2011) for another 25 years, i.e. until 2035. In this case, the employment rate in the 15- to 74-year age group Figure 4.3.2 Number of employed persons in Estonia and the development of the employment rate based on various scenarios Percentage Maximum employment rates 2011 employment rates Working age population (15–74) Employment in case of maximum employment rates Employment in case of 2011 employment rates 60 50 40 30 20 10 0 1995 2000 2005 2010 2015 2020 2025 Source: The Eurostat 2010 population projections for Estonia; Estonia’s 2011 employment rates from the Statistics Estonia database; Sweden’s 2011 employment rates from the Eurostat database. Comment: “Maximum employment rates and employment” means that, by 2030, Sweden’s 2011employment rates will be achieved in the gender and age groups where they fell below the 2011 levels. “2011 employment rates and employment” means that the employment rates in the gender and age groups will remain at the 2011 Estonian levels. 2030 2035 2040 2045 2050 1200 1000 800 600 400 200 0 would increase from 59% in 2011 to 66% in 2030; and from 70% to 80% in the 20- to 64-year age group. If the employment rates should remain at 2011 levels, the number of employed persons will decrease by 80,000 people, purely as a result of structural demographic changes (Figure 4.3.2). In addition to population ageing, labour potential is affected by the persons that are working abroad as well as the permanent emigration from Estonia. Based on the data from the 2011 census, almost 25,000 permanent residents of Estonia work abroad. In addition, the registered data for 2004 to 2011 shows that almost 38,000 people emigrated from Estonia, while almost 23,000 people immigrated. Long-term population projections (e.g. Eurostat’s EUROPOP2010) assume that Estonia’s net migration will remain negative until 2030; and after that it will become positive. According to the projections, the gap between emigration and immigration would achieve the maximum level in 2020, being approximately 1,000 persons annually. However, based on the experience of recent years, one can say that net migration has tended to be underestimated in the population projections – for instance, between 2010 and 2011, the gap was 2,500 persons annually. Therefore, the assessments of the unavailability of quality labour by Estonia’s employers is further intensified by migration, which increases the need to make better use of labour potential or to increase immigration. 4.3.2 Labour market institutions Like economic development generally, the labour market also depends on flexible institutions, i.e. the rules and standards that regulate the functioning of the labour market, and which, through the stimuli that are created, impact the supply and demand of labour. 3 We have used the following indicators to compare the labour market institutions with those of other states. • Heritage Foundation (HF) Labour Freedom sub-index, which measures the strictness of labour legislation (also see sub-chapter 4.1, for the dynamics of the HF Index of Economic Freedom and the Labour Freedom sub-index). The index is comprised of the following six components based on the state’s labour market regulations: ratio of minimum wage to the average value added per worker; hindrance to hiring additional workers; rigidity of hours; difficulty of firing redundant employees; legally mandated notice period; and mandatory severance pay. The index values vary from 0 to 100, whereas, the higher the number, the more freedom there is. 3 In the analysis compiled by OECD (2012), data was used about 18 OECD states from 1982 to 2007. The authors concluded, among other things, that more important than the assessment of the impact of individual institutions was to view the combined effect of the various labour market institutions in the state. For example, high unemployment benefits/the percentage of workers covered by large collective agreements increase structural unemployment in OECD states on the average, but not in those states, where effective active labour market policies/coordinated wage negotiations take place. Therefore, a balance between various institutions is most important, which is also emphasised in the aforementioned concept of flexicurity. In Estonia, the impact of labour market institutions on the general unemployment rate has not been examined to date. Detailed surveys of the yardsticks used by the EU Commission to measure labour markets, their computation methods and their suitability to the Estonian context have been compiled by Krillo and Eamets (2010); Võrk, Nurmela et al. (2010), Krillo, Nurmela et al. (2010), and Võrk, Kaarna et al (2010). 168 Estonian Human Development Report 2012/2013
• Expenditures for active labour market policies as a percentage of GDP, which indicate the relative importance of active labour market policies in the state under observation. This is one of the European Commission’s flexicurity measures, and this indicator is used primarily in studies that analyse the impact of active labour market policies on the general unemployment rate. • Expenditures for passive labour market policies, i.e. unemployment benefits as a percentage of GDP, indicate the relative importance of unemployment benefits in the given state. Taking the differences in the unemployment rates in the different states into account, the indicator is divided by the unemployment rate and the result is multiplied by ten for better visualisation. The measure is one of the European Commission’s flexicurity indicators. In research, it is also one of the most frequently used indicators for the assessment of the impact of passive labour market policies on the general unemployment rate. One of the problems in Estonia’s economy is strict labour legislation. Often mentioned by several indices evaluating economic freedom, it limits the employers’ opportunities for reacting flexibly to changes in the market situation by firing redundant workers or reducing wages. The HF labour market sub-indices, DB labour market sub-indices, and the EPI compiled by the OECD also allude to this problem. The given indices are comprised of various components, which are usually related to the strictness of the regulations related to hiring and firing workers, the flexibility of working hours, the cost of firing redundant workers, the mandated notice period and size of the minimum wage. The data from the DB labour market sub-index is used by both the FI and HF for compiling their indices. Although the methodology for these indices does not overlap completely, they are actually quite strongly correlated (Krillo and Eamets 2010). The labour sub-indices of the World Bank’s DB and the OECD’s EPI are the most frequently used in studies related to labour markets. Since the data for the DB labour sub-index and the OECD EPI are not available or are outdated, the HF freedom of labour sub-index has been used below. 4 After the enactment of the new Employment Contracts Act in 2009, Estonia rose from 137th position (2009) to 110th position in 2013 (see Table 4.3.1). However, in regard to labour freedom, it is still part of the next-to-the-last group of “mostly not free” states. At the same time, many successful small states lag behind Estonia, such as Sweden (124), Taiwan (125), South Korea (140), Finland (148), and Norway (151), whereas the states at the top of the list include Denmark (3), Switzerland (9), Hong Kong (11) and the Czech Republic (12). It should be taken into consideration that the HF index may not consider the provisions of collective agreements between employers and employees 5 . Therefore, these indices may underestimate the strictness of the labour market regulations in states that have strong labour unions and where many of the working conditions are agreed upon in collective agreements. For example, based on the OECD’s 2010 data, only 8% of the workers in Estonia belong to trade unions, and, based on the data of 2009 survey of working life, the terms and conditions of collective agreement extended to 33% of the workers. On the other hand, according to the OECD’s 2010 data, almost 70% of the workers in Denmark belonged to trade unions and 80% of the workers were covered by collective agreements, whereas, in Denmark, collective agreements are also often signed at the company level (Fulton 2011). The indicators characterising Estonia’s trade union membership and the density of collective agreements are also considerably lower in comparison to other European states (OECD 2012; Fulton 2011). In other words, in our case, the working conditions of the majority of workers are determined by the Employment Contracts Act, while elsewhere, collective agreements play a large role – a fact that may not be reflected in the values of the aforementioned indices. Another shortcoming of such indices is the fact that they do not take into account how well the laws are actually enforced. For instance, based on the aforementioned indices, before the implementation of the 2009 Employment Contracts Act, Estonia was ranked as a state with one of the most rigid regulations, but an analysis of the job creation and destruction at the company level by Eamets and Masso (2005) revealed that although less jobs are created and eliminated in Estonia than in the Nordic countries, it occurred at the same rate as in the U.S., and at a considerably higher rate than in the other states of Europe. Based on the analysis, the authors concluded that Estonia’s labour market is flexible, regardless of the strict regulations. The authors believe that one reason for this is the fact that the law was being ignored. This was also indicated by the considerably larger number of labour disputes per worker than in the other European states (Bank of Estonia, 2006). To date, the impact of the Employment Contracts Act, which entered into force in 2009, has been analysed only by Liina Malk (2012). In her research, based on data from labour force surveys, she assessed the impact of the new law on the movement of labour between labour market statuses. For instance, when analysing the movement from employment to unemployment, from unemployment to employment, and from unemployment to inactivity, the 4 Starting in 2011, the World Bank abandoned the use of the labour market sub-index in the assessment of business freedom and initiated a review of the methodology. The initial data dealing with the components of the labour market sub-index are available, but, as of 2011, the index values are not. The values of the OECD EPI are available for 2008, and for individual states, (incl. Estonia) for 2009. After the new Employment Contracts Act came into force, value in the OECD EPI for Estonia dropped from 2.4 to 1.65, and is lower than the average of the OECD states (OECD, 2010). This is caused mainly by the first component of the index, i.e. the restrictions on the requirements for working with a contract without a specified term, including the shortening of the mandated notice period and the reducing of redundancy payments. 5 Collective agreements have been taken into account that extend to more than half of the companies in the processing industry sector, and extend to companies that are not parties to the collective agreement. Estonian Human Development Report 2012/2013 169
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ESTONIAN HUMAN DEVELOPMENT REPORT 2
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Table of Contents 1 Human Capital /
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Dear Reader Since the moment when E
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1Human Capital Estonian Human Devel
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the HDI’s content has also been h
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Figure 1.1.1 The human development
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Figure 1.1.7 The income sub-index:
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The results of the Princeton Projec
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the hypothetical generation. The to
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Figure 1.2.3 Life expectancy. Eston
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Table 1.2.2 also presents the most
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The new trends that are appearing i
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Figure 1.2.8 Components of populati
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New features were introduced into E
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Initiation of Voluntary Birth Contr
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Table 1.3.1 Best-known educational
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(OECD 2012b). Therefore a certain r
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The reciprocal dependence of the pr
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Figure 1.3.8 Percentage of students
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Table 1.3.4 The quality of educatio
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1.4 Health Raul-Allan Kiivet Change
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Table 1.4.1 Usage of prescription m
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allude to the fact that approximate
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promote healthy lifestyles among th
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Figure 1.5.1 The World Values Surve
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Table 1.5.2 Estonia’s participati
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Figure 1.5.3 The percentage of the
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Figure 1.5.5 Percentage of the Esto
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The fact that Estonia’s position
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Summary Mati Heidmets The global vi
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2People and Society Estonian Human
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Table 2.1.1 Structure of the Bertel
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tioning market economies (15 states
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2.2 Freedom and democracy Martin M
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Table 2.2.1 Democracy indicators Po
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Figure 2.2.2 The distribution of th
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would be something that none of the
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political participation are general
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strongest, while a very small perce
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is concerned, Estonia is one of the
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Figure 2.4.2 Average circulation of
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2.5 Corruption Jüri Saar In accord
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Lithuania, 61%; and in Russia, 69%.
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2.6.2 Intentional homicides in Esto
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crime. And thirdly, there was a wis
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References 1. Ahven, A. & Tabur, L.
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states included in the EU Kids Onli
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2.8 Public assessments of the state
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Figure 2.8.4 Changes releated to tr
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of the state’s development are en
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Table 2.9.1 The positions of Estoni
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3. IEP (2011). Structures of Peace.
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3Welfare and the Quality of Life Es
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choices made, not what people say t
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Figure 3.1.5 Public social spending
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tion agreed upon the social contrac
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References 1. Aidukaite, J. (2006).
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hand, to the “inequality of acces
Page 119 and 120: and explanations of the extent of i
Page 121 and 122: 5- much more than I deserve. Some d
Page 123 and 124: people in Estonia consider the inco
Page 125 and 126: Table 3.3.1 Experienced Well-Being
Page 127 and 128: at about 70%. In Latvia and Lithuan
Page 129 and 130: sign. It seems that the usual view
Page 131 and 132: 3.4 Quality of life Anu Toots 3.4.1
Page 133 and 134: a uniform composite indicator has n
Page 135 and 136: 3.4.6 The components of life qualit
Page 137 and 138: Figure 3.4.4c Perceived quality of
Page 139 and 140: Figure 3.4.5 Changes in the depriva
Page 141 and 142: 3.5 Environment dimension of well-b
Page 143 and 144: Figure 3.5.1.b Estonia’s position
Page 145 and 146: 3.5.4 Energy intensity The energy i
Page 147 and 148: productivity, which is defined as t
Page 149 and 150: perceive themselves as worse off th
Page 151 and 152: 4The Economy Estonian Human Develop
Page 153 and 154: vide a valuable connection for maki
Page 155 and 156: Figure 4.1.3 Components of economic
Page 157 and 158: ule of law, the sub-indicators for
Page 159 and 160: References 1. Acemoglu, D.; Robinso
Page 161 and 162: Development Report employs generali
Page 163 and 164: and pasture land, and this was capi
Page 165 and 166: Basing the total and net savings re
Page 167 and 168: 4.3 Labour market Reelika Leetmaa,
Page 169: The problems include the very limit
Page 173 and 174: who lose their jobs. These ensure i
Page 175 and 176: 4.4 Productivity and the economic s
Page 177 and 178: labour costs at the company level r
Page 179 and 180: Table 4.4.4 Comparison of the produ
Page 181 and 182: Figure 4.4.1 Annual average increas
Page 183 and 184: 4.5 Innovation Erik Terk, Katrin M
Page 185 and 186: Table 4.5.2 Comparison of innovatio
Page 187 and 188: Table 4.5.4 Comparison of the indic
Page 189 and 190: in order to make the R&D potential
Page 191 and 192: It is characteristic of the South K
Page 193 and 194: mechanisms for increasing their sta
Page 195 and 196: Globalisation and Policy Patterns 5
Page 197 and 198: When Estonia regained its independe
Page 199 and 200: 5.2 The impacts of globalisation an
Page 201 and 202: Table 5.2.2 Support of the differen
Page 203 and 204: 5.3 Development policies Erik Terk,
Page 205 and 206: • C -the “Estonia-centred” su
Page 207 and 208: Figure 5.4.1 Support for the possib
Page 209: Summary Erik Terk Estonia is part o
Page 212 and 213: ehavioural patterns. Therefore, it
Page 214 and 215: EDR 2012/2013 authors Clemens Buche
Page 216 and 217: EDR 2012/2013 authors Alari Purju i
Page 218: Editor-in-Chief: Mati Heidmets Prod
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