DEVELOPMENT

who lose their jobs. These ensure income protection in
the case of social risk (e.g. unemployment, illness, age) or
need. In the context of labour market flexibility, the benefits
and allowances paid in case of unemployment, i.e.
“passive labour market policies,” are the most important.
The expenditures onpassive labour market policies,
as a percentage of GDP, are increasingly being employed
as an indicator to assess the impact of labour market institutions
and to monitor the EU’s concept of flexicurity. As
is clear from figure 4.3.4, the expenditures for unemployment
benefits in Estonia, considering the differences in the
unemployment rates, are among the lowest in comparison
to the other OECD states. The small size of the unemployment
benefits also points to the low net replacement rate
of unemployment benefits 6 in case of both short- and longterm
unemployment (see Leetmaa et al. 2012). Low compensation
levels are accompanied, in turn, by a high risk
of poverty for the unemployed (Leetmaa et al. 2012). In
addition to the small size of the benefits, only half of the
registered unemployed received unemployment insurance
benefits or unemployment allowances in 2011 according to
the Unemployment Insurance Fund data. Therefore, Estonia’s
unemployment benefits are generally lower, access to
them is more limited and unemployment is accompanied
by a higher risk of poverty. Many empirical studies have
confirmed that higher unemployment benefits are usually
accompanied by greater unemployment, but this link does
not apply if the precondition for receiving more generous
unemployment benefits is involvement in active labour
market policies; if the job-seeking activities of the benefit
recipients are monitored and sanctions are enacted if job
searches are abandoned (OECD 2012).
Although Estonia’s unemployment benefits are
small, an analysis based on Estonian data (Lauringson
2012) confirms that the receipt of unemployment insurance
benefits lengthened the duration of the unemployment
period before and also during the economic crisis.
At the same time, it was found that people who received
unemployment insurance benefits for a longer period
worked longer at the jobs that they did find. Therefore,
the receipt of unemployment insurance benefits enables
people to find jobs that suited them better and did not
force them to accept the first jobs that they were offered.
Therefore, the jobs found by the people who received
unemployment benefits for a longer period were of better
quality (Lauringson 2012). However, it should still be
considered that the data used in the study does not allow
for an assessment of how much the more efficient control
of the job-seeking activities and, if necessary, implementation
of sanctions, would reduce the negative impact
of getting unemployment benefits. During the period
under examination, the control of job-seeking activities
in Estonia was superficial, and sanctions were seldom
implemented (Lauringson 2012).
Leetmaa et al. (2012) also recognised that, in
certain cases in Estonia, it is not beneficial to get a job
instead of collecting unemployment insurance benefits.
For instance, it was found that in a household with
two children it does not pay for one parent to work at
Figure 4.3.4
Expenditures for unemployment benefits as a percentage
of GDP (divided by the unemployment rate multiplied by 10)
2008 2010
Netherlands
Austria
Belgium
Ireland
Finland
Denmark
Italy
Spain
Norway
Portugal
Canada
Slovenia
South Korea
Sweden
New Zealand
Hungary
Czech Republic
Estonia
Slovakia
Poland
0 0,5 1 1,5 2 2,5 3 3,5 4
OECD average 2010
0 0,5 1 1,5 2 2,5 3 3,5 4
Source: OECD, OECD. StatExtracts, table Public expenditure of
LMP by main categories (% GDP), last viewed on 25.01.2013;
authors’ calculations.
minimum wage, if the other does not work, since the
amount gained by working is less than the potential loss
in subsistence benefits and the additional transport or
kindergarten costs. It is also not profitable to take a job
that pays much less (or is part-time) than the job seeker
was paid before receiving unemployment insurance benefits,
or if the household has the right to simultaneously
receive several social protection benefits (e.g. old-age
pension under favourable conditions, an early retirement
pension, disability pension or parental benefit simultaneously
with the unemployment insurance benefits). The
motivation to work is also reduced by the simultaneous
payment of several social protection benefits (Leetmaa
et al. 2012). Therefore, getting a job might not always
be profitable, and therefore, stimuli should be increased
that make working more profitable even at low wages.
6 Defines how large a segment of an unemployed person’s income is in comparison to their income when employed.
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