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Table 4.4.5 The productivity level of Estonia’s service branches (value added per worker), in comparison to other states in 2010 (% of the corresponding state’s level) Branches of the service sector Ireland Denmark Switzerland Netherlands Finland Austria EU 27 Slovenia Czech Republic Hungary Slovakia Water transport 15 7 23 31 41 16 50 187 254 79 Warehousing, ancillary transport activities 68 53 42 49 86 48 79 62 145 150 348 Book and periodical publishing 22 17 30 18 24 21 26 50 66 72 93 Audio recording and music publishing 30 15 29 28 24 34 19 46 69 83 95 Programming, consultations and other similar activities 26 25 29 38 39 44 41 75 72 122 85 Programming 39 32 44 52 47 88 141 117 Information-related activities 17 32 20 21 25 44 38 83 47 Legal activities 32 24 28 40 33 46 47 88 95 136 111 Research and development activities 28 11 46 32 38 48 43 63 83 141 110 Advertising and market research 32 26 30 37 35 39 40 62 71 91 67 Designers’ activities 34 18 28 39 42 31 94 89 218 94 Leasing and operational leasing 70 57 56 47 63 28 59 216 124 93 159 Temporary employment agency activities 49 28 41 107 54 43 63 93 145 181 133 Source: Eurostat between 2000 and 2004. Starting in 2005, the increase in productivity has also significantly accelerated. The growth of the unit labour costs has also been low, only 7.6%, in the European Union as a whole. This alludes to a well-developed and stable economic system where big changes do not occur. In the states that have backgrounds similar to Estonia, like the Czech Republic, Slovakia and Hungary, the growth of unit labour costs have been significantly slower than in Estonia. During the entire period under observation, it has been between 10% and 17% in all these states. This again Table 4.4.6 Nominal unit labour costs in the reference countries (2005=100) 2000 2004 2009 2010 2011 Ireland 82.1 95.6 110.6 103.4 100.1 South Korea 86.0 97.7 103.8 102.3 104.9 EU 27 93.8 98.6 105.9 106.7 107.6 Czech Republic 85.2 100.8 108.9 108.9 110.1 Slovakia 84.3 96.2 112.8 111.8 111.4 Netherlands 88.8 100.4 110.9 110.1 111.5 Austria 96.7 98.8 111.3 111.3 112.3 Hungary 73.3 97.3 116.3 115.3 117.3 Finland 93.0 97.9 117.3 115.4 117.5 Denmark 88.4 97.8 120.3 118.9 118.9 Slovenia 78.9 98.6 119.7 120.1 119.4 Estonia 80.5 96.3 148.7 139.6 137.6 New Zealand 84.2 95.7 118.6 ... ... Switzerland 94.3 98.9 109.9 107.7 ... Source: Eurostat reflects the singularity of Estonia’s situation between 2005 and 2008, and the risk to the competitiveness of Estonia’s economy that developed during this period. The computation of the unit labour costs ratio is illustrated by its division into components – into the change in labour costs and the change in productivity. The average annual pace of growth for unit labour costs and productivity from 2000 to 2011 is shown in Figure 4.4.1. From the diagram, we can see that, in Finland, for example, the average growth of unit labour costs also exceeded the increase in productivity, but this occurred at a significantly slower pace. Therefore, if we leave out the period from 2005 to 2008, the increase in Estonia’s labour costs has been comparable to the other states, and compatible with the model of a rapidly developing economy, because it was also accompanied by an increase in productivity. 4.4.7 How to increase the productivity of Estonia’s economy? What causes the low level of our labour productivity? This cannot be explained simply by the low work performance of Estonian workers. Also important is the kind of work they do; how complicated the produced goods and services are; and what price they can be sold for. The management of the production operations is also important along with the structure of the organisation and the position of our business enterprises in the global value chain. Since the company level is most important when it comes to increasing productivity, the following example is informative. If a subsidiary of a Danish furniture company, located in Estonia, produces furniture parts that are 178 Estonian Human Development Report 2012/2013
Figure 4.4.1 Annual average increase in the unit labour costs and labour productivity (%) in the reference states from 2000 to 2011. Figure 4.4.2 Various possibilities for increasing labour productivity by moving the company’s position in the global value chain Unit labour costs Labour productivity -4 -3 -2 -1 0 1 2 3 4 5 Japan Israel Austria Switzerland Development centre Brands Sweden South Korea Distribution channels OECD Design centre Belgium Logistics centre USA EU 27 Production centre Netherlands Czech Republic Value added Finland Canada Ireland R&D Design Engineering Production Marketing Sales Services Brands Denmark Slovakia New Zealand Slovenia Hungary Estonia Source: OECD Factbook 2013 -4 -3 -2 -1 0 1 2 3 4 5 sent to Denmark, where they are assembled and sold on the global market, the value added produced in Estonia is limited to the wages earned for the time spent producing the product, and the small residual income for the local division. However, when the Danish company sells the product on the global market, the price of the end product includes the cost of the brand, the product development and design costs, marketing costs, etc. This creates a situation where the value added created by the Danish manufacturer in the corresponding branch of industry is several times greater than in Estonia. In this example, the Estonian company fulfilled the simplest production stage in the value chain (see Figure 4.4.2). Several studies have shown that within the value chain (from product development to sales to the end user) the least value added is earned in the production stage (Dhanani, Scholtès 2002). To improve the situation and increase productivity, the company has at least three strategic development paths. The first path is to continue their current production activities, but to try and implement different operational innovations and improve the functioning of the organisation by reducing production costs and increasing the produced value added. This development path is illustrated in Figure 4.4.2 as the movement to the next level of the value chain, or an upward shift. Then production is profitable again, but now more complicated things are being produced, and the workers’ skills and knowledge cannot be easily copied by foreign competitors. The second path is for the company to move forward in the value chain. This means the development of new or updated products; the creation of new engineering solutions and their connection to production. Now, the workers in the production stage can be paid more and the entire value added created by the company increases (the arrow to the left of production in Figure 4.4.2). The third option is to move the production toward the consumer, or combine production with sales, in order to arrive at selling your own brand, in which case, it would be good to combine the offered product with appropriate and necessary services (the arrow to the right of production in Figure 4.4.2). In this case, the total value added produced by the company also increases, so that it is also possible to pay the people employed, in the production process, more. There are definitely fields of activity where one must think more broadly, more globally – this means a decision to move the production stage, which produces the least value added, out of Estonia, and to, instead, develop new products, new technological solutions and services to accompany the products, and to develop one’s own brands. The innovation capability of Estonia’s economy is dealt with in chapter 4.5. Estonian Human Development Report 2012/2013 179
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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
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and explanations of the extent of i
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5- much more than I deserve. Some d
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people in Estonia consider the inco
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Table 3.3.1 Experienced Well-Being
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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 and 170: The problems include the very limit
Page 171 and 172: • Expenditures for active labour
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: Table 4.4.4 Comparison of the produ
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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