The Estonian Economy, No. 2 - July 27, 2012


Published on

The Estonian Economy, No. 2 - July 27, 2012: Unemployment, albeit falling, poses challenges

Published in: Economy & Finance, Technology
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

The Estonian Economy, No. 2 - July 27, 2012

  1. 1. The Estonian EconomyMonthly newsletter from Swedbank’s Economic Research Departmentby Elina Allikalt No. 2 • 27 July 2012 Unemployment, albeit falling, poses challenges  The drop in unemployment in Estonia after the economic crisis has been one of the fastest in the EU, albeit starting from a much higher rate. Although the pace of decline has stalled somewhat, unemployment is still falling, supported by strong seasonal factors, and is beating the trend seen in the EU. The labour activity rate continues to be high.  Among the main risk groups, youth unemployment has shown the best recovery. Long-term unemployment, however, has become the most important problem facing the labour market, posing social risks and limiting long-term growth rates.  The educational level and possibilities for retraining are among the key factors for employment, even more so because of the increasingly mismatched labour market environment. The youngest age group has proved to be the most flexible in this environment, but active labour market measures, as well as a change in social attitudes, can ease the problem for others too.The unemployment rate peaked during the recent Unemployment rate in the EU and the Baltic countries, % (seasonally adjusted)economic crisis at the beginning of 2010 at almost20%. The strong economic recovery seen since has 25almost halved that rate – it fell to 10.9% at the endof last year before rising somewhat to 11.5% in the 20first quarter of this year. Nevertheless, registeredunemployment (which is lower than the survey- 15based indicator but follows the same trend) isUnemployment rate and registered new unemployed 10 25% 12 5 10 20% 8 0 15% 2007 2008 2009 2010 2011 2012 6 EU27 Estonia Source: Eurostat Latv ia Lithuania 10% 4 5% showing that the number of new unemployed has 2 fallen to the lowest levels in a couple of years; 0% 0 moreover, the unemployment rate continues to fall, 2007 2008 2009 2010 2011 2012 supported by seasonal factors in the labour market, registered new unemploy ed, thousands (rs) and is beating the trend seen in the EU. While the unemploy ment rate unemployment rate in Estonia was one of the Source: SE, EUIF registered unemploy ment rate highest in the EU during the crisis years, it has now fallen to almost EU-average levels (10.1% in the Economic Research Department. Swedbank AB. SE-105 34 Stockholm. Phone +46-8-5859 1000. E-mail: Legally responsible publisher: Cecilia Hermansson, +46-8-5859 7720. Annika Paabut, +372 6 135 440. Elina Allikalt, +372 6 131 989. Teele Reivik, +372 6 137 925
  2. 2. The Estonian Economy Monthly newsletter from Swedbank’s Economic Research Department, continued Nr 2 • 27 July 2012first quarter). Nevertheless, despite positive in the construction and transport sectors) hasdevelopments, there are still risks in the labour helped to ease the youth unemployment regarding future developments, including The young labour force has proved to be the mostthe impact from continuous euro area recession. flexible age group after the crisis – in addition to the strongest employment growth, the share of long-The crisis and the subsequent recovery in the term unemployment for this group is the smallestEstonian labour market have been characterised by (about 40% of the total) of all other age groups.growing activity rates1; these are also the main After unsuccessful job searches, many youngreason why unemployment has not fallen more people have chosen to continue their previouslyrapidly amidst strong employment growth. The unfinished studies, supported by a special state-activity rate has picked up the most among the initiated programme. Nevertheless, youthyoungest and the eldest labour market participants, unemployment is still much higher than in other agewhile that of the biggest age group (25-49 year groups; thus it is important not to lose theolds) has largely remained unchanged. momentum of recent positive developments,Activity rate in the main age groups, % especially considering the important position of this group in an aging and declining population. 90 Unemployment in the main risk groups 80 (thousands) 70 70 60 60 50 50 40 40 30 20 30 2004 2005 2006 2007 2008 2009 2010 2011 10 Source: SE 15-24 25-49 50-69 Total 0 2007 2008 2009 2010 2011 2012Conflicting developments in the main risk 15-24 y o non-Estonians Source: SE 50-69 y o long-term unemploy edgroupsUnemployment in the main labour market risk 2 Unemployment rate by age groupsgroups – the youngest (15-24-year-olds), theeldest (50-64-year-olds), long-term unemployed, 45%and non-Estonians – has been declining amidst 40%overall labour market improvements. The strength 35%of the recovery, however, has varied across groups. 30%The best improvement has been witnessed 25%amongst young people, where the unemploymentrate has almost halved from its peak of 40% at the 20%beginning of 2010 to 23%, now close to the EU 15%average. A big part of this development can belinked to the fall in activity of the construction sector 10%(which employed many young men) during the 5%crisis and its steady recovery during recent years. 0%In addition, an increase in pendulum migration (e.g., 2007 2008 2009 2010 2011 2012 Source: SE 15-24 25-49 50-69 Developments in the unemployment of elderly1 The share of working-age population that is either employed people have been similarly positive – theiror actively looking for a job. unemployment rate is down from 17% in 2010 to2 According to the Labour Market Services and Benefits Act. below 10% at the beginning of this year. This has 2 (5)
  3. 3. The Estonian Economy Monthly newsletter from Swedbank’s Economic Research Department, continued Nr 2 • 27 July 2012been supported by strongly rising employment as of long-term unemployed peaked at the beginningwell as activity. The increase in activity is affected, of 2010 and has now declined by only about 20%.on the one hand, by the rising pension age of Even more, the share of long-term unemployed inwomen and, on the other hand, by the growing total unemployment has held steady above 50%number of budget-constrained people. since the beginning of 2011, even increasing to 59% in the first quarter of 2012 (one of the highestThe unemployment rate of non-Estonians, who are in the EU); these are levels that were seen onlyconsidered to have a disadvantaged position in the briefly more than 10 years ago, when the economylabour market due to their presumably weaker was experiencing large structural changes followinglanguage skills, has always been higher than that of the Russian financial crisis. The increasing problemEstonians. During the crisis, the non-Estonians of long-term unemployment – together with itssuffered more due to their higher employment in the effects on the individual, the society, and long-termmanufacturing, retail, and construction sectors, as economic growth, as well as the growing risk of itswell as in craft and related trade occupational long-term costs – has been discussed moresegments. The unemployment rate shot up to 28% publicly recently; however, measures to forestallat the beginning of 2010 but has now fallen to and alleviate it are still scarce.around 17%. Although the rise in unemploymentduring the crisis hit evenly across regions, the Unemployment by durationheavily industrial northeast region of Estonia (where (thousands)the non-Estonian workforce is the largest), which 140has always had a higher-than-averageunemployment rate, was affected exceptionally 120harder.3 Research has shown, however, that thenon-Estonians have the lowest mobility in entering 100the labour market3, and that, even with good 80language skills, the non-Estonians can suffer fromdiscrimination in their job searches compared with 60native Estonians4. 40Unemployment rate in northeast Estonia 20 30% 0 25% 2007 2008 2009 2010 2011 2012 up to 12 months more than 12 months 20% Source: SE 15% Discouraged persons 40% 18 10% 35% 16 5% 14 30% 12 0% 25% 2005 2006 2007 2008 2009 2010 2011 2012 10 20% 8 North-east region The rest of Estonia Source: SE 15% 6 10%The most dissapointing developments have been in 4the area of long-term unemployment. The number 5% 2 0% 0 2005 2006 2007 2008 2009 2010 2011 2012 total, thousands (rs) Source: SE as a % of unemploy ed persons3 Working Papers of Eesti Pank No 1/2011. „Labour marketmobility during a recession: the case of Estonia“4 Master’s thesis by Evelyn Uudmäe (University of Tartu,2012) „The role of typical Estonian and Russian soundingnames in the hiring process based on the examples fromTallinn.“ 3 (5)
  4. 4. The Estonian Economy Monthly newsletter from Swedbank’s Economic Research Department, continued Nr 2 • 27 July 2012On the positive side, active labour market measures flexible as its willingness and ability to learn and 5and changes in laws have increased the incentives change career profiles is on average better thanto remain active even after a long period of others. This difference in age profiles is best visibleunemployment. Nonactivity due to discouragement in long-term unemployment – its share in the oldesthas not increased significantly, especially compared age group is almost 70%, while amongst thewith the increase in long-term unemployment. The youngest it is around 40%. Even more, as is visiblenumber of discouraged people is more than twice in the chart, amongst the eldest age group,as small as it was a decade ago. unemployment increases the most for those with the highest-level education, even more than forEducation, training, and labour market peers with a lower-level educational profile; thismeasures – the key factors indicates greater inflexibility in retraining for thisOn average, the lower the educational level, the group.higher the possibility of becoming unemployed and,in turn, of remaining unemployed. Inefficient skills Ratio of particiaptions in active measures (% of registered unemployed)and a low educational level are considered to bethe main reasons for unsuccessful (re)entrance to 70%employment. While people with the lowest 60% Othereducational level have the highest unemploymentrates in every age group (see chart below), they 50%account for only about 20% of total unemployment. WageThe largest share of unemployed (about half of the 40% subsidytotal) has a upper-secondary education. This Job searcheducational level covers most of the special-skill 30% trainingworkers, who are the most likely in need of 20%retraining due to structural changes in the economy. WorkAlthough people with the highest educational level related 10% traininghave the lowest unemployment rate (except the Careereldest), they make up only about 30% of total 0% counsellingunemployment. 2008 2009 2010 2011Unemployment rate by age group and educational level in Source: EUIF2011 35% Although public expenditure on active labour market 6 measures is quite low in Estonia, there was a 30% considerable increase in the usage of labour market 25% training programmes7 last year. Amongst these, work-related training was the most used active 20% measure (see chart); this helps to raise 15% qualifications of unemployed with a low education level and nonefficient language skills, i.e., factors 10% that are amongst the main unemployment risks. 5% Job-search training, which helps the unemployed to become more competitive in their job hunts, has 0% increased in popularity. Wage subsidies, which Av erage 15-24 25-34 35-44 45-54 55-64 encourage employers to hire long-term total below upper secondary education unemployed, have been well received by market upper secondary education Source: SE tertiary education participants as well – in 2011, almost 5,000 unemployed were hired through this measure.Although the unemployment rate is the highest in alleducational levels among the youngest age group,this group has proved to be more mobile and 6 0.2% of GDP in 2010, being one of the lowest among OECD member states; OECD average was 0.7% of GDP. OECD Employment Outlook 20125 7 For example, registering as an unemployed and actively These measures are offered by the Estonian Unemploymentsearching for job guarantee access to basic state health care Insurance Fund (EUIF) and are partially cofinanced by the EUservices. structural funds. 4 (5)
  5. 5. The Estonian Economy Monthly newsletter from Swedbank’s Economic Research Department, continued Nr 2 • 27 July 2012Several social tax changes were introduced two the crisis to almost 10% now), it is still twice asyears ago that aimed to encourage employers to small as the EU average. Part-time employmenthire, in addition to long-term unemployed, part-time can be very useful in encouraging unemployed ofworkers. While part-time employment has increased several risk groups to enter employment or remainin popularity (from 6-7% of total employment before employed.SwedbankEconomic Research Department Swedbank’s monthly newsletter The Estonian Economy is published as a service to ourSE-105 34 Stockholm customers. We believe that we have used reliable sources and methods in the preparationPhone +46-8-5859 1028 of the analyses reported in this publication. However, we cannot guarantee the accuracy completeness of the report and cannot be held responsible for any error or omission in underlying material or its use. Readers are encouraged to base any (investment) decisions on other material as well. Neither Swedbank nor its employees may be held responsible forLegally responsible publisher losses or damages, direct or indirect, owing to any errors or omissions in Swedbank’sCecilia Hermansson, +46-8-5859 7720 monthly newsletter The Estonian Economy.Annika Paabut +372 6 135 440Elina Allikalt +372 6 131 989Teele Reivik +372 6 137 925 5 (5)