Social Development in Estonia: Choices European Economic and Social Committee The Social Situation in the Baltic States// Economic Governance, Wages and Collective Agreements Brussels, 27 November 2012 Alari Purju Tallinn University of Technology
Agenda General economic situation; Labor market adjustment to economic crises, -long-term unemployment, -youth unemployment, -regional differences; Labor market institutions, active and passive labor market measures; Role of social partners; Measures taken during the crises; Lessons for future labor market policy.
General economic situation Economic development since 2000 can be divided into three very different phases: -2000-2007, the period with very rapid growth, the real GDP increased 1.833 times, -from 2008 to 2009 there was a period of deep resulting in a GDP decline of 17.5% during years, recession two -the moderate economic growth started in 2010 and gathered momentum in 2010, the total growth has been 10.1% during two years.
GDP growth in the Baltic States, 2000-2012 15 10 5 0-5 -10 Estonia Latvia Lithuania -15-20 2000 2002 2004 2006 2008 2010 2012
Unemployment in the Baltic States, 2001-2012 25 20 15 10 Estonia Latvia Lithuania 5 0 2001 2003 2005 2007 2009 2011
Unemployment and inflation in the Baltic States, 2001-2012IX 25 20 15 10 5 Estonia UE Latvia UE Lithuania UE Estonia CPI Latvia CPI Lithuania CPI 0-5 2001 2003 2005 2007 2009 2011
Estonian economic indicators, 2007-2011 Indicator 2007 2008 2009 2010 2011 GDP, at current prices, in billion of euros 16.1 16.3 13.8 14.3 16.0 GDP, real growth compared to previous year, % 7.5-3.7-14.3 2.3 7.6 Gross fixed capital formation, % of GDP 35.6 29.7 21.5 18.8 21.5 Exports (goods and services), % of GDP 67.0 70.8 64.7 79.4 92.7 Growth in exports compared to previous year, nominal, % 5.7 0.6-8.4 22.7 16.8. Consumer price index 6.6 10.4-0.1 3.0 5.0 Employment in thousands 655.3 656.3 595.8 570.9 609.1 Unemployment, % 4.7 5.5 13.8 16.9 12.5 Budget surplus (+) or deficit (-) for government expenditures, as % of GDP 2.3-2.9-2.0 0.3 1.0
Nominal wage and real wage change, CPI, %. 25 20 15 10 5 0-5 -10 20,5 16,5 13 13,8 10,8 11,6 10,4 8,4 6,6 5,2 6,4 5,9 3 4,1 4,4 5 3,1 3-0,1 1 0,9 2004 2005 2006 2007 2008 2009 2010-2 2011-5 -4,9 Nominal wages CPI Real wages
The impact of economic crises (1) Estonia was heavily affected in terms of declines of house prices, credit and industrial production, but avoided the currency devaluation; The lack of an initial sudden stop in capital flows was part of decoupling of emerging market finance from the crises in advanced world during its first year; Contractions in trading partner growth appear to have been a more important cause of the output decline than capital outflows;
The impact of economic crises (2) Export and financial shocks magnified the reversal of credit booms that had already been under way before the September 2008 shock; The presence of foreign banks is likely to have played a mitigating role in limiting the outflow of capital from financially integrated countries; The structure of foreign capital was better in comparison with the Asian crises in 1997 in the sense, that it was less prone to sudden reversal, much of it came in the form of foreign direct investments; Also private debt was intermediated by the local subsidiaries of foreign banks with long-term interests in the region.
The impact of economic crises (3) Fiscal positions were generally sound and public debt has been low, risks of public sector are probably more concentrated into local governments; Vulnerabilities have been concentrated in the private sector; Unemployment have been increasing rapidly but declined substantially when economy recovered, employment did not achieved the pre-crises level; The decline of GDP, but also industrial output and exports have been very deep, but recovery was also fast in 2011.
The impact of economic crises (4) Estonia maintained its hard peg and was successful in fulfilling Maastricht criteria and joined the euro zone in 2011; Estonia, as most countries in CET, has been pursued mildly contracting policy, no expansionary fiscal policy; The role of Swedish government in shaping and supporting crises management in the Baltic states, Estonia supported the crises package of Latvia with 100 million EUR (this resource was not used).
Labor market adjustment to economic crises
Labor market developments Natural population growth has been negative since the beginning of 1990s, nevertheless, over the last few years birth rates and death rates have been more or less balanced; Outward migration during the whole period, Labor survey s estimate is that 20000 is net migration during the last 20 years; The census taking place in the beginning of 2012 corrected the number of inhabitants, in the age group 15-74, the difference between the register and census figure was 36176 or 3% of the age group.
Natural increase (decrease), net migration and total increase (decrease) of population, 2004-2011, persons 1000 0-1000 -2000-3000 -4000-5000 -6000-7000 2004 2005 2006 2007 2008 2009 2010 2011 Natural increase (decrease) Net migration Total increase (decrease)
Employment: general overview Before the crises, in 2008 Estonia had active population of 694.9 thousands, employment rate in age group of 15-74 was 66.6%, unemployment rate was 5.5%; During the period from second half of 2008 up to beginning of 2010, 107300 workers lost their job; Employment increased by 40000 to middle of 2011 and by 74000 to the second quarter of 2012; Employment was still by 34000 or by 5.1% lower in second quarter of 2012 in comparison with pre-crises peak.
Employment: vulnerable social groups on the labor market Long-term unemployed people: limited number before the crises, increasing number during the crises and practically not decreasing number during the growth period with declining unemployment of 2011 and afterwards; Youth unemployment, high level of unemployment of noneducated, non-estonian males; Regional unemployment, North-East Estonia; Unemployment of non-estonians, especially youth males and in North-East Estonia.
Long-time unemployed, (thousands) 2007 2008 2009 2010 2011 Less than 6 months 13,4 20,3 49,3 38,0 26,5 6-11 months 2,8 6,2 19,7 25,3 11,0 At least 12 months Incl.. at least 24 months 15,8 8,9 11,8 6,2 26,1 9,0 52,6 19,3 49,3 27,5 Unemployed, total 32,0 38,4 95,1 115,9 86,8
Unemployment, 15-24 age group and total, % 40 35 30 25 20 15 10 5 0 2004 2005 2006 2007 2008 2009 2010 2011 Males, 15-24 Females, 15-24 Total, 15-24 Total, 15-74
Regional unemployment, % 30 25 20 15 10 5 0 2004 2005 2006 2007 2008 2009 2010 2011 North Estonia Central Estonia North-East Estonia West Estonia South Estonia Estonia
Unemployment of non-estonians, % 60 50 40 30 20 10 Males, 15-24 Females, 15-24 Males, 25-49 Females, 25-49 Males, 50-74 Females, 50-74 0 2004 2005 2006 2007 2008 2009 2010 2011
Level of education and unemployment, % 45 40 35 30 25 20 15 10 5 0 9,1 4 2008, Estonians 20,3 9 2,6 3,7 2008, Non- Estonians 27,2 15,5 6 2010, Estonians 42,1 25,8 15,6 2010, Non- Estonians ISCED, I level ISCED, II level ISCED, III level
Labor market institutions, legislation, passive and active labor market measures
Institutions Estonian Employment Insurance Scheme (Eesti Töötukassa), has local offices in every county; Ministry of Social Affairs (the labor market, development of working life, employment policy); The employment regulator, responsible for monitoring development and resolving conflicts; Labor courts, employees can ask for information, these courts can issue recommendations on resolving labor disputes.
Regulations (1) The Employment Contract Law, a new law introduced from 1 July 2009; Passive labor market measures: -unemployment benefits financed from contributions to the employment insurance scheme (50% of last salary during the first 100 days and 40% up to 360 days, minimal 257 EUR per month): if a person paid employment insurance contribution at least during 110 months, -supplementary benefits, if not obliged to unemployment benefits, 64 EUR per month or 8% of the average wage and 23% of the minimal wage, paid max during 270 days: if a person worked at least 180 days during the year preceding registration as unemployed;
Regulations (2) Active labor market measures: - Labor Market Services and Support Act; - 2007-2013 Programe on increasing the supply of skilled labor of the European Social Fund, Services include career advice, labor market training courses, job search guidance, work experience and state subsidies for employment, - the number of people finding work was 37,5% (58550 from 155922) in 2010 and 40% (49274 from 122117) in 2011, - Labor market policy expenditures amounted to 0.16% of GDP in 2008, but increased to 0.51% in 2009 and 0.57% in 2010.
Role of social partners (1) Employers -Central Employers Association (Tööandjate Keskliit), -Estonian Chamber of Industry and Commerce, -Association of Estonian Small and Medium Size Enterprises (EVEA) Employees -Estonian Trade Union Confederation, -Transport and Road Construction Workers s Trade Union, -Employee Trade Union (TALO), representing employees in the education and research sector,
Role of social partners (2) Around 10% of all workers are trade union members; Trade unions are better represented in large companies, for example in companies with over 250 employees, 48% of staff are trade union members, 40% of local authority staff and civil servants; Collective agreements could be signed by trade union if there is a trade union in the company, or the general assembly of all employees can elect a representative to negotiate a wage agreement; Around one third of companies with over five employees are covered by collective agreement, -agreements cover work organization, health and safety at work, only 20% of workers feel that they should negotiate remuneration collectively.
Role of social partners (3) Tri-party negotiations between the representatives of employers, employees and government; Prior to 2009, the new Employment Contracts Act initiated extensive cooperation; The final draft was dominated by the government proposals, the crises supported this outcome;
Social protection expenditures, % of GDP 40 35 30 25 20 15 10 5 0 2005 2006 2007 2008 2009 EU17 Euro17 Estonia Latvia Lithuania Germany Finland Sweden United Kingdom Denmark
Measures taken during the economic crises and lessons
Measures Fiscal policy measures, VAT increased in 2009 from 18% to 20%, reduced VAT rate from 5% to 9%; Change of indexation scheme for pensions that substituted 14% increase by 5% increase; Government suspended its contribution into the second pillar of pension scheme for three years (up to end of 2012); Decision to increase retirement age to 65 years in 16 years (at the moment its 63 years for male and 61,5 years for female population, will be 63 in 2016); The substantial change in Health Insurance Act regarding compensation of illness; In the Employment Contract Act, measures related to security were postponed and flexibility part has been applied.
Lessons (1) The crises played an important role as a test of the administrative capacity of Estonia s different tiers of government; The government achieved its budget policy goals through decisive measures, although this made cooperation with the social partners more difficult (in 2012 there have been two major strikes, on of teachers in Spring and another of medical servants in Autumn); Estonian fiscal policy has been generally pro-cyclical, helped to stimulate growth, but at the same time exacerbated recession during the crises due to lack of measures to support total demand; Labor market policies came under severe pressure, existing mechanisms and funding proved insufficient in the face of mass unemployment; An analysis of the groups at risk on the labor market should be be continued;
Lessons (2) The percentage of the active population is relatively high in Estonia, however additional options in terms of part-time work and retraining could be further boost employment and help to integrate problem groups in the labor market; There is a big number of unemployed persons who do not get either unemployment benefit or supplementary benefit, their subsistence is an issue to be dealt with; The Estonian welfare system has a strong focus on supporting families with children, the aim being to raise birthrates, clearly support for families should be developed and expanded and not to cover only children under the age of two years; The situation of elderly people must be improved, not just through higher pensions, but also by developing a system offering a wider range of services (old people s homes, nursing homes, day care centers for elderly people).