Labour market and labour market policies during great recession: the case of Estonia

Abstract

The purpose of the paper is to analyse how labour market and labour market institutions reacted during recent crises. In early 1990s Estonia introduced a set of rather unique policy options like currency board as a ground for monetary policy, low taxes, open foreign trade policy, low public sector debts, annually balanced state budget etc. These measures caused very limited options to implement both monetary and fiscal policy. Macroeconomic adjustment will take place in such situation through the labour market. In the case of Estonia, we can observe a very high labour market flexibility, which played a crucial role in recent economic recession. The measures taken included a reduction of nominal wages, working hours and redundancies among employees. This indicates that the traditional institutional factors that protect workers and also could decrease the flexibility of the labour market, such as labour market regulation, social protection and union activities, are not very well developed in Estonia and do not have a significant effect on the outcomes of the labour market. The labour market reform was launched in Estonia in 2009. The main idea of the New Employment contract was that the termination of employment relations became less expensive for employers. Although empirical evidence show that the Employment Contracts Act entered into force at a time when most lay-offs had already been effected.

Labour Market Policies in Times of Crisis: A Reaction Function Approach for the Period 1985–2010

“…Some restrictive trends can be found in some Anglo-Saxon countries (Canada, UK), but also in Sweden, whereas a number of recent policies might indicate a change in priorities in some countries, towards a more expansionary LMP (such as the increase in job creation programmes in France). But restrictions are becoming stronger in Southern European and Baltic countries (Estonia, for instance, launched an important labour market reform in 2009 that strengthened labour market flexibility; Eamets, 2013). Forslund et al (2011) also analyse the effectiveness of LMP during recessions, focusing on the Swedish case.…”

Have the Baltic Countries Run Out of Labour Reserves?

“…For instance, according to the law, the protection of permanent workers in Latvia is as strict as in Belgium and Italy. Nevertheless, several rules that formally could be evaluated as strict either cannot be enforced or can be easily evaded (Eamets, 2013).…”

Internal labour market mobility in 2005–2014 in Latvia: the micro data approach

“…Gomes (2012 provides estimates for the UK for the period 1995-2010. Speaking about the Baltic countries, estimates are available for Estonia in Merikull (2011) for 2001, Masso and Krillo (2011) for 2008and Eamets (2013) for 2007. For our best knowledge, there are no publicly available labour flow estimations for Lithuania and Latvia.…”

“…By keeping the exchange rate peg, Latvia restored competitiveness through internal adjustments, that is, wage cuts and labour force restructuring. Restored competitiveness together with improved internal demand led to the recovery of economic growth within 4-5% per year in 2011-2013. When evaluating labour market flexibility one should take into account both micro and macro level (Eamets, 2013;Eamets & Paas, 2007). At the macro level, flexibility is determined by institutional characteristics and the flexibility of wages; at the micro level, flexibility is indicated by mobility of labour across different labour market states, regions and professional statuses.…”

“…The most widespread approach to calculate labour market flows is to compare the current economic activity status (estimated by the interviewer) with the retrospective information about the status one year ago (provided by the interviewee), thus obtaining labour flow data over a 12-month period (see, e.g. Eamets, 2013;Elsby, Smith, & Wadsworth, 2011;Hazans, 2005a;Merikull, 2011;Ward-Warmedinger & Macchiarelli, 2013).…”