The challenges ahead are a declining population and the development of the labour force

Orsolya Soosaar, Natalja Viilmann
Eesti Pank economists

Growth accelerated in Estonia in the second half of 2012 driven by domestic demand, and this was reflected in the labour market, as the share of the service sector in employment increased. Confidence indicators from our largest trading partners show that the outlook for the exporting sector has improved in recent months.

The unemployment rate also dropped in the second half of 2012, with the number and share of the long-term unemployed both falling. Unemployment is structural in nature and this is reflected in the continuing large differences in unemployment levels between regions and educational levels. A high level for natural unemployment is not inevitable. It is important for the state to use labour market and social policy levers to reduce obstacles to finding employment for the unemployed and those who have left the labour market.

The existence of sufficiently qualified labour resources is ever more important for the longer-term development of the economy. Preliminary estimates suggest that the working age population shrank during 2012 by almost one percent. Longer-term population forecasts are more pessimistic than earlier ones because of the high emigration by young people during the past decade. This means that even if the birth rate rises, the number of births will be lower, and there will be fewer young people reaching working age.

The decline in the population and labour force are processes that cannot easily be reversed. For this reason, more focus than ever needs to be put on developing the economy in a way that favours the creation of jobs with higher added value. This means encouraging life-long learning, effective cooperation between the education system and employers, and policy measures that favour the mobility of the labour force.

For further information:
Ingrid Mitt
Public Relations Office
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