Labour market is showing signs of stabilisation

Natalja Viilmann, Eesti Pank, economist

In the first half of 2009, Estonia's labour market indicators responded with a lag of up to six months to the changes in economy. Nevertheless, the response was relatively quick compared to other countries. This confirms that Estonia's labour market is flexible which supports the restructuring of economy and contributes to post-crisis economic recovery.

In the first quarter of 2009, the unemployment rate increased to the highest level seen in the past eight years (13.5%) and the number of unemployed increased to 92,000. However, unemployment growth clearly started to decelerate and the exceptionally deep pessimism of individuals regarding the outlook for the near future started to ease. Furthermore, concerns about the number of unemployed starting to increase again rapidly from July due to the new employment contracts act taking effect have not materialised. The currently available data on the third quarter suggest a further increase in unemployment; however, the pace of growth continues to decelerate. The number of registered unemployed increased to 70,200 by the end of July, i.e. by 2,700 which is the lowest level recorded in the past nine months.

While employment rate fell due to a sharp decrease in labour demand, the factors behind unemployment increase were also an increased participation in labour market and demographic changes. People reaching the retirement age continued to fall out of the labour force, i.e. this age group is not actively seeking job anymore. At the same time, in year-on-year terms, a larger number of high school graduates entered the labour market.

The general changes in labour market indicators reflect significant structural changes. For example, economic decline had a greater impact on non-salaried labour, in particular entrepreneurs, and their number decreased relatively more than that of salaried labour. The global nature of the crisis has also triggered a change in labour migration: the number of people returning to Estonia from abroad was bigger than in previous periods. In terms of branches of activity, the construction sector, construction materials and also timber industry were affected to a greater extent as the level of labour that were released in these sectors was relatively higher.