The work ability reform has brought additional people into the labour market
Economist at Eesti Pank
- The share of people of working age who were in employment reached 66.3% in the first quarter. In seasonally adjusted terms it stood at 67.3%, which is the highest figure in recent decades
- The unemployment rate was one percentage point lower than a year earlier
- Companies had to hire additional labour to accommodate rebounding demand, but labour productivity increased too
- Growth in labour productivity will need investment in human capital by companies and a government policy that facilitates the movement of employees towards jobs with higher productivity
The Estonian labour force survey shows that the number of people in employment was 2.7% higher in the first quarter of 2017 than a year earlier. The share of the working age population in employment was 67.3% in seasonally adjusted terms, which is the highest figure in recent decades. Data from the Tax and Customs Board also show a rise in the first quarter in the number receiving declared wage income, and the sentiment survey from the Estonian Institute of Economic Research finds that the expectations of companies for employment have improved.
Statistics Estonia puts the unemployment rate at 5.6%, which is one percentage point lower than in the first quarter of last year. Low unemployment and a rise in the number of vacancies in the economy indicate that there is still a shortage of labour in the labour market. This has been eased to some extent by the migration balance, which is positive for the second year in a row as more people come to Estonia than leave.
Labour shortages are being eased by active participation in the labour market. One factor that eased it was that the number of people who were inactive in the labour market because of illness or injury fell throughout 2016 and at the start of this year. This is probably because of the work ability reform that is being introduced, which makes the benefits received by those who are partially able to work dependent on their participation in the labour market. Like the statistics published today for the labour market survey, the data from Töötukassa, the unemployment insurance fund, show the work ability reform contributed to the increase in the number of people entering the labour market. Töötukassa had 8166 people registered as having reduced working capacity at the end of April, which is around half as many as a year ago. On average some 1500 people with reduced working capacity were additionally registered in the four first months of 2017, while an average of 900 people with reduced working capacity left the register each month, of whom just over half found employment. The introduction of the work ability reform will affect the labour market further in the future.
Although companies had to take on additional staff so as to expand output, labour productivity increased at the start of the year too. This is indicated by the recently released data for manufacturing output and exports, which showed strong growth at the start of 2017. Increased labour productivity is of great importance for further growth in the Estonian economy and the maintenance of competitiveness, as there are few ways that the number of working people can be raised. This will need investment in human capital by companies and a government policy that facilitates the movement of employees to more productive jobs. The new measures from Töötukassa for people who have a job and the plan to remove the fringe benefit tax on accommodation for workers who have come from further away are steps in this direction.
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