1/2011 Jaanika Meriküll. Labour market mobility during a recession: the case of Estonia

Working papers of Eesti Pank. No. 1/2011

The paper investigates the dynamics of worker flows and the duration of different labour market states during the recent boom and bust of 2001-2010 in Estonia. We find that labour market adjustment has mostly taken place through massive worker reallocation, resulting in a high unemployment rate. Despite high worker flows from employment to unemployment, labour market mobility has fallen in many ways during the recession: job tenure and unemployment spells have increased, while job-to-job transitions and mobility across industries and occupations have fallen. The unemployed with the lowest level of education and non-Estonians have the lowest mobility to enter employment and run the highest risk of long-term unemployment. There is evidence of softer ways of adjustments to the crisis, where more workers are engaged in remote work, part-time work or jobs that do not match their skills. Internal migration has small potential to alleviate the high unemployment. The current crisis has hit the country more evenly across its regions than the Russian crisis did. Unemployment has increased similarly in all regions and unemployment inequality has dropped. Even so, there are some signs of marginalisation. The situation is worst in the north-eastern part of the country with unemployment hitting 25%.
JEL Code: J60, E32, J61, J62, J64
Key words: worker reallocation, unemployment and employment duration, business cycle

* Jaanika Meriküll is a researcher at Eesti Pank. The author would like to thank Tairi Rõõm, Martti Randveer and participants in the internal presentations of the paper in Eesti Pank for their valuable comments. All remaining errors are the author's own.

Author's e-mail addresses: Jaanika.Merikyll [at] eestipank.ee

The views expressed are those of the author and do not necessarily represent the official views of Eesti Pank.

Contents

1. Introduction
2. Related literature
3. Analysis of worker flows
3.1. Methodology
3.2. Worker flows and the business cycle
3.3. Unemployment and employment duration and the business cycle
3.4. Worker flows between industries and occupations
3.5. Worker flows by region and geographical mobility of the labour force
4. Analysis of the duration of labour market states
4.1. Methodology
4.2. Data
4.3. Results
      4.3.1. Unemployment duration
      4.3.2. Employment duration
5. Summary
References
Appendix 1. Workers flows between labour market states and job flows, 2001-2010q3
Appendix 2. Unemployed by duration of unemployment, 2000-2010q3 in thousands
Appendix 3. Unemployment dynamics by NUTS3 region and the coefficient of variation, 1993-2010q3

Labour market mobility during a recession: the case of Estonia, Working Papers of Eesti Pank No 1/2011 (PDF*)