Labour Market Flexibility In Estonia: What More Can Be Done?

Date Added: Jul 2009
Format: PDF

In mid-2008, high employment and low unemployment rates characterized the Estonian labor market in comparison with the average of the EU15 countries. While aggregate outcomes improved during 2000-07, large inequalities persisted across regions, ethnic groups, and workers with different skill levels. As Estonia entered recession in 2008, the unemployment rate almost doubled between the 2nd and the 4th quarter, and is expected to rise further in 2009 and 2010. More flexible labor markets will be a key adjustment mechanism during the recession as well as in the medium term if Estonia is to become a knowledge-based economy. Given the currency board arrangement and low synchronization with the euro area, flexibility is also needed to cushion asymmetric shocks.