Estonian labour market improved in the second quarter

  • Employment improved despite slow economic growth
  • Registered unemployment increased in Ida-Virumaa
  • The work ability reform is expected to boost registered unemployment and the labour force participation rate

Figures from Statistics Estonia show unemployment was 6.5% in the second quarter of 2016 and employment was 2.6% higher than a year earlier. Seasonally adjusted employment also grew quarter-on-quarter. As the number of 15-74-year-old people who participated in the labour market was almost 2% higher than a year ago, the labour force in the economy grew even though the population keeps declining at a slow but steady pace.

Not all data sources indicate an increase in employment, though. Compared to the figures from the labour force survey, data from the Tax and Customs Board on the number of people receiving wages were slightly more pessimistic, as this number fell by 0.4% in the second quarter of 2016 compared to the same time a year ago. This gap may stem from different definitions of the figures (e.g. the fact that data from the Tax and Customs Board do not include the shadow economy), but also indicate that the labour force survey overestimates employment growth.

According to the data published today, the survey-based number of unemployed, which covers both registered and unregistered unemployment, did not change compared to last year. However, data from Töötukassa, the Estonian unemployment insurance fund, show that the number of registered unemployed increased by 4.9%, year-on-year. Growth was the biggest in Ida-Virumaa, with 21% more registered unemployed in the second quarter than a year ago. This was probably caused by redundancies in the oil shale and energy sector, where the output fell as a result of low energy prices. 646 or 43% more redundancy benefits were paid out in the second quarter of 2016 compared to the same time in 2015.

The number of disabled people among the registered unemployed has been climbing for some time now. It can be expected that the work ability reform launched this July will lead to an increasing number of people with reduced capacity for work registering as unemployed. This means that the growth of registered unemployment will accelerate and the share of people active in the labour market will rise even further.

Source: Bank of Estonia

Author: Orsolya Soosaar. economist at Eesti Pank

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