Despite Estonia’s good performance, a considerable proportion of the population lacks a strong attachment to the labour market, facing a number of barriers restricting their access. Overall, the provision of active policies produces good results, but according to the OECD, the system can be more effective and benefit from greater cooperation between stakeholders. Although the regulatory approach allows for flexible solutions, it still remains complicated, making administration onerous with budgetary complexity and funding. The Unemployment Insurance Fund has increased its business in recent years, and despite these efforts, population groups farther from the labour market remain difficult to reach.

In recent years, Estonia has been among the best-successful countries in the EU, both in terms of employment and activity rates. In 2019, the employment rate among 15- to 64-year-olds rose to 75.2%, well above the EU average of 68.4% and above the highest before the global financial crisis. Despite these results, the country faces a number of structural challenges, such as shrinking the workforce, regional disparities and low employment rates among vulnerable population groups. In 2018, around a quarter of 15-64-year-olds in Estonia were still weakly linked to the labour market, i.e. they were potentially available for work but did not work at all or worked on low pay, in temporary or intermittent jobs. The economic consequences of the coronavirus outbreak have further exacerbated some of these challenges, at least temporarily. The unemployment rate rose to 7.8% in the third quarter of 2020, an increase of 3.8 percentage points compared to the third quarter of the previous year, with higher increases among young people and low-skilled people. Although these data show that the Covid-19 crisis has had a strong impact, the economy soon showed signs of recovery. However, despite the relatively solid labour market fundamentals, some structural challenges persist: demographic trends are likely to limit the capacity to extend the labour market, with widespread skills mismatches and an insurance system that leaves many unemployed with a low level of benefits or even without, thus contributing to a high risk of poverty among the unemployed. Some population groups are particularly vulnerable and face high risks.

The current system of providing active labour policies in Estonia has been successful and stakeholders tend to be satisfied with the broad configuration of the system; however, consideration should be given to reducing some of the complexity of the regulations and reviewing the cooperation practices of the supply system. The supply of active labour market policies has improved significantly in Estonia over the past decade: incentives to contact the Estonian Public Employment Service have increased, as have efforts to publicise their support and the amount of expenditure on active policies. The policy package has also been revised to meet labour market needs and the Employment Service has developed strategies to network with other institutions to support clients holistically. However, discrepancies in the capacity of the different institutions can potentially create some gaps and overlaps in the overall support provided. A quarter of 15-64-year-olds in Estonia are only weakly linked to the labour market: they do not work, or work only a few months a year, on unstable employment contracts or low wages. While all regions of Estonia are home to a significant proportion of people with a weak attachment to the labour market, the situation in the eastern and southern provinces of the country is particularly worrying. Barriers to skills, obstacles to the family and obstacles to integration into society (i.e. very long periods of unemployment, migration, etc.) are particularly prevalent among the most disadvantaged groups.

Over the years, Estonia has strengthened its active labour market policies and improved guidance. At 0.47% of GDP in 2018, expenditure on HSMp in Estonia was close to the OECD average and slightly below the EU average of 0.51%, while expenditure on passive labour market policies (PLMP), i.e. income support, is still lagging behind the OECD and EU averages. This makes Estonia one of the few OECD countries to spend more on LAMps than PLMP. In addition, the diversity of ALMP provided by the Unemployment Insurance Fund has increased considerably to meet the individual needs of job seekers. Only 40% of people weakly linked to the labour market are in contact with Estonia’s public service for employment; however, the reference rate to active labour market policies is high (80%) once contact has been established. The share of people benefiting from active labour market policies is significantly higher among people with long-term health problems; at the same time, awareness-raising and coverage of active labour market policies are lower among groups facing barriers to labour market integration due to reduced skills or difficulties in integrating into society. These results, therefore, suggest that active labour market policies in Estonia, while well targeted, are still unable to reach all the groups that could benefit from such support.