1887

OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Labour Market Flexibility in Estonia

What more Can be Done?

In mid-2008, high employment and low unemployment rates characterised the Estonian labour 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 labour 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 synchronisation with the euro area, flexibility is also needed to cushion asymmetric shocks. In December 2008, parliament adopted the new Employment Contract Act, deregulating employment protection while increasing income security of the unemployed. This paper discusses options for removing the remaining barriers that impede worker reallocation across jobs, sectors, and regions into more productive activities.

English

JEL: J08: Labor and Demographic Economics / General / Labor Economics Policies; J64: Labor and Demographic Economics / Mobility, Unemployment, Vacancies, and Immigrant Workers / Unemployment: Models, Duration, Incidence, and Job Search; E24: Macroeconomics and Monetary Economics / Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy / Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
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