Swedbank: Work ability reform to further increase unemployment in Estonia in 2017

People protesting the work ability reform on Toompea Hill in Tallinn. 2014. (ERR)
11/15/2016 12:01 PM
Source: BNS
Category: Business

The unemployment rate in Estonia will grow further in 2017 as more people with limited capacity for work will be entering the labor market, Swedbank said in its commentary on third quarter unemployment data on Monday.

"As a result of the work ability reform, an increase in the unemployment rate will continue next year," said Liis Elmik, senior economist at Swedbank. "In the second half of 2016, it is mainly people who have lost the ability to work recently that are set to become clients of the Estonian Unemployment Insurance Fund (EUIF). From 2017, the EUIF will also begin evaluating other people with permanent incapacity for work and supporting their entry into the labor market."

The number of people inactive on the labor market decreased by 10,000 in the third quarter of 2016 compared with the third quarter of 2015, which is attributable to the increase in pensionable age and the work ability reform, which went into effect this summmer.

At the end of October, 5,000 people with reduced capacity for work were seeking employment with the support of the EUIF, according to the latter; the number of people inactive on the labor market due to their studies decreased as well.

As a result, the number of people employed should be somewhat smaller next year than this year. The size of the working-age population is declining and a rapdi increase in labor costs necessitates an increase in the efficiency of work processes.

"At the same time, employment in the construction sector should grow next year as a result of state orders," said Elmik. "The outlook for the energy sector is somewhat more positive as well as a result of the gradual rise in oil prices."

The Estonian unemployment rate was 7.5 percent in the third quarter of 2016, 2.3 percent higher than in the same quarter of 2015, Statistics Estonia said on Monday.

The rate of employment was 66.5 percent. The labor force participation rate increased by 1 percent compared to the same quarter of the previous year and the number of inactive working-age people was on a downtrend.

The number of unemployed persons was estimated to be 53,000 in the third quarter of the year, about half of whom had been unemployed for less than six months. The increase in the number of unemployed people is mainly due to a decrease in the number of inactive persons, which may have been influenced significantly by the Work Ability Reform launched in 2016, Statistics Estonia said.

Editor: Aili Vahtla

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