Estonia ranked worst Baltic state in terms of employment flexibility ({{contentCtrl.commentsTotal}})

Estonian Business School
Estonian Business School Source: Photo: Postimees/Scanpix

A study carried out for the third time among European Union and OECD members states has shown that of the three Baltic States, Estonia remains in the worst position in terms of the Employment Flexibility Index (EFI) – a position it has held for several years. However, economic experts feel that the solutions being implemented during the coronavirus crisis will make improvements in both employment flexibility and worker protection possible.

The aim of the study is to compare the legal regulation of labor relations between the EU and OECD member states, in particular the level of flexibility of the regulations. The Index may be applied as a tool for countries to evaluate their position in the context of other countries, to assess how national legal systems are prepared to respond to changes in the economy and the labor market.

"The Estonian employment flexibility indicator of 59,0 is on a similar level to Spain (60,8), Poland (60,7), and Sweden (57,7), but a lot less than the indicators of Latvia (68,3) and Lithuania (70,0). For the third year in a row, the Estonian Employment Flexibility Index and the state's position in the chart has not changed," according to researcher Annika Kaabel of the Estonian Business School (EBS), the Estonian representative of the study group.

The US, Japan, and New Zealand rank highest in the Employment Flexibility Index 2020, which means that the employment regulation of these countries is the most flexible of all EU and OECD states.

Estonia is ranked 28th out of the 41 countries. Lithuania has seen the biggest improvement out of the three Baltic states, having ranked 27th in 2018, but rising to 15th last year and 14th this year.

"Other than the leap forward in 2018, in the overall context of the EU and the OECD countries Lithuania has nothing to boast about as it imposes redundancy rules and costs, statutory premiums for overtime, night work and work on rest days that are above the EU and OECD average," Lithuanian Free Market Institute expert Karolina Mickute said.

"The labour markets in the countries with the highest ratings in the EFI aren't stringently regulated," Kaabel explained. "For example, they might not have a minimum wage, or the number of permitted fixed-term employment contracts might not be set out in law. There are generally fewer restrictions on working hours as well, and redundancies come with fewer obligations. Estonia's ranking is quite low, since working relations here are regulated at the government level. On the one hand, rigid employment policies protect workers, but on the other hand they lead to higher unemployment and reduced consumption and productivity. At the same time, greater labour market flexibility tends to make a country more competitive overall."

Professor of Political Economy and Chair of the Economics and Finance Department of EBS Meelis Kitsing expressed his hope that the measures implemented for the management of coronavirus will make the labour market more flexible.

"The pandemic is giving a further boost to the developments we were already seeing on the labour market before the crisis," he said. "Remote, virtual and platform-based work are becoming increasingly important. The spread of these new forms of work requires a more flexible and more open labour market, which in turn means changes to the tax and social systems. State policy during the pandemic and its immediate aftermath must aim to find solutions in cooperation with employers and employees' representatives so as to help the labour market adapt further to the changing situation."

EBS chancellor Mart Habakuk remarked that regulation of the labour market today is largely based on the assumption that for people to fulfil their work duties they need to reside in Estonia and that employees want access to the benefits of the country's health care and pension systems.

"But the rapid rise in the proportion of remote work that's being down will hopefully lead to a discussion on what Estonia can offer remote workers and companies making use of remote work and how to fairly tax the added value generated by these companies and workers," he said. "And all sorts of ideas on improving the regulation of the rest of the labour market are likely to flow from that."

The full report can be found HERE.

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Editor: Anders Nõmm

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