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Unemployment Insurance Fund: Signals from labor market worrying

The Estonian Unemployment Insurance Fund office in Tartu.
The Estonian Unemployment Insurance Fund office in Tartu. Source: Aili Vahtla/ERR

The Unemployment Insurance Fund (Töötukassa) expects the unemployment rate to rise next year, causing the fund's budget, which has been in surplus, to fall to zero or into a small deficit that has to be covered by reserves. Meelis Paavel, agency chief, suggested raising the unemployment insurance contribution rate in the fall.

Paavel said that the signals coming from the labor market are grim.

"We had (projected) an increase in unemployment until the first quarter of next year based on earlier estimates, but the latest numbers show a higher unemployed rate for the year," Paavel said.

However, redundancies are likely to come in the near future because employers have delayed them so far.

"So far, Covid's lesson to many has been not to rush into layoffs, but to wait until the last minute. Everyone knows how difficult it is to rehire people, especially specialists, (so) these decisions have been delayed as long as possible, but today we can see that patience is running out," Mait Palts, the head of Estonian Chamber of Commerce and Industry (ECCI), said.

"All along, we have been waiting for the economy to recover quickly so that we can overcome sudden crises just as quickly. But it hasn't come, and employers are running out of buffers," Kristo Aab, an economic analyst, said.

"Companies have seen their profits beginning to fall while labor costs are rising. At some point, there is a limit to the amount of idle labor," he said.

Paavel said that the Unemployment Fund will end this year in surplus, which means more funds will be available next year. However, next year's budget could be in deficit.

"We will end this year in surplus, which means we will have more resources available next year. Unemployment insurance benefit, unemployment benefit, various labor market training courses in the current perspective are funded. Based on the summer macro prediction, we should have closed the next year in the surplus as well, but based on the most recent forecasts, I believe we will end the next year in the red or marginally in the red," he said.

The Unemployment Insurance Fund will forecast the unemployment insurance contribution rate in September, and Paavel indicated it might be raised if the situation worsens. The unemployment rate is 7.7 percent this year. Next year, it is predicted to reach 9 percent.


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Editor: Marko Tooming, Kristina Kersa

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