As a result of the planned reform, nearly 10,000 people are expected to lose their unemployment benefits, just 6-7 percent of whom would qualify for subsistence benefits, EUIF director Meelis Paavel told ERR.

However, according to Ulla Saar, deputy secretary general of labor and equality policy at the Ministry of Economic Affairs and Communications (MKM), the elimination of unemployment benefits would affect up to 700 households. These households could seek assistance from their local governments, and the state would allocate the necessary funds to local governments to provide this aid.

"If we consider the people who will lose access to the current unemployment benefit in the future, they include, for example, young people who have graduated from school, who aren't continuing their studies and who are not entering the workforce," Saar said. "How much compensation or support should the state provide to such people, given that the goal of the change is in fact to motivate people to enter the workforce?"

Slated to be introduced to the system, meanwhile, is a new basic-rate unemployment insurance benefit. This benefit would be available to people who voluntarily left their jobs, provided they had worked for at least eight months in the past three years.

The EUIF chief warned that while the unemployment insurance system does need to be reorganized, creating a new insurance benefit comes with risks.

Namely, while unemployment benefits were previously funded from the state budget, this new benefit would have to be financed from unemployment insurance funds instead.

For the EUIF's budget, this would mean an additional €45 million in costs next year alone. Paavel said these additional costs should be covered from accumulated reserves.

"We have only just emerged from the COVID crisis," he highlighted. "The associated wage compensation expenses significantly depleted our reserves, as did the latest round of wage compensation payments. In that case, the state stepped in to help, and we did not pay all of those out of unemployment insurance funds precisely to ensure that we could maintain reserves for future crises."

Without this new insurance scheme, the director added, the EUIF would remain in surplus.

Unemployment insurance premium rate could go up

According to Estonian Chamber of Commerce and Industry (EKTK) legal adviser Ireen Tarto, the increase in the EUIF's expenses could lead to a rise in the unemployment insurance premium rate, which is in turn concerning for businesses.

"These cost projections likely don't account for behavioral impacts, meaning that fulfilling these new responsibilities will require some sort of additional funding or measures to cover these expenses," Tarto explained. "One possible way to do this is to raise the unemployment insurance premium rate."

The Estonian Trade Union Confederation (EAKL) also considers the source of additional funding for implementing these planned changes as an unresolved issue, said EAKL chair Kaia Vask.

"We also proposed postponing this reform and considering how to expand the group of people paying into unemployment insurance, increasing the pool of contributors," Vask noted. "In that case, it may be possible to incorporate these changes into the system. But this isn't currently being addressed, or we're being told that it will be dealt with in the future."

According to Saar, however, raising the unemployment insurance premium rate is not essential for carrying out this reform.

"The EUIF's supervisory board has discussed the budget issue multiple times, and will continue to do so," the ministry deputy secretary general said.

"The general consensus is that the unemployment insurance premium rate, which is decided for the following year in August, should not be raised," she continued. "And in a situation where expenses will exceed revenue for a couple of years, it is possible to tap into those reserves, to cut operating costs, or cut service expenses — which are also being discussed and will be decided within the supervisory board."

Paavel hopes to discuss the organization's budget situation with the supervisory board next month.

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