TALLINN - "If we had known then what we know now, Estonia would have been the last place we would have opened a factory." I'm sitting in a room in a factory on the outskirts of Tallinn. Around the table are a dozen or so stony faced business representatives. There is a decided atmosphere of negativity. They have gathered here to discuss the growing problems within the Estonian labor market 's skyrocketing wages, poor productivity, growing absenteeism and a dire shortage of staff.
Peter Shilling is the man addressing us. He's the head of Svedbergs Ceramics, a company that manufactures bathroom products for the Scandinavian market. Three years ago when Svedbergs set up their 75 million kroon factory, the outlook was rosy. Wages were low, growth was healthy and Estonia was a land of promise.
Today it's a different picture.
"We have a two-year window for improvement before this is no longer viable," says Shilling.
All the companies around the table are in similar positions, and already one business owner is actively trying to uproot and leave Estonia.
The meeting is labelled the International Industrial Forum. It's a loose alliance of 11 businesses that collectively employs nearly 700 staff and represents a huge volume of trade. The companies in the room are all at capacity, all want to recruit, and are all turning orders away. The main factor inhibiting their growth 's or directly thwarting it 's is staffing.
With Estonia's economy steaming ahead, it seems impossible for companies to find workers. The unemployment rate is 5.9 percent, while 1.2 percent of the population are registered for unemployment support and are routinely sent out by the Labor Market Board to apply for job vacancies.
"About 99 percent of those are unemployable. They are too drunk to fill out the paperwork," Shilling says.
Jason Clark is plant director at PNJ Eesti, a U.K.-headquartered company that manufactures metal parts for export. He said his company is moving more of its operations back to Britain. "Anyone who comes here to set up a business now is on a hiding to nothing," he said.
Three years ago Clark gave an interview to BBC Radio praising Estonia's workforce. "We have a very high level of productivity, a low level of absenteeism, labor costs are a third or half of in the U.K.," Clark told the British broadcaster. "Industrialists will gain confidence in what can be achieved in Estonia."
It's a very different Clark addressing us today. In three years, his perception of the labor market has completely reversed.
The businesses represented at the forum say they suffered a turn-over of around 40 percent, with only about 60 percent of staff staying for a year or more.
Why is it so hard to find staff? Are foreign-owned companies being stingy with local salaries?
"It's not about money for me 's I'll pay what they want," says Jonathan Poole, part owner of Merchant's House hotel. "I don't want to play tennis with salaries with other businesses."
Others in the room were upset by the use of the wage issue as political ammunition in the recent election campaigns. Some parties promised to ensure that workers will earn a monthly wage of 25,000 kroons, compared to the current 10,000 kroon national average.
"These promises are unrealistic. People now believe they deserve 25,000 [kroons] a month, without doing any better work," says Jon Ross, head of the Interconnect Product Assembly factory.
"Nobody dreams of employing at the minimum wage now. You won't get people."
With wages now higher, some companies are finding that the competitive advantage once offered by Estonia has now been eroded. And with continuing poor productivity and absenteeism, in some cases it is now more expensive to operate a factory in Estonia than in the company's home country.
"The salaries were the reason we came here," PNJ's Clark tells the meeting. "All other business costs are the same as in the UK. In the manufacturing business, there is no longer a competitive edge."
Despite crackdowns, the "black money market" seems be alive and flourishing, particularly in the construction sector. This has created a headache for those businesses that employ legally, and are unable to match the favorable bonuses offered as cash-in-hand on some building sites.
"I cannot compete with black money," says Clark. "Young men get offered 15,000 [kroons] cash for walking on to a building site. Summer is coming up, and I have already started recruiting new staff because I know I will lose a large number of men to black money building jobs this summer."
But once staff are found, the represented businesses say they have trouble getting them to work at a productive level.
I ask what is being done to keep staff happy. Do they have usable facilities, incentive programs, promotion opportunities? Most answer yes. One company has a shuttle bus that picks employees up from home. Another offers sports club memberships, parties and company barbecue days, a monthly bonus for the best worker.
Shilling says financial incentives don't appear to have any impact on productivity.
"I offer a 30 percent bonus if the team meets an output level. It's not much more effort, but not one person has yet earned that 30 percent. It's money on the table, and they don't seem to care," he says.
The next topic up for discussion is migrant labor, an issue that runs hot at many trade discussions in Estonia. It's rare to attend a chamber of commerce meeting without hearing business operators complain about the small number of non-EU migrants allowed into the country and the lengthy application process.
According to legislation, the Citizenship and Migration Board can take up to six months to process an application. Although it rarely stretches to that figure, businesses said they regularly experience delays of about two months, during which both the employer and potential employee wait in limbo.
Marcela Furlongova runs Getwork, a company that helps bring migrant workers to Estonia. Her company services all types of employers, but lately has done a lot of work to bring factory staff from Ukraine or Bulgaria to feed the industrial sector.
Furlongova says the process is unnecessarily complicated. "Instead of having to send five applications and submit a passport to five different government agencies, why can't it just be one application?" she asks.
Jarve, the Deputy Secretary General on Labor Policy for the Social Ministry, has a question for the gathered businessmen.
"If we open our borders to a large number of migrant workers, what will happen when the market turns? We will have huge social problems, such as we have seen in the U.K., in France and in Germany. The ideal migrant worker is one who comes, does a job, then leaves when the job is no longer there. But this is not realistic," Jarve says.
It's time for a coffee break, and we head out into the factory showroom for some caffeine. Jarve, the sole representative of the government, looks relieved to be out of the firing line. I pull him aside, there's something I want to ask.
"Do government departments have the same problems these companies are having?"
Yes, he tells me. In fact, the Labor Market Board 's the very office responsible for solving labor issues 's is currently down several key staff members and is having trouble replacing them.
Back in the meeting room, the next topic for discussion is absenteeism, a word normally used when discussing truant schoolchildren.
The gathered businesses agree that they experience absentee rates of 20 percent per month, meaning that at any given time up to 1 in 5 staff will be off sick, or just off. In the United Kingdom, they tell me, absenteeism is at an average of 2 percent.
"In Estonia, there is an apparent social acceptance of unjustified absenteeism. It's normal to not come to work," Shilling says.
The problem means that businesses must employ more than their required staff level to ensure that their factory floors are fully operating each day.
Jon Ross from Interconnect Product Assembly says his staff roster is at 230 people, just to ensure that the necessary 200 people show up for work. That means he must pay wages and social taxes for any staff who are off sick, and these days that's a growing proportion.
Part of the problem is the ease at which anyone can get a doctor's certificate to show that they are ill. After two days off sick, workers are paid a percentage of their salary from the government's health fund.
"There is an irresponsible provision of doctors' certificates in this country that has to stop," says hotelier Jonathon Poole. "I have actually started to pay bonuses to people to come back to work."
The meeting has stretched to nearly three hours now, and there's been plenty of talk of problems and nearly no talk of solutions.
Pay rates can't be helped, but the gathered businesses feel the government could help the situation by changing the immigration provisions, sick leave benefits and vocational training possibilities.
Tiina-Maria Varavas, a trade and investment adviser at the British Embassy, suggests they attempt to arrange a meeting with several government ministers to talk about their concerns.
"As an Estonian, I am scared at what you are saying," Varavas says.
Anybody who was in that room that day would be too.
