IMF warns Estonia about unemployment

  • 2000-07-20
  • Jaclyn M. Sindrich
TALLINN - Despite Estonia's position as a leader among the transition countries and its substantial progress toward creating a competitive, market-driven economy, its unemployment rate is cause for concern, according to an assessment released July 11 by the IMF's executive board.

"Directors were concerned that, notwithstanding a high degree of wage flexibility, the ongoing restructuring of the economy in combination with mismatched skills has resulted in a high level of unemployment," said the report.

The IMF stated that the main reason for the unemployment rate, which in June stood at 14.5 percent according to the Statistics Office, has been the government's resistance to measures to slow the transformation of the economy.

The directors underscored the importance of addressing the problems related to unemployment through targeted active labor policies, "not least in order to preserve a social climate favorable to the continuation of reforms."

National Labor Market Board general director Mati Ilisson warned that if the state does not start tackling the problem head-on, it won't become any cheaper or simpler to solve.

So far, passive methods, such as paying out unemployment benefits, outweigh active ones like schooling, by 70 to 30 percent, Ilisson said.

"After this year, [active measures] may be only 20 percent. We need more money to give our people more active possibilities, like training."

Yet, a law that goes into effect this October will extend the payment period for the jobless to 270 days, from 180. The government will pay what the person would normally pay into their social tax, about 1,400, plus give 400 kroons for living costs per month, according to Social Affairs Ministry spokeswoman Sigrid Tappo.

Mart Relve, director of the Estonian Chamber of Commerce, didn't seem surprised at the IMF's evaluation. It is inevitable that Estonia's unemployment has gone up, he said, as the Soviet-era mining, processing and energy industries have progressively faded out, and its workers have neither the qualifications nor preparations to search for a new line of work.

Meanwhile, modernizing the production facilities has eliminated the need for as much manpower, as the operations have become more efficient.

That the old industry workers have often not sought out employment in the newer sectors because doing so may imply a change of location is yet another hurdle to improving the jobless rate, he said.

"Estonians don't like to move from one place to another. In other countries, commuting two hours to work is normal. But to go from Tartu to Haapsalu, Estonians think that is very far. The government has to promote and educate that moving [for work] is normal."

At the same time, Relve said the government needs to do more to support vocational training programs for those that aren't willing to make long commutes. He explained the problem could be also be assuaged if more who are out of work would take the initiative to become entrepreneurs, which the state facilitates by providing 10,000 kroon one-time grants to those who present their ideas.

"As Estonia becomes more and more developed, and closer to EU, we need to protect the work force," Relve said.