1. Assessment and recommendations
Despite Estonia’s good labour market performance, a considerable share of the population lacks solid labour market attachment, facing a number of obstacles limiting their access to good jobs. Overall, the institutional set-up of ALMP provision produces good results and its key features have proven their effectiveness. Nevertheless, the system could benefit from more co-operation among stakeholders and across policy fields. While the regulatory set-up of ALMP provision permits flexible policy responses, it is complex, making its administration burdensome and causing complexity in budgeting and financing. The Unemployment Insurance Fund has increased its outreach to potential jobseekers over recent years. Despite these efforts, population groups who are furthest from the labour market remain difficult to reach. The ALMP basket is overall appropriate, but some ALMPs are not sufficiently well targeted to the groups they are designed for.
1.1.1. Estonia has a strong labour market, but structural challenges persist
Estonia’s labour market has outperformed most other OECD and EU countries over recent years. While the country was severely hit by the Global Financial Crisis, with unemployment among 15-69 year-olds peaking at almost 17% in 2010, the labour market recovered strongly. In 2019, unemployment was down to under 5%, the number of employed people was higher than ever before (670 000 in the first quarter of 2020, corresponding to an employment rate of 75.0%) and wages had risen by more than 30% compared to 2008, placing Estonia among the top performers among OECD countries.
Labour market improvements came to a sudden end in early 2020, when the COVID-19 pandemic deeply affected the global economy amid confinement measures and a disruption of international trade. As a small open economy, Estonia was vulnerable to falling demand in its main export markets and its GDP fell by 6.9% in Q2 2020 and by 1.9% in Q3 2020 compared to one year earlier. The unemployment rate among 15-69 year-olds increased, reaching 7.2% in Q2 2020 and 7.8% in Q3 2020, against 5.1% (Q2 2019) and 4.0% (Q3 2019) one year earlier. Despite these headwinds, the Estonian labour market proved comparatively resilient, in part due to the support of quick policy responses. Already a few months after the outbreak of the crisis, the number of new weekly employment contracts started to outpace the number of terminated contracts in most weeks and the labour force participation rate reached 75.5% in the third quarter of 2020, its highest level since 2018. It remains to be seen how rapid and permanent the recovery of the labour market will be.
While Estonia’s labour market is generally sound, the country faces major structural employment challenges. First, rapid population ageing is likely to become an obstacle to the development of the economy. The working-age population is projected to decline over the next decades while the share of people in retirement age in the population is set to rise, from about 20% in 2020 to almost 30% in 2030. Such an evolution is likely to amplify labour shortages and may strongly affect fiscal spending. In addition, there are marked mismatches between the skills workers possess and the skills for which there is labour demand in Estonia. In 2016, almost 30% of Estonian workers were either over or underqualified for the tasks they perform and more than 35% worked in a position that did not match their qualification. Finally, there are stark differences in employment outcomes across regions, pointing to a heterogeneous labour market with limited employment perspectives in economically weak areas, such as Ida-Viru and Valga.
1.1.2. A large share of people could benefit from active labour market policies
Many people in Estonia are only weakly attached to the labour market, that is, they do not work, or work only some months a year, work on unstable employment contracts or have low earnings. According the Labour Force Survey data, close to one-fifth of 25-64 year-olds were out of employment and another fifth earned low wages or worked on precarious contracts in 2019. Active labour market policies (ALMPs) can be a useful tool for a large part of this population to improve their labour market situation.
Rich data from different administrative registers can be used to identify groups in need of ALMPs well. The unique micro-level data set used for this analysis includes a wide range of information such as people’s labour market status, employment records, earnings, citizenship, mother tongue, education, place of residence, health status as well as information on the ALMPs, social services and health services they receive. The data allow to identify people who have a weak attachment to the labour market with great precision and account for the fact that not all of them are likely to benefit from ALMPs. People who are weakly attached to the labour market and are in poor health or living in rich households, for instance, are unlikely to enter employment even if they are referred to ALMPs. Therefore, it is necessary to focus on people for whom ALMPs have a significant chance of being effective.
According to the microdata analysis for 2018, 26% of 15-64 year-olds in Estonia are only weakly-attached to the labour market (including those that are not working and excluding those in full-time education) and might achieve better labour market outcomes through ALMPs. While all regions in Estonia are home to a significant share of people with possible ALMP needs, counties in the country’s East and South are particularly concerned. While 23% and 24% of working-age adults have possible ALMP needs in the counties around Tallinn and Tartu, respectively, they are more than 30% in Ida-Viru (East) and Valga (South).
1.1.3. Lack of skills and family-related obstacles are particularly widespread among people with weak labour market attachment
Skills obstacles, family-related obstacles and obstacles to social integration (very long periods out of employment, migrant background, etc.) are particularly widespread among groups with weak labour market attachment. 68% of these people face skills obstacles, often because they have only a low level of education or because they lack professional qualifications. Two-thirds (64%) face family-related obstacles, such as care responsibilities for a young child, an elderly household member or a person with disabilities. 42% face challenges to integrate into the society and the labour market as they have experienced a long history of inactivity or have a migration background. Other common labour market challenges among the people with weak labour market attachment are related to health limitations (21%), geographic distance from jobs (18%) and motivation challenges (such as significant non-labour income or misconduct on the previous job).
Facing several employment obstacles simultaneously is common among people with a weak labour market attachment. Almost all of persons weakly attached to the labour market face at least one labour market obstacle, three-quarters face at least two obstacles and close to 40% face three obstacles or more. Simultaneous obstacles are considerably less frequent among people who have established a solid labour market attachment.
1.1.4. People with weak labour market attachment need individual support
The correlation between different labour market obstacle types is overall low, suggesting that “typical” profiles of people with ALMP needs may be insufficient to reflect the diverse life circumstances of people with weak labour market attachment in Estonia. People confronted with skills obstacles, for instance, are as likely to face family obstacles as people with geographic obstacles. Therefore, people with weak attachment to the labour market need individual approaches to support them as the exact same support package is not likely to be effective for everybody.
1.2.1. The institutional set-up of ALMP provision produces good results and its key features should be maintained
The Ministry of Social Affairs (SOM) and the Unemployment Insurance Fund (EUIF) are the two main institutions involved in the provision of active labour market policies (ALMPs) in Estonia. SOM is the central institution governing labour market and social issues. The EUIF fills the role of a public employment service. The EUIF is set up as an autonomous public body and it is steered by a tripartite Supervisory Board consisting of two employee representatives, two employer representatives and two Government representatives (including the Minister of Health and Labour) to strike a balance of power between different interest groups.
The current system of ALMP provision performs well both in terms of outcomes and its ability to adjust to labour market changes. For example, the introduction of the Work Ability Reform in 2016 is widely considered a success. Furthermore, the quick introduction of a new short-time working scheme to address the challenges posed by COVID-19 has received a lot of positive feedback by stakeholders and employers, including publicly via the media. The sustained improvements on the labour market before the COVID-19 crisis also point to good outcomes of ALMP provision in Estonia and suggest that the system supports the Estonian labour market well.
All key stakeholders agree that the key features of the institutional set-up should be maintained – i.e. how the EUIF is set up, its legal status and its management framework. They consider it beneficial that ALMPs are provided by an autonomous public body with a tripartite strategic management body (the Supervisory Board). The Supervisory Board functions as a buffer between high-level policy orientations and actual ALMP design and implementation. Generally, the composition of the Supervisory Board with an equal representation of all three social partners is considered to be suitable for its mandate.
1.2.2. The division of responsibilities and co-operation practices of the Ministry of Social Affairs and the Unemployment Insurance Fund should be further defined and agreed on
The legal regulation concerning the institutional set-up is not explicit on the division of responsibilities in designing and organising ALMPs, and some of the tasks assigned to SOM and the EUIF are similar. Furthermore, the legal regulation is not explicit on what the tasks related to ALMP design and organising implementation mean in practice. This lack of clarity regarding the exact competences of institutions can have negative consequences on co-operation and increases the risk of competing agendas.
To bring more clarity on the division of responsibilities, SOM and the EUIF should discuss and agree on their exact tasks, potentially involving other key stakeholders as well. This option has the advantage that it is based on a high degree of consensus and can lead to very flexible and efficient solutions which may not be achievable if competences are narrowly defined by regulation.
In addition, SOM and the EUIF should discuss and agree on their co-operation principles. Co-operation is necessary throughout the process of designing ALMPs, enabling to systematically involve both the expertise gained from implementation as well as the strategic view of broader employment policy objectives. SOM and the EUIF need to identify efficient channels for co-operation and agree on them as well as the level of formality, regularity and other arrangements regarding co-operation.
1.2.3. Employment policy could be co-ordinated better with social, health and education policies
Significant improvements in the co-ordination of social, health and employment policies have been made in the framework of the Work Ability Reform. This reform introduced new ALMPs addressing labour market integration and health obstacles, and increased funding for ALMPs and social services targeting health obstacles. It also improved the co-operation and information exchange between the organisations implementing the reform. In addition, SOM has developed a Welfare Development Plan 2016-23 to generate a strategic view on labour and social policies and address the fields of social affairs more holistically. Nevertheless, there might be room for improving policy co-ordination across different fields within SOM to support holistic approaches to citizens (i.e. the officials in SOM need to co-operate both internally and externally when designing policies, aiming to avoid gaps and overlaps in policy design).
Better co-ordination of employment and education policies would also be desirable particularly regarding adult learning programmes. Despite the higher participation in adult learning programmes in recent years, the need for upskilling and reskilling remains high and access to training measures is not sufficient. Access to adult training programmes could be improved by better co-operation between the stakeholders of the system of ALMP provision and the Ministry of Education and Research. Although co-operation has improved over the years, designing adult training programmes still takes place somewhat separately in each of the employment and education policy fields.
The co-ordination between employment and economic policy regarding measures for employers and entrepreneurship is generally appropriate. Although some measures in employment and economic policies are similar, the objectives, target groups and conditions of these two types of support are quite different and thus not overlapping. In designing ALMPs for employers, SOM and the EUIF co-operate tightly with the Ministry of Economic Affairs and Communication. This ensures that employers’ needs are viewed holistically across policy fields. In addition, two representatives of the Estonian Employers’ Confederation represent employers in the Supervisory Board of the EUIF. However, there are no representatives of the Estonian Association of SMEs in the Supervisory Board of the EUIF, although they are consulted on an ad hoc basis, either directly or via the Ministry of Economic Affairs and Communication.
1.2.4. Strategic co-operation across policy fields could improve through adjustments in the working methods
A possibility to ensure policy co-ordination is to use inter-ministerial working groups more systematically and effectively than currently. While many different working groups operate for specific purposes, more thoroughly co-ordinated and systematic approaches could help achieve more strategic co-operation. For example, there are many working groups that are initiated in the education, social and health policy areas, where also the EUIF and/or SOM representatives take part. Nevertheless, these initiatives fulfil specific purposes without overall co-ordination and systematic approaches across working groups, which might lead to fragmentation of discussions, as well as gaps and overlaps in policy co-ordination. Furthermore, SOM and the EUIF could consider whether simply participating in initiatives of other policy fields is sufficient or should the labour market policy field (i.e. SOM and the EUIF) drive some of the inter-ministerial policy co-ordination (currently the EUIF has a more active co-ordination role only regarding career counselling).
As the EUIF and its Supervisory Board have an important role in ALMP design and the strategy of ALMP provision, better co-ordination of policy fields could also be envisioned via the composition and activities of the EUIF Supervisory Board. Nevertheless, the current size, composition and balance are generally considered to be very suitable by the stakeholders. The set-up of the EUIF Supervisory Board has been the benchmark for reforming the size and the composition of the Supervisory Board of the Health Insurance Fund. The number of members in the Health Insurance Fund Supervisory Board was reduced from 15 to six in 2018, and was composed similarly to the EUIF (two ministers to represent the government, two representatives of insured people, two representatives of employers), to make it more efficient as well. In case the stakeholders deem necessary to involve additional stakeholders as members of the EUIF Supervisory Board, they should consider the changes carefully and aim at keeping the balance between the three social partners. If possible, substituting some of the current members should be preferred over increasing the total number of members in the Supervisory Board to keep the working methods of the Supervisory Board efficient. For example, a representative of the Estonian Association of SMEs could replace one of the current employers’ representatives. Involving a representative from the Ministry of Education and Research could be made possible by not involving a representative of the Ministry of Finance on the board.
A better alternative to fundamentally changing the composition of the EUIF Supervisory Board is to involve other stakeholders more systematically as observers, i.e. with rights to discuss the issues, but with no voting rights. Nevertheless, the number of observers at the meetings of the Supervisory Board should be small (only key experts), to ensure that working methods remain efficient.
Another way to foster co-operation between a broader set of relevant stakeholders would be to organise more extensive discussions systematically before discussing and deciding strategies in the EUIF Supervisory Board. This approach could help overcome the gaps in policy co-ordination without needing to establish further inter-ministerial working groups per se or making changes in the composition of the EUIF Supervisory Board. Estonia could set up an advisory body involving key stakeholders, experts and researchers to advise the Management Board of the EUIF, similarly to the example of the Expert Council advising the PES Management Board in Slovenia. In line with this, the reform reducing the number of members in the Supervisory Board of the Health Insurance Fund was accompanied by establishing an advisory body to enable inputs from a wider group of stakeholders into strategy development (in addition to advisory bodies for specific questions). The advisory body of the EUIF could be informal and the range of stakeholders to be involved could be adapted according to a specific policy question. The policy questions could cover strategy development (inputs for the Supervisory Board) as well as operating model (inputs for the Management Board). However, it is important that the advisory body discusses relevant questions systematically and that the discussions are driven by the needs of labour market policies. Among other stakeholders, the EUIF Management Board could involve the representatives of SOM in these meetings, as they are the main policy designers in the field.
1.3.1. Estonia’s legal set-up of ALMP provision is unnecessarily complex, making its administration burdensome
In Estonia, the legal framework for designing and implementing active labour market policies consists of three main sets of regulations. Some ALMPs are regulated in detail in the Labour Market Services and Benefits Act (LMSBA, adopted by the parliament), while others are regulated in the so-called Employment Programme (a government decree) or by provisions adopted by the Minister of Health and Labour (concerning programmes financed by the European Social Fund, ESF). In all three cases, the level of detail specified is similar, but their amendment procedures and time differ. Furthermore, the three sets of provisions often contain similar ALMPs (similar content and objective), but applying to different target groups on different conditions and/or using different technical processes. This means that the system has features to adjust ALMPs quickly when necessary, but it is complex.
An in-depth analysis of the legal frameworks of ALMP provision in Iceland, Germany, Slovenia and Denmark reveals that none of the reviewed countries have systems in place as complex as in Estonia in terms of duplicating similar ALMP content for different target groups or on different criteria. Furthermore, the lower-level details of ALMP provision are often left for lower-level regulations and decisions, contrary to Estonia where many details are set in the LMSBA, a high-level act passed by the parliament.
1.3.2. The Estonian legal set-up should be re-designed to decrease complexity and advance flexibility
One way of addressing the complexity and duplication of regulations in Estonia would be to restrict the LMSBA to key aspects of ALMP provision, such as the general institutional set-up, a general description of the aim of ALMP provision, target groups of ALMPs, and optionally the broad categories of ALMPs (such as in the OECD/EC methodology of LMP categories or in the framework act of ALMP provision in Slovenia). More specific characteristics of ALMPs, e.g. eligibility criteria or specific measures, would be set by more agile regulation (similar to the Employment Programme). The most granular details, particularly concerning the operating model of ALMP provision, would lie within the responsibility of the organisation implementing the ALMPs, i.e. the EUIF, regulated in internal documents and guidelines. The COVID-19 outbreak has indicated that public employment services that had more autonomy regarding their operating model were able to adapt their working methods faster (directing clients to online channels, reallocating staff to priority work areas, enabling staff to work remotely, etc.).
Such a set-up would enable to streamline the regulatory framework while maintaining its flexibility and ability to react to labour market changes. In such a setting, the LMSBA should also state how and by whom the details of ALMPs should be fixed. For example, the details of ALMPs could be fixed via a process similar to the one that is used when the Employment Programme is developed (first approved by the Supervisory Board of the EUIF and subsequently adopted by the government). The key stakeholders should discuss and agree on whether the current process of adopting and amending the Employment Programme should be adapted, e.g. whether the final adoption should be by the government or the minister, or whether, in order to enhance the agility and flexibility of the system, the approval by the Supervisory Board of the EUIF is sufficient. Another agreement that the key stakeholders should consider, is about which of the institutions takes the responsibility to draft the details of ALMP design – the EUIF or SOM. In any case, SOM and the EUIF should co-operate tightly (i.e. exchanging ideas from the very initial drafts until final versions) in drafting the regulation regardless of which organisation leads the process.
The complexity of the legal set-up could be further reduced if ALMPs regulated by the ESF Programmes would be incorporated into the LMBSA and the Employment Programme. This can be done once the programming period ends in 2023 and for those ALMPs that are proven to be effective and efficient. For the next programming period, SOM and other stakeholders should consider the regulation of ALMPs financed via the ESF funding more carefully, keeping the regulations of ALMP provision lean and flexible (i.e. avoid designing many similar ALMPs for slightly different target groups, and avoid setting up a high number of ESF Programmes).
1.3.3. Complexity in the regulations of ALMP provision triggers complexity in financing and budgeting
In 2016-19, 76% of ALMP expenditures were financed from unemployment insurance contributions, 19% of ALMP expenditures from ESF and 5% from the state budget (excluding reimbursements of social tax contributions for employers of people with reduced work ability as it is not considered to be an ALMP by the Estonian stakeholders). In general, the ALMPs in the Employment Programme and the LMSBA are financed mostly from unemployment insurance contributions. The ESF Programmes are financed from the ESF with co-financing from the state budget or unemployment insurance contributions. The EUIF has some financial independence as its operating expenses as well as key ALMPs and benefits are financed from the dedicated unemployment insurance contributions.
The complexity of legal regulations of ALMP provision triggers complexity regarding ALMP financing and budgeting. For example, budgeting and accounting takes place separately for each regulation (e.g. separate accounting for the Employment Programme and each ESF Programme). In addition, the financial flexibility is greater for general counselling and job matching, which are financed from the unemployment insurance contributions and for which the budget is approved by the Management Board (detailed budget) and the Supervisory Board (overall budget for operating costs) of the EUIF. Re-allocations between ALMPs in the Employment Programme within a financial year are also possible with the approval of the EUIF Management Board, but the overall increase in the budget needs to be adopted additionally by the Supervisory Board and the government.
1.3.4. Sustainability of the ALMP financing framework is a potential issue
The decisions to allocate unemployment insurance contributions to finance ALMPs do not depend only on the labour market situation. The resources of the unemployment insurance scheme are taken into account in the overall state budget balance, which implies that any change in ALMP allocation has an impact on other expenses in the state budget. As a result, this dedicated funding source does not ensure full flexibility in allocating ALMP expenditures. Even if the reserves to cover ALMP needs may be sufficient, the final decision on unemployment insurance premium and allocations for ALMPs are taken by the government and these decisions are based on the overall state budget balance, not necessarily considering the needs of the system of unemployment insurance. The current financing framework can create situations when the reserves of unemployment insurance are sufficient, but these could not be used to cover all ALMP needs, or that the unemployment insurance premium could not be lowered even when reserves were sufficient.
The current ESF programming period lasts until 2020 and allows to use the allocated funding up to 2023. Nevertheless, as of September 2020, the Estonian stakeholders do not yet have a plan on how to integrate the ALMPs currently financed by the ESF to the national framework or how to finance these ALMPs in the future.
The only considerable allocation to ALMPs from the state budget concerns reimbursements of social tax contributions for employers of people with no or partial work ability (a measure that is considered as an ALMP since 2016 when the EUIF took over its administration). The co-financing from the state budget for the Employment Programme and ESF Programmes has decreased over the years and is at a marginal level in 2020. To avoid putting additional pressures on unemployment insurance scheme, additional allocations from the state budget could cover the needs for ALMPs for uninsured jobseekers (who have not paid unemployment insurance contributions) and for measures that will be not financed from the ESF in the future. However, an increase in the funding of ALMPs from the state budget would require considerable political will and a re-prioritisation in strategic objectives.
1.3.5. The financing model does not systematically support accumulating reserves during good times for economic downturns
The unemployment insurance premium is pro-cyclical in Estonia as the premium has been higher during the times of higher unemployment rate and higher expenditures of the system of labour market policies, and lower during better conditions, when also expenditures are lower. The stakeholders of the ALMP system and the government need to agree on new principles for setting the unemployment insurance premium to introduce counter-cyclicality and accumulate sufficient reserves during the good times, before any economic downturns. For example, an automatic mechanism could be built in the system that takes into account the economic situation and/or forecasts and the current reserves, which would trigger changes in the unemployment insurance premium. Alternatively, the unemployment insurance premium could be kept at a constant level, optimised across business cycles. The unemployment insurance system would be in a deficit in poorer economic conditions and in surplus in better times. In addition, automatic triggers for higher benefit generosity could be introduced in such a financing model.
1.3.6. In the context of central management of public funds, the low financial sustainability in the systems of health care, social services and social security undermines the financial sustainability of labour market policies
Since 2012, the Ministry of Finance manages the public sector funds centrally, including the reserves from the unemployment insurance contributions. Although EUR 250 million (about 30% of unemployment insurance reserves) were quickly made available for the short-time work scheme in spring 2020, the key stakeholders have expressed concern about whether the funding for ALMPs and benefits would be always so easily available in case of an urgent need. Estonia should consider revising the health care, social services and social security systems to make them financially sustainable, to ensure that the unemployment insurance reserves actually remain available for labour market needs.
1.4.1. Benefits and health insurance are strong incentives to contact the EUIF
Despite the low generosity of the unemployment benefit system in Estonia, benefits play a big role in incentivising jobseekers to register and stay registered with the EUIF. Furthermore, subsistence benefits can be an incentive to register with the EUIF as municipalities can take the registration with the EUIF into account when they decide on granting benefits.
People with health issues have particularly strong motivation to register with the EUIF. In 2007, health insurance coverage was extended to the registered unemployed. Moreover, in 2016, the Work Ability Reform linked the payment of the work ability allowance to registering with the EUIF. In addition, the Work Ability Reform strengthened the support to people with reduced work ability significantly (new ALMPs targeting this group, increased funding of ALMPs, changed service concepts to meet the needs of this group). These incentives have contributed to a rising share of EUIF registrations among the unemployed with health limitations. In 2013, the share of people with reduced work ability among registered unemployed was 6.3%. This rate started to increase fast along with the discussions on the reform, reaching 18.4% in June 2016, just before the implementation of the reform. The share of registered unemployed with reduced work ability among all registered unemployed has grown fast during the years of implementation of the Work Ability Reform, reaching 31.4% in December 2019.
1.4.2. The EUIF has become more active to advertise its support
Along with wider client groups and new ALMPs, the EUIF has increased its efforts to advertise its new activities and policies. A wide-scale marketing campaign promoted the new ALMPs targeting employed people in 2017 (re-enforced in 2019), aiming to prevent their unemployment. Concerning the Work Ability Reform, the EUIF did not focus on advertising its services and measures, but on ensuring that the affected groups were well informed. The information about the reform, its objective and the process of its implementation were also disseminated by other organisations involved, above all by SOM.
In addition, the EUIF has specific activities to reach out to people in need, such as organising mobile counselling (so-called MOBI), the rapid response service (the EUIF counsellors go to workplaces where a collective redundancy is about to take place), counselling people about to be released from prisons and prisoners who are allowed to exit the prison premises for work reasons, providing career counselling in schools, organising job fairs, etc.
Overall, the EUIF has made significant effort to create awareness about its possibilities to support people in getting (better) jobs. Nevertheless, the efforts during the last years have focused mostly on people with health limitations or low skills, while other vulnerable groups have been somewhat left behind. For example, the extension of ALMPs to people in retirement age in 2016 has not been advertised more widely. Estonia could learn from the United Kingdom on how to build a comprehensive strategy to reach out to and support older workers.
1.4.3. People who are very far from the labour market are difficult to reach
According to the analysis of micro data from different registers, close to 40% of people with weak labour market attachment are in contact with the EUIF. While people who have recently lost employment tend to register with the EUIF more commonly, those furthest away from the labour market, many of which have been out of employment for a long time, are particularly difficult to approach. Only one-third of people who did not work in 2018 were registered with the EUIF at least once between 2017 and 2019 (to account also for people who were already registered earlier with the EUIF and for people registering late).
The share of people with weak attachment to the labour market who are in contact with the EUIF differs by the labour market obstacles they face. Due to the Work Ability Reform, the proportion of people registering with the EUIF is highest among people with health obstacles, reaching 60% and exceeding other groups by far. However, only 41% of people with skills obstacles were in contact with the EUIF in 2018, 35% of people with longer term integration challenges (and only 27% of people with longer term integration challenges without health problems) and 40% of people with family-related challenges (mainly care obligations).
1.5.1. The EUIF should increase its outreach through further activities to raise awareness
The EUIF should continue and reinforce its outreach activities, including to inactive people, the unemployed and employed people who lack a solid attachment to the labour market. The EUIF outreach and support to vulnerable groups could be increased by improvements in networking with other organisations (municipalities, other providers of social and health services, youth centres) as well as by raising awareness to change employers’ attitudes, change the attitudes of the target population, change the attitudes of society to combat discrimination, increase awareness of the available ALMPs and encourage ALMP take-up. Past experience in generating awareness about the Work Ability Reform and unemployment prevention measures could be used to address other groups that are currently left behind, such as older workers (including retirees), people with social integration obstacles, low-skilled inactive. The EUIF should communicate clearly what it can offer and how this benefits these groups, using indirect outreach channels (e.g. media), as well as direct outreach (e.g. via employers).
1.5.2. Estonia has boosted expenditures on ALMPs
Over recent years, Estonia has boosted active labour market policies. At 0.47% of GDP in 2018, expenditures on ALMPs in Estonia are close to the OECD average level of 0.48% and the EU average of 0.51%. Expenditures on passive labour market policies (PLMPs) are still lagging behind both the OECD and EU average (0.41% of GDP in Estonia versus 0.64% in the OECD and 0.67% in the EU), although unemployment rates have been on similar levels (5.4% in Estonia versus 5.6% in the OECD in 2018 among 15-64 year-olds). This makes Estonia one of the few OECD countries spending more on ALMPs than PLMPs.
In addition, labour market and social integration is supported by other measures and services, such as social, health and education services or measures to support entrepreneurship. Several of these services have similarities to ALMPs provided by the EUIF. Moreover, other benefits are provided for the people that are weakly attached to the labour market, besides unemployment benefits (PLMPs). Most notably, work ability allowance (administered by the EUIF) and subsistence benefit (administered by municipalities) impose also activity and job search requirements for the beneficiaries.
1.5.3. The composition of the overall ALMP package is appropriate
Along with the increase in ALMP expenditures, the diversity of ALMPs provided by the EUIF has increased considerably to meet the individual needs of the jobseekers. The general composition of ALMPs is well aligned with the international evidence on which types of policies are most effective and efficient, relying relatively more on counselling and training, and not at all on mediating public work schemes. Along with the Work Ability Reform, Estonia spends a large share of its ALMP budget on ALMPs targeting health obstacles, which indicates that the ALMP package should also be supporting well jobseekers in greater difficulties or jobseekers with disabilities. Nevertheless, while the largest increase in ALMP expenditures during the last years concerns sheltered and supported employment and rehabilitation measures, 89% of this type of expenditures in 2018 covered the reimbursements of social tax contributions for employers hiring people with reduced work ability. This measure on its own, however, does not address the individual needs of jobseekers as all employers employing any person with reduced work ability are eligible for these reimbursements.
The EUIF uses an individualised approach to provide ALMPs. The employment counsellors identify individual needs for ALMPs by well-established work-focused counselling and quantitative profiling tools (except for ALMPs for employers, such as wage subsidies and reimbursements of social tax contributions). The EUIF invests a lot in the skills of its counsellors as referrals to ALMPs depend largely on counsellors’ discretion. The counsellors are supported by a quantitative profiling tool that estimates jobseekers’ probability of employment and probability of returning to unemployment in case they get employed based on 60 different variables. The approach to ALMP provision has moved slightly away from work-first strategy (i.e. to always prioritise labour market integration opportunities) towards train-first strategy (i.e. prioritising up- or re-skilling to improve first labour market integration opportunities) to some client groups (people with low digital or native language skills, low-skilled employees).
The impact of ALMP provision is continuously monitored and evaluated and the basket of ALMPs is redesigned taking into account evaluation results. Impact evaluations conducted by the EUIF as well as external evaluations have shown that the ALMPs provided by the EUIF (e.g. training, apprenticeship programmes, wage subsidy programmes, business start-up subsidies) have been generally effective and cost-efficient. Furthermore, the assessments of the European Network of Public Employment Services indicate that the business and operating models of the EUIF are effective and efficient.
1.5.4. The coverage of ALMPs is high once a jobseeker is in contact with the EUIF, but the share of people with weak labour market attachment in contact with the EUIF should be higher
The analysis of individual-level administrative data from a number of registers shows that among people with weak labour market attachment in 2018, 28% participated in ALMPs at least once between 2017 and 2019 (i.e. specific ALMPs beyond counselling, information provision and job mediation that are provided to all clients). The referral rate to ALMPs was slightly higher, at 31%, as not all jobseekers that were referred to ALMPs did eventually participate. Comparing the referral rates to the share of people in contact with the EUIF indicates that the EUIF counsellors referred 80% of the people in contact with the EUIF to a particular ALMP.
The share of people referred to specific ALMPs (and participated in them) once they are in contact with the EUIF is similar across the sub-groups with weak labour market attachment, across the obstacles they are facing as well as across the number of obstacle types. As such, the coverage of ALMPs is highly dependent on the share of people in contact with the EUIF.
1.5.5. Job-search support and ALMPs targeting health and geographic obstacles reach many of the people in need
ALMPs supporting labour market integration in general are by far more frequently provided than other types of ALMPs. Around 80% of ALMP participants receive ALMPs that support their job search in general, either alone or in addition to more targeted ALMPs. Given that general ALMPs, such as career counselling, are in many cases a precondition for a successful job search, their frequent use is helpful, even if they are targeted to a large share of jobseekers facing different circumstances and labour market obstacles.
ALMPs addressing specific labour market obstacles usually correspond to the obstacles people face. ALMPs targeting health and geographic obstacles, for instance, tend to be more often provided to people facing such obstacles.
1.5.6. ALMPs addressing skill obstacles need to be better targeted and re-designed
The match is less evident for ALMPs addressing skills obstacles. Participation in ALMPs targeting skills is around 50%, irrespective of people’s specific labour market obstacles.
While up- and re-skilling can improve job perspectives for all job seekers, skill-related ALMPs should be further promoted specifically among the low skilled. The outreach strategy to low skilled people with weak labour market attachment should be revised to promote up-skilling and re-skilling directly and personally as raising general awareness might not be sufficient for this group. In addition, further training and guidelines should be provided to employment counsellors to detect training needs and convince the low-skilled to take up training. Furthermore, training programmes could be adapted to better fit the needs of the low skilled, thus favouring higher take-up and lower drop-out. Drop-outs could be minimised by providing counselling and mentoring during participation in training programme, discussing the challenges met and trying to address them. This counselling and mentoring should be conducted by the training conductor, co-operating with the employment counsellor in case needed. Estonia could learn from Germany, Austria and Norway on tailoring the training programmes to target better people with low qualification and skills and particularly on combining workplace and classroom training.
1.5.7. The most vulnerable groups need better targeted employment incentives and follow-up support
Likewise, the design of the different wage subsidies should be scrutinised to improve their targeting. While international experience suggests that such polices are only effective if they are targeted to the most disadvantaged groups, Estonia’s wage subsidies are not confined to the most vulnerable. In particular, the analysis on the Estonian administrative microdata indicates that people with integration obstacles, whose labour market outcomes are more likely to be improved by wage subsidiesaccording to international evidence, do not receive them significantly more than other people with a weak labour market attachment.
Caseworkers of the unemployed who are particularly discouraged about finding work should devote more efforts to present these clients to the employers (potentially in co-operation with the counsellors for employers), and promote wage subsidies for the employers as a tool to cover potentially lower productivity in the first months. Additionally, Estonia could consider restricting the target groups to the most disadvantaged or granting wage subsidy reimbursements to the employer upon the decision of the employment counsellor (e.g. the counsellors could consider the assessments of the quantitative profiling tool used in the EUIF to predict clients’ probability of labour market integration).
In addition, the most vulnerable groups might need additional support compared to what the EUIF has provided up until 2020. The Employment Programme 2021-2023 adopted in November 2020 foresees follow-up counselling to be provided more systematically from 2021 onwards. The experience form other countries, such as Germany, France and Denmark, shows that more intensive support and follow-up activities could be very effective to integrate long-term unemployed into sustainable employment. Estonia should ensure that sufficient resources are available to implement the new provisions regarding follow-up counselling systematically across vulnerable groups, and fine-tune the processes.
1.6.1. The EUIF has the capacity to network with other organisations, but the wider system lacks holistic approaches
There is no one single entry point to the system when a person needs to be supported not only by ALMPs, but also by social services, health services or education measures. As such, the person could contact any of the service providers they think they need and it is up to the service providers to understand if the person needs more extensive support also from other providers and direct them to the relevant institution.
The EUIF applies a three-tier counselling model to enable its counsellors to have more time for networking with other service providers in case of helping the more vulnerable groups. In addition to reaching out to other organisations case by case, the EUIF head office and regional offices co-operate with other organisations to provide specific services (e.g. organising coaching for working life or job clubs together with municipalities, or providing career counselling in schools in co-operation with them).
Contrary to the EUIF, other service providers (municipalities, health care sector, Social Insurance Board, education sector) do not have elaborate concepts (both strategies and procedures) in place on reaching out to other providers when needed. The most critical link in the system are the municipalities, which have the greatest potential to be close to the people in need, but are unable to fulfil this role due to often low capacity as well as prioritising other fields than social and employment policy. The capacity of municipalities needs to increase to make any fundamental improvements in reaching out to people needing multidisciplinary support possible.
1.6.2. Different institutions provide similar services, potentially causing gaps and overlaps in service provision
Over the years, the EUIF has started to provide some services that have elements of social and health services. The volume of EUIF policies with elements of social and health services has particularly increased in the framework of the Work Ability Reform, potentially increasing duplication of service provision across the EUIF, the Social Insurance Board, the Health Insurance Fund and the municipalities. Some duplication of ALMPs and related services can be caused by so-called Open Calls Projects that the SOM uses to outsource ALMPs to other providers than EUIF. Some potential duplication exists also between ALMPs and education measures concerning short-term training programmes.
1.6.3. While overlaps in service provision are rare in practice, gaps in services are a concern
Some ALMPs provided by the EUIF have stark similarities with services provided by other institutions and bear the risk of overlaps. This is in particular the case for some social services (e.g. support person service, personal assistance service, debt counselling), health services that are similar to ALMPs (e.g. psychologic counselling, technical aids) and adult learning programmes (e.g. adult learning programmes provided through ESF). In practice, however, overlaps of very similar services are rare. In most cases, people do not receive such services and similar ALMPs simultaneously, suggesting that some co-ordination and co-operation between the different institutions may be taking place. Overall, there does not seem to be an urgent need for additional measures to avoid the provision of overlapping services.
Gaps in services are a bigger concern. Although about half of the weakly-attached and even 74% of people facing health obstacles participate in ALMPs or similar services (provided by the EUIF or other providers), more efforts are required to reach the most vulnerable. Even when considering the system as a whole, a significant share of people with labour market difficulties does not receive any labour market services at all. For example, only 42% people with obstacles to integrate to the society received some ALMPs or similar services.
1.6.4. Institutions providing employment, social and health services need to co-operate to provide holistic support
The low coverage of services among the most vulnerable groups underlines the need for better outreach to these groups, potentially through stronger emphasis on outreach activities by social workers of municipalities as well as reinforced co-operation and networking between the organisations.
A particular area that needs to be improved is data and information exchange between the different institutions concerning employment, social and health policies. The IT infrastructure used in municipalities (STAR) should be replaced with a modern and user-friendly IT system to support municipalities and facilitate data exchange with other organisations.
To encourage holistic approaches across the providers of employment, social and health services, networking and building partnerships have to be prioritised by the EUIF as well as other service providers. Estonia could set up multidisciplinary teams and partnerships based on informal and voluntary co-operation between employment counsellors and other professionals (e.g. social workers), i.e. more holistic approaches could be achieved without changes in the institutional set-up. As the EUIF has higher capacity and more developed approaches in place than other service providers, the EUIF could be well placed to initiate the informal co-operation and encourage and drive the development of joint practices, e.g. joint case management for particularly vulnerable clients together with social workers. However, these practices can be successful only in case all parties have a willingness to co-operate and at least some capacity to do so. The joint case management should concern above all clients that need simultaneous support from several service providers, as there are clients who need only ALMPs, as well as clients who need first strong support by social welfare services (e.g. solving housing or mobility issues, home violence, difficulties with everyday activities) before ALMPs could be helpful and joint case management effective. Estonia could learn from France, Austria, Flanders (Belgium) and Slovenia on how to set up joint case management for the particularly vulnerable groups with simultaneous needs for employment and other services. The experience of Flanders could also be an example on how to improve data exchange between institutions to support joint case management. Furthermore, Estonia could consider scaling up the Youth Guarantee Support System tool that links data from nine different registers to detect young people not in employment or in education and training and facilitate reaching out to them. This tool could potentially be extended for other age groups to enable reaching out to discouraged workers more generally.
Making the legal framework for ALMP provision less complex without reducing its flexibility
Restrict the scope of the Labour Market Benefits and Services Act to focus on key aspects of ALMP provision, such as a general description of the aim of ALMP provision and the broad target groups of ALMPs.
Set the details of ALMP provision by a more flexible regulation, similar to the Employment Programme. Authorise the adoption of the detailed regulation of ALMPs either to the Minister of Health and Labour (after adoption by the Supervisory Board of the EUIF) or the Supervisory Board of the EUIF.
The key stakeholders of the system of ALMP provision should discuss and agree on whether the detailed regulation approved by the Supervisory Board of the EUIF or the minister should be additionally adopted by the government. The key stakeholders should also agree on which of the institutions takes the responsibility to draft the details of ALMP design – EUIF or SOM – but ensure that co-operation between these organisations would take place in the drafting process in any case (i.e. joint drafting and consultations).
Leave the fine details, particularly concerning the operational design of ALMP provision for the EUIF to decide and set these with internal documents and guidelines (e.g. whether to outsource or provide in-house specific ALMPs, channel management, counselling frequency).
Incorporate ALMPs regulated by the ESF Programmes into the Labour Market Services and Benefits Act and the Employment Programme, once the programming period ends and if proven to be effective and efficient.
For the next programming period, consider the regulation of ALMPs financed via the ESF funding more carefully to keep the regulations of ALMP provision lean and flexible (i.e. avoid designing many similar ALMPs for slightly different target groups, avoid setting up a high number of ESF Programmes).
Increasing co-ordination of employment policy with social, health and education policy
Co-ordinate the use of inter-ministerial working groups to address common strategic challenges more systematically and effectively.
Consider changes in the composition of the EUIF Supervisory Board to cover a more relevant and diverse range of stakeholders (e.g. a representative of SMEs, a representative from the Ministry of Education and Research), while keeping the balance of the three social partners unchanged and the total number of members preferably the same or close to the current level.
Consider involving key stakeholders of education, social and health policy (such as representatives from the Ministry of Education and Research, Social Insurance Board, Health Insurance Fund, the Association of Estonian Cities and Municipalities, the Estonian Chamber of Disabled People) as observers in the meetings of the EUIF Supervisory Board as necessary and depending on the topics for discussions and decision making.
Set up an (informal) advisory group for the EUIF Management Board to discuss strategic issues of labour market policies and the EUIF operating model with a wider group of stakeholders before the EUIF Supervisory Board meetings. The advisory group could meet systematically when there is a need and involve researchers and practitioners in addition to policy makers.
Discuss possibilities to take more advantage of the vocational education system when providing labour market training. Involve all relevant organisations in the discussions in finding solutions to the current limitations regarding public procurement for labour market training – the Ministry of Social Affairs, the EUIF, the Ministry of Education and Research, the Ministry of Justice and Ministry of Finance.
Improve co-ordinating policies across different fields within the Ministry of Social Affairs to support holistic approaches to citizens.
Improve data and information exchange between the different institutions concerning employment, social and health policies. Consider substituting STAR for a modern and user-friendly IT system to support municipalities.
Ensuring sustainability of ALMPs funding
Develop a plan for future funding of the ALMPs currently financed by the ESF.
Agree on new principles for setting the unemployment insurance premium to rely only on the needs of the labour market (not financial needs of other policy areas). Introduce counter-cyclicality in setting the unemployment insurance premium and accumulate sufficient reserves before any economic downturns (e.g. an automatic adaption mechanism or an optimal rate of unemployment insurance premium across business cycles).
Revise the systems of health care, social services and social security to make these systems financially sustainable and to ensure that the unemployment insurance reserves actually remain available for labour market needs (even in case the public funds remain consolidated).
Improving the outreach strategies to the low skilled and people with obstacles to social integration.
Promote up-skilling and re-skilling in a joint co-operation between SOM, the EUIF and institutions in the education system and through the networks of career counsellors, employment counsellors and training organisations (i.e. approaching the target groups personally, not only by raising general awareness).
Reach out to older workers by communicating clearly what the EUIF can offer and how this benefits older workers, using indirect outreach channels (e.g. media), as well as direct out-reach (e.g. via employers).
Continuously build co-operation practices with the municipalities to reach discouraged workers.
Increasing access to training measures among the low skilled
Involve systematically the stakeholders from both employment and education policy to design and implement adult learning programmes to target the training programmes better, avoiding gaps and overlaps (e.g. discussions and consultations early in the process of drafting the policies).
Provide further training and ensure the full implementation of guidelines to employment counsellors to detect training needs and convince the low skilled to take up training.
Adapt training programmes to better fit the needs of the low skilled, encouraging participation, minimising training barriers and preventing drop-out. This could be done by providing counselling and mentoring during participation in a training programme, discussing the challenges met and trying to address them. This counselling and mentoring could be conducted by the training provider, co-operating with the employment counsellor in case needed.
Rely on the results of the Skills Assessment and Anticipation exercise OSKA and the EUIF Occupational Barometer systematically across different adult learning programmes, including those not provided by the EUIF (Open Calls Projects, programmes of the Ministry of Education).
Extend train-first approaches to those in need, particularly when tackling the labour market challenges caused by the COVID-19 outbreak. A training-first approach could be generally prioritised for young low-skilled people as well as young drop-outs.
Supporting people who have obstacles to social integration and other particularly vulnerable groups
Allocate more working time of the caseworkers of the unemployed who are particularly discouraged about finding work to present these clients to employers (potentially in co-operation with the counsellors for employers), and promote wage subsidies for the employers as a tool to cover lower productivity in the first months.
Consider restricting the target groups of wage subsidies to the most disadvantaged, particularly in better economic conditions.
Consider using the quantitative profiling tool to grant wage subsidy reimbursement to employers based on each client’s probability of labour market integration (i.e. the probability can define eligibility and/or reimbursement rate).
Ensure that sufficient resources are available to extend more intensive support and systematic follow-up activities to more vulnerable groups beyond those with long-term health challenges.
Build the capacity of institutions providing health care and social services to tackle challenges concerning caring obligations as well as other needs beyond ALMPs. Allocate time for employment counsellors to assist vulnerable groups by networking with the relevant organisations and finding solutions together.
To support particularly vulnerable groups, set up multidisciplinary teams and partnerships based on informal and voluntary co-operation between employment counsellors and other professionals (e.g. social workers).
Consider scaling up the Youth Guarantee Support System tool to reach out to discouraged workers more generally.