About the ILO in Estonia

A strong economic recovery does not erase pre-existing inequalities in the labour market

After independence in 1991, Estonia introduced comprehensive economic reforms transiting to a market-based economy. A strong political consensus helped to go for fast and substantial reforms building an open economy based on foreign trade and foreign direct investment. Based on an advanced digitalization policy, Estonia also established itself as a regional hub of information and communication technology. EU membership in 2004 further enhanced the successful transition.

As a result, Estonia has been able to maintain an impressive rate of convergence towards the average EU per capita income in the past 30 years. While in the early 1990s the per capita income was 30% of the EU average, it has reached 84% in 2020. The labour market benefitted from the economic expansion and performed well in past years. In 2020, the employment rate was far above the EU average (78% vs 72%). The gender employment gap decreased from 13 per cent in 2017 to 6 per cent in 2020 (EU average: 12%). Unemployment rates were low (4% in 2019) and labour shortages became a major challenge. However, due to Estonia’s comparatively flexible labour market, the pandemic showed a stronger effect on unemployment than in most other EU countries, jumping to 8% during 2020 before subsiding to 5% in 2021. The rapid increase can partly be explained by self-employed, part-time, and short-term workers having been less likely to be eligible for income support.

The Covid-19 pandemic did not affect the country as much as other EU member countries. The GDP decreased by 3% in 2020 (EU27: -6%) and first estimates for 2021 show an expansion of 7.5%. However, growing inflation and labour shortages may put a damper on growth and could make wage questions more prominent to attract a workforce that can help to sustain the growth.

Labour shortages are driven by a shrinking working age population, which has been decreasing since 2005. While in recent years the total population increased due to positive net migration, population ageing has offset the positive effect on the number of persons that could work. The working age population will further decrease by around 12% in the next two decades due to low birth rates. Other important challenges are the relatively high poverty risk for retired people, high income inequalities, and the highest gender pay gap in the EU (22% vs 14% of EU27).

The ILO in Estonia

Estonia is a member state of the ILO since 1992. The ILO has assisted Estonia in its economic and labour market transformation and in its accession to the EU in 2004. Main areas of work included social dialogue, active labour market policies, labour law reform, occupational safety and health, social protection.

Text last edited on 03/22