About the ILO in Estonia

A strong labour market faces a significant impact of the Covid-19 pandemic

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 2019. The labour market benefitted from the economic expansion and performed well in past years. In 2019, the employment rate was far above the EU average (80% vs 72%). The gender employment gap decreased from 13% 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.

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%). Nevertheless, the Government responded to the health and economic crisis caused by the pandemic with a strong fiscal response (8.5% of GDP in 2020). The focus of the package was on support for the health sector and wage support schemes. Given Estonia’s relatively flexible labour markets, unemployment rates increased quicker than in other countries of Central and Eastern Europe. The unemployment rate increased from 4% (2019) to 6.8% (2020) and the youth unemployment rate sharply grew from 11% to 18% (EU27average: 16%).

A returning labour market challenge during the current recovery from the pandemic will be the 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, and social protection.

Text last updated 8/21.