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.   Continue reading