Speaking notes of Mr. Urmas Paet

Minister of Foreign Affairs of the Republic of Estonia

Sigulda, 18 May 2007

Some Highlights of Labour Market Trends: Estonia

Dear colleagues,

Ladies and Gentlemen,

It is a real pleasure to meet you in charming Sigulda and to speak about a vital issue of labour migration. In my presentation I will briefly touch upon three main themes. Firstly – emigration from Estonia after accession to the European Union. Secondly – I will talk about Estonia's labour needs, and finally – using Estonia as an example, I will take a look at the political measures for balancing the labour market.

Before joining the European Union, there was much talk in Estonia about a large number of employees moving abroad after accession. According to a poll conducted at the time, 42% of the working age population was interested in working abroad, although, only 3% had any serious intentions of actually doing so. The majority of them were interested in working abroad either temporarily, or from time to time.

Actually, the number of those eventually going abroad proved to be quite manageable – it is estimated that about 20,000 Estonians presently work abroad, which is about 3.3% of the working population. Although this number may increase, it must also be kept in mind that many Estonians have already returned home.

It can be assumed, that the main emigration destinations for Estonians will, for the near future, remain: Finland and Sweden due to their cultural and geographical proximity; and the United Kingdom and Ireland due to their language and fair and comprehensible administrative requirements as well as established networks. While many lower skilled workers go abroad for short periods, then in the case of highly qualified workers, it can be assumed that they remain abroad on a more permanent basis, although this is no rule.

The number of foreigners currently employed in Estonia is considerably smaller. It is estimated, that at least 5,000 foreigners are working in our country. The majority of them are from Finland or Ukraine, 35% work in various managerial positions, and 17% are in shipbuilding. When studying their gross wages, it can be said that our fairly strict policy has ensured, at least until now, that the immigration of labour is in most cases limited to qualified and well paid workers. But, at the same time, the question has been raised quite audibly, whether the bureaucracy involved in bringing highly qualified specialists into the country is perhaps too burdensome and time consuming for businesses.

Thus, the main problems with the shortage of workers are associated not with emigration, but more so with the decreasing and ageing of the population, the lack of required qualifications, as well as the fast development of certain sectors, such as the metal industry, manufacturing, electronics and optical equipment. During the last five years, thanks to the improved family support system, the birth rate in Estonia has increased considerably. But unfortunately, the ratio still remains negative – in 2005 the population decreased by 2,966 people. In the long term, the best means for ensuring the longevity of the population is a sound family policy that promotes a higher birth rate.

It has been predicted that, in the next few years, an average of 11.2 thousand people will irreversibly leave our labour market due to various above mentioned factors. At the same time, for rapid economic development, it is necessary to create about 3,800 new jobs a year. The majority of them are being created in the service and industrial sectors, while the number of workers in agriculture is continuing to diminish. Thus, we will require for about 14.5 thousand additional workers every year, primarily technicians, qualified specialists, and specialised managers.

Understandably, societal relationships in the real labour market are not always that linear. But what can be done to balance the situation?

As we know, along with capital inflow, economic progress is also advanced through labour force growth and higher labour productivity. This, in turn, implies investments into research and development. We take it for granted, that a successful economy cannot be based upon a poorly qualified labour. It is essential to invest into knowledge-intensive economy.

According to Eurostat, the productivity in Estonia is among the lowest in the EU – in 2005 it was only 58.6% of the EU's average. We are not expecting applied research and development from all enterprises, especially taking into account that most of our businesses are small or medium-sized. But we do promote innovative thinking. Also, modern technology, as well as non-technological innovation, for example design, can increase the productivity and make remarkable contribution to a knowledge-driven economy. Of course, it is also essential to promote the research of top-level scientists. (In this context, it is appropriate to bring forth the UK's Wellcome Trust, which supports the work of Estonian scientists in Estonia.)

One of Estonia's main principles in attracting additional work force is to rely on local labour. Above all, we make a concerted effort to maximise our own labour force. And although unemployment in Estonia is quite low – in 2006 it was 5.9% – there  are still quite a few people who, for various reasons, are not working, although are capable and interested in doing so. For instance, the long-time unemployed who have lost the hope of finding a job, disabled people, people who need permanent care, etc.

An important role in keeping labour force at home is played by employers. If wages and working conditions were satisfactory, then people would not have a reason to leave. Ever more important is the motivating of workers. Also, the support provided by local administrations plays a major role. For instance, the development of infrastructures and the every-day environment would encourage people to stay in their homeland.

A great way of balancing the labour market is to promote special professional training and career counselling. Estonia is planning to establish a unified career counselling system, so as to provide appropriate support for the whole working population. In times of rapid change, life-long professional training, as well as the opportunities for qualified re- and supplementary training are truly essential for maintaining competitiveness. 

Another important factor is, without a doubt, the foreign labour force. Citizens of the EU countries may work and operate businesses in Estonia without any restrictions. The annual influx of citizens from third countries is limited to 0.05% of the population, but in the near future this quota will be raised to 0.1%, which comes to about 1,300 people a year. Our objective is that primarily highly qualified individuals would come to work to Estonia. It must be noted that the citizens of Norway, Iceland, Switzerland, the United States, and Japan are not encompassed by this limit.

Estonia is presently formulating a foreign labour force migration strategy, which will make it easier for foreigners to work in Estonia. We are simplifying the registration of short-term workers and reducing the bureaucracy for applying for a residence permit for the reason of employment. We are also setting, as additional criteria, a standard pay for applicants. For example, 1.24 times Estonia's average wage for employment residency, which gives aspirants a clear message, that we are waiting for highly qualified workers.

A serious concern is to ensure, from the start, that people living and working in Estonia, be they natives or immigrants, are motivated, and encouraged to participate in the community as a whole. We realise that in the case of foreign labour we are confronted with various significant matters. For instance: the informing of workers about their rights and obligations; the monitoring of working conditions; language-related questions, promoting the integration of foreigners; social insurance; the monitoring of social attitudes – so as to prevent social tensions.

At the same time, taking into consideration Estonia's rapid economic development, the rise in wages, and the ever increasing shortage of labour, it can be assumed that going to work abroad has lately somewhat abated. It can be hoped, that people will return home as salaries and working conditions there improve. But this, of course, means that instead of relying on foreign labour we have to make efforts for encouraging our expatriates to return and make their contribution to our economy. I believe that the importing of so called cheap or low skilled labour is not, at least in Estonia's case, a solution to our problems. It would just delay the necessity of solving serious problems, and would keep our pay scale artificially low. When it comes to qualified labour, we should also look more at our own people, who have meanwhile acquired essential knowledge and skills abroad.

Without a doubt, our labour market is also influenced by developments in the European Union. Estonia agrees, in principle, with recent proposals by the European Commission and supports the use of sanctions in relation of individuals and companies that employ illegal workers. The Commission also plans to formulate directives in order to regulate the immigration and residency of the citizens of third countries in the EU. Estonia supports the principle of agreeing upon certain minimum regulations on the EU level, concerning the receiving of labour migrants. At the same time, for us it is very important to maintain a flexibility, which enables us to react to certain domestic labour market needs, and so to ensure our economic development, as well as to protect our workers.

Coming to the conclusion,

In the course of the last few years, we have clearly seen that our future relies upon knowledge-based activities, which create a need for qualified labour, and thus also for constant supplementary training and education. Estonia's perspective future economic spheres include information and communication technologies, biotechnologies, and material technologies. Our objective is to implement these technologies into health care, environmental protection, energy, transport, etc.

And last, but not least – integration of the society will remain an important subject for generations to come. In this field we have made substantial progress, but proper immigration policy always needs permanent integration tools in place. So, we have to continue our endeavours. And, I would propose, my Lithuanian and Latvian colleagues, that we exchange experiences in the sphere of integration on a broader political basis – for instance, on the level of our representatives who deal with population, education, and foreign policy matters. And I am convinced that this Baltic cooperation will benefit the European Union as a whole.