Toomas Mattson | National Audit Office 10/31/2012
The audit carried out by the National Audit Office indicates that changes must be made in the present unemployment benefits system, as it does not guarantee assistance for all job-seekers and fails to reduce structural or long-term unemployment. Reforms are essential to ensure that the state is able to prevent the potential social problems caused by a decrease in workforce and achieve better competition conditions by increasing employment.

The goals of Estonia’s labour and social policy are to guarantee high level of employment as well as an increase in income, quality of life and social security. The state has set itself the objective to increase employment to 72% by 2015 and 76% by 2020. It was 71.8% in the middle of 2012.

Tarmo Olgo, Director of Audit of the Performance Audit Department, said that the lack of qualified labour has become the biggest obstacle to increasing the rate of employment. “If the Unemployment Insurance Fund continues to operate as a system that handles unemployment people, and our system remains unable to adapt the skills of the unemployed to the needs of companies, then we will not escape the situation where businessmen are searching high and low for suitable workers among the unemployed, but never find them,” said the Director of Audit. “The skills of the unemployed and the needs of employers have simply grown that far apart.”

The National Audit Office investigated in its recent audit how well the state manages to support those who have lost their jobs. The audit indicated that the current system for supporting the unemployed does not offer sufficient assistance to people. The main reason why the present system of financial support and labour market services offered via the Unemployment Insurance Fund is inadequate is that not all unemployed people get these benefits and services.

The share of unemployed people who have received unemployment insurance benefits has decreased steadily in the last three years. In 2011 the share of people who received the unemployment benefit was 15.9% whilst only 18% of the unemployed registered with the Unemployment Insurance Fund received the unemployment insurance benefit. The remaining unemployed persons received no financial support via the support system for the unemployed. There were more than 27,000 unemployed persons in Estonia by the middle of 2012 who had not registered themselves with the Unemployment Insurance Fund, because benefits are only paid to people registered with the Fund.

On average, 20% of the unemployed persons registered with the Unemployment Insurance Fund received labour market services every month in 2011. The reason why unemployed persons are not receiving services is that there are no services that suit all unemployed persons and that elimination of all of the reasons that obstruct return to work is not a task of the Unemployment Insurance Fund.

The other reason why assistance is inadequate is that the present system is unable to resolve the problem of structural unemployment, as the labour market measures and the conditions on which people are eligible for them do not promote retraining of unemployed persons or consider regional differences. The training offered by the Unemployment Insurance Fund are generally short term and do not promote acquiring a new vocation in the vocational or higher education system.

The audit indicated that the skills previously acquired by the unemployed persons no longer meet the labour needs in most sectors. Almost one-half of the unemployed have no qualifications; they only have primary, basic or general secondary education. Only a few sectors offered jobs that corresponded to the knowledge and skills of the unemployed persons. Many people who are actively looking for work receive no financial support or the services they need, because the selection of services is limited. The regions of Estonia that stand out with their high unemployment rate are Ida-Viru County, Valga County, Võru County, Põlva County and Hiiu County, where reducing unemployment with the present labour market services alone is difficult.

The conflict between the skills, knowledge and location of employees, and the requirements of employers has increased the duration of unemployment. According to Statistics Estonia, the share of the unemployed who had been out of work for one year and more was 57% in 2011 and 52% in the first half of 2012. The quantity of the long-term unemployed has remained at the highest level of the last 10 years for the last three years.

There are several different reasons that make it difficult for the long-term unemployed to return to work (poor health, unfavourable place of residence, etc.), which cannot be eliminated simply by offering the present labour market services. Long-term unemployment creates the risk of poverty and people may also lose hope of ever finding a job again.

The National Audit Office advised to change several aspects of the present support system to ensure that the state is able to prevent the potential social problems caused by a decrease in workforce and achieve better competition conditions by increasing employment.

Background
The Labour Market Board and the Estonian Unemployment Insurance Fund were merged into an agency whose main tasks include increasing employment, improving people’s ability to cope, guaranteeing adequate social protection for the time a person is looking for a job, and providing assistance that is based on needs. Statistical data of the Unemployment Insurance Fund indicate that the number of persons registered as unemployed as at the end of September 2012 exceeds 37,000. However, not all people who are actively looking for work are registered with the Unemployment Insurance Fund due to various reasons, but these people may also need the state’s support when looking for jobs. According to Statistics Estonia, the number of these people in summer 2012 was 71,000.

Considering the increasing need for workforce in the coming years and the state’s goal to achieve the highest possible rate of employment, the National Audit Office evaluated whether the present support system can resolve the problem of structural unemployment, prevent people from becoming unemployed for the long-term and from losing hope, and helps as many unemployed persons as possible.

Definitions:

Structural unemployment – unemployment whereby job-seekers have unsuitable qualifications, are located in geographically unsuitable locations or belong to groups of the population for whom access to jobs is restricted due to other reasons.

Long-term unemployed – unemployed persons who have been actively looking for a job for 12 months or longer (6 months in case of persons aged 16-24), and who are prepared to start working immediately.

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