Estonia: New government plans family-friendly policies

The government that came to office in Estonia in April 2007 is introducing a range of family-friendly measures, such as paternity leave and increased parental leave, aimed at tackling labour shortages and a falling population. We look at the key employment and social policies of the new administration.

On this page:
Context
Family policy
Economic, tax and budgetary policy
Pay policy
Education and training policy
Social and health policy
Legal policy

Key points

The programme of the coalition government that took office on 5 April 2007 includes the following employment-related measures:

  • an extension of parental leave, on benefit, until the child reaches 18 months rather than 14 months at present;
  • the introduction of 14 days’ paternity leave, with benefits;
  • other policies to improve work-life balance;
  • action (“in cooperation” with the social partners) to modernise the labour market and make it more flexible, including changes to the legislation on employment contracts;
  • new, less bureaucratic, rules on work permits;
  • public sector pay restraint, but with higher increases for specific groups such as teachers and police officers;
  • income tax cuts;
  • efforts to increase employment among older and disabled people;
  • the introduction of a system of occupational accident and illness insurance; and
  • stricter implementation of health and safety rules.

    • Before the general election held on 4 March 2007, the government was a coalition of the centre-right Reform party (Eesti Reformierakond), the left-of-centre Centre party (Eesti Keskerakond) and the centrist People’s Union (Eestimaa Rahvaliit), led by prime minister Andrus Ansip of the Reform party.

    The Reform party did well in the election, increasing its representation in the 101-seat parliament from 19 seats to 31 and becoming the largest party. The Centre party gained one seat, taking its representation to 29, while the People’s Union lost seven of its 13 seats. The Reform party sought coalition partners and, following talks, agreed to form a government with the conservative Union of Pro Patria and Res Publica (Isamaa ja Res Publica Liit) and the left-leaning Social Democratic party (Eesti Sotsiaaldemokraatlik Erakond). The coalition parties have a total of 60 seats.

    The new government took office on 5 April. Ansip remains prime minister, while Maret Maripuu of the Reform party is the new social affairs minister.

    Context

    Estonia is experiencing rapid economic growth, with gross domestic product rising by 11.2% in the year to the fourth quarter of 2006, according to Eurostat figures (compared with an EU average of 3.5%). With the economy expanding so fast, inflation has been rising, with the annual rate reaching 5.6% in March 2007 (the EU average was 2.2%), compared with 4% a year previously.

    At the same time, unemployment is falling, with a seasonally adjusted rate of 4.9% in February 2007 (compared with an EU average of 7.4%), down from 5.9% a year earlier. Pay levels are increasing steeply (albeit remaining low in EU terms), with labour costs rising by 17.6% and wage costs by 18.2% in the year to the fourth quarter of 2006 (the EU averages were 2.8% and 2.9% respectively).

    According to Statistics Estonia (the national statistical unit), in the fourth quarter of 2006, the average gross wages were EEK10,212 (€653) per month and EEK60.28 (€3.85) per hour - increases of 17.5% and 19.2% respectively on the figures for the fourth quarter of 2005. Also in the fourth quarter of 2006, employers’ average labour costs per employee were EEK13,746 (€879) per month and EEK88.23 (€5.64) per hour - annual increases of 17.2% and 18.2% respectively. The national minimum wage (set by law on the basis of an agreement between central trade union and employers’ organisations) was increased in January 2007 by 20% to EEK3,600 (€230) per month.

    Economic growth and falling unemployment are being accompanied by severe labour shortages, especially with regard to skilled workers. An important factor in this shortfall is that the country’s population (of around 1,340,000) is falling at present, owing to both “natural factors” (notably a high death rate) and high levels of emigration (mainly to Nordic countries and Germany) often to find better-paid work. Further, the population is ageing: according to Eurostat, 16% of the population were over the age of 65 in 2005, compared with 13% in 1995; and in 2050 the rate is predicted to be 26%.

    This economic and social backdrop influences many of the policies set out in the new government’s coalition agreement. We summarise the main points of relevance to employment and industrial relations below.

    Family policy

    The government describes its “main goal” as achieving positive population growth through an increase in the birth rate, longer average life expectancy and improved living standards. It is seeking to encourage more people to have more children through family-friendly measures such as the following:

  • the duration of parental leave, during which working parents receive a state benefit, will be increased, lasting until the child is 18 months rather than 14 months as at present;
  • during the mother’s pregnancy and maternity leave, or within two months after the birth of the child, working fathers will be entitled to paternity leave, with benefits, of 14 days;
  • parental benefit will be increased for the birth of a third or subsequent child, while the parents concerned will also receive a bonus payment after their benefits entitlement expires;
  • the state will cover the health insurance contributions of people on parental benefit. Further, after the end of benefit entitlement, parents who remain at home to raise the child will have their state pension contributions fully covered until the child’s third birthday;
  • the childcare allowance paid to parents who remain at home to raise the child after the end of parental benefit entitlement will be increased from EEK1,200 (€77) a month to EEK1,600 (€102) by 2009;
  • measures will be taken to increase the number of nursery places (of which there is a shortage), including higher wages for nursery school teachers; and
  • to increase parents’ opportunities to combine work and family life and make their return to the labour market easier, the government will promote flexible work and childcare, support training for parents staying at home with their child and include time spent on parental leave in calculating unemployment insurance entitlement.

    Economic, tax and budgetary policy

    The government plans to continue with the current “liberal” economic policy and the reorientation of the Estonian economy’s structure towards higher productivity, more effective use of energy and materials, and generation of knowledge. Its “formula for success” is said to be “creation of higher value with less labour force and natural resources”. It also wants to introduce the euro as a “priority” but has set no date for joining the eurozone.

    As part of a strict budgetary policy, the government will increase pay costs in the public sector only at the same pace as the growth of nominal productivity in the private sector.

    Estonia has a single flat income tax rate for all tax-payers, which the government sees as one of the factors in its recent economic success. This will be retained and the rate will be reduced in stages from 22% to 18% in 2011. The monthly amount of tax-exempt earnings will be increased in stages from around EEK2,000 (€128) at present to EEK3,000 (€192) in 2011, while there will be a new tax exemption for parents.

    The government will make it obligatory for employment contracts to include details of the social insurance contributions paid by both the employer and employee.

    The programme commits the government to modernising the labour market and making it more flexible. This will include adopting a revised Employment Contracts Act. Major amendments in this area will be made “in cooperation” with the social partners.

    The government will speed up revision of the rules on work permits and reduce the bureaucracy attached to them. Employers have been seeking to make it easier to attract foreign workers from outside the EU to meet labour shortages.

    Pay policy

    The government wants to introduce a competitive pay policy that motivates workers to stay in (or move to) Estonia, and also enables a knowledge-based economy. The programme focuses on public sector pay, which the state can influence as an employer. It reiterates that pay costs in the public sector will rise at the same pace as the growth of nominal productivity in the private sector. The “transparency” of public sector pay policy will be increased, while public sector pay will be made more competitive (presumably in comparison with the private sector). Pay policy for public servants doing similar work in different areas of the public administration will be harmonised.

    Within this overall policy, the government plans to increase wages more sharply for a number of particular public sector groups, some of which have been involved in industrial action and other protests calling for higher pay in recent years:

  • the minimum pay for teachers will be increased to the national average wage within four years and thereafter teachers’ pay will be increased at least at the same pace as the average wage;
  • the pay of cultural sector employees with a higher education will increase at the same rate as that of teachers; and
  • the minimum pay for police officers, emergency service staff, border guards and prison guards will be increased at a “heightened pace”.

    Education and training policy

    The overall aim of the government in this area is to introduce a policy that will “ensure the availability of competitive education for the people of Estonia, providing them with equal opportunities and also ensure the development of research in Estonia and, through this, the skills and knowledge for successful management in the environment of globalisation”. As well as increased public expenditure on education and various institutional and financial reforms, this includes reorganising vocational education, making it more flexible and promoting greater involvement by the private sector.

    Social and health policy

    The programme places considerable emphasis on older people, and on increasing their opportunities to participate in lifelong learning and work. For those who have retired, the government promises to double state pensions within four years. It will also change the rules on pension indexation and consider new ways of financing the state pension insurance fund.

    The government will introduce a system of occupational accident and disease insurance, based on the unemployment insurance system but “without increasing the employers’ tax burden”.

    With regard to people with disabilities, the government undertakes to achieve an employment rate of 50% among disabled people of working age within 15 years. To this end, it will:

  • increase the availability of modern equipment;
  • increase the funding of rehabilitation and support services so that people with health problems and disabilities can return to an “ordinary human and work environment” as soon as possible;
  • promote work by disabled people to a greater extent than at present, using active employment measures;
  • grant transport subsidies to people with disabilities who cannot use public transport but want to train and/or work; and
  • update the system of social benefits for disabled people and increase the rate of these benefits.

    On health and safety at work, the government will ensure stricter supervision of the observation of work environment and occupational safety rules.

    Measures relating to healthcare include a commitment that the resources of the health insurance fund available for the pay of healthcare professionals should be competitive. To “increase the availability of healthcare services”, the payment of benefits for incapacity for work will be reviewed.

    Legal policy

    The government will bring together current employment and social legislation in a new Social Code. It will also adopt a new Public Service Act, whereby the number of employees with “public servant” status will be decreased considerably, expanding the possibilities of working in state and local authority agencies on the basis of a normal employment contract.

    This article was written by Mark Carley, editor, European Employment Review.

    European Employment Review 401 (EER 401) contents