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Sunday
Jun242007

Addressing Labour Shortages in Estonia?

This is just a small pointer in relation to my note on net migration in the Baltics a few days back as well as my note on Demography.Matters on catch-up growth in Eastern Europe. At the heart of this issue is of course a severe labour shortage in many Eastern Europe fuelled in part by structural labour mismatches as well as a more profound shortage of labour as a result of very low fertility levels throughout the 1990s. In Estonia, as was demonstrated in the post linked above net migration has been virtually positive since 2000 with an ever so small net inward migration flow. Yet, policy makers and employers in Estonia are well aware of the labour shortage which will persist even if net migration is not negative. What is interesting here (see excerpt below) of course is the distinction between whether Estonia should attract low skilled labour or more high skilled labour. At this point you could of course claim that both of these labour groups should be incited to come to Estonia from abroad but it will be interesting to see where the proposed institutional initiatives will predominantly be focused. Here is a relevant excerpt from the article from the Baltic Times linked above ...

The process of bringing foreign workers to Estonia is to be streamlined under a plan to ease the country’s worker shortage. The quota of foreign workers will be doubled to about 1,300 and the bureaucratic paperwork slashed by November under an Economy Ministry proposal. Economy Minister Juhan Parts said the bureaucratic simplifications were an obvious solution to give companies faster access to skilled labor. Employers have welcomed the proposals, but said they did not go far enough in addressing Estonia’s shortage of low skilled workers. Parts told The Baltic Times that the proposal would be before Parliament by November.  “Diminishing bureaucracy will make it much easier for entrepreneurs to use labor from third countries,” Parts said.

“The changes have broad consensus from both business and most political parties.”  He said it was “unacceptable” that “good qualified brains” were having difficulty entering the Estonian labor market. However, he stopped short of opening the borders to low-skilled workers, saying that employers should look to hire from the 380 million available workers within the European Union to address their staff shortages. “This is not a liberalization of our immigration policy. We don’t want to see millions and millions of third country workers here,” he said. Employers seeking long-term permits for workers will have to commit to paying a salary of at least 1.24 times the average Estonian salary, which currently sits at 9,600 kroons. Those applying for six month permits will have to pay their workers the average salary for their sector, Economy Ministry executive officer Sille Rossi said.

As a final note it is also interesting to note the quibble over whether it is fair (or perhaps prudent?) for Estonian employers to systematically pay a premium for labour just because it is foreign. Of course, this might be necessary in order to actually attract the needed labour. However,  with the wage pressure and inflation already at very high levels and even if net migration to Estonia were to pick up,  the current inflation/wage expectations are clearly not warranted given the underlying capacity issues which inevitably will materialize in Estonia as well as other Eastern European countries at some point. In short, the longer this goes one the further these economies will fall, I fear, given the relative inability for capacity to respond on the backside of these very high inflation expectations and developments. Having said and as a very final note it does seem (for various reasons which I might go into later) that Estonia is much better suited to handle the inevitable backdrop better than for example its neighbours Lithuania and Latvia.

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