Cheap labor – quick solution, but not the best

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PHOTO: Tairo Lutter

Economists and analysts questioned by Postimees find that while favoring immigration and labor migration would help alleviate acute labor shortage, the solution is not without problems in the long run.

The president's economic adviser Heido Vitsur says that labor market problems can be seen from two angles. «One is that of entrepreneurs who want to keep doing what they’ve been doing. The other is likely that of most people who do not want to see any major influx of aliens in Estonia.» Vitsur believes that while immigration would surely alleviate labor concerns, most people remain against it, which is something politicians need to keep in mind – businessmen will likely have to reorganize and move some activities abroad.

University of Tartu School of Economics and Business Administration Ph.D. student Erik Aru says that the only quick solution is to bring in low-paid foreign labor. «I would like to see which political force has the courage to do that,» he says. Aru adds that the government could put the brakes on public sector salary advance. «Who ever said public employ needs to be lucrative.» When it comes to the big picture, Aru believes there is more that can be done in the field of education. «I do not really buy this narrative of Estonia having an overproduction of humanities,» he says. «Perhaps not every cultural historian is working in their chosen field, but don’t try to tell me their education has been wasted.»

Work done by heads, not hands

University of Tartu professor Viktor Trasberg says that referring to workers as «hands» is discriminating and degrading. «The people of Estonia work with their minds, hearts and sometimes with their hands, but they are not «hands», «feet» or «buts». Trasberg says that the larger business environment Estonia finds itself in has no labor shortage. «Estonia is located in a common market that has 350 million workers, which is enough for us. The problem is our low salaries and cheap products.» Allowing masses of cheap labor in Estonia should be ruled out, he believes. «If an Estonian company cannot run a hamburger joint because it cannot pay a decent wage, it needs to close shop,» he says. «Temporary rootless labor from cheaper countries is destroying our society instead of contributing to prosperity.»

Economist with the Bank of Estonia Orsolya Soosaar points out that the labor shortage problem has two aspects: one is the cyclic nature of the economy, while the other has more to do with structural factors, like falling number of young people. «Labor demand is expected to fluctuate in the middle of the economic cycle,» she explains. «During a recession, there is a lot of free labor, companies are not hiring or see a lot of candidates if they are. When the times are good, unemployment is low and demand high, companies want to expand but are held back by shortage of labor. Good times will inevitably be followed by bad times, which is something politicians should keep in mind when making decisions.»

«Boosting immigration from third countries would be a quick solution for companies,» Soosaar admits. «However, long-term expenses should be factored in: social insurance, integration etc. Even though social benefits aren’t as generous in Estonia as they are in Scandinavian countries, the social insurance system is solidarity-based: people who earn a modest wage doing relatively unproductive work contribute less than they get in return.» She adds that a bigger problem than labor shortage is that companies invest too little and productivity is growing too slowly.

Estonian Qualifications Authority analyst Siim Krusell finds that often Estonian companies cannot pay people what they ask. «This is in turn tied to the fact Estonia can no longer be described as a subcontracting country, while it is not yet a country sporting high labor productivity and value added either,» he says. Krusell feels that before relaxing foreign labor quotas, it is necessary to analyze long-term competitiveness of business models of Estonian companies, while unskilled labor could be used in a project-based and temporary capacity.

Talents not enough

Lector at Mainor Business School Taimi Elenurm says that the race for talents has been key during the phase of free movement of labor and networked labor relations. «However, talents alone are not enough; we also need ordinary people – those who do the tedious work,» she reasons. Professor Kaire Põder of the Estonian Business School points out that several sectors rely on so-called micro tasks that can be performed without an employment relationship: cleaners, so-called ridesharers, telemarketers. Põder says that while problematic aspects associated with this form of working include pension insurance payments, healthcare and unemployment insurance benefits, optimistically, it could be seen as a new beginning for labor relations.