RAUL EAMETS ⟩ Something's amiss in Estonia's unemployment statistics

Photo: logo

• So far, the labor market has successfully weathered the economic downturn.
• There are two tools for measuring unemployment, one of which is by the Uneployment Isurance Fund.
• The other indicator is the unemployment rate determined through the Estonian Labor Force Survey.

I have previously written that the economic crisis starts to really affect people when unemployment begins to rise. So far, the labor market has successfully weathered the economic downturn, maintaining a high level of employment and keeping unemployment within normal ranges, Raul Eamets, chief economist at Bigbank, writes.

Normal in this context means that the society is collectively managing to cope. Looking at the number of the registered unemployed, unemployment has been slowly but steadily increasing since late last fall. While at the beginning of September last year there were 48,300 unemployed people, by the end of February, the number of registered unemployed had reached 56,000.

We have two tools for measuring unemployment. One is registered unemployment, or the people who have been registered with the Unemployment Insurance Fund and receive an unemployment insurance benefit or some other service (such as training). The second indicator is the unemployment rate determined through the Estonian Labor Force Survey, which relies on survey data.

The Labor Force Survey includes people aged 16–74, and its findings are extrapolated to represent the entire population. This method is used in all European countries and several other countries around the world, adhering to International Labor Organization (ILO) standards, thus allowing for cross-country comparisons.

Therefore, in international contexts, labor market survey outcomes are preferred for their comparability. Registered unemployment figures are not comparable internationally, as the rules for registering as unemployed in different countries vary greatly.

Are some people registered at the Unemployment Insurance Fund not actually pursuing employment, meaning that they can effectively be categorized as inactive?

In Estonia, it is generally possible to receive unemployment benefits for one year, whereas in Belgium, a few years ago, the rule was that unemployment aid could be received indefinitely. Locals claimed that about 25–30 percent of those registered used this money in the same way as social assistance without even intending to look for work. People who do not seek work or are not employed are referred to as inactive in statistics. For example, this includes students from the age of 16, pensioners, as well as parents staying home with children.

Why the need for two measurement tools? The registered unemployment figure provides immediate, day-to-day insights. Furthermore, it is regionally detailed, indicating the number of unemployed individuals even in smaller areas. In contrast, ILO-defined unemployment offers international comparability and, historically, a more comprehensive view of all job-seekers, including those not registered at the Unemployment Insurance Fund but seeking employment through other means, such as job listings or family and friends. Being a quarterly survey, the results have a roughly three-month lag, with the county being the smallest region distinguishable.

According to labor force survey data from Statistics Estonia, the third quarter of last year recorded 54,800 unemployed, dropping to 46,600 in the fourth quarter. Just as a reminder, the economy was declining.

The fact is that inactivity increased by about 8,000 people during the same period. Assuming potential job-seekers shifted to inactivity, the unemployment rate appeared stable quarter over quarter. Yet, the numbers reveal that by the end of December, or the fourth quarter, over 53,000 were registered as unemployed. This raises questions: are some people registered at the Unemployment Insurance Fund not actually pursuing employment, meaning that they can effectively be categorized as inactive? Or is the river flowing uphill and our unemployment is decreasing even as the economy contracts? As an aside, I've personally witnessed water flowing uphill in the mountains of Armenia. For the skeptics, I recommend verifying this phenomenon online.

Or is the river flowing uphill and our unemployment is decreasing even as the economy contracts?

Since the coronavirus pandemic, a shift has occurred in our unemployment indicators. The previous rule of thumb that registered unemployed constituted roughly 70 percent of all unemployed no longer seems to apply. The trends in unemployment measurements previously used to be in sync for the two tools.

Now, one of them is rising while the other one falls. The matter is confusing, and this divergence prompts concerns about data reliability, pivotal for informed policy-making. Returning to our initial query: will this statistical ambiguity spell disaster for Estonia? Unlikely. Perhaps a cooperative review of data and methodology by the analysts and methodologists of the Unemployment Insurance Fund and Statistics Estonia could clarify these discrepancies.