Estonian Rhapsody through the Lense of Youth Unemployment

Estonia has lately been used as  an austerity success story. In 2011,  it had a faster economic growth pace than any other country in the European Union, at 7.6 percent (http://www.stat.ee/57509?highlight=majanduskasv). Estonia is also the only EU member with a budget surplus, and had the lowest public debt in 2011 – 6 percent of GDP. Fitch affirmed Estonia’s A+ credit rating (http://www.businessweek.com/news/2012-06-01/estonia-s-rating-affirmed-by-fitch-amid-economic-recovery) at the beginning of June 2012. The New York Times’s Op-Ed columnist and Nobel-Prize winner, economist Paul Krugman, presented some doubts about the Estonian economy (http://krugman.blogs.nytimes.com/2012/06/06/estonian-rhapsdoy/) following the discussions on BBC (http://www.youtube.com/watch?v=kqA4EJe4j5w ) about austerity where Estonia was used as a positive showcase. Krugman’s 67-word entry, entitled “Estonian Rhapsody,” included a figure of GDP growth between 2007-2012 that, in his words, showed “significant but still incomplete recovery” after a deep economic slump. Following Krugman’s post there has been a heated discussions in many social blogs and newspaper articles about the efficiency of austerity measures in Estonia. For instance, Toomas Hendrik Ilves, President of Estonia, had some pretty harsh words about Krugman post on Twitter (https://twitter.com/#!/IlvesToomas). Who is right here? I will present one insight into the Estonian case through a lense of youth unemployment. How has youth unemployment developed during the last recession? Is there still depression or can we see substantial recovery after implementation of austerity measures?

  Figure 1. Youth (15-24) by economic status 2008-2011 in Estonia

During the boom years, most young people either worked or studied in Estonia. After the financial crisis at the end of 2008, unemployment started to increase rapidly, reaching its peak in 2010. Since 2011, the youth unemployment rate and also absolute values are decreasing. Compared to 2010, there were 31% less young unemployed people in 2011. It seems that economic recovery which has started already in 2010, has also influenced youth labour market chances, offering more work opportunities.

Figure 2. Youth (15-24) employment and unemployment dynamics 2008-2011 in Estonia

Next, let’s take a more general look at youth employment and unemployment dynamics between 2008 and 2011. Due to the economic crisis, the youth employment rate decreased to 22,9% at the beginning of 2010; thereafter there has been gradual increase. The average employment rate in 2011 was 31%, which is 5,7% higher than a year before.

Young people were especially hit by the crisis as is visible from unemployment dynamics. The youth unemployment rate changed dramatically as it rose from 7,5% at the beginning of 2008 to 40,6% at the beginning of 2010. Thus, the youth unemployment rate jumped up by 33,1% within 2 years! Since the second half of 2010, the youth unemployment rate has decreased sharply. By the end of 2011, the youth unemployment rate was 22,7%. We can note a substantial improvement in youth unemployment, however, the rate of unemployment is still three times higher than before crisis.

As we saw after the rapid contraction of the economy in 2009-2010 the economic situation has recovered in Estonia. At least labour market figures showed clear signs of improvements in youth labour market chances. How does the Estonian recovery look against the backdrop of other European Union member states?

In 2010, the highest youth unemployment was observable in countries hit the hardest by the economic crisis: southern countries like Spain, Greece, Italy, Portugal, Baltic countries and Ireland and Slovakia. Estonia landed between Greece and Italy in 2010. However, one year later, Estonia was the only country among rocketing youth unemployment countries, who managed to reduce youth unemployment substantially. In 2011, the youth unemployment rate in Estonia was close to the EU-27 average (22.3% vs 21.4%).

Figure 3. Youth (15-24) unemployment dynamics 2019-2011 in European Union

In the first paragraph, I raised the question: who is right? Can Estonia serve as the success story of austerity measures? Without doubt, the Estonian economy has improved quickly after the economic slowdown, youth unemployment indicators can serve as an example. At the same time, youth unemployment is still higher than before the crisis, thus the youth integration into work and/or training is still a crucial issue. Another question is if the economic recovery can be attributed solely to the austerity measures. One has to keep in mind that not single measures have an impact, but the whole package. The Estonian deep crisis was smoothened by at least two other influential factors in addition to austerity measures: remarkable inflow of EU structural funds since 2008 and the good economic shape of the country’s main export partners in Scandinavia. However, youth unemployment still calls attention as every single unemployed young person needs attention to avoid scarring effects for later (working) lifes.

This article is part of a project on youth unemployment in Europe run by the Friedrich-Ebert-Stiftung and Social Europe Journal