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1. Labour market situation in the country

2. Main concepts

Labour market situation in the country

Estonia's current strategic framework for employment and economic development is outlined in the Coalition Agreement 2024-2027 and recent European Semester submissions, which provide analyses of the main trends and priorities. Since regaining independence in 1992, the Estonian economy has grown nearly tenfold. Estonia experienced significant economic growth until 2007, followed by the 2008-2009 crisis. After gradual recovery, the economy faced new challenges with the COVID-19 pandemic, which caused GDP to drop 5.6% in the second quarter of 2020. According to recent forecasts, the Estonian economy is set to resume growing in 2025, albeit weakly amid global uncertainty, with real GDP expected to grow by 1.1% in 2025 and 2.3% in 2026. Estonia's economic development has been impacted by changes in employment patterns, workforce productivity, and the ongoing transition towards digital and green technologies.

The main source of regular national labour market data is the Estonian Labour Force Survey, which Statistics Estonia conducts continuously as part of the EU Labour Force Survey framework. This provides quarterly and annual results on labour participation of people aged 15 and over, employment rates, and unemployment statistics. Since 2000, the survey has been conducted continuously throughout the year with reference weeks spread uniformly, providing comprehensive labour market monitoring. The survey underwent methodological changes in 2021 following IESS principles, expanding the age threshold and updating definitions of employment and unemployment.

Estonia's demographic trends continue to follow general European patterns. The population decrease that began in the 1990s is now significantly impacting the working-age population, with effects becoming more evident each year. According to current projections, by 2040 Estonia will have more than 100,000 fewer working-age people. To maintain economic growth, there will be an increasing need for skilled workers annually. Current employment initiatives and the potential for extending working life beyond 65 are seen as measures to help offset the decrease in the workforce. The digital and green transition is creating new demands for skills while traditional sectors, particularly in Ida-Viru county, face restructuring challenges.

Labour market policy in Estonia is formulated by the Ministry of Social Affairs and delivered by the Estonian Unemployment Insurance Fund through its regional departments located in every county. These institutions are responsible for evaluating labour market policies and implementing active measures. Estonia introduced active labour market measures in 1993, with significant reforms in 2009 through the Employment Contracts Act, which aimed to increase labour market flexibility and improve mobility. The current legal framework provides considerable flexibility in employment arrangements while maintaining basic protections. The labour market can be characterized by a highly skilled workforce, with 86% of adults speaking at least one foreign language, low unionization rates, and straightforward labour legislation that facilitates both hiring and contract termination.

The Welfare Development Plan 2023-2030 sets strategic objectives for family, social, and labour policies and defines the necessary courses of action to achieve them. The general goal is an Estonia where people are cared for, inequality and poverty are reduced, and a long and high-quality working life for all people is supported.

Sub-goal 2 "labour market and working life" aims to guarantee a high level of employment and high-quality working conditions which support long-term market participation. The implementation requires activities that help ensure employees a long and high-quality working life, prevent the risk of unemployment and shorten periods of unemployment, help to employ employees who are at risk and support effective management of labour policy. The plan aims at proposing solutions to support services provided to children, youth and their families and reforming the support system to guarantee that help and support is available at the earliest possible stage, with coordinated efforts from all needed experts.

Youth employment

In Estonia, after reaching one of the highest levels of youth unemployment rate in Europe during the financial crisis (32.9% in Estonia vs 21.5% in EU in 2010), the situation has shown significant improvement. In 2023, the youth employment rate was 36.1%, above the EU average, and the employment rate overall was 76.2%, which is 5.8 percentage points higher than the EU average. However, youth unemployment remains a concern, with rates fluctuating significantly - from 8.3% in December 2022 to 23.5% in August 2023, and 16.3% in December 2024. Recent EU data shows that in February 2025, the EU youth unemployment rate was 14.5%, while Estonia continues to experience volatility in this indicator. The level of youth unemployment in Estonia remains higher compared to the prime-age population, indicating the presence of barriers for youth in their entry to the labour market.

Similar to other European Union countries, there is a high risk of unemployment in Estonia among young people who have a lower level of education and do not have professional education. Young people who are neither in employment nor in education (NEET youngsters) have less experience in employment or practical work and they are not competitive in the labour market. Recent data shows Estonia's NEET rate continues to improve, with 2022 data indicating 10.5% overall (9.2% for young women and 11.9% for young men), and further improvement to 9.6% in 2023 (8.9% for young women and 10.2% for young men). Estonia is one of the few EU countries where young women have lower NEET rates than young men, placing it closer to the EU's 2030 target of reducing NEET rates to 9%.

Recent economic challenges, including the COVID-19 pandemic and the economic impacts of the war in Ukraine, have continued to affect young people disproportionately in the labour market. Current policy frameworks continue to identify young people in transition from education to employment and NEET youth as priority groups requiring targeted labour market interventions. Estonia's economy contracted by 0.3% in 2024, with young workers remaining particularly vulnerable to economic fluctuations due to their limited work experience and higher likelihood of employment in sectors sensitive to economic changes.

Main concepts

The Welfare Development Plan 2023-2030 establishes the conceptual framework for Estonia's approach to employment and entrepreneurship. The plan states that employment provides people with opportunities for self-realization and financial security, serving as one of the main prerequisites for socio-economic development and a foundation for high-quality life. The strategic approach is grounded in the principles of a social and welfare state, the framework of fundamental and social rights, and social protection principles.

The plan emphasizes a paradigm shift in welfare state policies: moving from reactive approaches that compensate for social risks and repair their consequences, toward proactive policies that empower and prepare people to cope with risks effectively. This represents a transition from traditional social protection models to those that enhance people's self-sufficiency and promote their social and professional activity.

In economic affairs and entrepreneurship, the Government prioritizes raising entrepreneurial ambition while enhancing research and development activities, innovation, investment, and export capabilities. Regarding employment, the focus centers on structural changes in the labour market by increasing the share of jobs that create higher added value, particularly important given Estonia's demographic challenges and the need to maintain economic competitiveness with a shrinking workforce.

Definitions in use

• Economically active population/labour force – persons who wish and are able to work (total of employed and unemployed persons). (Statistics Estonia)
• Economically passive/inactive population – persons who do not wish or are not able to work. (Statistics Estonia)
• Employed – a person who during the reference period worked and was paid as a wage earner, entrepreneur or a free-lancer; worked without direct payment in a family enterprise or on their own farm; was temporarily absent from work. (Statistics Estonia)
• Unemployed – a person who fulfils the following three conditions: the person is without work (does not work anywhere at the moment and is not temporarily absent from work); the person is currently (in the course of two weeks) available for work if there should be work; the person is actively seeking work. (Statistics Estonia)