Publication: Monitor Volume: 7 Issue: 43

Despite favorable FDI trends, the Elcoteq announcement of stop in production and plant sell-off came at a time of growing Estonian concerns about unemployment. Some 98,700 workers were listed as unemployed (according to the definitions used by the International Labor Organization) in the fourth quarter of last year, corresponding to an unemployment rate of 13.9 percent of the labor force ( The Elcoteq developments will not help. Elcoteq employed 3,200 workers prior to Ericsson’s announcement, and company officials had suggested that another 1,000 might be hired when the second factory comes on line in April. But in mid-February, Elcoteq announced layoffs of nearly 600 workers in connection with Ericsson’s reduction of orders for mobile telephones; more layoffs are probably in store (BNS, February 19).

Estonia’s unemployment concerns also reflect similar developments at other foreign-owned telecommunications firms. Shortly after Ericsson’s announcement, the Finnish electronics firm Wecan Electronics announced that it was sending 100 of its 270 Estonian employees on forced leave due to an anticipated production slowdown (BNS, February 20). Just last October, Wecan had acquired new premises near Parnu and announced that it would expand production capacity. On the other hand, PMJ will hire 160 workers for its new factory, many of whom may very well be laid off Elcoteq employees.

Estonia’s unemployment problems go well beyond a cyclical downturn in the high-tech sector, however. In a report last June, the IMF expressed concern at Estonia’s stubbornly high unemployment rate, which exists despite a high degree of wage flexibility. The IMF noted that the ongoing restructuring of the economy, in combination with mismatched skills, has resulted in a high level of structural unemployment. It also recognized, however, that the Estonian authorities had resisted measures which would lower the unemployment rate but slow the transformation of the economy.

This may now be changing. Rather than acting to reduce unemployment, the government is increasingly trying to ease the plight of the unemployed. Last June, parliament adopted laws that expand the rights of the unemployed, widen the pool of those eligible to receive unemployment benefits, and extend the period during which unemployment benefits are paid. Indeed, the country seems to be following the French approach to dealing with unemployment: two days prior to Ericsson’s announcement, the Estonian parliament passed a law limiting the work week to 40 hours, prohibiting employees from holding multiple jobs, and restricting employees to a maximum work week of 48 hours including overtime (RFERL Baltic States Report, February 12).