Labour market adjustments in Estonia during the 2008/2011 crisis

This article provides an assessment of labour market adjustments occurring in Estonia during the 2008/2011 crisis. The strategy of internal devaluation succeeded in shrinking the real (hourly) unit labour costs by 25% per year in 2010 and 2011, thus helping Estonian enterprises gain international competitiveness.

The whole gamut of tools available in terms of flexibility was used, at least in the worst time of the financial crisis: massive lay-offs, reduced working time and wage cuts. In 2011, Estonia stood as one of the most dynamic EU countries to recover with exports growth. On the social side, however, the track record is not positive: the purchasing power of workers has been reduced and unemployment still remains strong and persistent despite economic recovery.