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Tallinn University of Technology, Estonia
Lembo Tanning, guestlecturer at tallinn university of technology, ph.d. of , full professor
University of Applied Sciences, Estonia
The article aims to analyze the economic success of Estonia as a small economic model of the labour market, employed, unemployment and vacant jobs, and compare it to Estonia's main partner countries of the EU. The problems are the first that there is a large number of vacancies even in a situation of high unemployment and the second one is that young people move abroad, which could result a qualified workforce in the nearest future. The scientific novelty of the article is job vacancies and unemployment relationship (modernized Beveridge curve) of Estonia and other EU countries and their mathematical models and suggestions for improvement in the labour market.
Keywords: Estonia, European Union, Beveridge curved, labour market, vacancy.
Estonian successful economy can be seen as a small business model, according which generalizations can be made in Eastern Europe, especially in new EU countries.
The problem is that on the one hand in Estonia and other new EU countries there is one of relatively high unemployment and on the other hand there is low employment rates, and on the other hand not enough skilled labour force and unemployment is not reduced by increasing the rate of job vacancies, on the contrary - is growing. Why?
The problem is that a great amount of working age population work abroad. Due to the free movement of people within the EU, the problem in Eastern European countries, including Estonia, is the migration of younger labour force abroad, where the wages are higher.
The article presents a modernized Beverdge curve. While in case of the classical Beverdge curve the number of vacant jobs decreases linearly with an increase in unemployment rate, then in case of our generalization of numerous empirical data, it is true to a certain level of unemployment, but from a higher level of unemployment the number of vacant jobs will also start to increase.
The theoretical foundations of the article are based on the work of recognized economists from the United States and Europe, labour market analysis conducted by international organizations, and recently published positions of authors.
The methodology for studying labour market and the definitions of the ILO and Eurostat, comparative analysis of indicators and regression analysis were used.
2. Analysis of the labour market in Estonia
In the years from 2000 to 2008, the development of the economy in Estonia and the EU was stable, in 2009 there was a rapid recession and the subsequent years showed growth again. In 2011, Estonia's GDP growth was 8.3%, which was the highest in the EU. 
In Estonia, the fall in the employment rate and the growth of unemployment were not in balance during the crisis. The gap between those figures was rather considerable. The reason for this is that a number of people who had been working without a formal contract or abroad and become unemployed started to register as unemployed in Estonia; those people, however, had not been counted amongst the employed people in Estonia and had not been taxpayers in Estonia.  .
3. Job vacancies
In a situation when unemployment rate is high and there is a wish to increase employment, it is appropriate to look at the vacancies and the changes in vacancy rates.
Figure 1 shows the number of vacant jobs by quarters both in absolute as well as relative numbers. Before the economic crisis, the number of vacancies had even reached 3.7% (2007QIII), but dropped to a mere 0.8% or 3890 vacancies.
In the 4th quarter of 2011, the rates of job vacancies were the highest in public administration, defence and social security (2.6%). The increase in the rates of job vacancies was the fastest in accommodation and catering. The increase in the number of job vacancies was the highest in transportation, accommodation and catering. A third of the job vacancies were in the public sector and two thirds in the private sector. The rate of job vacancies in the public sector was 1.4% and in the private sector 1.2%.  
There has regularly been a relatively high number of vacancies in all economic sectors, whereas the rates of job vacancies have been quite different. Before the economic crisis, the overall number of vacancies was 17.5 thousand, but even in the peak period of unemployment, the number of vacancies was almost 5 000 and over 100 in the major groups of occupations. Therefore, the problem lied in notifying the unemployed about vacant jobs or in the fact that the unemployed people did not qualify for the vacancies. There were also different job vacancies available in almost all Estonian regions during the peak of unemployment (2010 QI).
In QIV, the number of vacancies for professionals, senior officials and managers was slightly lower than in QI. A situation had developed where not everyone wanted to work as unskilled workers, while employers did not consider their abilities suitable for working on positions requiring high qualifications, for example on a position of a senior official or manager.
While the vacancy rate before the crisis (2010QI) was high (2.8%), it had dropped to 0.8% in QII and QIV of 2009. The rate of vacancies has been increasing slowly (2011=1.2%), but is still lower than it was before the crisis. However, the vacancy rate today is higher than in 2010.
There have always been vacant jobs in Estonia. What shows the importance of this issue is the fact that even now there is a lack of qualified labour in Estonia and in the whole EU, and, at the same time, workers are not willing to work on any conditions.
Unemployed y = 0,2487x5 - 20,969x4 + 596,88x3 - 6504,3x2 + 22854x + 33800;
R2 = 0,9006
Vacancies y = -0,0964x5 + 7,092x4 - 180,24x3 + 1790x2 - 5700,8x + 17981;
R2 = 0,9391
The two trend lines (Figure 1) were approaching one another up until the end of 2007 when the gap between them was minimal (QIII-07=6168; QIV-07=9824). Unemployment was decreasing and the number of vacancies was growing at the same time. It became more and more difficult for employers to find labour force, especially qualified labour. This kind of a situation started to suppress the development of economy, especially enterprises. Employees on the other hand had a relatively wide selection of jobs, which enabled them to give more consideration to the jobs, wages, working conditions, etc. offered. In the first half of 2008, unemployment was still decreasing, but the demand for workers started to rise slowly. Employers had to agree with the higher demands of employees and this led to a fall in the number of vacancies. In the end of 2008, the effects of the economic crisis started to show in the labour market. Unemployment rate started to increase rapidly while the number of vacancies started to fall. By the beginning of 2010, unemployment had reached a record level and the number of vacancies fell to a minimum. The gap between the two trend lines was the largest. Next, the two lines started to approach one another again – unemployment started to fall and the number of vacancies to rise.
Leaving out those who are not working for objective reasons, there is plenty of potential labour in Estonia as well as in Europe. It is only necessary to know how to employ them and make better use of their potential abilities. Only a certain number of specialists in certain areas where there is a shortage of specialists in Europe should be brought in from abroad. Naturally, there are other exceptions as well.
4. The modernized Beveridge Curves
The following figure show the correlative relations between job vacancies and unemployment [35, 36]. The input data for the Beveridge curve includes investigating the correlations between vacant jobs, i.e. job vacancy, and unemployment rate (age 15-74).
Modernized Beveridge curves (Estonia):
y = -0,0005x4 + 0,0261x3 - 0,4209x2 + 2,476x - 1,6484; R2 = 0,9223
Classical Beverage Curve (Estonia):
y = -0,1858x + 3,85; R2 = 0,8203
The changes in vacant jobs in Estonia are strongly correlated to the rate of unemployment, which is illustrated by the high value of R2. Figure 2 which presents ratios on the quarterly basis shows that when unemployment rate exceeds 11%, the number of job vacancies stays stable, fluctuating within 1 percentage point; in case of very high unemployment rates, however, it may even rise, and in the end, fall a little again.
The right hand part of the curve can be interpreted as follows: in case of a high unemployment rate, some people are working unofficially or have temporary or part-time jobs. They have lost hope to find official jobs, but prefer to work unofficially instead of having a low-paid job or a job with unsatisfactory working conditions or microclimate. At the same time, some of them might be registered as unemployed, but are actually working abroad. From the viewpoint of employers it appears that there is a shortage of qualified and disciplined labour force: not everyone can be hired or is able to work even after receiving proper training. The abilities of people and their motivations to work vary a lot. Therefore, even in the peak of unemployment, there are those who do not accept all kind of jobs or working conditions. On the other hand, employers are also not prepared to employ „anyone“.
The vacancy rate decreases until the level of unemployment reaches 16%, and then starts to rise slowly. A linear correlation leads to an even simpler answer: when the number of unemployed persons rises, the number of vacancies decreases. Therefore, a more complex mathematical model enables a more accurate explanation of the interrelated changes and provides a stronger correlative dependence.
In order to make generalisations, Estonian data has been compared to the data collected from Latvia, Lithuania, Poland, Slovenia, Spain, Greece, Austria, Netherlands, Sweden, Finland, Germany and United Kingdom.It is also true that we provide the modernized Beveridge curves?
Also for those fit modernized Beveridge curves.
Compared to the classical Beverage curve (linear trend line) however, the model proposed by the authors of this article is more complex, but enables to explain the correlation between vacancy rates and unemployment in a real economic situation much more accurately. The curve developed by the authors of this article is considerably more detailed and therefore more suitable for using in labour force analyses, explanations and forecasts. What is especially important is the analysis of pre-crisis, crisis and post-crisis data by quarters, not years, as the changes in the labour market have occurred at a very fast pace. Up to now, conclusions in this article have only been drawn on the example of Estonia. The peaks of the Beveridge curve are cyclic. At a certain level of unemployment the number of job vacancies also decreases (the classical Beveridge curve), but further, an increase in the unemployment rate is accompanied by an increase in the number of vacancies. Depending on the country's economic level and the prosperity of the population (rich countries), the cycle is repeated: again, at a certain level of unemployment, the vacancy rate decreases, but then, when the unemployment rate grows, the number of vacant positions increases as well. The first cycle ends at different unemployment rates in different countries, depending on the standard of living of the population. In order to make generalisations, Estonian data has been compared to the data collected another countries, in order to find out whether the complex correlation discovered by the authors of this article applies there as well.
A labour market analysis must take into account the cyclic nature of economy and the intensive periods of economic growth in the development of economy. During the economic crisis, almost all economic indicators fell in most countries, including in Estonia.
Eastern European countries would need to increase workers' attitudes towards work and work culture, their qualifications, work motivation to increase the salaries and other benefits, increased productivity in addition to more efficient use machines, greatly improve the organization of work and the necessary executive level of education and experience of the labour laws to change even more flexible, improve information about vacancies the availability of jobs and the like.
Why do young people moving to live and work in the rich countries of Western Europe? In addition to the local standard of living far higher (wages), also called greater self-realization, the search for new challenges and development (career) options, and want to consult with the wider world search for happiness,adventurer, and the like.
In a labour market analysis, all components should be looked at considering their relations to one another. In a simpler analysis, only the most important factors will be concentrated on. However, analysing one or two factors does not allow to develop the most efficient means to improve the situation in the labour market. This is also shown by the European practice where despite economic growth, the situation of the labour market is improving slowly, and the implemented means are less effective than expected. Due to the free movement of people in the EU, an analysis of labour markets should primarily focus on the changes in employment rates, not unemployment rates. When analysing the reasons of employees´ mobility, the fact that there is a great difference between the wages in the old and new member states should also be taken into account. This has a direct effect on the mobility of employees. When analysing unemployment, one also has to consider that the data may not reflect the actual reality, as in the Eastern European countries, including Estonia, people may be registered as unemployed, but may actually be working (part-time) abroad or they may be working without a contract in their home countries.
A formal retraining (of the unemployed) does not fix the situation. According to employers, a number of unemployed people should not be hired at all, as the damage they cause directly or indirectly to the employer and to the society at large considerably exceeds the costs of the unemployment benefits. As for Estonia, when we do not count among the unemployed the people working unofficially, the ones who are not paying taxes to the state and the ones who have no desire to work at all, the actual unemployment rate is much lower. At the same time, the transfer unemployment connected to mobility is still inexorably there, along with the higher than normal unemployment rate, which may even be beneficial, because it helps to guarantee the necessary quality of the work and services and gives the employer a better chance to demand that working discipline is followed. The primitive equalization of all employees and the wish to see an ideal employee in everyone lowers the quality of the labour market. The abilities and motivation of people vary greatly; therefore contradictions and competition are the basis for the development of the labour market. Denying this would lead to economic stagnation.
In order to come out of a crisis, enterprises try to minimize labour costs. First, companies try to get rid of workers who are unqualified, not needed or have conflict personalities. At the same time, we are facing a new problem: there are not enough qualified employees to be found. Estonia is not the only one facing this problem. After the crisis, economy is not developing extensively any more, instead, it is developing along an intensive path. This means that manufacturing will mainly grow due to the use of more efficient machines and devices and more efficient organization of the work process. This lessens the amount of workers with low qualifications and increases the demand for employees with high qualifications. This does not only concern the unskilled workers, but also those having higher education – engineers, economists and other specialists. Hence we also face the problem of the quality of higher education. The demand for knowledge capital (knowhow), which is the greatest value in the information society, has grown noticeably.
For analysing real economic situations, the improved Beveridge curve is much better-suited. In general, the improved curve shows quite similar results in all countries with certain accuracy, at the same time, it also enables to bring out differences describing the peculiarities of every country and its labour market. When unemployment rises, however, we face a situation where job vacancies also start growing. These relations vary from country to country. For conducting a more thorough analysis, it must be found out why does the number of vacancies in the right side of the curve grow in the situation of high unemployment? What can be done here, considering that employment rates have to start growing in Europe? One solution would be to improve communication at all levels. It is necessary to continue improving the quality of employees, continue with in-service trainings, wages should be in correlation with labour productivity, working conditions, motivation etc. should be improved, and those not being involved in the labour market should be pressurised to work. Another important factor is to cultivate high ethical norms among employees and employers. All these measures would help to raise the employment rate to a level where there is no need to import immigrant workers from outside the EU.
As a new contribution to research, the current article presents a (thorough) analysis of the Estonian labour market (with Estonia being one of the tiger countries of the EU). As a new contribution to theory, the authors of the article have developed an improved Beveridge curve, which helps to explain the dynamics of vacancies in the situation of high unemployment rates, and based on this, develop measures for finding solutions to these problems.
The improved Beveridge curve is novel not only for Estonia, but for the analysis of the EU labour market as a whole. For global analysis, a more detailed research on the economies of the USA, Japan and other developed countries must be conducted.