Estonia: the rapid rise in unemployment threatens the solvency of the compensation system

No coalition agreement to turn back on increased benefits. However, this measure doesn’t solve the entire problem. Indeed, the new law on labor contracts, set to enter into force on July 1, 2009 (see our dispatch No. 090534) provides for increased unemployment benefits. Indeed, this law, aimed at making recruitment and dismissals easier and cheaper, offers employees more security in exchange. Thus, unemployment benefit rates for employees laid off for economic reasons will go from 50 to 70% of the average salary during the first 100 days, then to 50% instead of 40% currently. Besides, after the first month, the benefits which used to be paid by the employer will be paid by the Unemployment Insurance Fund as of July 1, 2009. Therefore, on that date, there should be a new wave of dismissals since employers waiting for that date avoid paying for a full layoff. The Fund will then be faced with a serious solvency problem. Prime Minister Andrus Ansip thinks those benefits should have been reduced. This debate split up the coalition composed of three parties, and three social-democrat Ministers who refused to question the increase of layoff pay were dismissed. The government, as a minority party, is looking for new right-wing allies to go on with its reforms.