The aim of this study is to analyze the effect of social benefits on supply of labor and to evaluate the efficiency of Estonian social benefits in alleviating poverty. Analysis shows that Estonian social protection system has similarities with several European Union models, however Estonia can not be categorized under one certain model. The overall trend in the development of unemployment benefits and social welfare in developed countries has been tightening the criteria with the aim of motivating  beneficiaries into active employment seeking. In contrast to developed countries Estonian criteria for unemployment benefits has become more liberal and support systems do not motivate active job search.

“According to the study the single parent families, numerous families and families with unemployed were most at risk of poverty.”

On the one hand social benefits are low in Estonia, their real value has constantly dropped and benefits are insignificant in alleviating poverty. On the other hand, it turns out that on several occasions it is more profitable to live on benefits than to accept minimum or low wage job. Consequently, benefits should be raised regularly so that their real value would be maintained, but criteria in the case of unemployment benefits and subsistence support should be made more stringent focusing on elements that activate job seekers.

Unemployment benefits are so low that a person who looses his/her job usually has to also apply for subsistence support. Unemployment benefits are not enough to perform the consumption leveling function during the period of unemployment of a household member. In the cases where a person qualifies for unemployment insurance systems’ compensation there is no need for subsistence support, but for people who receive unemployment benefits the situation stays the same.

“Social benefits are very low in Estonia and therefore insignificant in alleviating poverty.”

In Estonia more than half of subsistence support resources go to families who are not poor. If unemployment benefits and family benefits are not meant to alleviate poverty then subsistence support is meant primarily for poor families and it is also the last and smallest source for benefit. Therefore it would need a clearer definition what is the purpose of every aid and also the proportion between unemployment benefits and subsistence support should be revisioned. Furthermore, it would be more efficient to cut down on redundancy benefits when unemployment insurance system is implemented.

Distribution of social benefits between poor (BLUE) and not-poor (GRAY) in the year 2000, %

Although the benefits in Estonia are low, the people who have lost their jobs try to manage with the social benefits rather than accept minimum or low wage jobs whilst the officials claim that large part of people see benefits as extra source of income and are not actually interested in finding a job.