Unemployment insurance is a new part of social insurance of Estonian social protection system, which was established in 2002. Unemployment insurance is to ensure economical wellbeing of unemployed, at the same time encouraging their quick return to work. Although unemployment insurance has been widely used in Europe since already a century ago, Estonia was the last one of Central and Eastern European countries, to implement unemployment insurance system.
Estonian unemployment insurance system aims to balance the objectives of social protection and labour policy. Unemployment benefit, compared to other social insurance benefits, is effective in providing social protection and is in accordance with minimum standards of European Code of Social Security and EU legal norms. At the same time, the benefits are moderate enough to give people an incentive to return to work even for lower wage than in a previous job. The criteria of paying benefits also includes incentives and sanctions encouraging working.
Compared to other European countries, Estonia has a typical unemployment insurance system, where benefits will depend on the prior wage of the insured person and scheme is funded mainly by social insurance tax. At the same time, Estonian system is relatively conservative, because of longer qualification period, shorter period of receiving benefits and low level of benefits. Many characteristics of Estonian system are not very common in other countries e.g. unemployment benefit in Estonia is financed from social insurance tax only.
“One distinctive difference in Estonian unemployment insurance system is that the proportion of social insurance tax for workers is higher than for the employers.” – Reelika Leetmaa
Implementing unemployment insurance system in Estonia did not generate feared consequences. Higher level on unemployment benefits did not increase unemployment, nor did new indirect costs relating to work force. The implementation happened to take place at a very economically favourable period – unemployment was falling. As a result, build up of reserves started to raise questions about optimal balance of the system. This indicates that Estonian unemployment insurance system is not perfectly complete, as finding balance between social protection and labour market objectives needs further work.