"When sales take off, we won't be ready to meet demand," sighed a member of the Estonian Employers' Confederation, an industrial company owner, speaking from personal experience. His company is a model in its field: it invests time in engaging with education and improving the skills of future workers and has automated and digitalized its work processes. But even with technology, there comes a limit — at some point, you still need a real person with real skills, even if it's just to operate a robot.

The drawn-out recession allowed the public to forget about this problem, but employers paid the price in competitiveness. Despite the economic slump and stagnation, companies largely avoided layoffs and wages continued to grow rapidly. It was cheaper to keep employees than to later scour the market and try to hire them back. That is the cost of a labor shortage.

For businesses, of course, this won't get any easier. Estonia's labor market is small, the population is aging, birth rates have fallen to historic lows and demographic trends cannot be quickly reversed. That means urgent solutions are needed to bring more people into the workforce.

According to the Qualifications Agency's OSKA labor monitoring program, the state can ease labor shortages through measures such as education policy, raising workers' skills and qualifications, reducing unemployment, bringing in underrepresented groups with lower employment rates and making recruitment from abroad simpler. Employers, for their part, can automate and digitalize processes and optimize work organization — steps that the more innovative, higher value-added companies are already taking.

Employees to be found both in and outside of Estonia

The state is offering two types of relief and one step that employers have long awaited. For example, amendments to the Employment Contracts Act allowing for more flexible agreements on working hours will help bring in local people who want to work part-time. An exception provided for in the Aliens Act will allow employers in labor-shortage sectors to recruit skilled workers from abroad.

Under the latest amendment, up to 1,300 additional workers could be recruited from third countries — or up to 2,600 during economic growth periods — for carefully selected sectors. These are export-oriented and high value-added fields experiencing labor shortages, identified based on the OSKA data. Alongside researchers, the state and labor market stakeholders, including employers and trade unions, take part in this work. This means all parties share the same information about the labor market and decisions are made on a data-driven basis. That ensures foreign workers' knowledge and skills will complement, not replace, those of local employees.

This also helps counter fears and claims that the change would open the door to a flood of cheap labor. In reality, that is not the case. Employers are required to pay at least 0.8 times the Estonian average wage, which in 2024 was about €1,600. That corresponds to the wages of machine and equipment operators and other skilled workers and it is about one-third higher than what unskilled laborers earn.

The wage requirement also accounts for Estonia's regional differences. The national average is driven upward by Tallinn and Harju County, where average wages exceed the countrywide figure by 20 percent. In rural areas, however, the average is about 20 percent lower than the national level.

Similar exceptions have already been used in the ICT sector, by startups, investors and top-level specialists. The foreign experts recruited under those arrangements have helped Estonian companies grow and have paid taxes into the state budget — funds used to pay the salaries of teachers, doctors and the people defending the country.

Estonia should market itself as a place of work

Experience with previous exceptions also shows that exemptions alone are not enough. Much of the developed world faces a situation similar to Estonia's and is competing to attract talent. That is why we must place greater emphasis on marketing Estonia as a valuable workplace destination and on drawing people here.

Among other things, labor market challenges mean our economy's growth potential will be significantly more modest in the future, according to forecasts from the Ministry of Finance. This, in turn, threatens state tax revenues and the ability to invest in essential areas. The two changes described above will not solve the labor shortage crisis, but they will help ease it somewhat — and for that reason, they are indispensable.

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