OECD Economic Surveys O E C ESTONIA D E c o SPECIAL FEATURES: RAISING PRODUCTIVITY; MAKING THE MOST OF n o OECD Economic Surveys HUMAN CAPITAL m ic S u r v Most recent editions e ESTONIA y s Australia, December 2014 Israel, December 2013 Austria, July 2013 Italy, May 2013 Belgium, October 2012 Japan, April 2013 Brazil, October 2013 Korea, June 2014 Canada, June 2014 Luxembourg, December 2012 Chile, October 2013 Mexico, January 2015 China, March 2013 Netherlands, April 2014 Colombia, January 2015 New Zealand, June 2013 V JANUARY 2015 o Czech Republic, March 2014 Norway, March 2014 lu Denmark, January 2014 Poland, March 2014 m e Estonia, January 2015 Portugal, October 2014 2 Euro area, April 2014 Russian Federation, January 2014 0 1 5 European Union, April 2014 Slovak Republic, November 2014 / 3 Finland, February 2014 Slovenia, April 2013 France, March 2013 South Africa, March 2013 Germany, May 2014 Spain, September 2014 Greece, November 2013 Sweden, December 2012 Hungary, January 2014 Switzerland, November 2013 Iceland, June 2013 Turkey, July 2014 India, November 2014 United Kingdom, February 2013 Indonesia, September 2012 United States, June 2014 Ireland, September 2013 E S T O Consult this publication on line at http://dx.doi.org/10.1787/eco_surveys-est-2015-en. N IA This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical databases. Visit www.oecd-ilibrary.org for more information. Volume 2015/3 ISSN 0376-6438 2015 SUBSCRIPTION January 2015 (18 ISSUES) J ISBN 978-92-64-22680-7 a 9HSTCQE*ccgiah+ n 10 2015 02 1 P u a r y 2 0 1 5 OECD Economic Surveys: Estonia 2015 This document and any map included herein are without prejudice to the status of or sovereigntyoveranyterritory,tothedelimitationofinternationalfrontiersandboundaries andtothenameofanyterritory,cityorarea. 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TABLEOFCONTENTS Table of contents BasicstatisticsofEstonia,2013............................................... 7 Executivesummary......................................................... 9 Mainfindings........................................................... 10 Keyrecommendations................................................... 11 Assessmentandrecommendations .......................................... 13 Domesticframeworkconditionsarefavourablebutreformsareneeded toaccelerateconvergence................................................ 14 Weakeningexportshavedetractedfromeconomicgrowth.................... 16 Domesticfinancialrisksarelow .......................................... 19 Thefiscalpositionisstrong .............................................. 21 Recommendationsonfiscalpolicy .......................................... 22 Raisingproductivityandbenefittingmorefromopenness .................... 23 Recommendationstoraiseproductivity...................................... 26 ReducingCO emissionsandenergyconsumption........................... 26 2 RecommendationstolowerCO emissionsandenergyconsumption ............... 27 2 Makingthemostofhumancapital ........................................ 28 Recommendationstomakethemostofhumancapital .......................... 34 Bibliography............................................................ 35 Annex.Progressinmainstructuralreforms .................................... 37 Thematic chapters Chapter1.Raisingproductivityandbenefittingmorefromopenness.............. 45 Modestproductivitygrowthslowsincomeconvergence ...................... 46 Opennessandhighvalueaddedforeigndirectinvestmentboostproductivity andinnovation ......................................................... 47 Reapingmorebenefitsfrominnovation.................................... 48 Improvingproductmarketregulation...................................... 54 EnsuringaccesstofinanceforSMEs ....................................... 56 Closingexistinginfrastructuregaps ....................................... 58 ReducingCO emissionsandenergyconsumption........................... 59 2 Recommendationstoraiseproductivityandbenefitmorefromopenness............ 62 Bibliography............................................................ 64 Chapter2.Makingthemostofhumancapital .................................. 67 Laboursupplyisdecliningandstructuralunemploymentremainshigh ........ 68 Policiesencouragingequalpaybetweenmenandwomenhavebenefits forlabourutilisation..................................................... 70 OECDECONOMICSURVEYS:ESTONIA©OECD2015 3 TABLEOFCONTENTS Makingthetaxsystemmoreemployment-friendly .......................... 73 Thepensionsystemcreatesunnecessaryburdensonworkers ................ 76 Strengtheningthesupplyofmarketableskillshasbeenontheforefront ofthegovernmentagenda ............................................... 81 Recommendationstomakethemostofhumancapital .......................... 88 Bibliography............................................................ 89 Boxes 1.1. SmartspecialisationanditsimplementationinEstonia................... 49 1.2. Usingbehaviouralsciencetoencourageinvestmentininsulation–evidence fromtheUK......................................................... 62 1.3. Recommendationstoraiseproductivityandbenefitmorefromopenness ... 62 2.1. Migrationandcross-borderworkinEstonia ............................. 71 2.2. TheSwedishdrivetoreducefeesintheprivatecompulsorypensionsystem. 79 2.3. TheEstonianlife-longlearningstrategy2014-2020 ....................... 82 2.4. Recommendationstomakethemostofhumancapital ................... 88 Tables 1. Macroeconomicindicatorsandprojections.............................. 20 2. Taxrevenuecomposition,2011 ........................................ 29 3. Employmentratesofyoungpeopleupto3yearsaftergraduation byeducationalattainmentlevel ....................................... 34 2.1. Decompositionoflabourutilisationgrowth ............................. 68 2.2. Unemploymentratesbyagegroupandeducationlevel,2013 .............. 69 2.3. Taxrevenuecomposition,2011 ........................................ 74 2.4. Employmentratesofyoungpeopleupto3yearsaftergraduation byeducationalattainmentlevel ....................................... 84 Figures 1. GDPpercapitaandrealhouseholdincomebyincomequintile............. 14 2. ConvergenceinGDPpercapitaandproductivity ......................... 15 3. Averagewell-beingoutcomes,2014..................................... 15 4. Output,labourcostsandconsumerprices .............................. 17 5. Unemploymentratesbyeducationallevel............................... 17 6. Migrationandpopulationtrends....................................... 18 7. Exportperformanceandcompetitiveness............................... 19 8. Financialindicators.................................................. 21 9. Productmarketregulation ............................................ 24 10. Bankruptcyprocedures:recoveryratesandduration...................... 25 11. Greenhousegasemissionsandenergyconsumption ..................... 27 12. Labourtaxwedges................................................... 28 13. Vacanciesbyskilllevel ............................................... 29 14. Pensionfunds’operatingexpensesasashareofassetsundermanagement . 30 15. Highesteducationalattainmentofyoungadults......................... 33 1.1. Evolutionofproductivity ............................................. 46 1.2. Contributiontogrowthinrealbusinesssectorvalueaddedperhourworked 47 1.3. Labourproductivitylevelsbyenterprisesize,totaleconomy............... 47 1.4. Foreigndirectinvestmentinflowsbysector ............................. 48 1.5. R&Dspending....................................................... 49 4 OECDECONOMICSURVEYS:ESTONIA©OECD2015 TABLEOFCONTENTS 1.6. Levelofpublicparticipationandrighttopetitionthegovernment.......... 51 1.7. Collaborationoffirmsoninnovationwithhighereducationorpublicresearch.. 53 1.8. Productmarketregulation ............................................ 54 1.9. Bankruptcyprocedures:recoveryratesandduration...................... 56 1.10. Greenhousegasemissionsandenergyconsumption ..................... 60 2.1. Vacanciesbyskilllevel ............................................... 69 2.2. Migrationandpopulationtrends....................................... 71 2.3. Projectionsoftotaldependencyratio................................... 72 2.4. Labourtaxwedges................................................... 73 2.5. Pensionfunds’operatingexpensesasashareofassetsundermanagement . 77 2.6. Implicittaxoncontinuedwork:old-agepensions........................ 81 2.7. Highesteducationalattainmentofyoungadults......................... 82 2.8. Privateandpublicreturnstotertiaryeducation.......................... 84 OECDECONOMICSURVEYS:ESTONIA©OECD2015 5 This Survey is published on the responsibility of the Economic and Development Review Committee (EDRC) of the OECD, which is charged with the examinationoftheeconomicsituationofmembercountries. TheeconomicsituationandpoliciesofEstoniawerereviewedbytheCommittee on 5November2014. The draft report was then revised in the light of the discussionsandgivenfinalapprovalastheagreedreportofthewholeCommitteeon 15December2014. The Secretariat’s draft report was prepared for the Committee by Andrés Fuentes Hutfilter and Andreas Kappeler under the supervision of Andreas Wörgötter.ResearchassistancewasprovidedbySeung-HeeKohandEunJungKim. HeloiseWickramanayakeformattedandproducedthelayoutofthedocument. ThepreviousSurveyofEstoniawasissuedinOctober2012. InformationaboutthelatestaswellaspreviousSurveysandmoreinformation abouthowSurveysarepreparedisavailableatwww.oecd.org/eco/surveys. Follow OECD Publications on: http://twitter.com/OECD_Pubs http://www.facebook.com/OECDPublications http://www.linkedin.com/groups/OECD-Publications-4645871 http://www.youtube.com/oecdilibrary OECD Alerts http://www.oecd.org/oecddirect/ This book has... StatLinks2 A service that delivers Excel ® files from the printed page! Look for the StatLinks2at the bottom of the tables or graphs in this book. To download the matching Excel® spreadsheet, just type the link into your Internet browser, starting with the http://dx.doi.org prefix, or click on the link from the e-book edition. BASICSTATISTICSOFESTONIA,2013 (NumbersinparenthesesrefertotheOECDaverage)* LAND,PEOPLEANDELECTORALCYCLE Population(million) 1.3 Populationdensityperkm² 29.5 (34.4) Under15(%) 16.0 (18.3) Lifeexpectancy(years,2012) 76.5 (80.2) Over65(%) 17.1 (15.6) Men 71.4 (77.5) Foreign-born(%,2011) 15.9 Women 81.5 (82.9) Latest5-yearaveragegrowth(%) -0.1 (0.6) Latestgeneralelection March2011 ECONOMY Grossdomesticproduct(GDP) Valueaddedshares(%) Incurrentprices(billionUSD) 24.9 Primarysector 3.6 (2.5) Incurrentprices(billionEUR) 18.7 Industryincludingconstruction 28.9 (26.8) Latest5-yearaveragerealgrowth(%) 0.1 (0.8) Services 67.5 (70.5) Percapita(000USDPPP) 25.6 (39.1) GENERALGOVERNMENT PercentofGDP Expenditure 38.9 (42.5) Grossfinancialdebt 13.5 (110.7) Revenue 38.4 (36.8) Netfinancialdebt -32.2 (69.9) EXTERNALACCOUNTS Exchangerate(EURperUSD) 0.753 Mainexports(%oftotalmerchandiseexports) PPPexchangerate(USA=1) 0.556 Machineryandtransportequipment 31.8 InpercentofGDP Manufacturedgoods 15.2 Exportsofgoodsandservices 86.1 (53.4) Miscellaneousmanufacturedarticles 14.4 Importsofgoodsandservices 85.2 (49.4) Mainimports(%oftotalmerchandiseimports) Currentaccountbalance -1.4 (-0.1) Machineryandtransportequipment 33.8 Netinternationalinvestmentposition -48.9 Mineralfuels,lubricantsandrelatedmaterials 14.1 Manufacturedgoods 13.8 LABOURMARKET,SKILLSANDINNOVATION Employmentratefor15-64year-olds(%) 68.5 (65.2) Unemploymentrate,LabourForceSurvey(age15andover)(%) 8.6 (7.9) Men 71.4 (73.1) Youth(age15-24,%) 18.8 (16.1) Women 65.7 (57.4) Long-termunemployed(1yearandover,%) 3.8 (2.7) Participationratefor15-64year-olds(%) 75.1 (71.1) Tertiaryeducationalattainment25-64year-olds(%,2012) 37.3 (32.2) Averagehoursworkedperyear 1,868 (1771) GrossdomesticexpenditureonR&D(%ofGDP,2012) 2.2 (2.4) ENVIRONMENT Totalprimaryenergysupplypercapita(toe) 4.4 (4.2) CO2emissionsfromfuelcombustionpercapita(tonnes,2012) 12.3 (9.7) Renewables(%) 13.0 (8.8) Waterabstractionspercapita(1000m3,2012) 1.2 Fineparticulatematterconcentration(urban,PM10,µg/m3,2011) 16.7 (28.0) Municipalwastepercapita(tonnes,2012) 0.3 (13.5) SOCIETY Incomeinequality(Ginicoefficient,2011) 0.323 (0.308) Educationoutcomes(PISAscore,2012) Relativepovertyrate(%,2011) 11.7 (11.1) Reading 516 (496) Medianequivalisedhouseholdincome(000USDPPP,2010) 10.0 (20.4) Mathematics 521 (494) Publicandprivatespending(%ofGDP) Science 541 (501) Healthcare(2012) 5.9 (9.2) Shareofwomeninparliament(%,October2014) 19.0 (26.7) Pensions(2011) 7.0 (8.7) Netofficialdevelopmentassistance(%ofGNI) 0.13 (0.37) Education(primary,secondary,postsec.nontertiary,2011) 3.4 (3.9) Betterlifeindex:www.oecdbetterlifeindex.org * WheretheOECDaggregateisnotprovidedinthesourcedatabase,asimpleOECDaverageoflatestavailabledataiscalculatedwhere dataexistforatleast29membercountries. Source: Calculationsbasedondataextractedfromthedatabasesofthefollowingorganisations:OECD,InternationalEnergyAgency, WorldBank,InternationalMonetaryFundandInter-ParliamentaryUnion.