The period for which unemployment insurance benefits are paid may depend on the number of unemployed

The Ministry of Social Affairs has prepared a draft according to which the period of payment of unemployment insurance benefits will also depend on the number of registered employees. If the unemployment rate is high, the draft would extend the period of payment of unemployment insurance benefits, and if unemployment rate is low, the period of payment of benefits would be shorter. 

Currently, the period of paying unemployment benefits depends only on the duration of a person's insurance period. If the person's period of service is less than five years, the benefit payment period is up to 180 days. If the period of service is between five and ten years, the benefit period is a maximum of 270 days, and for more than ten years, the unemployed person is entitled to benefits for up to 360 days. 

The draft stipulates that if the number of registered unemployed is low, the period for payment of benefits will be shortened by 60 days if the person's insurance period is at least five years. For example, if a person has seven years of insurance and the unemployment rate is low, then he/she will receive unemployment benefits for a maximum of 210 days instead of the current 270 days. And if the unemployment rate is high, the benefit payment period will be extended by 60 days, i.e. with seven years of service the maximum period would be 330 days. 

The Chamber of Commerce informed the Ministry of Social Affairs that it supports the amendment according to which the period of payment of unemployment insurance benefit will depend not only on the insurance period but also on the number of registered employees. At the same time, we drew the Ministry's attention to three possible problems that may arise with the entry into force of the draft.  

The new solution is not clear enough for people 
According to the Chamber, it will be difficult for the unemployed to understand in which cases they are entitled to unemployment insurance benefits for a longer period than at present. It may be confusing, firstly, that the benefit period is initially set to the shortest period and that, when that period expires, the number of registered employees is reviewed and, if it is high enough, the benefit period is automatically extended. Thus, in the first months of receiving the benefit, the unemployed do not know exactly how long the benefit will be paid. 

Secondly, it may be confusing that the extension of the benefit period depends on various indicators (number of registered unemployed on the last day of the previous calendar month preceding the end of the benefit period, average number of registered unemployed in the previous 120 months, average number of registered unemployed in the previous 36 months). Therefore, the unemployed may not understand whether the number of unemployed is currently high enough to extend the benefit period. 

The Chamber of Commerce considers it very important that upon the entry into force of the changes, statistics related to the number of unemployed people on the Unemployment Insurance Fund's website and other communications to the unemployed are easily accessible and they can easily understand why the benefit period was extended or not. 

In addition, we asked the Ministry of Social Affairs to consider a solution where the draft defines the level of low, medium and high unemployment rate with a specific number. For example, the draft could stipulate that low unemployment occurs when the number of registered unemployed is less than 30,000. Such solution would provide greater clarity. 

The new model may not work well in case of low unemployment rate 
According to the Chamber, the solution in the draft works well in the case of high unemployment rate, but at the same time we are not convinced that it works well enough in the case of low unemployment rate. Unemployment was relatively low in 2017-2018, with high labor shortages in many sectors. According to Statistics Estonia, the number of unemployed in half of the months of 2017 and 2018 was less than 30,000 and the number of unemployed did not exceed 34,000 in that period. If the solution contained in the draft had been used at that time, the period for payment of benefits would still have been the usual length, i.e. it would not have been a situation of low unemployment. 

According to the Chamber, it would have been reasonable for the above example to have had a shorter period than usual. Therefore, we asked the Ministry of Social Affairs to reconsider whether and how well the solution contained in the draft works in practice. In our opinion, the current model needs to be changed slightly to make it work better in a situation of low unemployment. 

Changing the definition of the unemployed may affect the period for which the benefit is paid
According to the draft, the period of payment of benefits will depend on unemployment rate and the number of registered employees will be used as an indicator of unemployment rate. The Chamber of Commerce does not object to this, but there is a risk that changes in the requirements for registration as unemployed may automatically affect the rules for paying unemployment benefits. For example, if the rules for registering as unemployed become more lenient and people with part-time work can also register as unemployed, the number of unemployed may increase and there is a risk that the benefit period will be extended. Thus, there is a risk that the change in the definition of the unemployed will extend the period of payment of benefits, when in practice the situation on the labor market has not gone worse.  

According to the draft, the amendments related to the unemployment insurance benefit will enter into force on June 30, 2023. The draft can be read in more detail HERE.