The Estonian government at its sitting on Thursday approved a proposal of the minister of economic affairs and industry to proceed with the changing of the unemployment benefit system, the aim of which is to to simplify the unemployment benefit system and make it fairer.
While a mixed unemployment allowance and unemployment insurance scheme is currently in effect, in the future it will be replaced by a single unemployment insurance scheme. This means that in addition to the existing unemployment insurance benefit, the bill will create a new unemployment benefit — basic rate unemployment insurance benefit — and unemployment allowance in its current form will disappear.
“The current unemployment benefits system was created more than 20 years ago and no longer meets the set goals and today’s needs. In addition, the unemployment allowance in its current form partially fulfills the role of subsistence allowance, and it is not reasonable to maintain duplicate allowances,” Minister of Economic Affairs and Industry Erkki Keldo said.
According to him, the new unemployment insurance system will be more understandable and fairer for people.
“People who have contributed to the insurance system will also receive the necessary support in case of job loss. Also, in the new system, both benefits take into account the economic situation, which means that if unemployment is higher, the payment of benefits will be longer. In this way, we ensure that the unemployed can cope adequately, at the same time we do not create an unemployment trap and we motivate people to return to the labor market,” Keldo added.
As a result of the change, when a person loses their job, either the current income-based unemployment insurance benefit or the new basic rate unemployment insurance benefit will be paid. Entitlement to basic rate unemployment insurance benefits arises for people who have paid unemployment insurance contributions, just as it does for income-based unemployment insurance benefits.
The amount of the basic rate unemployment insurance benefit will be related to the minimum wage, meaning it will be 50 percent of the minimum wage of the previous calendar year.
The duration of the payment of basic rate unemployment insurance benefit is up to 180 calendar days. Similarly to the current unemployment insurance benefit, the duration of its payment will depend on the state of the labor market. In a situation of high unemployment, the payment is automatically extended by 60 days, that is, to 240 calendar days.
The Ministry of Economic Affairs and Communications sent the draft unemployment benefits reform to a coordination round this spring. Compared to the original draft, additions have been made to the terms of the new compensation based on feedback from the social partners. For example, in order to qualify for benefits at the base rate, one must meet an eight-month service requirement, which is somewhat more lenient than the current service requirement for income-based unemployment insurance benefits. In addition, a person who does not qualify for compensation at the base rate, that is someone who currently receives an unemployment allowance on the basis of an activity equated with work and needs state assistance for everyday living, will have the right to apply for subsistence allowance.
The subsistence allowance paid from the social welfare system enables the need for social assistance to be assessed comprehensively and assistance to be offered based on need. Due to the increase in the number of households in need of subsistence allowance, in the years 2026-2028 the costs of subsistence allowance will increase by nearly 1.7 million euros per year. The additional cost has been taken into account in the state budget.
The changes to the unemployment benefit system will not affect the rights of people to be registered as unemployed, to receive labor market services and labor market benefits. The changes are planned to enter into force from Jan. 1, 2026. The Ministry of Economic Affairs and Communications will submit the draft Unemployment Insurance Act to the government by the end of October 2024.
The currently valid unemployment allowance is paid from the state budget. When the payment of the unemployment allowance is terminated, the costs in the state budget will decrease by 40.6 million euros in 2026, by approximately 63.8 million in 2027, and by nearly 68.5 million euros in 2028.
A proposal has been made to social partners to finance the new basic rate unemployment insurance benefit from unemployment insurance funds. Due to the introduction of basic rate unemployment insurance benefits, the costs of the Unemployment Insurance Fund will increase by nearly 45.1 million euros in 2026, by nearly 43.5 million euros in 2027, and by nearly 46.6 million euros in 2028.
Source: BNS
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