The labor market in the Baltic states: From informal to formal flexibility

Since independence was restored in 1991, Estonia, Latvia and Lithuania have made the choice for a rapid transition toward a market economy by adopting a policy based on free enterprise and the reduction of government interventions in the economy. We would logically predict that a high degree of flexibility characterizes changes in labor markets there. Contrary to expectations however, employment protection legislation (EPL) has been solidly established. It has brought these countries closer to European standards and, on some points, offers more protection than what is provided elsewhere in the EU. Counterbalancing this apparent employment security are exonerations and circumventions that grant de facto an informal flexibility to employers. This particularity of Baltic labor markets - security and flexibility - could have served to develop flexicurity. However the 2008 recession, with its negative impact on equilibria and equality, has provided Baltic leaders and employers with the possibility of reinforcing flexibility, a trend assumed and legitimated owing to the current emergency.