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Despite the fast growth in the Estonian economy, unemployment has remained high for extended periods of time. This paper analyses and quantifies the mismatch between registered unemployment and vacancies and how it has contributed to unemployment in the Estonian labour market at the (county) regional, occupational, and industrial levels for the time span 2011-2021. We apply the search and matching theory and the mismatch index framework, and our findings show that around 4–5 per cent of potential hires have been lost in the Estonian labour market because of mismatch. The contribution of mismatch to the level of unemployment is roughly 5–8 per cent, meaning that if the match between unemployed individuals and vacancies was efficient, unemployment would have been 5–8 per cent lower. Mismatch has the smallest impact at the regional level and the largest at the industrial level.

Is there a labour market mismatch in Estonia? Measuring regional, occupational and industrial labour market mismatch