'More students, overseas skills can't solve our coding crisis': So here's Estonia's fix

With static student numbers and steep rises in tech pay, Estonia is opting to retrain some of its adult population as software developers to plug its skills gap.

teenagers with laptops

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Image: Getty Images/iStockphoto

There's a serious shortage of workers in Estonia's tech sector and, according to the country's minister of economic affairs and infrastructure, Kristan Michal, "It's not enough to enlarge student admission numbers or to attract a foreign workforce to alleviate it."

"We need a larger variety of opportunities for continuing education and retraining," Michal said at last month's launch of a project that aims to take adults from other fields and add them to the small Baltic state's local tech workforce.

According to the plan, in the next four years the ministry and its partners are going to train 500 people with no former background in IT to become junior software developers, focusing on .NET and Java.

The successful applicants have to dedicate themselves to the project for 14 weeks. For the first six weeks, the participants attend an intensive course in programming, followed by eight weeks working with local IT companies as trainees. After that, they should be able to work as junior software developers.

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The government's initiative reflects the troubling situation in Estonia's IT field. According to the ministry's analysis of three years ago, the country needs about 6,400 additional tech workers before the year 2020. Local thinktank Praxis' estimate from the same period is 8,600.

In the second quarter this year there were 22,259 people working in the IT and comms field in Estonia. The demand for specialists has been steadily growing for years, but the local supply has been lacking.

A local bank Swedbank recently pointed out that as a result of the imbalance of supply and demand, the wages in the sector grew eight percent last year and were again up 10 percent in the first six months of 2016. As a comparison, in 2014 the growth was only one percent.

The growing labor costs have also had an impact on the profitability of the sector, according to the preliminary data of the National Office of Statistics. Last year, taken as a group, the companies in Estonia whose main field of operation is programming suffered a loss.

The Estonian Association of Information Technology and Telecommunications, or ITL, a voluntary organisation whose members represent 75 percent of Estonian tech and telecom sector's turnover, is clearly worried.

When commenting on Swedbank's report, ITL head Anneli Heinsoo said the disproportionate overpayment to a mediocre workforce when compared to its productivity is a clear warning sign. In her opinion, this situation isn't about to change.

Swedbank's head of IT sector, Anu Kalmurand, says one answer to the problem of growing labor costs may be found in tapping into the skills of workers overseas who can work remotely because of the nature of tech work.

"Entrepreneurs are recruiting more and more workers from Central European and Eastern European countries, from Ukraine and Belarus, for example. The programmers don't necessarily have to move to Estonia, which means that Estonian wages can be attractive to them when they are working in their home countries where the living costs are lower."

In recent years, the government has also made some cautious steps towards easing the rules for the local employers who have been complaining about strict laws and excess bureaucracy when hiring foreign specialists from outside the EU.

For example, until 2013, employers who wanted to hire a foreign worker first had to run a public call for competition for three weeks. Until 2016 employers had to apply separately for every foreign employee they wanted to hire at the Estonian Unemployment Insurance Fund.

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Now these and a few other restrictions have been lifted. In future tech specialists will also be excluded from the official quota of immigrants whom Estonia is willing to accept every year, which is 0.1 percent of the population or a bit more than 1,300 people.

A big problem for Estonia is its demographic situation. The number of young adults is decreasing and so the number of students in higher education has dropped significantly over the past few years, from 67,600 in 2011 to 51,092 in 2015, according to Statistics Estonia.

Higher-education institutions have been heavily promoting technology courses and luring prospective students with higher scholarships and even free laptops, which has had a significant impact on the popularity of these subjects.

Regardless of the decrease in the student numbers as a whole, the popularity of computer sciences studies has remained consistent. In both 2011 and 2015, there were roughly 4,630 computer-science students in Estonia.

Tech subjects have also remained popular among students because of evidence that good careers will follow. In September local business daily Äripäev published an annual list of the wealthiest Estonians. For the first time in history, the first two places were occupied by startup entrepreneurs, not the representatives of more traditional industries such as transit or real-estate business.

The newspaper estimated the fortunes of the founders of fintech company Transferwise, Taavet Hinrikus and Kristo Käärmann, at over €200m ($220m) each.

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