Estonia has spent the past few decades building a reputation as one of Europe’s most digitally advanced societies. But the next chapter may be much more complicated.

Artificial intelligence is changing the way people work, demographic decline is reshaping the labour market, governments are facing growing expectations from citizens, and even the way people choose where to live is changing.

In a conversation about the future of Estonia, economist Lenno Uusküla and I explored how these trends are connected — and why some of the biggest changes may still be ahead.

AI may change jobs rather than eliminate work

Artificial intelligence is arguably the biggest technological change of our time. The concern is not simply that AI will make certain tasks faster or cheaper. The bigger question is what happens if AI becomes capable of performing a large share of the jobs currently done by people.

There is an obvious economic paradox.

If companies can replace workers with AI, they can potentially reduce costs and increase productivity. But workers are also consumers. They earn salaries and use that income to buy products and services.

What happens if every company tries to reduce its workforce at the same time?

At some point, the problem is no longer simply unemployment. It becomes a question of who has the purchasing power to keep the economy running.

This fear is not entirely new. Similar concerns appeared during the Industrial Revolution, when machines began replacing forms of human labour. Yet work did not disappear. Instead, economies changed, new industries emerged and people moved into different occupations.

The same may happen with AI.

Some jobs are already particularly exposed — including certain forms of copywriting, programming, bookkeeping and other office-based work. At the same time, entirely new jobs will emerge, many of which we cannot yet predict.

The important distinction may therefore be between the end of jobs and the transformation of jobs.

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Humans still have an advantage

One interesting example from the discussion is chess.

Computers have long been better than humans at chess. Yet humans did not stop playing chess simply because machines became superior. People continue to compete, watch tournaments and push the limits of human performance.

The same principle could apply to many areas of work.

AI may become better than humans at particular tasks without eliminating the human activity itself. Athletes, for example, may use AI to improve their training, while the actual competition remains human.

The more interesting question is therefore not simply “Can AI do this job?” but “Do people still value having a human do it?”

This is particularly important in services that depend on human interaction.

An AI or machine may be faster at making coffee, processing information or performing a repetitive task. But people still visit cafés because they enjoy the experience of interacting with other people. Likewise, an aging population will require enormous amounts of care and personal assistance — areas where human connection remains important.

In fact, some of the jobs most resistant to automation may be surprisingly ordinary ones: caring for elderly people, helping others and providing services that require empathy, physical presence and human interaction.

Estonia’s demographic problem

For Estonia, AI is arriving at a particularly interesting moment because the country is simultaneously facing a demographic challenge.

Low fertility means fewer children are entering the education system today and fewer workers will enter the labour market in the future. This creates pressure on everything from schools and kindergartens to the tax base and pension system.

There is no simple solution.

Immigration can help fill gaps in the workforce, but it does not solve the underlying fertility problem. At the same time, encouraging higher birth rates is difficult because having children has become increasingly expensive and the expectations placed on parents are extremely high.

There is also a long time lag.

If fertility increases today, the additional workers will not enter the labour market for many years. Meanwhile, Estonia already has to deal with the consequences of demographic change.

This creates an unusual combination: Estonia may need more workers at exactly the same time that AI is making some workers less necessary.

Could AI actually help Estonia?

This is where the story becomes more complicated.

Estonia has a relatively small population and an aging society. If technology allows the country to produce more with fewer workers, that could partly compensate for demographic decline.

Higher productivity could allow fewer people to perform the work previously done by a larger workforce.

But productivity gains also create a second problem: if fewer people are needed to produce the same amount of output, society has to decide how the benefits are distributed and how people spend their additional free time.

Work is not only about income. It can also provide structure, social interaction and a sense of purpose.

A future with fewer working hours might therefore not necessarily be a disaster. People could spend more time with their families, volunteer, participate in their communities or pursue activities that give them meaning. The key condition is that people have sufficient resources to make that choice.

Estonia’s digital advantage

Estonia’s experience with technology provides another reason for optimism.

Because Estonia rebuilt many of its systems after regaining independence, it did not have the same amount of legacy infrastructure as some larger and older economies. The country was able to adopt computers, the internet and digital government services relatively quickly.

This created a significant advantage.

Established companies and governments often struggle to replace old systems because changing technology means changing processes, organisations and entire cultures. A new company, by contrast, can build its systems around the latest technology from the beginning.

The same principle helped Estonia become a pioneer in digital government.

But that advantage cannot be taken for granted.

Other countries are catching up, and technology is moving faster than ever. Estonia’s challenge is no longer simply to become digital. It is to continue innovating while larger countries with much greater resources accelerate their own digital transformation.

What happens when governments cannot deliver everything?

Technology and demographics are also changing the relationship between citizens and governments.

Modern societies expect governments to provide an enormous range of services — from healthcare and education to policing, infrastructure and social support.

But expectations can grow faster than governments’ ability to deliver.

One possible response is greater involvement from society itself. Estonia already has examples of people volunteering for roles such as police and rescue services. Non-governmental organisations can also provide services with public funding rather than everything being delivered directly by government employees.

This could become increasingly important in the future.

Rather than having a simple division between government and private sector, societies may develop more layers of cooperation between government, businesses, communities and individuals.

And governments themselves increasingly compete with one another. In a world where people and companies can move between countries, the quality of public services, taxation and living conditions becomes part of that competition.

What does all this mean for Estonia’s real estate market?

The effects of these changes eventually reach the property market.

One of the most interesting points from the discussion is that national property-price indexes do not necessarily tell us what is happening to the value of an individual apartment.

The housing stock itself changes.

A newly built, energy-efficient apartment with parking and modern facilities is fundamentally different from an older apartment. If the share of newer, higher-quality properties being sold increases, the average transaction price can rise even if the underlying value of existing properties has not increased by the same amount.

This is particularly important when evaluating Tallinn’s housing market.

People’s preferences are changing quickly. Increasingly, buyers and renters may be willing to live slightly further from the city centre if they can get a newer building, better energy efficiency, parking, an electric-car charger and better access to nature.

That means demand is not simply about “Tallinn versus the rest of Estonia.” It is about the quality, location and characteristics of individual properties.

Why large price increases may be difficult

The long-term supply of housing is another important factor.

Outside Tallinn’s centre, land can be considerably cheaper, and improvements in transport can make areas further away more accessible. If housing can continue to be built around Tallinn as the population changes, there may be substantial potential supply.

That makes very large long-term price increases harder to sustain, particularly if population growth remains weak.

Construction costs, however, can move in the opposite direction.

If construction activity increases in Estonia and neighbouring countries — or if reconstruction creates additional demand for materials and labour — construction costs could rise significantly.

So the future of property prices depends on several competing forces: demographics, wages, construction costs, housing supply, interest rates, migration and changing consumer preferences.

Should you buy or rent in Tallinn?

There is no universal answer.

Buying makes more sense for someone who expects to stay for a long time and values the security and potential liquidity of owning a property.

Renting can make more sense for someone whose future location is uncertain or who wants flexibility.

The important point is not to assume that property prices will automatically rise.

The discussion suggests that significant price increases should not be taken for granted in the coming years, and property prices can fall as well as rise. Anyone buying purely to speculate on future price growth should therefore understand the risks.

At the same time, Estonia remains relatively straightforward for buying and selling property, with comparatively low transaction costs and limited state taxes on transactions. That makes the market more flexible than many people might assume.

The bigger picture

The future of Estonia will not be determined by any single factor.

AI will change the labour market. Demographics will change the size and structure of the population. Technology will continue to transform businesses. Government services will evolve. And changing lifestyles will influence where people choose to live.

The most important question may be how these forces interact.

Estonia’s small size can be a disadvantage when competing with large economies. But it can also be an advantage when experimenting, adopting new technologies and adapting quickly.

The country has already demonstrated that it can reinvent itself.

The next challenge is to do it again — while maintaining a high standard of living, attracting enough people to keep the economy functioning, adapting to AI and ensuring that technological progress ultimately improves people’s lives.

The future may be uncertain, but one thing seems clear: Estonia is entering a period where technology, demographics and real estate will be more closely connected than ever before.

This article is based on a conversation about Estonia’s economy, artificial intelligence, demographics, government, employment and the real estate market.