The future of labour market in Latvia The future of labour market in Latvia February 27, 2013 1

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Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia

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The future of labour market in Latvia

February 27, 2013

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Overview

Current situation

Future tendencies and challenges

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I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV2006 2007 2008 2009 2010 2011 2012

85

90

95

100

105

110

115

120

EU

Estonia

Latvia

Lithuania

The economy of Latvia recovers from the deep trough

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Growth of GDP (seasonally adjusted data, 2005 Q4 = 100

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Growth factors


70

80

90

100

110

120

130

ExportsDomestic demandGDP

Domestic demand and exportsSeasonally adjusted data, 2005 Q4 = 100

4

0

1

2

3

4

5

6

2.8

2.6

EmploymentProductivity

GDP +5.5%

Employment and productivity2012 against 2011

* Estimation of Ministry of Economics

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Economic model of Latvia based on low labour costs

Economic model of Latvia are mainly based on low labour costs and low technology sectors

Rise in labour costs is inevitable due to increasing economic activities and open labour market

Latvia can lose competitiveness in the low cost segments faster than gain competitive advantage in the higher value added production

To avoid low income trap further reforms are needed to facilitate transition from low to medium and high technology sectors

Structure of manufacturing by technological level(in 2010, %)

6 12 22 60

High technology sectors Medium-high technology sectorsMedium-low technology sectors Low technology sectors

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I II III IV V VI VII

VIII IX X XI XII I II III IV V VI VII




VIII IX X XI XII

2008 2009 2010 2011 2012

0

40

80

120

160

200 Total Long-term unemployed

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Situation in the labour market improves gradually


80

85

90

95

100

105

110

115

120

Occupied jobs GDP

ECONOMIC GROWTH FOSTERS INCREASE OF JOBS

Dynamics of GDP and occupied jobs, 2005 Q4 = 100

UNEMPLOYMENT FALLSNumber of registered unemployed, thousands

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Thousands Changes, %

2008 2009 2010 2011 2012 Q3 2011/2008

2012 Q3/2011 Q3

Agriculture 20.8 17.9 17.5 19.0 21.3 -8.7 8.5

Manufacturing 138.9 104.1 101.8 109.1 115.3 -21.5 5.2

Other industry 26.7 23.7 22.4 22.9 23.5 -14.0 3.3

Construction 89.3 54.6 46.0 50.9 59.5 -43.0 7.9

Trade and accommodation 221.8 173.3 159.7 162.8 173.0 -26.6 5.6

Transport and storage 77.8 67.6 66.8 68.8 73.1 -11.6 5.8

Other commercial services 196.2 162.8 148.4 157.0 168.0 -20.0 6.3

Public services 245.1 222.1 214.2 215.0 210.5 -12.3 -2.0

Total 1016.5 826.1 776.7 805.5 844.1 -20.8 3.8

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Occupied jobs by sectors

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Impact of structural changes on the labour market

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Sectors that recover more rapidly from crisis are not the same where the number of jobs decreased substantially during the crisis

Process of economic transition increases risk of structural unemployment

Some sectors face the shortage of labour already at the moment

! The matching of labour demand and supply is determined not only by the education and skills of labour, but also wages, thus the number of vacancies remains even under the high unemployment level

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Mismatches in the labour market

0

100

200

300

400

500

600Occupations qualification level Education level

Breakdown of employed by the education and occupations qualification level2011, thousand

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Situation in the regions of Latvia

Riga region44%

Pieriga region12%

Vidzeme region9%

Kurzeme region

12%

Zemgale region

10%

Latgale region

13%

Urban70%

Rural30%

Riga

regi

on

Kurz

eme

re...

Latg

ale

regi

on

Vidz

eme

re...

Zem

gale

re...

0%

5%

10%

15%

20%

25%

6.8%

11.4%

21.1%

12.8% 11.7%

Registered unemploymentAt the end of 2012, %

Regional breakdown of employed2012, %

Pronounced regional discrepancies are observed – regional polarization of the labour market

Situation is better in more economically active regions – Riga and Kurzeme region

Situation in the Latgale region improves slower

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Youth employment and unemployment

Youth (15-24)19%

Others81%

Unemployment rate by age groups, 2012, %

Employment rate by age groups, 2012, %

Share of youth in job-seekers, 2012, %

Share of youth in employed, 2012, %

Youth (15-24)8%

Others92%

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TOTAL15-2425-3435-4445-5455-6465-74

0 10 20 30

14.928.4

13.213.1

14.414.5

3.0

TOTAL15-2425-3435-4445-5455-6465-74

0 20 40 60 80 100

56.328.7

75.778.3

75.252.8

11.5

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2000 20121500

1700

1900

2100

2300

2500

2381.7

2041.8

-211.4

-128.6Number of population at the beginning of the year

Net migration

Natural increase

Number of population since 2000 has decreased by 340 thousand or 14.3%

Demographic trends

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Age structure of employed in manufacturing, 2011, %

Age structure of senior experts in engineering employed in manufacturing,

2011, %

20%

49%

25%

6%

<30 30-49 50-59 60+

7%

46%25%

21%

<30 30-49 50-59 60+

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Age structure of employed in manufacturing

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Number of working age population (aged 15-74)

1595 thousand

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Potential reserve of labour in 2011

Pupils, students 157Retired persons who receive only pensions 259Housekeepers 58Disabled, long-term unemployed 43Persons in the child-care leave 10Others 40

Potential reserve of

labour~ 80

thousand

Employed862 thousand

Unemployed166 thousand

Economically inactive 567 thousand

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Future tendencies and challenges

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Labour market forecasts of the Ministry of Economics

Ministry of Economics prepares medium term labour market forecasts

Since 2012 + long term forecasts (2030)

Labour market forecasts reflect possible labour market development trends, assuming that there are no changes in the current education system

Medium term labour market forecasts are source of information for education, social and employment policy makers and implementers who take medium and long term decisions

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Logical scheme of labour market forecasts

DEMAND FACTORSLABOUR MARKETSUPPLY FACTORS

DemandDemandDemographyDemography

Education and skillsEducation and skills

Level of economic activity

Level of economic activity

Balancing of demand and supply

Balancing of demand and supply

SupplySupply

GrowthGrowth

ProductivityProductivity

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2012-2014 2015-2020 2021-2030

Average growth in Latvia 5% 4 - 5% 3 - 4%

Average growth in EU-15 0.5 - 1% 1 - 2% 2 - 3%

Number of population in EU-15 399 million 405 million 414 million

Growth of GDP per capita in EU-15 0.5% 1 - 2.5% 1.5 - 3%

GDP per capita in Latvia in PPS compared to the EU-15 average level, end of period

55% 67% 72%

Basic macroeconomic assumptions – target scenario

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Changes in the number of population

1.8

1.9

2.0

2.1

2.2

2.3

2.4

2.5

1.95 1.94

2.38

2.29

2.07

1.931.86Target scenario

Population will continue to decrease in the medium and long term The most rapid decline of the population is expected in the working age population The number of retired persons will increase substantially

million

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2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Series2Labour SupplyLabour Demand

Unemployment rate2007 – 6.1%

Unemployment rate2010 – 19%

Unemployment rate2020 – 6.1%

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Labour supply and demand

Labour demand will continue increasing in the medium term, however, it will be more moderate At the same time, labour supply will decrease From 2016 the shortage of labour will be critical

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Public services

Commercial services

Transport

Trade

Construction

Other industries

Manufacturing

Agriculture

Total

-5 0 5 10 15 20 25 30

4.3

8.8

8.5

6.7

12.9

3.6

15.1

-1.7

7.4

2020 against 2011, percentage

21

Series1

0 20 40 60 80 100 120

25.1

34.6

43.2

41.5

87.8

24.9

57.2

37.1

43.3

Series1

0 20 40 60 80 100 120

29.4

43.4

51.7

48.2

100.7

28.5

72.3

35.4

50.7

GDP increaseIncrease of employment

Increase of productivity+ =

Labour demand by sectors

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Labour sufficiency: thematic group of higher education

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Educ

ation

Arts

and

hum

aniti

es

Soci

al sc

ienc

es,c

omm

erci

a...

Nat

ural

scie

nces

, mat

hem

...

Engi

neer

ing,

pro

ducti

on ..

.

Agric

ultu

re

Hea

lth c

are

and

soci

al w

e...

Serv

ices

70

80

90

100

110

120

130

88 87 85

121116

105100

88

supply demand

Ratio of labour demand and supply in 2020(%, demand over supply)

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Labour sufficiency: thematic group of secondary education

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Ratio of labour demand and supply in 2020(%, demand over supply)

Arts

and

hum

aniti

es

Soci

al sc

ienc

es, c

omm

erci

...

Nat

ural

scie

nces

, mat

hem

...

Engi

neer

ing,

pro

ducti

on ..

.

Agric

ultu

re

Hea

lth c

are

and

soci

al w

e...

Serv

ices

Gen

eral

edu

catio

n an

d ot

...

70

80

90

100

110

120

130

87

97

119

10496

87

119

89

supply demand

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Major medium/long-term labour market challenges

Low income trap

Shrinking and ageing society/labour force

Labour market imbalances and skill mismatch

Conclusions (1)

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In order to satisfy demand in 2020, supply should be increased: Higher education

Engineering Information and communication technologies Health services, social welfare and pharmacy Agriculture and Forestry

Secondary vocational education Metal processing, machine building and allied sectors Operators of industrial and machine equipment Experts of separate services sectors – information processing, hotels,

restaurants and tourism, etc.

Conclusions (2)

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In order to decrease the risk of structural unemployment:Re-qualification will be necessary:

With higher education: ~ 10% (25 thsd) of persons in humanities and social sciences ~ 10% (3 thsd) of persons in trade and commercial services ~ 5% (5 thsd) of persons in education institutions

With secondary vocational education: ~ 5% (2 thsd) of persons in construction ~ 5% (5 thsd) of persons in services sectors

With basic education or low education level ~ 20% (30 thsd) of economically active population

Conclusions (3)

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Policy directions to improve labour supply:

Continue redistribution of state budget places according to the labour market needs Change the proportion of pupils between general and vocational secondary

education in favour of vocational secondary education Foster active involvement of employers in the improvement of the quality of offer

(apprenticeships, involvement in the development of education programmes, active labour market policy measures)

Improve life-long learning system in order to eliminate current mismatches in the labour market and decrease risks of structural unemployment

Return young people back to education system, who are not in training and employment for obtaining qualification and practice

Strengthen education of pupils and students regarding labour market and career issues in order to foster youth employment

Change employment policy from servicing the unemployed towards fostering employment

Improve cooperation of different institutions in order to introduce the labour market anticipating change system

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Conclusions (4)

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Brīvības iela 55, Rīga, LV 1519Tālrunis: 67013101Fakss: 67280882E-pasts: [email protected]ājas lapa: www.em.gov.lv

Thank you!

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The future of labour market in Latvia The future of labour market in Latvia February 27, 2013 1