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

Overview  Current situation  Future tendencies and challenges 2

The economy of Latvia recovers from the deep trough 3 Growth of GDP (seasonally adjusted data, 2005 Q4 = 100

Growth factors Domestic demand and exports Seasonally adjusted data, 2005 Q4 = GDP +5.5% Employment and productivity 2012 against 2011 * Estimation of Ministry of Economics

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 Situation in the labour market improves gradually ECONOMIC GROWTH FOSTERS INCREASE OF JOBS Dynamics of GDP and occupied jobs, 2005 Q4 = 100 UNEMPLOYMENT FALLS Number of registered unemployed, thousands

Thousands Changes, % Q3 2011/ Q3/ 2011 Q3 Agriculture Manufacturing Other industry Construction Trade and accommodation Transport and storage Other commercial services Public services Total Occupied jobs by sectors

Impact of structural changes on the labour market 8  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 not only by the education and skills of labour, but also wages ! 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

Mismatches in the labour market 9 Breakdown of employed by the education and occupations qualification level 2011, thousand

10 Situation in the regions of Latvia Registered unemployment At the end of 2012, % Regional breakdown of employed 2012, %  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

Youth employment and unemployment 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, % 11

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

Age structure of employed in manufacturing, 2011, % Age structure of senior experts in engineering employed in manufacturing, 2011, % 13 Age structure of employed in manufacturing

Number of working age population (aged 15-74) 1595 thousand 14 Potential reserve of labour in 2011 Pupils, students157 Retired persons who receive only pensions259 Housekeepers58 Disabled, long-term unemployed43 Persons in the child-care leave10 Others40 Potential reserve of labour ~ 80 thousand Employed 862 thousand Unemployed 166 thousand Economically inactive 567 thousand

Future tendencies and challenges 15

Labour market forecasts of the Ministry of Economics  Ministry of Economics prepares medium term labour market forecasts  Since 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 16

Logical scheme of labour market forecasts DEMAND FACTORS LABOUR MARKET SUPPLY FACTORS Demand Demography Education and skills Level of economic activity Balancing of demand and supply Supply Growth Productivity 17

Average growth in Latvia5%4 - 5%3 - 4% Average growth in EU %1 - 2%2 - 3% Number of population in EU million405 million414 million Growth of GDP per capita in EU-150.5% % % 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 18

Changes in the number of population  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 19 million

Unemployment rate 2007 – 6.1% Unemployment rate 2010 – 19% Unemployment rate 2020 – 6.1% 20 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

2020 against 2011, percentage 21 GDP increase Increase of employment Increase of productivity += Labour demand by sectors

Labour sufficiency: thematic group of higher education 22 Ratio of labour demand and supply in 2020 (%, demand over supply)

Labour sufficiency: thematic group of secondary education 23 Ratio of labour demand and supply in 2020 (%, demand over supply)

Major medium/long-term labour market challenges  Low income trap  Shrinking and ageing society/labour force  Labour market imbalances and skill mismatch Conclusions (1) 24

25  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)

26  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)

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 27 Conclusions (4)

Brīvības iela 55, Rīga, LV 1519 Tālrunis: Fakss: E-pasts: Mājas lapa: Thank you! 28