the future of labour market in latvia the future of labour market in latvia february 27, 2013 1
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Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
1
The future of labour market in Latvia
February 27, 2013
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
Overview
Current situation
Future tendencies and challenges
2
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
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
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90
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100
105
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115
120
EU
Estonia
Latvia
Lithuania
The economy of Latvia recovers from the deep trough
3
Growth of GDP (seasonally adjusted data, 2005 Q4 = 100
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
Growth factors
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
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
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
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
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
I II III IV V VI VII
VIII IX X XI XII I II III IV V VI VII
VIII IX X XI XII I II III IV V VI VII
VIII IX X XI XII 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
6
Situation in the labour market improves gradually
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
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
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
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
7
Occupied jobs by sectors
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
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
! 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
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
9
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
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
10
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
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
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%
11
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
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
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
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
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+
13
Age structure of employed in manufacturing
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
Number of working age population (aged 15-74)
1595 thousand
14
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
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
Future tendencies and challenges
15
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
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
16
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
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
17
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
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
18
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
19
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
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
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%
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
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
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
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
Labour sufficiency: thematic group of higher education
22
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)
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
Labour sufficiency: thematic group of secondary education
23
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
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
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
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
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)
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
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)
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
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)
Latvijas Republikas
Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia
28
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Thank you!