The document discusses labour market challenges and opportunities in the Baltic countries. It finds that labour shortages have again become an important obstacle to business expansion in the region. While unemployment rates are low, structural factors like skill mismatches still account for a significant portion of unemployment. The document examines both external and domestic sources that could help address labour shortages, such as immigration from neighboring countries with lower wages, increasing participation rates among underrepresented groups, and improving vocational training programs.
Latvijas Bankas ekonomista Ulda Rutkastes prezentācija
1. 1
LABOUR MARKETS IN THE BALTIC COUNTRIES:
CHALLENGES AND OPPORTUNITIES
Uldis Rutkaste
Head of Monetary Policy Department, Latvijas Banka
2 October 2019
2. 2
Labour shortage has again become an important
obstacle to expanding business
Labour shortage as an important obstacle to business (%; seasonally adjusted)
0
10
20
30
40
50
60
70
80
2004Q1
2005Q1
2006Q1
2007Q1
2008Q1
2009Q1
2010Q1
2011Q1
2012Q1
2013Q1
2014Q1
2015Q1
2016Q1
2017Q1
2018Q1
2019Q1
0
10
20
30
40
50
60
2004Q1
2005Q1
2006Q1
2007Q1
2008Q1
2009Q1
2010Q1
2011Q1
2012Q1
2013Q1
2014Q1
2015Q1
2016Q1
2017Q1
2018Q1
2019Q1
0
10
20
30
40
50
60
2004Q1
2005Q1
2006Q1
2007Q1
2008Q1
2009Q1
2010Q1
2011Q1
2012Q1
2013Q1
2014Q1
2015Q1
2016Q1
2017Q1
2018Q1
2019Q1
Manufacturing
Construction
Services
Estonia Latvia Lithuania
Sources: EC and Latvijas Banka staff calculations.
4. 4
Unit labour costs, aggregate in the Baltic countries (index; year 2000 = 100)
85
90
95
100
105
110
115 2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Tradables
Non-tradables
Tight labour market pushes up labour costs
Source: Eurostat.
5. 5
Export unit value to nominal unit labour costs in manufacturing (2011 = 100)
So far, corporate profitability remains healthy, but
the cost pressure will bite eventually
Sources: Eurostat and Latvijas Banka staff calculation.
70
80
90
100
110
2011 2012 2013 2014 2015 2016 2017 2018
European Union - 28 countries
Estonia
Latvia
Lithuania
6. 6
There are only two ways around it
• External sources
• Domestic sources
Labour
supply
• Accumulate capital and
knowledge
Labour
demand
8. 8
Average monthly gross wage in selected non-EU countries and in their regions (euro)
Wage differentials with eastern neighbours are substantial…
Sources: Statistical offices of the respective countries.
0
200
400
600
800
1000
1200
1400
Estonia
Latvia
Lithuania
Russia
Kazakhstan
Georgia
Belarus
Armenia
Moldova
Ukraine
Moscow
Murmanskregion
St.Petersburg
KomiRepublic
Moscowregion
Arkhangelskregion
Leningradregion
KareliaRepublic
Kalugaregion
Minsk
Kaliningradregion
Tularegion
Vologdaregion
Yaroslavregion
Novgorodregion
Ryazanregion
Belgorodregion
Voronezhregion
Lipetskregion
Tverregion
Kyiv
Kurskregion
Vladimirregion
Smolenskregion
Oryolregion
Kostromaregion
Bryanskregion
Tambovregion
Minskregion
Pskovregion
Ivanovoregion
Gomelregion
Grodnoregion
Brestregion
Vitebskregion
Mogilevregion
Donetskregion
Kyivregion
Dnipropetrovskregion
Zaporozhyeregion
Nikolaevregion
Poltavaregion
Odessaregion
Lvivregion
Transcarpathianregion
Harkovregion
Vinnytsiaregion
Ivano-Frankivskregion
Cherkasyregion
Rovnoregion
Sumyregion
Khmelnitskyregion
Luganskregion
Volynregion
Khersonregion
ZhytomyrOblast
Kirovogradregion
Chernihivregion
Chernivtsiregion
Ternopilregion
Ukraine
Belarus
Central and north-east regions of Russia
9. 9
Share of people living in another EU country
(% of population born in the respective country; age group 20-64; by education level; 2018)
… as is the size of the Baltic diaspora in Western Europe
Source: Eurostat.
0
5
10
15
20
25
30
Romania
Lithuania
Bulgaria
Portugal
Latvia
Croatia
Poland
Cyprus
Luxembourg
Estonia
Ireland
Slovakia
Hungary
Greece
Slovenia
Belgium
Finland
Netherlands
Austria
Czechia
Italy
Germany
Sweden
France
Denmark
UK
Spain
total
primary
secondary
tertiary
10. 10
Average monthly gross wage in the Baltic countries (% of the minimum wage in the UK)
Average wages in the Baltics are presumably approaching
reservation wage levels of migrant workers
Sources: Eurostat and Latvijas Banka staff calculations.
20
40
60
80
100
120
140
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Estonia Latvia Lithuania
euro euro (PPP-adjusted)
20
40
60
80
100
120
140
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Estonia Latvia Lithuania
12. 12
Participation rate in the EU countries (age group 15-74; %; 2018)
Economic activity of population in the Baltic countries
has been rather high
Source: Eurostat.
50
55
60
65
70
75
Sweden
Estonia
Netherlands
Germany
Latvia
UK
Denmark
Lithuania
Austria
Cyprus
Ireland
Finland
Portugal
Czechia
Slovenia
EU-28
Spain
Luxembourg
Slovakia
Malta
Hungary
France
Bulgaria
Poland
Romania
Belgium
Greece
Croatia
Italy
13. 13
The impact of population age structure on the headline participation rate (pp; compared to the age structure in 2002)
However, it is partly a result of demographic tailwinds
that are going to dissipate soon
Source: Krasnopjorovs, O. Anatomy of labour reserves in the Baltic countries: a snapshot 15 years after the EU accession. LB Discussion paper 2/2019.
-4
-3
-2
-1
0
1
2
3 2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Estonia
Latvia
Lithuania
Projection
14. 14
Conventional and broad unemployment measures
(2018; % of economically active population; age group 15-74)
Broad measures of unemployment suggest that
the domestic labour pool is far from exhausted
7.4
5.4
6.2
12.7
10.9
8.4
0
2
4
6
8
10
12
14
Latvia Estonia Lithuania
Job seekers' rate Broad unemployment rate
Sources: Eurostat and Latvijas Banka staff calculations.
15. 15
Natural unemployment rate and labour market mismatches in the EU countries
Skill mismatches account for a large part of
structural unemployment
Source: Krasnopjorovs, O. Anatomy of labour reserves in the Baltic countries: a snapshot 15 years after the EU accession. LB Discussion paper 2/2019.
Labour market mismatch index
(2016-2018 average)
0
10
20
30
40
50
60
Greece
Spain
Croatia
Italy
Lithuania
France
Latvia
Cyprus
Finland
Luxembourg
Estonia
Portugal
Belgium
Sweden
Bulgaria
Poland
Austria
Slovakia
Hungary
Ireland
Denmark
Czechia
UK
Germany
Romania
Malta
Slovenia
EE
LV
LT
0
2
4
6
8
10
12
14
16
18
0 20 40 60
NAIRU(2016-2018)
Labour market mismatch index (2016-2018)
16. 16
Regional differences in employment and unemployment rates (max–min in 2018 or the last year available; pp)
Regional disparities also point to sub-optimal allocation of labour
Sources: Statistical offices of Latvia, Estonia and Lithuania.
7.1
8.5
7.7
12.2
17.5
13.2
0
2
4
6
8
10
12
14
16
18
20
Latvia Estonia Lithuania
Unemployment rate Employment rate
17. 17
Estonia Latvia Lithuania
Men Women Men Women Men Women
Agegroup
15-19 6.3 5.0 11.3 11.1 17.1 17.8
20-24 0.6 3.4 8.1 9.1
25-29 2.4 1.9 0.1
30-34 2.6 1.8 1.1
35-39 1.2 1.2 1.7 2.1
40-44 0.5 2.3 7.6
45-49 1.5 5.5 9.0
50-54 1.3 6.0 7.0
55-59 4.4 5.2 7.4
60-64 1.7 3.8
Total 26.9 55.9 86.3
Internal labour reserves in the Baltic countries by age group and gender (thousands of people; in 2018)
Potential domestic labour reserves are rather notable
Source: Krasnopjorovs, O. Anatomy of labour reserves in the Baltic countries: a snapshot 15 years after the EU accession. LB Discussion paper 2/2019.
18. 18
Vocational training is not fashionable in the Baltics, likely
to depress youth employment
Vocational education (% of lower secondary education
enrollment; in 2017)
Sources: Eurostat and Latvijas Banka staff calculations; hereinafter EU7 – Germany, Austria, Denmark, the Netherlands, Sweden, Czechia and the UK.
Vocational education (% of upper secondary education
enrollment; in 2017)
2.9
0.6
2.4
EU7 = 7.2
0
1
2
3
4
5
6
7
8
Estonia Latvia Lithuania
40.7
38.6
27.4
EU7 = 53.5
20
25
30
35
40
45
50
55
60
Estonia Latvia Lithuania
19. 19
Share of individuals who have at least basic digital skills (%)
Older workers suffer from insufficient digital skills and are
less active participants of lifelong learning programmes
Sources: Eurostat and Latvijas Banka staff calculations.
0
10
20
30
40
50
60
70
80
90
100
16-24 25-34 35-44 45-54 55-64 65-74
Estonia
Latvia
Lithuania
EU7
Baltic countries vs EU7: lifelong learning (difference in pp)
-15
-10
-5
0
5
25-64 25-34 35-44 45-54 55-64
Estonia
Latvia
Lithuania
20. 20
99
83
81
44
40
33
9
0 50 100
Internships in firms (1.3%)
Support to start entrepreneurship
(0.7%)
Measures for particular person groups
(2.5%)
Professional training and re-training
(9.5%)
Informal education (30.5%)
Competitiveness promotion (30.2%)
Temporary public jobs (25.4%)
%ofallprogrammeparticipants
Spending on active labour market policy
(% of GDP; 2016)
Capacity of the active labour market policy is rather limited
Sources: Eurostat and the State Employment Agency of Latvia.
0.0
0.5
1.0
1.5
Denmark
Sweden
Hungary
Finland
France
Luxembourg
Austria
Belgium
Netherlands
Spain
Porugal
Italy
Ireland
Poland
Croatia
Germany
CzechRep.
Lithuania
Slovakia
Estonia
Greece
Slovenia
Latvia
Malta
Bulgaria
Cyprus
Romania
Latvia: found a permanent job 6 months after participating in the
programme (%; 2018)
21. 21
Self-perceived health status of upper-middle-aged men
(index; age group 55-64; in 2017)
Relatively poor health status of upper-middle-aged men is likely
hindering their activity on the labour market
Sources: Eurostat and Latvijas Banka staff calculations.
Aerobic physical activity at least 5 hours per week by
income quintiles (men; age group 22-44; in 2014; %)
+200: very good
+100: good
0: fair
-100: bad
-200: very bad
0
10
20
30
40
50
60
70
80
90
100
Ireland
Sweden
Netherlands
UK
Greece
Italy
Cyprus
Belgium
Finland
Malta
Spain
Denmark
France
Austria
Romania
Bulgaria
Slovenia
Germany
Czechia
Slovakia
Croatia
Hungary
Poland
Portugal
Estonia
Lithuania
Latvia
0
5
10
15
20
25
30
1 2 3 4 5
Estonia
Latvia
Lithuania
EU-7
22. 22
Flexibility of wage determination (GCI 2018; component 8.04)
Rigid employment protection legislation may reduce labour market
flexibility with further advancements in judicial capacity
Sources: GCI 2018 and OECD.
Protection against dismissals (2013-2015 average; OECD)
2
3
4
5
6
Estonia
Lithuania
Latvia
UK
Czechia
Malta
Poland
Ireland
Bulgaria
Romania
Luxembourg
France
Croatia
Slovakia
Spain
Portugal
Hungary
Germany
Cyprus
Slovenia
Belgium
Greece
Denmark
Netherlands
Sweden
Italy
Finland
Austria
1.0
1.5
2.0
2.5
3.0
UK
Estonia
Ireland
Hungary
Finland
Slovakia
Croatia
Denmark
Spain
Poland
Greece
Lithuania
Austria
Sweden
Slovenia
Czechia
Portugal
Luxembourg
France
Germany
Italy
Latvia
Netherlands
Belgium
24. 24
Stock of physical capital per worker in the Baltic countries
(% of Germany; adjusted for purchasing power parity)
Capital stock has increased over time, but there is still some
room for further convergence
Sources: Penn World Tables 9.0 (Feenstra et al., 2015) and Latvijas Banka staff calculations.
0
10
20
30
40
50
60
70
80
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
25. 25
Productivity levels and labour allocation in manufacturing: Baltics vs 7 best EU performers in terms of
productivity* (average over 5 years running to 2017)
Increasing allocative efficiency and scaling technology ladder are both
important in boosting productivity
Sources: Eurostat and Latvijas Banka staff calculations; * – Austria, Belgium, Denmark, Finland, Ireland, the Netherlands, Sweden.
050100150200250300350400
-15 -10 -5 0 5 10 15 20
Wood & furniture
Textiles
Printing & reproduction
Metals and articles thereof
Construction matherials, plastic & rubber
Food & beverages
Machinery and equipment
Transport equipment
Paper
Computers, electrical & optical equipment
Pharmaceuticals & chemicals
Average productivity
Employment differentials
Employment differentials in the Baltics vs 7 best EU performers in terms of productivity; pp
Average productivity in 7 best EU performers, GVA per employed
0 10 20 30 40 50
Productivity level in the Baltics, % of 7
best EU performers' average
26. 26
Education quality and quantity indicators in the Baltics and the EU7
Quality of education becomes critical in this respect
Sources: OECD (PISA 2015) and Global Competitiveness Report (2017, 2018).
2.5
3.0
3.5
4.0
4.5
5.0
5.5
Extent of staff training
Quality of vocational training
Skillset of secondary-education
graduates
Skillset of university graduates
Digital skills among active
population
Ease of finding skilled
employees
Critical thinking in teaching
Quality of the education
system
Quality of math and science
education
Quality of management schools
Estonia
Latvia
Lithuania
EU7
27. 27
• Labour shortage is here to stay if left unaddressed.
• Activating domestic labour reserves may be costly, but not doing so
would be penny wise, pound foolish.
• Raising human capital is key to further income convergence, and it
would help in alleviating labour market pressures.
Main takeaways