Tackling the recession: Latvia
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After durable growth, a decline in the Latvian economy began in 2008, when the Gross Domestic Product fell by 4.6%. In the first quarter of 2009 the GDP declined at a rate of 18% in comparison with the first quarter of 2008. This decline in growth may be explained by the fall in overall economic activity – first of all, in service sector (trade, hotel and restaurant business) and then in industry. The result of the recession is decline in labour supply and its social consequences.
1. Measures taken by government to assist businesses and protect jobs
Support to businesses
What formal or legal arrangements (such as job subsidies, bank guarantees, loans or special credit facilities) are in place in your country for supporting firms which are at risk of having to reduce employment? (Please include only measures which are aimed principally at maintaining employment as opposed to those which are aimed, for example, at increasing competitiveness or supporting investment.)
There is no instrument supporting directly the employment and work places in Latvia. However, there are instruments dealing with viability of companies in this way supporting indirectly the preservation of jobs. The Ministry of Economics of Republic of Latvia in cooperation with the Ministry of Finance in the beginning of 2009 has been worked out business support programme with funds totalling 603 LVL million (858 million Euros).
The programme will be implemented with the help of the following mechanisms: credits for enterprises; guarantees, including the ones for export credits; public guarantee funds. It is forecasted, that the main part of financial support mechanisms will be available in the end of the second quarter of 2009.
In case a self-employed person is registered as an individual entrepreneur in the Company Register of Latvia, he/she is entitled to receive a program support.
Are the arrangements or measures concerned permanent features of the system in your country or have they been introduced in the recent past specifically to combat the effects of the present recession? Please give an indication of the number of firms receiving support of this kind and the number of jobs protected as well as the source of funding.
In accordance with Cabinet Regulation No. 269, “Regulations regarding guarantees for improving the competiveness of entrepreneurship” (Adopted March 24, 2009), companies may apply for financial support that is available until December 31, 2010. The support is provided for prescribed sectors only. These sectors are: fisheries; production, processing and trade of agricultural products; wholesale and retail trade; finance and insurance; renting of transport and equipment; operations with real estate; gambling sector; production and trade of weaponry, tobacco and alcoholic drinks.
Companies applying for the funds of the crisis support program may receive maximally 500 000 Euro (respectively, their equivalent in LVL). Moreover, financial indicators of the companies in this case should be stable (there should not be financial losses) until July 1, 2008.
According to the data provided by Guarantees Bureau of Latvia (Latvijas Garantiju aģentūra), only four companies have received the support from the program (data on May 19, 2009). From these funds the companies have to purchase current assets (3 companies have received 196 thousands Euro) and technological equipment (1 company has received 79 thousands Euro). Data on work places protected are not available.
Do the measures apply generally across the economy or are they specific to particular sectors or regions? Please indicate the sectors and/or regions concerned.
Measures are applied to all regions. However, they are not applied to particulate sectors mentioned above.
Is there government support available for companies which introduce short-time working arrangements, give a temporary period of leave to workers or implement similar measures to enable workers to retain their jobs where there is insufficient work for them to do? If so, please give an indication of the extent of the support concerned and the number of companies, and the workers they employ, receiving support.
There are no such specific support measures in Latvia.
Are there are plans or proposals to introduce measures of the various kinds indicated above in order to assist businesses and protect jobs? If so, please describe them briefly.
There are no such plans and proposals in the case of Latvia.
Support to workers
What formal or legal measures (such as partial unemployment benefit or similar kinds of social transfer) are in place in your country to support workers who have been put on to short-time working by employers or who have been given temporary leave with reduced rates of pay (i.e. who still formally have jobs but who are either not working or working reduced hours)? Please describe the measures concerned and indicate the scale of support provided. Please also give any figures available for the number of workers receiving payments of this kind as well as the source of funding.
Are the measures concerned permanent features of the system in your country or have they been introduced in the recent past specifically to combat the effects of the present recession?
Has the coverage of the social benefit system which provides income support to workers who lose their jobs been widened in the present recession in order to ensure that those concerned are protected (such as, for example, through a relaxation of the rules and regulations governing the payment of unemployment benefits or other forms of social transfer or through an extension to workers not previously entitled to support)?
Are there any plans or proposals to provide income support for those working short-time or on temporary leave? If so, please describe them briefly.
There are no such specific support measures in Latvia.
2. Action taken by companies to maintain workers in employment
What action, if any, has been taken by companies during the present downturn to keep workers in jobs in situations where the work for them has declined? Please describe briefly cases where companies have introduced short-time working (such as fewer hours per days or fewer days per week), temporary periods of leave or other means of maintaining people in jobs.
In the Latvia’s national economy there is a tendency for redundancy and transition to short-time working and other forms of reduced hours of employment. According to Employers’ Confederation of Latvia (LDDK), companies try to plan more rationally administrative costs, allowing their workers to work from home or to work reduced hours. In these cases, wages are reduced in proportion to the reduction of working hours.
In order to reduce the costs, unpaid holidays are often practised in the public sector. For example, the employees of the Company Register in Latvia holidayed without pay on January 10, 2009 and January 12, 2009.
1300 employees of the Latvia University of Agriculture holidayed without pay during the period from April 6 to April 9, 2009. Moreover, since May 2009 the wages of the University’s faculty are reduced by 20 percent.
Riga Technical University decided to grant to its employees 7-day holydays without pay during three months, i.e., from April to June. In February 2009 the wages of faculty and administration stuff were reduced by 34 percent.
How extensive has such action been in terms of the number of companies and workers concerned and the sectors in which it has occurred?
The development indicators in the private sector give evidence that companies mostly reduce working hours and introduce shorter work week.
The number of jobs in private sector is decreasing more rapidly in the hotel and restaurant sectors, catering and trade.
Have particular types of company (e.g. multinationals or domestically-owned firms) or firms in particular sectors been more prepared to take this kind of action than others?
There are no statistical data in Latvia that would be helpful in answering the question.
Has the action in question typically entailed a reduction in pay? If so, please give an indication of the typical extent of this.
In case the working hours are reduced, workers usually receive reduced wages. However, in case a company doesn’t operate due to the lack of demand in short term, workers receive average earnings.
To what extent has this kind of action been accompanied by the provision of training or education to the workers concerned – i.e. how far have companies taken advantage of the lack of work to improve the skills of their work force?
There is no information available on the topic.
3. Joint action taken by companies and trade unions to maintain jobs
How far has the kind of action described in Section 2 above been the subject of collective agreements between companies and trade unions? Please give summary details of the content of some of the most important collective agreements.
To what extent has other action been taken under collective agreements to reduce business operating costs so as to avoid job losses? Has there been an increase in instances of trade unions, or worker representatives, agreeing to accept cuts in pay, or to work longer hours without additional pay, in order to maintain employment levels? If so, please give an indication of the extent of such agreements and describe briefly typical cases.
Are such agreements more prevalent in some sectors than others?
What other forms of action have trade unions taken, apart from strikes and other action designed to put pressure on employers, in order to try to prevent job losses and maintain employment levels? How effective has such action been?
The consequences of the decline in national economy are the reduction of costs both in the private and public sector. At a time of decrease in tax revenue, there is necessity for reducing the budget expenditures. Moreover, the budget deficit limits of 5 percent of Gross Domestic Product should not be exceeded. The decrease in budget expenditures in 2009 has affected all branches of the public sector and local governments. In the most dramatic way it affected the areas of education, healthcare and science. The trade unions represented these branches were forced to accept the reduction of wages.
As the result of declining of aggregate demand, the number of redundant workers is increasing. At the same time, the remaining workers receive reduced wages. Such tendency is especially observable in the service, trade and manufacture sector.
In order to try to prevent job losses, the bargaining is going on presently. For example, as the result of bargaining, the reduction of funding was not as dramatic as had been planned before.
4. Measures to provide income support
To what extent do collective agreements include provision for higher rates of compensation in the event of workers being made redundant than they are entitled to under national legislation? How far do collective agreements providing more generous compensation than the statutory amount vary between sectors?
Has there been an increase in the number of collective agreements which include such provision during the present downturn?
Collective agreements and agreements on higher rates of compensation are concluded at big enterprises. Statistical data on the dynamic of such agreements are not available in Latvia.
To what extent are redundancies being concentrated on older workers, i.e. taking the form of early retirement, in the present downturn? Is there any evidence that the use of early retirement as a means of effecting reductions in employment has increased in importance during the present downturn
The cases of the companies (the Daugavpils Locomotive Repair Factory (LDDR), the Latvian Railway) that have dismissed a significant portion of their work force are indicative that, first of all, they have fired persons of pension age.
5. Lessons from research studies
Have any studies been undertaken in the past in your country on the effectiveness of attempts made in previous periods of recession to maintain employment levels similar to those covered here? If so, please outline the studies concerned and their main findings.
There are no significant studies relevant to the topic.
If partial unemployment benefit, short-time working or similar schemes which provide income support to those working short hours are a permanent part of the social security system in your country, please briefly describe any studies which been undertaken on their effects and the main conclusions to emerge from them.
Andrejs Berdnikovs, Institute of Economics, LAS