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Working poor in Europe – Latvia

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The problems concerning the risk of poverty among Latvia’s working population are, in theory, an urgent concern of economic policy, but a source of tension in reality. The budgetary changes of 2009, which provide for a decrease in government spending, also concern the social sphere: in particular, unemployment benefits, social benefits to families with children and pensions. Policymakers have, in theory, devised solutions aiming to diminish social tensions. In practice, however, economic development policies and government decisions do not conform to what was planned.

Definitions and aims of study

The ‘working poor’ are a section of the population that is difficult to define, not only due to a lack of specific data but also because the concept combines two levels of analysis: the working status of individuals and the wages they earn from employment (individual level), and the extent to which they have a poverty-level of income within the household context (collective level).

The aim of the comparative analytical report is fourfold:

  • to obtain an insight into the extent of in-work poverty in different European countries and the characteristics of those affected;

  • to examine policies in place to tackle the problem of people in work on low levels of income and any assessments which have been carried out into the effectiveness of such policies;

  • to consider the views of social partners towards the working poor;

  • to investigate the effect of the current economic recession on the scale of in-work poverty.

For the purpose of the study, the working poor are defined in the same way as the indicator used by the European Commission to assess and monitor in-work poverty. Therefore, the working poor are those who are employed and whose disposable income puts them at risk of poverty. The expressions ‘working poor’ and ‘in-work poverty’ are thus used interchangeably.

‘Employed’ is defined here as being in work for over half of the year. ‘Risk of poverty’ refers to having an income below 60% of the national median earnings. Income is measured in relation to the household in which a person lives and covers the income of all household members, which is shared equally among them after being adjusted for household size and composition. Accordingly, if persons are at risk of poverty, this may not be simply because they have low wages but because their wages are insufficient to maintain the income of the household in which they live. Equally, a person can earn a very low wage but not be at risk of poverty because the income of other household members is sufficient to raise the overall household income above the poverty threshold. The study covers people on low wages, or low earnings in the case of self-employed persons. Low wages, defined in an analogous way as low income – that is, below 60% of the median earnings of those in full-time employment – potentially put individuals at risk of poverty. The risk is likely to increase in the current economic crisis as companies introduce various measures to try to cut wage costs while keeping people in employment by reducing their working hours, giving them extended leave or simply cutting wages.

The characteristics of the people concerned are also important – particularly their age, with young people and, in some cases, older workers being more likely to be employed in low-paid jobs. Women are also more likely than men to be employed in low-paid jobs, even allowing for the relatively large numbers of women working part time. However, the statistics show that, if women are in work, they are on average across the European Union less likely than men to live in households with a poverty-level of income. Nonetheless, women are more likely than men to live in circumstances which put them at particular risk of poverty, such as being a lone parent in many countries. In addition, migrants are particularly vulnerable to being working poor, since they tend to combine various adverse characteristics, such as working in low-skilled jobs with low rates of pay and living in single-earner households.

A set of tables containing the data available at EU level on the working poor and on those on low wages was included in an annex to the questionnaire (see Annex 1 of the overview comparative analytical report). The data concerned derive from the EU Statistics on Income and Living Conditions (EU-SILC) for 2007, which are the latest available data and which relate to the position in 2006. The national correspondents were asked to comment on the table findings for their country and to supplement the data included with data from national sources and where these help to interpret the situation or to add to the information included in the tables. The correspondents were also asked to specify the source of any additional data and the definitions used if these differ from those on which the table is based.

1. Scale and nature of in-work poverty

1.1 Please comment on the figures for the working poor for your country shown in the attached tables and what they indicate about the scale and nature of this. Please refer to any additional data available from national sources or any studies which have been undertaken if these provide additional information in this regard and help to give an insight into the issue.

From 2005 to 2008, the poverty risk threshold in Latvia increased, with the most rapid rise occurring among the population below the retirement age. A slower increase in the poverty risk threshold is visible between employees. The group most affected includes employees working part time and single parents with dependent children. The poverty risk threshold rose in the period 2005–2008 due to rise in price levels. In 2005, the poverty risk threshold in Latvia was €1,322 a year for single-person households and €2,777 for households consisting of two adults and two children below 14 years of age. In 2007, the poverty risk threshold increased by 52% to €2,010 and €4,222, respectively. In 2008, this threshold stood at €2,899 a year for single-person households and €6,088 for households with two adults and two children, according to Latvia’s Central Statistical Bureau (Latvijas Statistika, CSB).

Among the population under 18 years of age, the poverty risk increased from 21% in 2005 to 28% in 2008. Evaluating the poverty risk tendencies of the employed population, it must be concluded that a higher risk can be attributed to women, as well as to part-time workers. According to the statistical data, in 2005 some 18% of women aged between 18 and 64 years of age were at risk of poverty. The overall number of people at risk of poverty increased from 19% in 2005 to 26% in 2008. The tendency for gender differences in the working poor among the country’s economically active population (18–64 years) is not perceptible: in 2008, 20% of women and 19% of men were at risk of poverty. Detailed data show, that low income levels are notable among the population aged 50–64 years, standing at an average of 25% in 2008 for both women and men; this compares with a 20% poverty risk threshold in 2005 among this group, with 22% of men and 19% of women aged 50–64 years being at risk of poverty.

The effect of an increased number of working poor, from a macroeconomic point of view, is a rise in social inequalities among the employed population and lower living standards, along with lower levels of household expenditure and a higher risk of emigration.

1.2 Please comment on recent trends, giving any data or other evidence available to indicate whether the number of working poor has tended to increase or decline, between 2000 and 2007, especially considering women, young and older workers, self-employed, migrants.

As the statistical data of the CSB only cover a limited time period – that is, from 2005 to 2008 – a long-term tendency cannot be analysed. Nevertheless, the general trend shows an increase in the working population living in poverty: in 2005, some 8% of full-time employees (persons working eight hours a day, five days a week) had an annual income below the poverty risk threshold; this figure rose to 10% in 2008. Part-time employees are more vulnerable to the risk of in-work poverty: in 2005, 26% of part-time workers lived below the poverty risk threshold, while 25% did so in 2008.

In terms of education, the number of employees with a primary education living below the poverty line is significantly high (see Annex, Table A3). This is related to Latvia’s economic structure, whereby employment is largely concentrated in low technology areas with low productivity and wages.

By household type, single-person households show a significant risk of poverty before the pension age: in 2005, 37% of such households had an income level below the poverty risk threshold, and this figure rose to 40% in 2008.

According to the statistical data, one of the highest concentrations of economically active persons living in poverty can be found among single-parent families with at least one child. In 2005, some 31% of persons in this group lived below the poverty line, rising to 42% in 2008. Large families are also particularly at risk: in 2005, some 39% of families with two adults and three or more children had an income below the poverty risk threshold, rising to 46% in 2007.

The lowest poverty risk is evident among households without children, where the person is employed full time: in 2005 and 2008, 5% and 8%, respectively, of such households had an income below the poverty risk threshold. In comparison, in 2005, some 8% of households with children were at risk of poverty, rising to 11% in 2008.

The highest proportion of low incomes is registered among households working part time – that is, for less than four hours a day or 20 hours a week (full-time working corresponds to 40 hours a week). In 2005, a total of 39% of single-person households working part time had an annual income below the poverty risk threshold – this proportion rose to 43% in 2008. The risk is higher for households with one adult working part time who has children: among this group, 46% in 2005 and 54% in 2008 were at risk of poverty.

1.3 Please outline the main findings of any research studies which have been undertaken in your country on the working poor or on low pay, more generally, and what they reveal about the characteristics of the people concerned and the jobs that they do and how these might be changing over time.

In Latvia, the broader research on the factors influencing the labour market is commissioned by the Ministry of Welfare of the Republic of Latvia (Labklājības Ministrija), with financing from EU structural funds. One of the studies, which involved an analysis of poverty indicators for the Latvian population, is the 2007 research project entitled Causes and duration of unemployment and social exclusion (2.86Mb PDF). In this research, the poverty risk of employed persons and its indicators are not analysed in detail, but the situation in Latvia in general is characterised. According to the results, the poverty risk is high in some Latvian regions, especially in the most depressed region – the Latgale region in eastern Latvia. This region contains about 30% of the poor families. The research data also show that one half of persons below the poverty line are employed. About 25% of households in rural areas and 21% of those in cities are below the poverty risk threshold. A lower poverty risk is evident in the cities and district centres, with the lowest poverty risk threshold (7%) visible in Latvia’s capital city Riga. The research highlights that, between 2003 and 2004, the poverty risk increased among large families.

2. Policies towards working poor

2.1 Is the issue of in-work poverty seen as an important problem in your country for the government to address? Has the issue become more or less important in the policy debate over recent years? To what extent is there seen to be a conflict between reducing the number of working poor in your country and increasing the number of people in work?

Combating social inequalities is one of the three priorities issued by the Latvian government, in elaborating its strategy for economic development for the period up to 2013.

The measures concerning the reduction of unemployment levels are rather indirect: for example, enabling more easy access to training courses for unemployed persons or part-time employees. However, owing to the economic downturn, the number of working poor is increasing in Latvia due to a decrease in the average turnover of the private sector and cuts in government spending.

2.2 What kinds of policy have been devised to address the working poor issue in your country? On which particular area have national policies tended to focus: labour market, social protection, fiscal policy or some combination of these policy areas? Which particular groups are policies targeted at: workers, employers, families?

The most widely used instrument to protect employees against poverty is the minimum wage. Since 2009, the minimum wage in Latvia has stood at LVL 180 (about €254 as at 12 March 2010) a month.

According to the legislation (Regulations of the Cabinet, 3 March 2009, on recognising if a family or a single person is poor), families can apply for social support, if the income of each family member does not exceed 50% of the minimum wage for a period of three months. Under the regulations, the status of ‘poor’ may be obtained by the family, under the following conditions: if its financial resources are limited; if the household has no money reserves, has debt commitments, loans, or has no ownership (as a source of income); if the family is not on a full provision of the government or self-government.

2.3 Please describe the main measures taken for improving the income situation of the working poor. Are there any fiscal measures in place, in the form of tax credits, or in-work benefits more generally, for maintaining or raising the income of those in employment with low earnings? Are there any social transfer schemes in place to ensure that income of households exceeds a minimum level, even if the people in the household are in work? If so, please outline their main features, including whether or not they apply to the self-employed as well as employees.

There is a high proportion of employees with a low disposable income and, as a result, with low living standards. Under the country’s legislation, there are no direct fiscal measures to protect employees with income below the poverty risk threshold. In Latvia, a specific policy for combating the risk of poverty among employees does not exist.

2.4 Please assess the role minimum wage legislation plays in limiting the number of working poor. Please indicate the nature of the regulation (statutory/legislative/collectively agreed/sectoral) in your country and how the minimum wage varies between different groups of worker.

The minimum wage is an indirect measure for reducing social inequality in Latvia. However, if the ratio of minimum wage and the poverty risk threshold are analysed, some significant conclusions can be mentioned. Firstly, the minimum wage of full-time employees ensures only about 75% of the poverty risk threshold income for a single-person household and 70% for households with two adults and two children younger than 14 years. Elsewhere, the general pay trend in small and medium-sized enterprises (SMEs) can be characterised by a high level of informal employment, which entails a higher risk of social inequality (social benefits are calculated on the basis of social tax contributions) and, as a result, of labour force migration in periods of economic recession. On the one hand, the minimum wage supports a more favourable social environment but, on the other hand, it does not guarantee the necessary quality of living standards, especially in the context of a high credit burden (private sector debt accounts for more than 100% of gross domestic product (GDP) in Latvia).

The minimum wage is the same in all economic sectors. It is regulated by the cabinet ‘Regulations regarding the minimum monthly salary and the minimum hourly wage rate’ of 23 September 2008. The regulations prescribe the minimum monthly salary within the scope of normal working time, part-time working and the minimum hourly wage rate as well as the minimum hourly wage rate for employees who are subject to specific risks.

2.5 How effective are the policies in place for reducing the number of working poor? Please refer to any survey, research studies or policy evaluations which have been undertaken to assess the measures in place.

In Latvia, no such specific surveys exist in this respect, except general research studies relating to labour conditions and the labour market, as well as the information mentioned in the programme documents of government policy.

3. Attitudes of the social partners to the working poor

3.1 What is the attitude of the social partners in your country to the issue of in-work poverty? Is there any debate on the relative priority to be given to the quality of jobs and working conditions as against the quantity of jobs? What has been the impact of the present recession on their positions and on the actions taken towards reducing in-work poverty?

The main questions discussed by the social partners are the minimum wage, labour costs and the improvement of working conditions. Issues relating to the working poor are discussed from time to time at national level in the context of the current economic downturn. However, the main disputes concerning pay are usually resolved at company level.

3.2 Do trade unions have explicit policy proposals for reducing the number of people on low wages? If so, please outline the main features of these. Do such proposals include complementary schemes on healthcare, pensions and family support to help increase the effective income of workers? Do trade unions see a specific role for themselves in implementing and managing such schemes? What level of importance is attached to reducing the number of working poor in relation to creating more jobs or keeping more people in employment?

The trade unions actively participate in the process of drawing up the national budget, advocating interests in the broad areas of educational, healthcare and other sectors. The professions of these sectors are characterised by low wage levels. The main disputes regarding low wages were relevant in period of high economic growth. The Latvian Free Trade Union Confederation (Latvijas Brīvo Arodbiedrību savienība, LBAS) proposed an increase in the incomes of the working poor in the public sector (police officers, and those employed in healthcare and education). LBAS warned the government about rising labour force flows to the private sector due to low wages in the public sector and appealed to the government to recognise social dialogue and previous agreements on pay increase in the public sector. On 7 October 2008, the trade unions organised a picket to protest against pay cuts projected in the state budget for 2009. However, in June 2009, the social partners reached an agreement on measures to reduce the state budget deficit.

3.3 Do employers generally support measures for reducing the extent of in-work poverty? If so, indicate the principal measures they support and implement themselves such as respecting minimum wage levels, ensuring adequate basic rates of pay, paying suitable amounts for working overtime or in bonuses.

The employers fulfil the legal requirements relating to minimum wages and labour protection. However, research shows that in Latvia attitudes vary on issues relating to labour relations, such as remuneration, family status and gender, among others. However, there is no evidence based on any research determining how such attitudes impact on the number of working poor.

4. Effect of current economic recession on in-work poverty

4.1 Is there any evidence that the number of working poor has tended to increase during the present recession (as a result of reduction in wages and/or working time)?

Recent statistical data covering the effects of the economic recession are not available. However, the tendencies during 2009 show an increase in the number of unemployed persons and a rise in those receiving old-age pensions. In 2009, legislative changes affected employed persons above the retirement age: the average pension for an employed person was only 30% of the total pension they would receive if not employed. Such a policy was implemented to reduce budget spending in 2009 and to meet the low budget deficit criteria.

4.2 Have any surveys or studies been launched since the crisis started to assess the effect on the working poor and to monitor the numbers involved? Please give details of such surveys or studies (their objectives, the approach adopted, the institution in charge, the main findings and so on).

No such studies have been launched in Latvia since the beginning of the economic recession.

4.3 Have any policy measures been taken to reduce the possible effect of the recession on the working poor?

The strict fiscal policy measures in 2009 – including redundancies in the public sector and an increase in the tax burden – have further fuelled social tensions, owing to the rise in unemployment and diminishing support as well as disposable income.

5. Commentary

In Latvia, the number of people living in poverty has increased (see Annex), notwithstanding the economic development that occurred up to 2009. Since 2000, some progress was seen: in 2002, the average net wage in the economy exceeded the subsistence wage by 34%. The obvious statistical discrepancy in relation to the real situation in the national economy is explained by the importance of the informal economy in Latvia. Taking into consideration the economic recession underway in 2009 and 2010, an increase in the number of people living in poverty is forecast for all age groups. In particular, it is expected that there will be a rise in the number of families and employed persons with incomes below the subsistence wage. Persons who became unemployed due to the economic recession are particularly vulnerable because, under the current legislation, unemployment benefit is only half of the average wage.

References

Institute of Philosophy and Sociology of the University of Latvia, Institute of Sociological Research, Baltic International Centre for Economic Policy Studies, Causes and duration of unemployment and social exclusion (2.86Mb PDF), Ministry of Welfare research project within the EU Structural Fund national programme on ‘labour market research’, Riga, 2007.

Latvian government, ‘Regulations regarding the minimum monthly salary and the minimum hourly wage rate’, Cabinet Rules No. 791, 23 September 2008.

Latvian government, ‘Regulations on recognising if a family or a single person is poor’, Cabinet Rules No. 214, 3 March 2009.

Websites

Central Statistical Bureau of Latvia: www.csb.gov.lv

Eurostat: http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/

Irina Curkina, Institute of Economics, Latvian Academy of Sciences

Annex: List of tables

Table A1: In-work poverty rate among employed and inactive population, by age and gender, 2005–2008 (%)
  2005 2006 2007 2008
18 years 18–64 years 65 years 18 years 18–64 years 65 years 18 years 18–64 years 65 years 18 years 18–64 years 65 years
Men 17 18 12 19 20 18 18 18 21 22 18 45
Women 20 18 26 25 21 36 24 19 39 29 20 54
Total 19 18 21 22 20 30 21 18 33 26 19 52
Employed      
Men 9 9 2 10 10 7 9 9 7 11 11 7
Women 9 9 6 12 12 10 10 10 1 11 12 8
Total 9 9 4 11 11 8 10 10 4 11 11 7
Inactive population      
Men 32 43 13 37 47 19 37 45 24 47 44 54
Women 31 34 27 38 38 38 39 36 41 48 38 58
Total 31 38 23 37 42 32 38 39 36 48 40 57
…of whom are unemployed      
Men 64 64 ... 72 72 ... 66 66 ... 55 55 ...
Women 53 53 ... 55 56 28 47 47 ... 50 50 ...
Total 59 59 ... 64 65 20 57 57 ... 53 53 ...
… of whom are pensioners      
Men 19 31 13 26 41 19 28 39 24 53 52 53
Women 26 25 27 39 41 38 42 45 42 56 46 58
Total 24 27 23 35 41 32 38 43 36 55 48 57
…other inactive persons      
Men 31 31 ... 31 31 ... 35 35 ... 34 34 ...
Women 31 31 100 30 30 39 29 29 ... 32 32 ...
Total 31 31 100 30 30 24 31 31 ... 33 33 ...

Source: CSB, 2009

Table A2: In-work poverty rate, by employment status, 2005–2008 (%)
Employment status 2005 2006 2007 2008
Working full time 8 10 8 10
Working part time 26 26 26 25

Source: CSB, 2009

Table A3: In-work poverty rate, by age, gender and education level, 2005–2007 (%)
  2005 2006 2007
Age group
18–24 years 6 7 6
25–54 years 10 12 10
55–64 years 9 12 10
Male total 9 10 9
18–24 years 8 7 6
25–54 years 9 10 10
55–64 years 10 12 11
Female total 9 12 10
18–24 years 2 7 7
25–54 years 10 13 11
55–64 years 8 11 10
Total 9 11 10
Education level
Pre-primary, primary, lower secondary education (levels 0–2, ISCED 1997) 18 23 20
Upper secondary, post-secondary. non-tertiary education (levels 3–4, ISCED 1997) 10 12 10
Third-level education (levels 5–6, ISCED 1997) 2 4 3

Note: ISCED = International Standard Classification of Education

Source: Eurostat, 2008

Table A4: In-work poverty rate, by household type, 2005–2008 (%)
Household type 2005 2006 2007 2008
Single person 41 55 59 61
Single parent with dependent children 31 40 34 42
Two adults without dependent children 19 22 20 20
Two adults with two dependent children 18 22 16 21
Two adults with three or more dependent children 39 52 46 38

Source: CSB, 2009

Table A5: In-work poverty rate, by months worked, employment status and contract, 2005–2007 (%)
  2005 2006 2007
By months worked 9 11 9
Working full time 8 10 8
Working part time 26 26 26
Type of employment contract
Permanent employment contract 7 9 8
Temporary employment contract 12 20 16
Professional status n/a n/a n/a

Note: n/a = not available

Source: Eurostat, 2008



Page last updated: 06 April, 2010
About this document
  • ID: LV0910029Q
  • Author: Irina Curkina
  • Institution: Insitute of Economics, Latvian Academy of Sciences
  • Country: Latvia
  • Language: EN
  • Publication date: 06-04-2010
  • Subject: Working poor