Study reveals gap in labour market supply and demand

A recent study reveals serious gaps in the supply and demand of labour. On the supply side, a decline in the overall population, including those of working age, is observed, while the age and gender structure is unbalanced. On the demand side, the economy’s transformation from an industry-based to a service-based structure requires a new quality workforce. Employers will have to plan for a future with fewer workers available.

A study (in Latvian (1.1Mb WinZip file)) on labour force supply and demand – one of 13 studies – was initiated by the Republic of Latvia’s Ministry of Welfare (Labklājības ministrija Latvijas Republikas) in the framework of the National Labour Market Research Programme (in Latvian), supported by the European Social Fund (ESF). The study was carried out by the University of Latvia (Latvijas Universitāte) from August 2005 to April 2007.

Objectives of study

The report focuses on labour supply and demand in sectors of Latvia’s national economy. It analyses supply and demand in relation to 120 professions – condensed into 37 groups – in the reference period 1997–2005. It also gives relevant forecasts for the period 2007–2013 concerning the 120 professions and for the period 2014–2020 in relation to the 37 groups, as well as predictions for the 2021–2030 time frame.

Methodology

The methodology includes research and forecasting exercises. The research is based on studies of the current labour market situation, along with future expectations for Latvia and other countries. The studies comprise: statistical surveys of the Central Statistical Bureau (Centrālā Statistikas pārvalde), a quantitative employers’ survey conducted in 2,502 companies, a qualitative survey carried out among two focus groups and 34 experts, and 30 in-depth interviews with representatives of ministries and local government. The forecasting exercise is based on econometric methods, namely the Cobb-Douglas production functions, which have been calculated for 15 sectors of the national economy according to the convergence and slow convergence scenarios of the national economy’s development, formulated by the Ministry of the Economy (Ekonomikas Ministrija).

Study findings

The study provides a comprehensive analytical review of the country’s labour market situation and reveals serious gaps in the Latvian labour market. On the supply side, the size of the population is declining each year by about 12,000 people, or 0.5% of the total population. Moreover, the age and gender structure of the Latvian population is seen as disproportionate, with the size of the working age population declining due to an unfavourable demographic situation and emigration. On the demand side, the structure of demand and quality standards of the workforce have changed, with the transformation from an industrial to a service-based economy.

These factors have resulted in serious gaps between labour market supply and demand in the overall economy, as well as in particular sectors. At the same time, employers are experiencing difficulties in finding suitable employees, as economic growth – reflected by gross domestic product (GDP) growth of over 8% in recent years – and rising wages increase the demands that employees place on the employer.

In relation to the labour force demand and supply forecasts for the 2007−2013 period, the highest increase in labour force shortages is found in the following professions: those of engineers, construction engineers, electrical engineers, particularly specialists in physics and engineering, computer equipment operators, doctors, dentists, middle-tier medical staff and business service specialists. The highest increase in labour force shortages is expected in the following three professional groups: business service specialists; civil security, defence and other specialists; and agricultural specialists. In 2007, employee shortages were found in 82 of the 120 professions in question; by 2013, this is expected to rise to 99 professions.

In the long term, over the 2014–2020 period, increasing labour force shortages are also predicted in the following professions: among tourism specialists, senior specialists of quality management systems, senior project management specialists and dental assistants. Shortages are also anticipated during this period among the following groups of professions: middle-tier medical staff, nurses, specialists of social sciences, and low-qualified professions. The study recommends conducting labour market research studies on a systematic basis at a specialised research institution, along with the creation of an employers’ register.

Latvia’s population is also expected to decline over the 2005–2030 period, as reflected by all of the variants of forecast calculations, including the most optimistic scenario. After 2010, the working age population will start to decrease rapidly. For example, the ratio of the population aged 20–39 years against the overall size of the population will decline from 30% in 2011 to 22% in 2031.

Commentary

The authors of the study point out that, despite growing labour force shortages, employers’ surveys reveal that employers are planning their activities on the basis of a greater number of employees than is forecast for the future. It is therefore considered worthwhile to develop an understanding among employers about the actual demographic processes expected in the near future, while encouraging their re-orientation from an extensive approach – based on employing more people – to an intensive approach – focused on increasing labour market productivity.

Raita Karnite, Institute of Economics, Latvian Academy of Sciences

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