Employers feel impact of stricter labour market controls

The Ministry of Economics in Latvia has published the results of a survey examining how government policy affects business and monitors employers’ opinions. Based on responses to a questionnaire distributed to business people, this is the sixth in a series of surveys conducted every two years since 2001. The findings show that employers feel entrepreneurship is being hindered by increased regulation of the labour market and better safety and health protection for workers.


The 2011 Comparative Assessment of Business Environment in Latvia: Administrative and Regulatory Cost Survey (in Latvian) was conducted by SKDS, a leading independent marketing and public opinion research centre in Latvia.

The survey deals with the impact on business in Latvia of a diverse range of initiatives, procedures and institutional practices such as the registering of an enterprise, labour relations, tax regulations, foreign trade, insolvency procedures, institutions that inspect and supervise businesses, state aid, access to financial resources, public procurement procedures, electronic administration, and the accessibility of information.

Goal and tasks of the survey

The goal of the survey is to ascertain the opinions of entrepreneurs regarding state and local government administrative procedures in several spheres affecting business. At the same time, the survey serves as a mechanism for the continued monitoring of the business environment and provides an opportunity for analysing development trends.

One of its tasks is to prepare a report recommending reforms to improve the business environment.


The survey consisted of 728 face-to-face interviews at Latvian companies between 14 June and 29 July 2011. Company managers were chosen at random from the database of the Central Statistical Bureau of Latvia (CSP) of active businesses, as well as from the ZL Hotline business information database. According to CSP, the survey results are representative of all economically active businesses in Latvia, whether commercial companies or sole proprietorships.

Impact of administrative procedures on business

In 2011, 78% of business people cited tax rates as the greatest hindrance to their business, compared with 76% in 2009.

Labour safety requirements and provisions and norms in the Labour Law were cited by 30% as hindrances to business. It is significant that compared to 2009, the number of business people who regarded work protection/safety requirements as a hindrance had increased by 6%, and those who regarded regulations/norms in the Labour Law as hindrances had increased by 3%.

Comparison of survey data shows that the trend is increasingly to regard work protection/safety requirements as a business hindrance (15% of respondents in 2005, 27% in 2007, 24% in 2009, and 30% in 2011).

Informal economy

Currently, 45% of employers believe that half or more than half of establishments in their business sector pay undeclared wages, compared with 56% in 2009. It is significant, in view of Latvia’s economic situation, that almost half (49%) of employers consider the practice as fully or partly justifiable.

Relatively fewer (28%) employers believe that approximately half or more than half of them do not offer employment contracts to employees, although this figure has risen from 26% in 2009.

Participation in industry or business associations

Almost one-fifth (19% in 2011, 21% in 2009) of Latvia’s employers belong to an industry or business association. Of these, 62% believe that this helps to promote their interests. Significantly, since 2005 the awareness of opportunities to join such associations has decreased (61% in 2005, 60% in 2007, 57% in 2009, 51% in 2011).

Legal relations regarding employment

It is significant that in 2011 the main problem in legal labour relations was considered to be the mandatory state social insurance contributions. It was described as a problem by 33% of employers, although this was a significant decrease compared to 2009 when 41% did so. Next in importance were salary requirements (22%), minimum wage requirements (21%) and requirements for overtime payments (19%). Problems regarding discrimination based on gender were mentioned by only 1% of employers.

The most significant problems regarding the labour force were lack of reliability among workers, and a lack of loyalty and work ethic (reported by 38%), as well as the lack of qualified technical personnel/specialists (reported by 36%).

The current monthly minimum wage (€285) is regarded as acceptable by 31% of employers, while 8% think it is too high and 50% think it is too low. In 2009, 33% regarded the minimum wage (then €256) as acceptable, 12% thought it was too high, and 49% thought it was too low. In 2009, employers considered €318 as the optimal minimum wage, compared to €398 in 2011.

It is worth noting that during the past two years 40% of business people have sought information about legal labour relations compared to 39% in 2009, making it the second most popular topic after tax administration.


The survey results reveal that the regulation of labour relations and the increasing impact of requirements regarding work protection/safety are factors that are seen by employers to be hindering entrepreneurship.

Nevertheless, the perceived shrinking of the informal economy, a decrease in the number of employers who see mandatory state social insurance contributions as problematic and dissatisfaction with the level of the minimum wage indicate that employers in general are becoming more involved in improving or solving social security issues.

Linda Romele, EPC Ltd.

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