Latvia: latest working life developments Q2 2018
A new agreement on overtime pay, a warning about the power balance between employers and employees, an increase in wages and a workforce deficit are the main topics of interest in this article. This country update reports on the latest developments in working life in Latvia in the second quarter of 2018.
New sector-level agreement on overtime pay
In April 2018, three interest groups met to discuss labour law and create a sector-level agreement on overtime pay. The Free Trade Union Confederation of Latvia (LBAS) wished to expand sector-level bargaining, the Latvian Employers’ Confederation (LDDK) wished to reduce overtime pay, and the Partnership of Latvian Construction Entrepreneurs felt that a sector-level collective agreement could reduce the shadow economy in the construction sector.
In 2014, LDDK had proposed amendments to the labour law which would reduce extra pay for overtime work from 100% to 50% – a change backed by employers, who regard high extra pay as seriously reducing companies’ competitiveness. However, LBAS opposed the proposal and the amendments were not made. The discussion was reopened at the beginning of 2018 with the proposal of a scheme whereby the employer would pay 50% extra for first two hours of overtime work, and 100% thereafter. When social partners could not agree, the discussion continued and in July, the following labour law amendments were adopted in the first reading: an employer working in the sector where a sector-level general agreement has been concluded is eligible to pay 50% of the normal hourly tariff for overtime work, while an employer working in a sector where a sector-level general agreement has not been concluded should pay 100% as before.
- Legal Acts of the Republic of Latvia: Labour law, updated 16 August 2017
Warnings about dangerous power balance
At the beginning of May 2018, the European Trade Union Confederation (ETUC) alerted Member States to an emergency situation in 17 EU countries, including Latvia, where the power balance between employers and employees had turned in favour of employers. 1 According to Esther Lynch, Confederal Secretary of the ETUC, the alert represented a call to action to governments that they need to discuss with trade unions ‘what is needed to get collective bargaining and negotiations back on track, how to increase the share of wealth being paid out in wages, and how to increase the number of working people covered by collective wage and working conditions agreements – with the support of the EU where necessary.’
The situation was assessed according to four criteria: general agreements, collective agreement coverage, extension of collective agreements and share of pay in Gross Domestic Product (GDP). For Latvia, the risk is that collective agreements are mostly concluded at company level (as opposed to sector level), and that either there are no extension mechanisms for improving collective bargaining coverage, or they are rarely applied.
Wage growth continues
In 2017, the average gross wage increased by 7.9% to €926 per month and the minimum wage increased to €430 per month. Experts expect that in 2018 wage growth will continue in all sectors (by an average of 8.2%), including the public sector. The lack of workforce – due to increasing economic activity, emigration and the irreversible unfavourable demographic situation – has become a serious problem for the Latvian economy. Experts expect that the average wage by the end of 2018 could reach €1000, but that this will still not be enough to halt emigration.
Government and employers look for ways to increase workforce
Under the growing pressure of the workforce deficit, the government and employers have been trying to source unused resources, both internally and abroad. It has been recognised that there is some potential for employing more people with disabilities. The Ministry of Welfare reports that, of 180,000 people with a disability, only 40,000 are employed. Employers also agree that this represents a significant internal labour resource but are not sure how to use it; whilst many planning documents envisage increasing the employment of people with disabilities, in practice the process is slow. Director of the State Employment Agency (NVA) Evita Simsone has told the media that NVA plans to be seriously involved in solving the problem.
At the beginning of 2018, the government intensified its activities to increase the available workforce by attracting people from abroad. In February, it took the decision to soften immigration rules and adopted a list of 237 professions which have a significant lack of workforce and which may attract immigrant workers. Following this, in May, the government started its re-emigration measures. The ‘Latvia works’ campaign invited at least 100 employers to offer work to Latvian citizens working or in education abroad; it is hoped that at least 1,000 such employees will return.
The most important topic for the short-term future is the situation in the labour market. Experts suggest that increasing wages will have several consequences, both positive and negative. Positive consequences may include: an increase of population income and related tax income in the state budget (used mostly for social needs like education and health care) and social contributions (individualised and used for pension and other social security needs); the optimisation of employment and increasing labour productivity; and the immigration of highly qualified specialists in IT sectors.
Negative consequences could include: the immigration of workers in lower groups of professions (car drivers, or workers in the construction sector and industry); increasing regional differences and a pay gap, because higher wages will be proposed for newcomers; emigration on the basis of the income gap; and social tensions. On the economic front, increasing banks’ activity in attracting credits is also of concern.
1 ETUC (2018), Press release: Emergency alert: Get collective bargaining back on track, 26 April 2018.