2003 Annual Review for Latvia

This record reviews 2003's main developments in industrial relations in Latvia.

Political developments

Elections for state President were held in 2003, following the expiry of the previous four-year term in June. President Vaira Vike Freiberga was elected for a second term. The government during 2003 was a coalition (formed in November 2002) of the centrist New Era (Jaunais laiks, JL), the centre-right Latvia First Party (Latvijas Pirmā Partija, LPP), the Green and Farmers Union (Zalo un Zemnieku savienība, ZZS) and the conservative Alliance Fatherland and Freedom-LNNK (Apvienība Tēvzemei un Brīvībai/LNNK, TB/LNNK).

The most important political event of 2003 was the referendum on joining the European Union, held on 20 September. Following a vote in favour, Latvia will become a Member State on 1 May 2004. The new government launched major changes in the public administration, and the first half of the year thus saw institutional changes and redundancies among senior public administration staff. In the sphere of employment, the government stated its intention to combat undeclared income and corruption.

Elections for the nine Latvian members of the European Parliament will be held on 12 June 2004.

Collective bargaining

A total of 2,368 collective agreements were concluded in 2003, 150% more than in 1998. In general, collective bargaining - which occurs mainly at company level - has become more widespread, though coverage has been put at under 20%. It mostly takes place in large and medium-sized enterprises, state and local government enterprises, former state-owned service enterprises and industry. Collective bargaining is not typical in banking sector, construction and agriculture. Small and medium-sized enterprises normally do not have trade unions, and are therefore not involved in collective bargaining. There is reported to be a widespread lack of interest in collective bargaining, due to high uncertainty over employment.

In general, as collective bargaining does not take place in all enterprises, the individual employment contract is extremely important in industrial relations in Latvia. This is the case even where there is a collective agreement in place.

Pay

On 27 May, the government announced that it planned to double the national minimum wage over a period of seven years ( LV0307101N ). The 2003 monthly minimum of LVL 70 (EUR 106) for full-time employees will be increased to LVL 318 (EUR 210) - ie 50% of the average gross wage - by 2010. In 2004, the minimum wage will be increased by 14.3% to LVL 80 (EUR 121) a month ( LV0310101N ). In subsequent years, the rate of growth will be slower, at an annual average of 9.4%-10.2%. The national minimum wage is not collectively agreed, although the social partners were involved in the process of adopting the plans to increase it.

Collective bargaining on pay in 2003 addressed issues such as wage systems and pay premia. No figures are available for average collectively agreed pay increases, but Central Statistical Bureau ( Centrālā statistikas pārvalde , CSP), data indicate that the average increase in the net wages and salaries of employees was 10.9% in 2003, compared with 8.0% in 2002.

Working time

In general, collective agreements set normal working time at the statutory level of 40 hours a week, though some make exceptions relating to the specific nature of a particular job. In 2003, healthcare workers submitted a request to shorten their working day by law, but the government rejected this request.

Job security

No developments in the area of bargaining on job security were reported during 2003.

Equal opportunities and diversity issues

Equal opportunities and diversity issues were not discussed in any detail by the social partners during the course of 2003. These issues are considered to be important, but not a high priority.

Training and skills development

Training is widely dealt with in collective agreements. Employers see a necessity to increase the qualifications and skills levels of employees and provide a wide spectrum of education and training opportunities, including training in their own teaching centres and schools.

Legislative developments

A Law on the Protection of Employees in the Event of their Employer’s Insolvency came into force at the beginning of 2003. It introduced a levy on employers - the 'entrepreneurial risk fee'- which is mainly used to finance a guarantee fund for employees’ claims. The monthly entrepreneurial risk fee for 2003 was set at LVL 0.75 (EUR 1.2) per employee working for the enterprise in the month in question. Of the total revenue from the fee, 75% is paid into the guarantee fund for employees’ claims. Employers objected to the existence of the new fee and its amount when it was introduced and their criticisms received support in August 2003, when it was reported that very few claims had been paid from the new fund. The government subsequently introduced amendments to the legislation (LV0309101N) and decided to reduce the levy from 1 January 2004.

The year's other major developments in employment law were as follows:

  • a paternity leave and benefit scheme, paid for by the state, was introduced in 2003. It allows fathers to stay at home with the mother and child for 10 calendar days, while receiving 80% of their average income subject to social insurance contributions;
  • a number of items of legislation aimed at improving health and safety at work, by introducing new structures and responsibilities, were adopted or came into force in 2003 (LV0308101N); and
  • amendments were adopted to the Labour Law - Latvia's main item of legislation regulating individual and collective relations at work (LV0405103F) - obliging employers to record actual working hours and overtime hours, including hours worked on holidays. Further amendments covered areas such as individual dismissal, and working time organisation.

There were also a number of changes to taxation and social policy of relevance to industrial relations:

  • the overall rate of social security contributions was reduced to 33% from 35% in 2002;
  • the rate of corporate taxation was reduced to 19% of net income from 22% in 2002;
  • the guaranteed minimum income benefit, paid by local governments, is to be increased from LVL 15 (EUR 23) a month in 2003 to LVL 18 (EUR 27) in 2004;
  • the rate of value added tax was raised from 0% to 5% or 9% for several goods, such as printed products and medicines (the standard rate is 18%) ;
  • amendments were adopted to the taxation legislation, increasing the powers of the State Revenue Service; and
  • pensions, social assistance to families with children and healthcare financing were increased.

A number of other issues were discussed and resolved within the framework of social dialogue or with the direct participation of social partners, including

  • increasing employee compensation in the event of their employer's insolvency (see above);
  • a possible increase in tax-deductible elements;
  • discussions about personal income tax and other taxes that have an impact on income;
  • efforts to prevent increases in public service charges (for gas, electricity, water and heating); and
  • discussions about the cost of living.

The organisation and role of the social partners

There were no substantial changes in the organisation and role of the social partners during 2003.

In general, trade unions reportedly take the view that cooperation between themselves and employers' organisations has improved. The role of the government has changed slightly. The government participates in tripartite social dialogue and informs the social partners about results of its activities. However, the opportunities for the social partners to participate in the decision-making process have been reduced somewhat of late. For instance, the social partners were not invited to discuss the planned 2004 state budget when it was being drawn up by the government.

Industrial action

There were no strikes in Latvia during 2003, though there were some protests by healthcare workers calling for improved funding and pay, and concerned about government reform plans.

Latvian legislation currently does not allow solidarity and warning strikes. Free Trade Union Confederation of Latvia (Latvijas Brīvo Arodbiedrību savienība, LBAS) has launched a discussion about regulating and permitting these kinds of action through legislation.

Employee participation

There were no significant developments in the area of employee information and consultation (and other forms of participation) in 2003. There were no public moves related to implementation of the EU national information and consultation Directive (2002/14/EC) (EU0204207F) or the employee involvement Directive (2001/86/EC) linked to the European Company Statute (EU0206202F). Further, there were no significant developments in the area of European Works Councils during the year - legislation implementing the EU Directive on the issue (94/45/EC) was adopted in 2001.

Stress at work

Stress at work is an issue in Latvia. At present, the main reasons for such stress are thought to include the high risk of losing one's job or income, high levels of responsibility, high work intensity and long working hours. However, commentators argue that personal reasons more often than working conditions cause stress at work. Stress at work is seen as one of reasons for the high mortality rate (especially among men) among people of working age. In 2002, the average number of deaths per 1,000 was: 2.6 for the 30-34 age bracket (4.2 for men); 3.4 for the 35-39 age bracket (5.4 for men); 4.9 for the 40-44 age bracket (7.8 for men); 7.5 for the 45-49 age bracket (11.8 for men); and 11.1 for the 50-54 age bracket (17.5 for men).

There are no examples of any recent legislative developments or collective agreements (at any level) on the topic of stress. However the problem is being discussed in academic circles, as part of debates on the issue of corporate social responsibility. In addition, trade unions see a need to deal with stress at work. However, it is debatable as to whether there is at present a real chance of addressing the factors causing stress at work.

Undeclared work

Undeclared work is an important issue in Latvia, often taking the form of undeclared cash payments for part of an employee's work. The existence of such work is indicated by the relatively low level of declared pay in the private sector compared with the public sector - private sector pay is 21.4% lower on average. The difference is larger in sectors where undeclared work is traditionally used, such as agriculture (a pay differential of 47.6%), industry (26.2%), construction (32.5%), trade (24.2%) and hotels and restaurants (53%). Conversely, the pay differential is lower in sectors where fiscal/financial discipline is stronger, such as transport (22.1%), financial intermediation (23.1%), and education (4.6%).

Undeclared work is much debated by the government, in the social dialogue and within trade unions and the business community. The government has stated its intention to combat this type of work, and practical actions taken include more stringent tax control and discussion in the media of examples of tax evasion. Further, the government has prepared a set of planned measures for eliminating illegal work (LV0402101N). In 2003, the government introduced amendments to the taxation legislation that increased the powers of the State Revenue Service in this area. At the end of the year, the government reported improved results in tax collection, yet the differences in pay between the public and private sector remain.

The issue of combating undeclared work is not yet dealt with by collective agreements. Owing to difficult economic conditions and other reasons, such as frequent changes to the social protection and pension system, employees often support tax evasion. The business community is divided in its assessment of the role of undeclared work. Representatives of small and medium-sized enterprises, for example, argue that undeclared work and tax evasion helps them to survive. Large enterprises, on the contrary, insist on combating undeclared work

New forms of work

'Atypical' work, such as part-time work, fixed-term contracts, teleworking and on-call working are allowed and regulated by labour law. No data are available on the extent of teleworking, but according to Eurostat figures for 2002, some 9.3% of employment was part time and 11.6% of employees were on fixed-term contracts (both figures were above the average for acceding countries).

Outlook

The issues set to dominate 2004 in Latvia include debates on the minimum wage. The government should increase the minimum wage in accordance with the plan adopted in 2003 (see above under 'Pay') - however, this will have an impact on the state budget. Raising the 'minimum tax-free threshold'- the threshold of earnings below which no personal income tax is levied - is also on the agenda for 2004 (this is a long standing trade union demand).

A range of labour law amendments were adopted by the government on 11 November 2003. These amendments cover areas such as individual dismissal, working time organisation, health and safety, incomes policy (including the guaranteed minimum income), healthcare financing and reform, annual pension indexation and personal income tax. The effects of these amendments will begin to be felt during the course of 2004. (Raita Karnite, Institute of Economics, Latvian Academy of Sciences)

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