New unemployment risks emerge

In May 2004, the registered unemployment rate in Latvia stood at 8.7%, having risen slightly since 2002 despite rapid economic development. This relatively high rate has been attributed by experts to the emergence in recent years of several new factors that increase the risks of unemployment. These include a larger supply of better-qualified labour, the restructuring of large enterprises and the reform of education funding.

In Latvia, the unemployment rate is calculated in two ways - as the number of unemployed people in relation to the economically active population, or the number of job-seekers in relation to the economically active population. Under the law on support for unemployed people and jobseekers (in force since 1 July 2002), an unemployed person is defined an 'able-bodied' non-working citizen - or non-citizen or foreign citizen (or stateless person) who has received a license for permanent residency - who is: of working age; not engaged in business activities; looking for work; and registered with the State Employment Agency (Nodarbinātības Valsts aģentūra, NVA), signing on at least once a month. A person who has received a permit for temporary residency and is the spouse of a citizen or non-citizen of the Republic of Latvia can also be granted the status of unemployed. Jobseekers (both registered and non-registered with the NVA) are defined as people who do not work and are not temporarily absent from work, are actually seeking a job and are immediately available for work if they find it.

According to information from the NVA, the number of people registered as unemployed has risen and fallen since 2002, but remained lower than in 2001. However, the unemployment rate has risen because the source of data for the size of the economically active population has been changed. Since 2002, the unemployment rate has been recalculated using data from the labour force survey for people aged from 15 years up to retirement age. Previously the number of economically active residents aged 15 years and over was used. Due to the changes in the methodology, since 2002 the unemployment indicator has risen by about 1 percentage point.

In May 2004, some 93,000 people were registered as unemployed with the NVA - 8.7% of economically active residents - of whom 40,000 received unemployment benefit. This was the fifth-highest rate in the EU. In 2003 the unemployment rate was 8.6%, compared with 8.5% in 2002. The most recent 'jobseeker rate' indicator is for the first quarter of 2004 and stands at 11.5% of economically active residents. The jobseeker rate had risen by 0.9 points compared with 2003 (hitherto this indicator had been falling every year).

Though, taking into account Latvia’s rapid economic growth, unemployment is not considered as critically high, new unemployment risks have appeared recently, according to commentators. First, in connection with the country’s improved demographic situation in the 1980s and increased educational levels, the labour market is currently seeing an influx of young people with modern educations. On the other hand, Latvia’s economic growth is based on work intensification and improvements in productivity, which is currently low. Therefore intense modernisation or restructuring of employment may occur, which will force less competitive workers out of the labour market.

Second, almost 40% of unemployed people indicate that the main reason they became unemployed was termination of their jobs due to workforce reductions. Such cuts in the number of workers are often connected with attempts to optimise company operations and with technological developments. Additionally, regulations requiring that employment levels be maintained in privatised large former state-owned enterprises have expired.

Employers claim that the Labour Law's provisions on termination of employment are favorable to workers, and it that it is difficult to dismiss employees whose work is not of satisfactory quality. Maintaining 'surplus' workers increases employers' costs and reduces their competitiveness, it is claimed. Companies are said to resolve this problem by optimising their structures and reducing staff numbers. Some of the redundant workers are employed in companies set up as a result of the restructuring, but others end up without a job.

Third, workforce reductions are possible in state institutions where employment opportunities depend on available funding, the minimum wage and staff quality requirements. For example, from 1 September 2004 general education institutions will only be able to employ teachers with tertiary qualifications in teaching (LV0406102F). About 93.1% of teachers out of a total of 54,000 have tertiary qualifications, but the others are now at a high risk of joining the ranks of the unemployed. About 200 kindergarten teachers are at risk of redundancy because they do not have the appropriate education. A large number of customs officials became unemployed after 1 May 2004 after border posts were merged.

The increase in unemployment is thought by experts to have been boosted by relatively high unemployment benefits. During economically difficult times, some companies lay off their workers for periods during which the latter are entitled to unemployment benefits, thereby saving money and keeping the company and its workers in business.

Useful? Interesting? Tell us what you think. Hide comments

Eurofound welcomes feedback and updates on this regulation

Add new comment