Government cuts cost of hiring migrant workers

The Latvian government has passed a decision to reduce the costs related to the employment of foreign migrant workers as of July 2008. Companies have accepted the government decision as a good opportunity but so far have not rushed to hire foreign nationals. However, the general public did not welcome the government decision, as economic development in Latvia has now slowed down and many local employees are losing their jobs.

Government yields to employers

Employers have been trying for a number of years to persuade the government that the national economy is experiencing a labour shortage and that the provisions for hiring migrant workers are disadvantageous. In 2006 and 2007, when the labour market situation was extremely strained, the Employers’ Confederation of Latvia (Latvijas Darba Devēju Konfederācija, LDDK) engaged in a dialogue with the government to discuss practical conditions for workforce migration (LV0710039I). The comparisons used during the talks showed that more cost-effective solutions apply in Estonia and Lithuania with regard to hiring migrant workers from other countries.

After extensive discussions, the government conceded to the employer requirements and lowered the costs related to the employment of foreign migrant workers. The work permit issue fee has been reduced from €760 to €210 since 1 July 2008.

Change in market conditions

Ironically, the government decision now takes effect at a time when enterprises are being closed down in Latvia due to the slowdown in economic development. Some companies, mainly the larger enterprises, are moving their manufacturing sites further east, while others have ceased production. In either scenario, the employees in Latvia are the ones to lose their jobs. The strain on labour market demand has eased and its effect – higher salaries and labour costs – has diminished. Hence, recruiting migrant workers is no longer an attractive option.

On the other hand, the arrival of migrant workers in this slowing economic climate could reduce labour costs and boost company competitiveness.

Reactions to government decision

In a situation where local employees are losing their jobs, it is little wonder that the public disapproves of the government’s decision. Regarding immigration issues, in addition to the economic aspect, social and ethnic aspects are of significance in Latvia. The public is being alarmed by the opposition political parties that the national unemployment rate will reach 10% in the near future.

Trade unions do not engage in open discussion regarding the arrival of migrant workers. However, they are adamant that their wage demands must be met. The pay increase concerns all employed persons, including migrant workers; therefore, this trade union policy reduces the possibility of lowering salaries by attracting migrant workers.

The Director General of LDDK, Elīna Egle, is satisfied with the government decision. Nevertheless, she points out that the human resources policy in Latvia is not effective. Nobody knows how many people have left the country or how many foreign nationals could be welcomed so that the ethnic and social balance is retained. However, in order to achieve the average EU employment indicators, the state has to provide for some tens of thousands of new workplaces and it is unclear yet who would occupy them. Ms Egle admits that, even after easing the obligations, the strategy of attracting migrant workers to Latvia is more expensive than in the other Baltic states.

Employers act with caution

Labour market research commissioned by the Ministry of Welfare (Labklājības ministrija, LM) shows that Latvian companies are not rushing to employ migrant workers. The most prevalent occupational groups in need of migrant workers are either predominantly low-qualified workers or highly-qualified specialists. Employers confirm that they generally look for foreign nationals within the former soviet Commonwealth of Independent States (CIS) and do not attempt to hire migrant workers from the EU Member States or other countries. The key reasons for this choice are the relatively similar culture of work, attitude to work and communication possibilities.

Commentary

It seems likely that labour shortages in Latvia will resume, as the current slowdown in demand is the result of the policy for improvement of the demographic situation originally launched in 1985. Age groups corresponding to those born in the early 1990s will soon reach the labour market age; the number of people in these groups is considerably lower than in the preceding cohorts. Therefore, more workers will be needed.

Up to now, due to the high costs of recruiting migrant workers, employers have tended to hire them illegally, which explains the cautious response from employers regarding the recruitment of foreign nationals. Therefore, the government decision to reduce costs, although late, should be welcomed – not least if it minimises undeclared work. It can be expected that this decision will be followed by others, for instance, in relation to reducing the bureaucratic obstacles to attracting foreign workers.

Raita Karnite, Institute of Economics, Latvian Academy of Sciences

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