22.02.2017.

Both the unemployment rate and number of employed decreased

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A simultaneous decrease in unemployment rate and number of employed at the end of 2016 may seem illogical, yet only at a first glance.  In fact, the situation in the labour market continues to improve according to expectations.

The hitherto unsurprising unemployment dynamic today failed to surprise yet again: a drop of 0.2 pp. quarter-on-quarter and 0.5 pp. year-on-year. The average unemployment level in the country (at end 2016, it was 9.3% of the economically active population) is still quite close to the level representing natural unemployment and macroeconomic balance. It is low enough not to cause any panic and high enough to not drive up inflation, which is already fuelled with a rise of global oil and food prices.

Last year's rise in minimum wage by ten euro was not excessive and thus did not prevent unemployment from decreasing even in Latgale where it is almost double the average indicator in the country.

What was unusual in today's data? The number of the employed dropped slightly (within the standard error range). That was not surprising – the number of working age population continues to drop and the negative impact of this on employment could not be fully compensated by the rise in participation rate (i.e. the tendency of jobless individuals to look for work is increasing) and the drop in unemployment rate.

Within the next quarters, rises in employment are likely to alternate with drops, as already historically high participation rate cannot rise endlessly and soon will begin to stall because of the changes in age structure. Thus the economy can only grow onto productivity track – and outcome we predicted already three years ago.  

This year, unemployment will continue to drop gradually, yet the average annual unemployment rate is unlikely to drop under 9% (this is higher than forecast by colleagues from state institutions and commercial banks). The number of the employed will not change substantially, remaining close to 900 thousand. Thus it is highly likely that this year's labour market data will be sufficiently boring for the economists; however, it is good news for the economy at large.  

APA: Krasnopjorovs, O. (2019, 15. sep.). Both the unemployment rate and number of employed decreased . Taken from https://www.macroeconomics.lv/node/3680
MLA: Krasnopjorovs, Oļegs. "Both the unemployment rate and number of employed decreased " www.macroeconomics.lv. Tīmeklis. 15.09.2019. <https://www.macroeconomics.lv/node/3680>.

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