Labour shortage more pronounced in the services sector

Unemployment grew at the end of the last year; however, labour demand remained high in Latvia's labour market – a favourable situation for employees. According to the Central Statistical Bureau of Latvia, the previous year ended with the unemployment rate reaching 6.8% in the last quarter, representing a quarter-on-quarter rise of 0.3 percentage points. Nevertheless, the unemployment rate of 2023 stood at 6.5% on average, recording a substantial decrease year on year.

In the last quarter of 2023, labour shortage was already a less pronounced factor limiting business compared to the third quarter of 2023 [1]. In January, the share of companies that see labour shortage as a production limiting factor for business fell both in construction and manufacturing. This can suggest that the future demand for new employees from the companies of these sectors is expected to be lower. The declining labour shortage in these sectors is partially explained by a slow recovery in external markets, and, going forward, it can also reduce the pressure on wages in these sectors.

However, not all sectors have seen a decrease in labour demand. Amid the receding inflation, the services sector started to recover, thus in January, labour was a more pronounced production limiting factor for business in this sector. Moreover, despite the falling number of the employed in the last quarter of 2023, the overall employment expectations of businesses [1] remain close to the level of the previous quarter, which does not suggest a significant deterioration in Latvia's labour market situation in the future. This is also confirmed by other indicators, e.g. the dynamics of the number of vacancies in the labour market [2] are overall positive despite labour shortage being a less pronounced production limiting factor in construction and manufacturing.

Latvia's labour market trends were rather negative in the last quarter of 2023 and the preliminary January data showed no significant improvements for the time being; nevertheless, important changes occurred in the economic environment. The inflation dragon – the main obstacle to economic growth over the last year – was tired out, thus presenting opportunities for the economy to recover from all previous challenges during this year. More buoyant growth, in turn, supports prospects of higher labour demand as well as improved job opportunities. In the light of this, the economic activity can also potentially increase in the labour market as, owing to more favourable working conditions, the people who are currently not participating in any labour market activities can also start working or looking for a job.

[1] According to the survey conducted by the European Commission.

[2] The seasonally adjusted data of the State Employment Agency.