24.05.2019.

Good start of the year in the labour market, yet the rise in employment may come to a halt

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Although the employment and unemployment rates of the first quarter of 2019 show little change as compared to the fourth quarter of 2018, this should not be viewed as an indication that the previous upward trend in employment has stopped and the labour market has reached an equilibrium.

At the same time, it can still be expected that the economic deceleration, already seen in the first quarter data, is going to have its toll on the labour market this year.

According to the latest Labour Force Survey conducted by the Central Statistical Bureau of Latvia, unemployment remained unchanged quarter-on-quarter in the first quarter of 2019 at 6.9%, dropping 1.3 percentage point year-on-year. At the same time, it can still be expected that the economic deceleration, already seen in the first quarter data, is going to have its toll on the labour market this year.

According to the latest Labour Force Survey conducted by the Central Statistical Bureau of Latvia, unemployment remained unchanged quarter-on-quarter in the first quarter of 2019, dropping 1.3 percentage point year-on-year. At the same time, employment decreased by 0.3 percentage point quarter-on-quarter, growing 0.9 percentage point year-on-year. 

Due to less seasonal work opportunities over the winter months, the number of employed persons usually decreases and the number of job seekers goes up in the first quarter of 2019. In addition to that, Latvia's GDP contracted by 0.3% in quarterly terms in the first quarter of 2019. This gave reason to believe that employment and unemployment developments might reflect the weakening of the economic activity.

Nevertheless, the data suggest that the labour market has not yet responded to the economic deceleration and labour demand has remained stable. The weakening of the economic activity could suppress the demand, yet the future developments in employment will depend on how businesses view their prospects of growth.

In 2018, the number of employers quoting labour shortages as an important obstacle to growth increased. Given that the demand for labour remains persistent in the coming months, finding seasonal workers in the summer months of 2019 could prove a bigger challenge than before, as an increasing number of people of working age are employed: 903.6 thousand or 64.4% of population aged 15–74 were employed in the first quarter of 2019, which represents a 5.6 thousand increase year-on-year.

This means that the problem with availability of labour most likely is still there. In the most recent years, an increasing number of unemployed people and previously economically inactive people (for example, pensioners) have become employed.

Despite the fact that there are about 67 thousand job seekers available in the labour market, it is the economically inactive people of working age who join the labour market more actively when the demand for labour goes up. Over a year, the economically inactive population has decreased by 2.7 thousand or 0.6%. This can be explained by both regional and structural disparities in terms of unemployment and vacancies: the number of unemployed persons is the highest in Latgale region, whereas the number of vacancies is larger elsewhere. The problem of the required skills is similar: an employer finds it easier to hire someone who previously had no intention to work at all from the local region than a job seeker from another region. Consequently, further reduction of unemployment is conditional on addressing the geographical and skills mismatch problems.

It has to be remembered that the number of job seekers is decreasing and newly-available workers are snatched from the market quickly: despite the fact that the number of long-term unemployed decreased by 2.2 thousand in annual terms, their proportion in all unemployed grew by 4.3 percentage points. Therefore, it will be increasingly more difficult to engage a job seeker, especially a long-term unemployed, in the labour market, as it will require more investment to improve this person's skills or compensate the costs of mobility.

Potential solutions to the problem of labour shortages include technological innovations that would allow to increase the degree of automation in manufacturing and services. This would mean higher productivity in both manufacturing and services even with the existing pool of workers. Moreover, raising productivity is important for businesses in the context of their competitiveness regardless of the problem with labour shortages.

APA: Zondaks, M. (2019, 24. aug.). Good start of the year in the labour market, yet the rise in employment may come to a halt. Taken from https://www.macroeconomics.lv/node/4484
MLA: Zondaks, Miķelis. "Good start of the year in the labour market, yet the rise in employment may come to a halt" www.macroeconomics.lv. Tīmeklis. 24.08.2019. <https://www.macroeconomics.lv/node/4484>.

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