The slight rise in unemployment does not point to labour market deterioration

The unemployment dynamic in Latvia is continuing to stand out against the European background, sliding from the highest unemployment at the beginning of 2010 (21.3%) down to 11.8% in the third quarter of 2013, which is under the average of the euro area.

A slight quarter-on-quarter rise in unemployment (by 0.4 percentage points) was expected and does not represent a deteriorating situation in the labour market. Over the previous two quarters, the drop in unemployment was very rapid, particularly driven by a participation rate drop. In the medium term, however, this indicator should go up, since participation level is a (very) delayed indicator in relation to the economic cycle, thus it must reflect a strong economic recovery over the past three years. It means that if there are not enough yesterday's unemployed to fill the vacancies, businesses turn to the economically inactive segment of society: students, pensioners, housewives etc. Similarly, when the unemployment level drops and salaries resume rising, people who previously were not looking for work are beginning to do so.

Resumed participation rate rise we saw in the third quarter (which fully compensated the drop in the first two quarters) caused a slight rise in unemployment (given a certain number of workplaces, a higher participation rate means also higher unemployment). A gradual rise in participation rate is expected to continue in the medium term, which is positive in itself, but will slow down the drop in unemployment in statistics.

Overall the situation in the labour market is improving. Job opportunities are expanding, which is obvious from the rise in employment and the number of vacancies. In the first three quarters of 2013, employment grew by 21 900 year-on-year. Under these circumstances, effective mediation by the State Employment Agency could help the 1 500 employees about to be laid off from AS "Liepājas metalurgs" (0.15% of the economically active population of Latvia) because of the problems at the metal production giant, to find a new workplace sufficiently quickly.