Despite good employment figures in the first quarter, caution regarding the further development of the labor market remains.
Riga Attracts Jobs
Ieva Opmane, economist at the Bank of Latvia:
– The unemployment rate in Latvia remained low in the first quarter at 7.1% of the economically active population. From an economic analysis perspective, such a level of unemployment is considered low and confirms the labor market's ability to adapt to various economic shocks for a long time.
However, in practice, this 7.1% means that about 66,000 people in Latvia would like to work but have not found a job. Situations vary, but the economist raises the question: if employers regularly state that it is difficult to find employees, why then do many thousands of people remain unemployed?
One answer lies in the geographical differences in the situation. Latvia has long had a significant imbalance between the labor market situation in Riga and in more remote regions. In Riga, there is almost no unemployment (the registered unemployment rate at the end of April was only 3.6%), while, for example, in Latgale, the registered unemployment rate reached 9.7%, with the actual rate even higher.
At the same time, other structural problems in the labor market persist. The shortage of labor is still particularly noticeable in healthcare, information technology (IT), engineering, and some other sectors. This means that a low unemployment rate alone does not indicate a fully balanced labor market.
There remains a significant mismatch in Latvia between the skills of job seekers and the needs of businesses. However, various training programs are available. It seems that lifelong learning itself is becoming a skill that needs to be developed. Currently, it is often the employer who has to take the first step, providing training for new employees on the job and bearing the associated costs.
As for forecasts, despite good statistical indicators, caution remains. In many export sectors, companies are facing weak external demand and geopolitical uncertainty. This reduces the willingness to expand staff and create new jobs.
Elderly People Are Welcome Here
Pēteris Strautiņš, economist:
– This year started successfully for the economy of Latvia. This is evidenced by data from various sectors of the economy as well as the results of labor force surveys. The most important indicator is that in the first quarter of this year, the number of employed was 3,200 more than a year earlier. This is a decrease compared to the end of last year; however, it is a normal seasonal fluctuation.
Meanwhile, the unemployment rate decreased from 7.4% a year ago to 7.1%. In the registered unemployment data, the direction of changes is the same, but the pace is faster — from 5.6% to 5.1%. Other trends from previous years in the labor market continue. For example, activity among the older age group is growing faster than average: among people aged 55 to 74, the employment rate increased from 50.4% to 51.4%.
Whether the trend that emerged at the beginning of the year will continue in the economy is a big question. There is no doubt that the development of purchasing power will become less favorable, although there are still hopes to maintain slight growth. Speaking directly about the labor market, it is quite likely that significant changes will not occur this year. More precisely, changes will occur, but in the previous — favorable for employees — direction.
It does not currently seem that Latvia's exports will be seriously affected by global shocks. There are also no grounds to expect that consumers will be forced to sharply limit their spending. There is a lot of gloomy rhetoric about a sharp rise in food prices; however, there is currently little evidence that this could happen this year. Next year, the risks are indeed higher.
As a result of technological developments, labor markets may face changes that will make the loss of jobs by craftsmen at the beginning of the industrial revolution seem minor. A world where a person is no longer the smartest individual or system — at least in aspects important to the labor market — will no longer be able to remain the same.
Scenarios are likely where labor productivity will rapidly increase across a wide range of sectors; however, there is no certainty that those who benefit from this productivity growth will spend or invest their additional income in amounts sufficient to maintain high economic activity and employment. These will be very serious challenges that the entire world will have to address, and the capabilities of individual states may prove insufficient.
This is not only about the visions of technological gurus and long-term macroeconomic forecasts. Representatives of sectors that have largely driven the development of Latvia's economy this century — IT and business services — are already directly speaking about the challenges posed by the automation of functions. For example, about the reduction in the number of workers in both companies that have invested in Latvia and in countries where outsourcing service buyers are located, as costs are higher there. Therefore, the wave of change may eventually reach Riga as well. Until now, the consistently rapid growth of exports of intellectual services in this century has become less uniform, although the beginning of this year looks promising.
Even such a conservative publication as The Economist is already directly talking about the need to introduce a universal basic income (UBI) in the relatively near future. This raises the question of how such a system could be financed. There are countries that may be able to redistribute funds for UBI from companies operating in the field of artificial intelligence, although with difficulty. At the same time, it is doubtful that Latvia will have enough additional resources generated by AI.
There is no doubt that artificial intelligence will contribute to productivity growth by improving various administrative and production processes. However, AI is unlikely to provide Latvia with sufficient export revenues. Our country does not have large companies that could play the role of sellers of shovels during the AI gold rush — producing microprocessors, computer memory, or being global leaders in energy technology. There are interesting developments in creating AI modules, for example, for translating European languages, but this is a very small part of our economy.
Not long ago, it seemed that the main challenge for the labor market in Latvia in the future was demographics. This is still very important, but now it has a serious competitor.
