Latvia’s unemployed sit at home while companies claim they can’t find workers

RIGA - With well over 100,000 people in Latvia looking for work, business people and politicians of all stripes can still be heard complaining about a serious shortage of workers. Proposed solutions abound, some realistic, others not. There is even a growing chorus for large-scale immigration to bring in laborers. The combination of a growing economy and the much-publicized Latvian emigration wave may indeed be creating a situation where companies can’t find new employees. If so, this will negatively impact further growth prospects.

So, is there a labor shortage, a skills gap in the Latvian labor force? What are the solutions? Will immigration eliminate the deficit?
Latvia is already three years into the recovery, but the unemployment rate still registered a very high 13.8 percent in last year’s 4th quarter, reports Latvia’s Central Statistics Office. For ages 15-24, unemployment was a reported 21.6 percent. There are 144,600 people out of work in the country, and of these, more than half are classified as ‘long-term unemployed.’

Employment agency web sites show that there are plenty of job openings in Latvia. The jobs’ listing on CV-Online shows over 9,000 positions waiting to be filled. Though this site covers most industrial sectors, the bulk of the job postings are focused on large banks, sales assistants, account managers, or ads for IT specialists.
But the jobless rate stays stubbornly high.
Paul Berzins, recruitment specialist at People Management in Riga, says that the CV-Online numbers probably reflect regular job turnover in the economy: large companies advertising openings where employees have left for other companies. He emphasizes that the CV-Online numbers don’t necessarily reflect jobs created by an expanding economy.

The recruitment expert adds that “skilled, motivated people already have jobs.”
“The labor market is not a bottleneck to growth… there is no labor shortage,” asserted Economic Analyst at DNB, Peteris Strautins, speaking at a Norwegian Chamber of Commerce in Latvia (NCCL) seminar on the future of the labor market in Latvia, in February. Based on worker productivity today, has said, the labor market doesn’t present a bottleneck to growth. He sees problems in the future, in five years or so, but now the labor market is in equilibrium with employer needs.
This would sound like bad news to those looking for work. Some industry sectors, however, are in need of those with specific skills.

Human resources manager at Tieto Latvia, Liene Atholde, said in an email reply to TBT that “It is well known that in the IT industry we have a lack of skilled professionals, and it is really challenging to find them. Today we already employ nearly 700 people in Latvia; as most companies in the IT area, we are facing difficulties in finding available resources in the labor market. A ‘war for talent’ is going on.”
Last year approximately 40,000 new jobs were created in Latvia, 4.8 percent more than in 2011, said Swedbank senior economist Lija Strasuna, reported Nozare.lv. Swedbank economists predict that the situation in the job market will continue to improve in the upcoming quarters. But that still leaves a large number of long-term unemployed, unable to find paid work.

Latvia’s Deputy State Secretary Andris Liepins, speaking at the NCCL event, agreed that “job growth lags GDP growth” in Latvia. He warns that during this recovery, a rotation among current job holders, in the job-offering industrial sectors, shows the risk that structural unemployment and workforce shortages in some sectors are here to stay.
Latvia’s current economic model still resembles a low cost labor platform, says Liepins, with an economy dominated by low-to-medium tech industries. The country needs to transition to medium-to-high level industries.
Atholde says that “In general the workforce in Latvia is quite skilled. Whether workers have the right skills [for us] depends on what position are we searching for, but I would say that the average unemployed don’t have the required IT skills. In these situations re-qualification would be necessary, and that is quite a difficult process. If business-specific skills are required, we are ready to train the people on our own.”

But low-skilled workers, if they’re willing to work, can find employment. Berzins mentions as one example the fish processing industry in the fishing village of Roja. Processors need to bus in workers from the countryside, and end up as well bringing in workers from as far afield as Bulgaria.
Considering the unemployed in Latvia, he notes that the boom years distorted the wage market such that now, many won’t work at the same job for the low Latvian pay levels. Menial jobs are difficult for employers to fill, as it’s easier for the Latvian to sit at home. He sees no change until the economy recovers further.

And the skilled blue-collar workers, such as machinists, Soviet-era specialists, are now retiring, with no one to replace them, as companies in the boom years paid little attention.
The long-term unemployed are outside of Riga, in the regions, says Berzins. The statistics agree; recent studies show that the lowest unemployment rate was in Riga at 6.5 percent; indeed, the jobless rate in Jekabpils reached 15.6 percent, and in Latgale 21.5 percent.

It’s not only the education and skill level that determines demand for labor; wages too are a factor, highlighted Liepins. He says that until companies start paying higher wages, many of those sitting on the sideline won’t seriously consider a return to the job market.
Strautins notes that in 2007, the share of workers’ wages in total GDP was 50 percent, whereas today it is around 40 percent, and dropping. Companies are keeping more of the rising profits for themselves, not sharing with their employees. But at some point workers will begin to demand a bigger share and the numbers should revert to historical levels.

The chairman of the prefabricated housing company Husvik Petter Lundeby, and CEO of furniture manufacturer Kvist Industries Kerija Paukina, both speaking at the NCCL seminar, mentioned difficulties in finding enough workers, generally lower skilled, for their production facilities outside of Riga.
Paukina discussed her company’s efforts to develop and train the workers, though they then face the risk that the employee leaves for a better offer. She said that the productivity of their workers was good, equal to those in Denmark.
She also says that the countryside workers need assistance, from the municipalities, in better access to transportation to work.

Numerous proposals have been put forth to solve the perceived labor market shortage. Many call for immigration: bring in workers because we don’t have enough of the right ones in Latvia. This also means attracting back the many Latvians who have already left the country.
It is unlikely that large numbers of highly skilled Westerners would move to Latvia, despite the job openings, due to the lower wage levels. It will be the low-skilled workers from the East and elsewhere that would constitute the ‘immigrant’ labor.

The result would be a human capital transfer at the low end: the low-skilled in Latvia leave the country to do similar jobs in the West at higher pay, to be replaced by low-skilled workers from abroad to do the work they left behind.
“Yes, definitely, Latvia needs a selective immigration policy. First of all we need to protect the labor market for the local work force by attracting only those specialists that Latvia lacks. Secondly, we need to get back those who have emigrated for jobs abroad. In order to do that a special state policy is needed to motivate people to return back to Latvia,” suggests CV-Online Latvia business manager Aivis Brodins to TBT.

“Those Latvians in Ireland, who will want to return to Latvia, will be in demand on Latvia’s labor market with their newly-acquired experience and knowledge,” Latvia’s Economy Minister Daniels Pavluts said in an interview with the portal Baltic-Ireland last December. “Latvia is in dire need of qualified specialists and the country’s priority is to seek out and attract such people,” he added.

“Companies prefer to import the low-skilled work force from such EU countries like Bulgaria, Romania, and the closest CIS countries - Belarus, Ukraine, Moldova. Those people are ready to accept Latvian salary levels and, in addition, people from CIS countries speak Russian,” says Brodins.
To attract Latvians back, it will take more than just promises by the minister. Latvia’s expats abroad need a living wage to come back, says Berzins.

Tieto has an in-house solution. “We are investing a lot in employee development and, if it is possible, developing our employees on our own, thus giving. We also are hiring students, training them and giving them opportunities to gain practical experience in various international and local IT projects. The situation with IT graduates is quite challenging - the problem is not just that they are not [fully] qualified, but overall the number of IT students has decreased in recent years. Tieto Latvia cooperates with universities and our experts are giving lectures in IT and business specific topics,” says Atholde.

Others point to the skills’ deficit as a result of the years of a lack of proper training and education. “The first reason for having workforce immigration in Latvia is related to problems in the education system. There are several professions where the market requires more highly qualified specialists than are ‘produced’ by the educational institutions. The biggest problems are with programmers, welders and some specific engineering-related professions,” suggests Brodins.

He considers that the employer has to make a bigger effort in developing their workforce. He says, “…more investment is needed from the employer. Also education should be closer to labor market needs – it is too theoretical, or late in modern technology that does not prepare people for the real job market. The problem lies in the lack of possibilities to obtain practical skills before starting work. Some employers do not invest in their employees. The lifelong learning system is not fully and practically developed yet. The state and private sector have to cooperate on this issue.”

Liepins forecasts that in the years ahead, Latvia will increasingly need people with a strong foundation in the natural sciences, in math and engineering. There will be a need for requalification of the existing workforce, including the unemployed, through secondary vocational tech training programs and adult education.
Labor tax reform is also needed, whereby the tax on earned income drops. This is heading in the right direction: for 2013 personal income tax is 24 percent and set to fall to 20 percent by 2015.

Is there a labor shortage? No, not for the average skilled worker. There is a wage gap at this level, however, where Latvian companies need to pay more. At higher skill levels, there aren’t enough workers in select industries. Industry and government need to do more, in training, education, to develop the labor force to support the economy.
There is also an opportunity for Latvia, with industry, government and labor working intelligently together to develop a workforce better qualified to participate in today’s global economy. This would be one that has the skills to deliver quality work, high level design capabilities, and advanced problem-solving abilities, at respectable wages.