Baltic unemployment too low, experts worry

  • 2008-08-20
  • By TBT Staff
RIGA - Surprisingly low unemployment rates in the Baltic states have begun raising concerns among some analysts that the countries could lack the available labor force necessary for the economies to bounce back from their current low points.

Despite a sharp economic slowdown in the region, unemployment rates in all three countries remain well below the European Union average of 6.8 percent in June of this year. 
"We are left with the very unfortunate situation that when growth eventually does start to pick up again, there may be very little surplus labor capacity available to fuel the growth, and logically inflation would then simply start to shoot up yet one more time," wrote Edward Hugh, an economic analyst for Baltic Economy Watch, earlier this year.

"There simply is no homeostatic mechanism to fall back on here to guarantee stability. Since the cohorts leaving the labor force at the upper end are going to be consistently bigger than those entering at the bottom, there is no build up of surplus labor in the 'deposit' during the slowdown," the analyst said.
Unemployment rates have been steadily falling since the Baltic states' accession to the EU in 2004 and have stayed relatively low even as the three economies start a descent into stagflation.

The situation, both with the economy and unemployment, is most drastic in Estonia. The Estonian unemployment rate dipped to 4 percent in the second quarter of this year, approximately a 1 percent drop from the same period the previous year. The last time unemployment in the country fell below 4 percent was in 1992.

The Latvian unemployment rate, meanwhile, reached a 10-month high of 5.1 percent in July, the National Employment Office said. According to Bloomberg, the total number of unemployed people in the country reached 55,436, amounting to only a slight increase from 4.9 percent the previous month.
That trend has been mirrored by Lithuania, where unemployment in the first quarter of the year hit 4.9 percent, the national statistics office said. The number also marks a slight turnaround from an unemployment rate that reached a five-year low at the end of last year. 

Unnaturally low unemployment rates are not the only problem plaguing the Baltic workforce.
A recent article in Postimees, one of the leading Estonian-language publications, said that while unemployment remains low in the country, workers are not taking their jobs seriously and efficiency has reached a nadir.
"Even those who have graduated and worked before are often behaving incompetent in the professional environment," Reimo Seero, the technology manager of software developer Uptime Group, was quoted by Baltic Business News as saying.

"Young candidates believe that 'you want me and I don't have to exert myself,' " Microlink Estonia personnel manager Reet Neemoja said.
The problem is also widely recognized in Latvia, where the longest work week in the EU is combined with some of the lowest levels of worker productivity.
Unemployment for the 27-member EU was 6.8 percent in June 2008, unchanged compared with May but slightly lower than the 7.1 percent seen in June 2007.

Among EU member states, the lowest unemployment rates were registered in June 2008 in Denmark at 2.6 percent and the Netherlands at 2.8 percent. The highest were recorded in Spain, which saw 10.7 percent unemployment, and in Slovakia, with 10.5 percent.

In June 2008, the unemployment rate was 5.5 percent in the United States and 4.1 percent in Japan.