Latvian Unemployment Rates Reach Record Low

The labour market in Latvia has achieved a significant milestone as the country’s unemployment rate hits a record low. According to the Central Statistical Bureau of Latvia (CSP) Labour Force Survey in Q1 2023, the proportion of job seekers has dropped to 6.4%, marking a decrease of 0.9 percentage points compared to the previous year. This level of unemployment at the beginning of the year has never been seen before, indicating a robust and thriving economy.

Economic Success Drives Employment Opportunities

One of the key factors contributing to the positive labour market results is the impressive performance of Latvia’s economy. The initial GDP forecast for Q1, which predicted a 0.7% growth, is expected to surpass expectations. The European Commission has even revised its forecast, projecting a growth rate of 1.4% for Latvia’s economy this year. The availability of energy and other raw materials at lower prices has freed up resources for businesses and households, allowing them to redirect their funds toward consumption and investments.

Growth Prospects in Commercial Services, ICT, and Tourism

Experts are optimistic about the future, particularly in sectors such as commercial services, information and communication technology (ICT), and tourism. Retail trade and service companies have indicated positive outlooks regarding their employee numbers, suggesting a favorable employment dynamic in these areas. Additionally, exports of services have experienced a remarkable 15% growth in Q1, further bolstering the economy.

The Impact of Demographic Changes

Historically, the decline in employment levels in Latvia was largely attributed to a shrinking population. However, the influx of Ukrainian refugees has altered this trend, resulting in a higher number of economically active individuals. At the beginning of this year, the number of economically active people in Latvia exceeded the previous year by 2.9 thousand, totaling 940.2 thousand. This increase in the workforce has contributed to the decline in unemployment, as more people have secured jobs.

Sustainable Unemployment and Increasing Competition

With the average unemployment rate for this year estimated to be around 6%, Latvia is experiencing a level that has not been seen since 2007. Unlike in the past, when such low unemployment levels led to significant wage inflation, the current situation is sustainable due to changes in population density and increased levels of education and skills. As a result, more people are gainfully employed, and companies are compelled to compete for talented workers.

Companies Must Offer Higher Wages to Thrive

In this competitive labor market, companies that are willing and able to provide higher wages will have a better chance of survival. While there may be suggestions to reduce labor taxes to alleviate the pressure, this measure alone will not address the competition issues faced by various companies and sectors. Lowering taxes would increase net wages across the board, benefiting companies that are already attracting employees from their competitors. Industries, such as the ICT sector, have already experienced a substantial increase in employment, while other sectors, like transportation, have seen a decline.

To stay competitive, companies need to recognize the growing dominance of intellectual work-based sectors in the market. Merely reducing taxes would not lead to sustainable reductions in labor costs. Instead, it is crucial for businesses to adapt their strategies to attract and retain skilled workers in this dynamic labor landscape.