“The labour market brings the economy closer to many big and small moment of truth. We will soon snow how well various sectors and businesses are able to defend their place under the sun,” said Luminor Bank economist Pēteris Strautiņš, commenting on results of the Central Statistical Bureau of Latvia (CSP) Labour Force Survey in Q1 2023.
This year’s labour market results are rather positive. The main reason for this is that the economy’s success turned out better than expected. The initial GDP forecast for Q1 (0.7% growth) will likely go up again. The latest forecast from the European Commission suggests Latvia’s economy may grow by 1.4% this year, and this is likely.
The price drop for energy and other raw materials frees up resources for businesses and households, allowing them to divert them towards other forms of consumption and investments. There are also good results in exports of services, as they have grown by 15% in Q1.
This is why experts expect growth in commercial services, ICT and tourism.
We can expect a good employment dynamic in those sectors. This is indicated by the outlooks from retail trade and service companies in regards to changes to their numbers of employees – they are positive.
These developments are reflected in results published in the Labour Force Survey. Results indicate that the proportion of job seekers in Q1 has gone down to 6.4%. This is 0.9 percentage points lower than a year prior. Unemployment has never been this low at the beginning of the year. In 2008 it was 6.7% and in 2019 it was 6.9%.
For a long time the drop of the employment level came from the continued drop of the population. With the influx of Ukrainian refugees certain demographic indexes look differently at the moment. For example, the number of economically active people in Latvia at the beginning of the year (940.2 thousand) was by 2.9 thousand more than a year prior. Unemployment went down because the number of working people went up.
Seasonal changes may yet increase the number of working people to above 900 000, where it was before the pandemic. Operational data for April is available – unemployment then continued going down, reaching 5.8%.
With air and the economy becoming warmer, this year’s average unemployment index is close to 6%. The last time this index was registered was in 2007. Unlike the time immediately after joining the EU, when this unemployment level prompted steam boiler-worthy pressure, raising wages above 30%, currently this level is sustainable. The population density level has changed, with residents now concentrating in the most successful development centres. The level of education and skills is up as well. Now more people are employed.
It is clear: this labour market promotes competition between companies for employees.
The companies that are able to pay higher wages will survive.
Together with unfavourable export markets this could mean a drop in the number of available jobs in multiple industrial sectors. Without a doubt there will be suggestions to reduce labour taxes. But this step, which would be very beneficial and would mean bigger pre-tax wage amounts, would not resolve the competition problems of various companies and entire sectors.
Tax reduction would not help sustainably reduce labour costs. Tax reduction would help increase net wages also in companies that are already “poach” workers from their competitors. Entire industries are already fighting for employees. For example, last year in the ICT industry there were 73% more people employed than ten year ago. In the transport sector there were 7% fewer workers. Other business sectors have to keep in mind that intellectual work-based sectors will continue increasing their share of the market.
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