Table Of ContentOECD Reviews of Labour Market and Social Policies 2
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Latvia
OECD Reviews of Labour Market
Latvia has undergone major economic and social change since the early 1990s.
Despite an exceptionally deep recession following the global financial crisis, impressive and Social Policies
economic growth over the past two decades has narrowed income and productivity
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iSbn 978-92-64-25049-9
81 2016 01 1 P
OECD Reviews of Labour
Market and Social
Policies:
Latvia
2016
This work is published under the responsibility of the Secretary-General of the
OECD. The opinions expressed and arguments employed herein do not
necessarily reflect the official views of OECD member countries.
This document and any map included herein are without prejudice to the status
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Please cite this publication as:
OECD (2016), OECD Reviews of Labour Market and Social Policies: Latvia 2016, OECD Publishing,
Paris.
http://dx.doi.org/10.1787/9789264250505-en
ISBN 978-92-64-25049-9 (print)
ISBN 978-92-64-25050-5 (PDF)
Series: OECD Reviews of Labour Market and Social Policies
ISSN 2074-3416 (print)
ISSN 2074-3408 (online)
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FOREWORD –
Foreword
This volume consists of a background report prepared by the OECD
Secretariat to support the Labour Market and Social Policy Review of Latvia
which is currently being undertaken by the OECD Employment, Labour and
Social Affairs Committee as part of the process for Latvia’s accession to the
OECD [see the Roadmap for the Accession of Latvia to the OECD
Convention: C(2013)122/FINAL]. In accordance with paragraph 14 of
Latvia’s Accession Roadmap, the Employment, Labour and Social Affairs
Committee agreed to declassify the report in its current version and publish
it under the authority of the Secretary General, in order to allow a wider
audience to become acquainted with the issues raised in the report.
Publication of this document and the analysis and recommendations
contained therein, does not prejudge in any way the results of the review of
Latvia by the Employment, Labour and Social Affairs Committee as part of
its process of accession to the OECD.
The review was prepared by Jonathan Chaloff (Chapters 1 and 2), Paolo
Falco (Chapters 1 and 3) and Herwig Immervoll (Chapters 1 and 4,
Assessment and Recommendations), with statistical support from Véronique
Gindrey, Maxime Ladaique and Sébastien Martin. Herwig Immervoll
([email protected]) co-ordinated and edited the report. Jean-
Christophe Dumont, Mark Pearson, Monika Queisser, Stefano Scarpetta and
several other colleagues at the OECD provided valuable comments. The
report also accounts for comments received from the Latvian Ministry of
Welfare.
OECD REVIEWS OF LABOUR MARKET AND SOCIAL POLICIES: LATVIA 2016 © OECD 2016
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TABLE OF CONTENTS –
Table of contents
Acronyms and abbreviations ........................................................................................... 9
Executive summary ...................................................................................................... 11
Assessment and recommendations ................................................................................ 13
Chapter 1. A volatile economy heightens Latvia’s social challenges ....................... 41
1. Strong growth and remarkable resilience, but major policy challenges ahead ...... 42
2. Inequality has reached very high levels ................................................................ 47
3. An unfavourable demographic situation exacerbated by high emigration ............ 65
4. The productivity challenge has its roots in the labour market ............................... 78
Notes ........................................................................................................................ 90
References ................................................................................................................. 94
Chapter 2. Responding to the decline of Latvia’s population ................................ 101
1. Finding effective ways to reduce negative net migration .................................... 102
2. Diaspora policy needs to be bolstered, but cannot reverse emigration ............... 106
3. Latvia has yet to start the uphill battle to attract labour and economic migrants
to Latvia .................................................................................................................. 124
Notes ...................................................................................................................... 137
References ............................................................................................................... 139
Chapter 3. A more productive labour force in Latvia ............................................ 141
1. Making the most of Latvia’s human capital: Challenges ahead .......................... 142
2. Helping workers find productive employment in the formal sector .................... 145
3. Skills needed to boost productivity in the face of adverse demographic trends ..... 170
4. Addressing the needs of youth and older workers ............................................... 178
Notes ...................................................................................................................... 185
References ............................................................................................................... 189
Chapter 4. Reinforcing Latvia’s active social policies ............................................ 195
1. Making effective social protection a key policy priority ..................................... 196
2. Promoting self-sufficiency through accessible and adequate working
age support ............................................................................................................. 211
3. Old-age pensions: Bold reforms but significant risks for social
sustainability ........................................................................................................... 219
Notes ...................................................................................................................... 227
References ............................................................................................................... 230
OECD REVIEWS OF LABOUR MARKET AND SOCIAL POLICIES: LATVIA 2016 © OECD 2016
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– TABLE OF CONTENTS
Tables
Table 1.1. Most recent emigrants do not plan to return ............................................. 77
Table 2.1. Emigration rates are higher from urban areas ........................................ 112
Table 2.2 Many factors prevent Latvian emigrants from returning ........................ 113
Table 2.3. Remittances are a key component of household income for one
in ten poor families .................................................................................................. 118
Table 2.4. Many Latvians abroad have the potential to create and develop
businesses in Latvia ................................................................................................. 123
Table 2.5. Foreigners in Latvia: Inflows (first temporary permits)
by permit category, selected categories, 2004-14 ................................................... 125
Table 4.1. The majority of poor or socially excluded receive no significant
income support ........................................................................................................ 214
Figures
Figure 1.1. Large but uneven income gains .............................................................. 43
Figure 1.2. Subjective wellbeing remains very low, despite being remarkably
resilient during the crisis ........................................................................................... 44
Figure 1.3. Key challenges: Inclusiveness, demographics, and productivity ............ 46
Figure 1.4. Low-income groups benefited from the pre-crisis boom but fared
badly during the recession ......................................................................................... 48
Figure 1.5. Income fluctuations cause hardship for many Latvians .......................... 49
Figure 1.6. Large gaps between rich and poor, and a very ........................................ 51
Figure 1.7. Older workers and children are among the most disadvantaged ............. 54
Figure 1.8. Large regional differences in income levels, poverty and
concentration of ethnic minorities ............................................................................. 55
Figure 1.9. Job prospects of youth, older men and low-skilled workers
deteriorated sharply during the crisis ........................................................................ 60
Figure 1.10. High wage inequality at the bottom and at the top................................ 62
Figure 1.11. Gender, education, labour market experience and citizenship
have strong impacts on earnings ............................................................................... 63
Figure 1.12. Estimated earnings shortfalls of national minorities are somewhat
smaller than in Estonia .............................................................................................. 64
Figure 1.13. The working age population has been shrinking................................... 66
Figure 1.14. A trough in births post-1990 contributes to a declining population ...... 66
Figure 1.15. The dependency ratio is rising quickly, driven by population ageing .. 68
Figure 1.16. Population decline is concentrated in rural areas and outside
greater Riga ......................................................................................................... 68
Figure 1.17. Latvians are now emigrating mostly to European countries ................. 70
Figure 1.18. Youth cohorts show decline due to high emigration ............................. 70
Figure 1.19. The non-citizen population is declining ................................................ 73
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TABLE OF CONTENTS –
Figure 1.20. Most non-citizens are older and the younger non-citizen population
is shrinking further .................................................................................................... 75
Figure 1.21. A large and growing emigrant population ............................................ 76
Figure 1.22. Productivity growth has fallen and remains lower than in
comparator countries ................................................................................................. 79
Figure 1.23. The incidence of long-term unemployment remains high .................... 80
Figure 1.24. NEET rates among youth are significant .............................................. 81
Figure 1.25. Strong disparities in unemployment across regions .............................. 82
Figure 1.26. The shadow economy represents a large share of the Latvian
economy .................................................................................................................... 84
Figure 1.27. Incidence of temporary contracts in OECD countries .......................... 85
Figure 1.28. Changes in employment across sectors ................................................. 86
Figure 1.29. The share of students lacking basic skills is relatively low .................. 87
Figure 1.30. Strongly declining enrolment in secondary and tertiary education ....... 88
Figure 1.31. Perceived quality of vocational education and training ........................ 89
Figure 2.1. The decline in student enrolment has mostly been in self-paying
students .................................................................................................................... 104
Figure 2.2. International study in Latvia is relatively inexpensive ......................... 105
Figure 2.3. More than one in five recent emigrants was a student or trainee
before emigrating .................................................................................................... 106
Figure 2.4. Latvia’s emigration rate is higher and faster growing than for
almost all OECD countries ...................................................................................... 107
Figure 2.5. Reasons for emigration of emigrants, 2000-14,
by period of emigration ........................................................................................... 108
Figure 2.6. Incidence of spells of employment, unemployment or inactivity
in Latvia during the previous year among Latvian guestworkers, 2002-13 ............ 109
Figure 2.7. Higher educated emigrants sought more than just
employment abroad ................................................................................................. 110
Figure 2.8. Members of national-minority groups are more likely to cite
political and social security factors in their emigration decision ............................ 111
Figure 2.9 Reservation wage for emigrants is higher for men ................................ 114
Figure 2.10. About half of those working abroad return ......................................... 115
Figure 2.11. Emigrants' plans to return and family members left behind
in Latvia .................................................................................................................. 116
Figure 2.12. Remittance flows provide a major contribution to GDP ..................... 117
Figure 2.13. Valid temporary permits, by reason, 1 January 2012-15 .................... 126
Figure 2.14. Foreigners in Latvia: Inflows (first temporary permits)
by permit category, selected categories, 2004-11 and 2014 .................................... 129
Figure 2.15. Latvians do not think that their country is a good place for migrants
from other countries ................................................................................................. 130
Figure 2.16. There are relatively few international students in higher education ... 132
Figure 2.17. The number of international students is increasing............................. 133
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Figure 3.1. Participation in ALMPs has increased, but remains low
by international standards........................................................................................ 146
Figure 3.2. Expenditure on ALMPs is low .............................................................. 147
Figure 3.3.Despite a large increase in unemployment, ALMP spending declined ..... 148
Figure 3.4. The incidence of disabilities is significant ............................................ 156
Figure 3.5.Despite cuts after the crisis, the number of labour inspectors
is relatively high ...................................................................................................... 159
Figure 3.6. Fiscal pressure on labour is high, especially for low-paid workers ...... 163
Figure 3.7. The minimum wage has increased significantly since 2007 ................. 166
Figure 3.8. The proportion of workers earning at or below the minimum wage
is high ...................................................................................................................... 167
Figure 3.9. The tax wedge for minimum wage earners is among the highest
in the OECD, 2013 .................................................................................................. 168
Figure 3.10.The share of youth combining education and employment is
relatively low ........................................................................................................... 175
Figure 3.11.Participation in lifelong learning is low ............................................... 177
Figure 4.1. Government programmes do little to alleviate inequality ..................... 196
Figure 4.2. Public social spending is low ................................................................ 202
Figure 4.3. Limited use of means-testing is one reason for weakly targeted
social protection ...................................................................................................... 203
Figure 4.4. Spending on working age support programmes has been
pro-cyclical ............................................................................................................ 207
Figure 4.5. Social transfers are poorly targeted ....................................................... 209
Figure 4.6. Low social protection coverage among the working age population .... 213
Figure 4.7. Safety net benefits are far lower than commonly used poverty
thresholds ................................................................................................................ 216
Figure 4.8. Current legislation implies very large falls in future public pension
levels and spending ................................................................................................. 222
Figure 4.9. Latvians have an unfavourable view of their pension system ............... 226
OECD REVIEWS OF LABOUR MARKET AND SOCIAL POLICIES: LATVIA 2016 © OECD 2016
