The document discusses the impact of the Covid-19 pandemic on employment and labor markets in the Baltic countries, particularly Latvia. It finds that while the overall impact has been limited so far, it varies significantly by sector, occupation, and population group, with low-income workers being most affected. This could increase structural unemployment and inequality without government intervention. The document also notes that long-term labor market challenges like skill mismatches and high structural unemployment predated the pandemic and still need to be addressed through measures like improving education and healthcare, promoting lifelong learning, and activating groups with low employment.

1. Employment and labour market
during and after Covid-19 pandemic
Dr. Olegs Krasnopjorovs
26.03.2021.
Meeting of the Education, Science and Culture Committee of the Baltic Assembly

2. ►Impact of pandemics on the labour market (Baltic countries, particularly in Latvia):
Overall impact so far is limited; but impact varies substantially by sectors,
occupations and population groups, with low-income workers affected the most;
►How this corresponds to the long-term labour market challenges such as skill
mismatches, high structural unemployment etc.
Presentation outline

3. 4.5
6.3 6.3
2.4
1.8
2.3
6.8
8.1
8.6
0
1
2
3
4
5
6
7
8
9
Estonia Latvia Lithuania
Unemployment increase during 2020
Unemployment rate in 2019
Unemployment rate in 2020
Source: Eurostat data, author’s calculations
Unemployment rate (% of economically active
population)
3
Covid-19 overall impact on the labour market so far limited
Latvia: unemployment and employment rates
over 2002 – 2021
Unemployment
reached 8.5%
in Jan 2021

4. IEROBEŽOTA PIEEJAMĪBA
0
5
10
15
20
25
30
35
2002
Q1
Q3
2003
Q1
Q3
2004
Q1
Q3
2005
Q1
Q3
2006
Q1
Q3
2007
Q1
Q3
2008
Q1
Q3
2009
Q1
Q3
2010
Q1
Q3
2011
Q1
Q3
2012
Q1
Q3
2013
Q1
Q3
2014
Q1
Q3
2015
Q1
Q3
2016
Q1
Q3
2017
Q1
Q3
2018
Q1
Q3
2019
Q1
Q3
2020
Q1
Q3
Registered unemployment (from SEA)
Official unemployment (job seekers) rate from CSB (U3)
+ Discouraged (don't believe in finding work) (U4)
+ Ready to work but not look for work; or opposite (U5)
+ Involuntary part-time workers (U6)
Source: State Employment Agency and Central Statistical Bureau of Latvia data; author’s calculations
Latvia: official and broad unemployment measures (% of economically active population)
4
Broad unemployment measures increased moderately as well
Blank Blank Blank Blank
official
statistics

5. September 2009
0.0
0.5
1.0
1.5
2.0
2.5
2008
I
VII
2009
I
VII
2010
I
VII
2011
I
VII
2012
I
VII
2013
I
VII
2014
I
VII
2015
I
VII
2016
I
VII
2017
I
VII
2018
I
VII
2019
I
VII
2020
I
VII
2021
I
650
700
750
800
850
900
950
1000
2008
I
VII
2009
I
VII
2010
I
VII
2011
I
VII
2012
I
VII
2013
I
VII
2014
I
VII
2015
I
VII
2016
I
VII
2017
I
VII
2018
I
VII
2019
I
VII
2020
I
VII
All employees
Employees with labour income
Source: State Employment Agency, Central Statistical Bureau of Latvia and State Revenue Service data; author’s calculations
Latvia: newly unemployed people
(% of economically active population;
seasonally adjusted)
5
Despite big layoffs in Spring 2020, job losses so far
are much lower than during the 2009 crisis
Latvia: number of employees
(in thousand; seasonally adjusted)
Latest observation: February 2021 Latest observation: December 2020
April 2020

6. IEROBEŽOTA PIEEJAMĪBA
Source: Central Statistical Bureau of Latvia and State Revenue Service data; author’s calculations 6
Employment dynamics differs across occupations and sectors
Latvia: number of employees (%; changes
compared to Feb 2020; seasonally adjusted)
Red (green): relatively large decrease (increase) in the number of
employees during the reference month
0
1000
2000
3000
4000
5000
6000
7000
2020
I
II
III
IV
V
VI
VII
VIII
IX
X
XI
XII
2021
I
Latvia: number of jobs in selected occupations
(Jan 2020 – Jan 2021)
0
200
400
600
800
1000
1200
1400
2020
I
II
III
IV
V
VI
VII
VIII
IX
X
XI
XII
2021
I
Hotel Receptionists
(4224)
0
250
500
750
1000
1250
1500
1750
2020
I
II
III
IV
V
VI
VII
VIII
IX
X
XI
XII
2021
I
Travel Attendants, Conductors
and Guides (511)
0
2000
4000
6000
8000
10000
2020
I
II
III
IV
V
VI
VII
VIII
IX
X
XI
XII
2021
I
Cooks
(512)
Software Developers
(2512)
White colour here…

7. IEROBEŽOTA PIEEJAMĪBA
Source: Central Statistical Bureau of Latvia and State Revenue Service data; author’s calculations
Latvia: number of employees
(index; Feb 2020 = 100; seasonally adjusted)
7
Young people suffered more layoffs
Latvia: number of employees (in ths.; changes
compared to Feb 2020; seasonally adjusted)
-35
-30
-25
-20
-15
-10
-5
0
2020 III IV V VI VII VIII IX X XI XII
below 30 30-44 45-59 60+
~60%
55
60
65
70
75
80
85
90
95
100
105
2020 II III IV V VI VII VIII IX X XI XII
below 20 20-24
25-29 other
White colour here…
Youth: 1) bigger employment in accommodation and food;
2) low qualification: will be easy to find these employees after crisis
=> higher probability of dismissal.
60+: 1) bigger employment in education and healthcare (almost no layoffs);
2) ↑ population in this age group.

8. Change in employment share during April – November 2020, subject to mean wage in 2019
(smooth local regression («loess») with 95% confidence interval; based on 3-digit ISCO occupation breakdown)
8
Share of employment decreased in low-wage occupations
and increased in high-wage occupations
Based on number of jobs Based on number of hours worked
Change
in
employment
share
in
April
–
November
2020(pp.)
Change
in
employment
share
in
April
–
November
2020(pp.)
Ranged by 2019 occupational mean wage – percentile rank Ranged by 2019 occupational mean wage – percentile rank
Source: State Revenue Service data; author’s calculations.
For methodology see Dolado, Felgueroso, Jimeno (2020). «The Spanish Labour Market at the Crossroads: Covid-19 meets and megatrends»
High wage
Low wage Low wage High wage

9. IEROBEŽOTA PIEEJAMĪBA
Total economy
-15
-10
-5
0
5
10
below
400
400-700
700-1000
1000-1500
1500-2000
2000-3000
3000-4000
4000+
Source: Central Statistical Bureau of Latvia and State Revenue Service data; author’s calculations
Number of employees subject to earned gross monthly wage
(%; May – December 2020 compared to February 2020; seasonally adjusted)
9
Low-wage workers suffered more layoffs
Private sector
-15
-10
-5
0
5
10
below
400
400-700
700-1000
1000-1500
1500-2000
2000-3000
3000-4000
4000+
White colour here…

10. Source: Eurostat population projections (2019).
People aged 20-64 (thousand)
Working age population is going to shrink further
in the coming years
Latvia
600
700
800
900
1000
1100
1200
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043
2045
2047
2049
Baseline Lower fertility
Lower mortality Higher migration
Lower migration No migration
Estonia
600
620
640
660
680
700
720
740
760
780
800
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043
2045
2047
2049
Baseline Lower fertility
Lower mortality Higher migration
Lower migration No migration
Lithuania
1000
1100
1200
1300
1400
1500
1600
1700
1800
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043
2045
2047
2049
Baseline Lower fertility
Lower mortality Higher migration
Lower migration No migration

11. Source: Krasnopjorovs, O. Anatomy of labour reserves in the Baltic countries: a snapshot 15 years after the EU accession. Bank of Latvia Discussion paper 2/2019.
Internal labour reserves in the Baltic countries by age group and gender
(thousands of people; in 2018)
11
Internal labour reserves were substantial even before
pandemics and need to be activated
Estonia Latvia Lithuania
Men Women Men Women Men Women
Age
group
15-19 6.3 5.0 11.3 11.1 17.1 17.8
20-24 0.6 3.4 8.1 9.1
25-29 2.4 1.9 0.1
30-34 2.6 1.8 1.1
35-39 1.2 1.2 1.7 2.1
40-44 0.5 2.3 7.6
45-49 1.5 5.5 9.0
50-54 1.3 6.0 7.0
55-59 4.4 5.2 7.4
60-64 1.7 3.8
Total 26.9 55.9 86.3
Youth: low prevalence of vocational
education and apprenticeships;
Upper-middle-aged men:
low incidence of lifelong learning,
low digital skills,
rapidly deteriorating health condition.
Labour reserves reflect additional employment that would be observed if the employment rates in particular age groups reached the level of the EU7.
EU7: Germany, Austria, Denmark, Netherlands, Sweden, Czechia, UK.
4 – 7% of the
economically active population

12. 0
1
2
3
4
5
6
Greece
Spain
Italy
Croatia
Lithuania
France
Latvia
Cyprus
Finland
EU
Sweden
Portugal
Belgium
Estonia
Luxembourg
Slovakia
Austria
Bulgaria
Poland
Denmark
Ireland
Hungary
UK
Germany
Czech
Rep.
Malta
Slovenia
Romania
CZ
DE
EE
GR
SP
IT
LV
LT
MT
UK
R² = 0.82
0
2
4
6
8
10
12
14
16
18
0 1 2 3 4 5 6
Natural
rate
of
unemployment
Skill mismatch index
Source: Eurostat and AMECO data, author’s calculations
Skill mismatch index (2017-2019 average)
12
Skill mismatches and structural unemployment are long-term
challenges that must be addressed
Skill mismatch index and natural rate of
unemployment (2017-2019 average)
Skill mismatch index reflects unemployment rate differentials
across ISCO occupation groups. If unemployment is similarly
high in all occupational groups, this reflects cyclical recession
and has no impact on index value. In turn, if high unemployment
in one occupation coexists with low unemployment in another
occupation, this reflects labour market mismatches and
increases the index value.

13. Task is not easy. E.g., Latgale region: highest unemployment rate for
years, despite so many firms specializing in re-training of unemployed
13
Number of approved training providers listed on the
State Employment Agency website
per thousand of unemployed
Registered unemployed rate in February 2021
(% of economically active population)
Source: OECD (2019) Source: State Employment Agency

14. Raising the retirement age is not a panacea
if employment is hampered by health problems
Expected life expectancy of 50-year-old men (in 2018) Self-perceived health status of upper-middle-aged
men (index; age group 55-64; in 2019)
Source: Eurostat data, Bank of Latvia staff calculations
14
0
5
10
15
20
25
30
35
Switzerland
Iceland
Italy
Norway
Cyprus
Sweden
Ireland
Spain
Malta
France
Netherlands
Luxembourg
UK
Belgium
Greece
Austria
Denmark
Germany
Portugal
Slovenia
Czechia
Croatia
Poland
Estonia
Slovakia
Lithuania
Hungary
Romania
Bulgaria
Latvia
in good health in bad health
+200: very good
+100: good
0: fair
-100: bad
-200: very bad
0
20
40
60
80
100
Greece
Iceland
Ireland
Switzerland
Sweden
Norway
Cyprus
Netherlands
Italy
UK
Belgium
Malta
Austria
Finland
France
Denmark
Luxembourg
Romania
Bulgaria
Slovenia
Germany
Czechia
Slovakia
Portugal
Poland
Croatia
Hungary
Estonia
Lithuania
Latvia

15. ► Overall impact of Covid-19 crisis on the labour market so far is limited;
► But the impact varies substantially by sectors, occupations and population groups, with low-
income workers affected the most: without state intervention it is likely to raise structural (long-
term) unemployment and income inequality;
► Short run: widening of social security package is inevitable, since re-training of all hotel
receptionists to software developers is not possible, and also not desirable => one day tourist flow
will be back and demand for accommodation workers will restore;
► This should not be confused with the measures to address long-term labour market challenges
(such as skill mismatch and structural unemployment):
► improving the quality of education and healthcare; promotion of lifelong learning, digital skills
and healthy lifestyles;
► lowering tax wedge on labour income (i.e., social security contributions, personal income tax);
► implementation of special programmes to activate population groups and municipalities with
low employment rate.
Takeaways
15