“Despite the global challenges, the Latvian economy should keep moving towards the defined long-term development goals, which enable the transformation of the Latvian economy to more knowledge-intensive activities basing main economic competitive advantages on technological factors, manufacturing efficiency, innovation, as well as the ability to adapt and use the opportunities provided by global changes, thus ensuring an increase in exports of goods and services. Overall, economic growth is projected as 4.2% per year on average in 2022-2030, and an average of 3% per year in 2031-2040,” the Minister of Economics Ilze Indriksone emphasises.
Based on the economic growth target scenario and the corresponding demographic forecasts, as well as on the current global economic processes, including the changes introduced by the Covid-19 pandemic and the geopolitical challenges in the region, the Ministry of Economics has updated its medium and long-term labour market forecasts, covering sectoral employment needs by occupations and education until 2040.
The Covid-19 pandemic has left visible “traces” on the labour market in the last two years – the number of employed and the employment rate are still significantly lower than in 2019, and in many sectors directly affected by the crisis, the number of jobs may not return to the previous level for a long time. With growing economic activity, the situation in the labour market is gradually stabilising, while at the same time labour supply narrows and the risks of labour shortage are growing. Improving the situation in the labour market requires the more active involvement of people in lifelong learning, systematically and regularly acquiring the skills required in the modern labour market, which would ensure a more successful adaptation to the new economic conditions affected by the geopolitical situation. I would like to emphasise that this is a completely different situation from that of the Covid-19 crisis, which simply had to be endured. We are currently facing an intensive and permanent change in the economic structure, and therefore those market participants will be more successful, who will take active action to adapt to change,” the Minister of Economics indicates.
In view of the escalation of the geopolitical situation, a wait-and-see situation is generally expected in the labour market this year. The resilience of Latvia’s economy to external shocks has strengthened significantly in recent years, particularly in the financial sector, so a limited direct impact of sanctions and the narrowing of the export market on Latvia’s labour market is expected. The number of employed is expected to increase by 0.9% or 8 thousand, but the unemployment rate might reduce to 7.1% this year. An increase in employment will be seen in almost all sectors of the economy, with the exception of trade, transport and manufacturing.
The decline in the population will become slower until 2040, but ageing of society will continue and working age population will reduce. The main reason for the population decline in the medium and long term will be population ageing trends, and therefore the negative gap between birth and mortality rates will be present up until 2040. The most significant decline in the population count is expected in working age population, therefore demographic processes will leave a tangible impact on the labour market. At the same time, taking into account the increase in refugees of the Ukrainian war, next year the number of immigrants could exceed the number of emigrants. However, such changes in migration flows could be temporary and positive stable net migration is expected only around 2026/2027.
In view of demographic trends, unemployment generally keeps shrinking both in the medium and long term – it could drop below 7% already in 2023. Overall, unemployment in the medium and long term will be close to its natural level (within 5-6%). The highest unemployment risks are expected among the population with a low level of education and without professional skills/professional qualification.
The change in the structure of the economy will increase the demand for high-qualification labour and reduce the number of low and medium-qualification jobs. The increase in productivity levels will be largely driven by the restructuring of the economy from low and medium-low-technology sectors to high-technology sectors. Overall, by 2040, the share of high-qualification jobs could increase by approximately 8.1 percentage points in total labour demand, while the share of medium- and low qualification occupations could decrease by 3.7 percentage points and 4.4 percentage points, respectively, compared to 2021. By 2040, labour demand might reduce by more than 35% or 36.5 thousand jobs in elementary occupations and by more than 27 thousand or 7.4% in medium qualification jobs.
The most significant increase in new jobs is expected in the medium term in professional, scientific and technical services, information and communications, and construction. At the same time, in the long term (up to 2040), the most significant contribution to new jobs could be made by professional, scientific and technical services, information and communication services, as well as health and social care services, which will be largely affected by the general ageing trends of the population and by increased demand for various health maintenance, rehabilitation and others “silver economy”-related services.
Main job opportunities will be created by replacement demand. 327 thousand jobs can be vacated by 2040 due to labour ageing and leaving the labour market, of which 147 thousand vacancies will be created in high qualification occupations, 139 thousand in medium qualification occupations, but 41 thousand in elementary occupations. Overall, replacement demand could represent nearly 3/4 of the total vacancies in the labour market by 2040.