Drop in unemployment: a sign of economic recovery, yet structural unemployment problem topical

As forecast, the proportion of jobseekers in the fourth quarter of 2010 continued to shrink – to 16.9% of the economically active population. As a result of the gradual economic recovery, a drop in unemployment was observed for a third consecutive quarter and in the final quarter of 2010 – as before -- amounted to 1.1 percentage points.

The contracting unemployment was determined by fundamental factors (economic recovery), but the extent of the drop was limited by two additional effects. First, the positive contribution of seasonality is smaller in the fourth than in the third quarter and, according to the Bank of Latvia evaluation, it hindered the drop in the proportion of jobseekers by 0.3 percentage points. Second, the number of participants in the 100-lats programme and other temporary jobs offered through the State Employment Agency diminished, hampering the drop in that proportion by a further  0.2 percentage points[1]. As a result, the quarterly drop in unemployment is likely to have been a little greater owing to fundamental factors, than the official statistics suggest.

According to the Central Statistical Agency's (CSP) labour survey data, the number of the economically active population dropped in the fourth quarter of 2010 for the first time in three quarters. That was the main reason behind the unexpected drop in the employed by 10.0 thousand people. The drop in the number of economically active population and thus employment was in all likelihood the result of the particulars of the survey sample. This time, the average number of able-bodied household members reached 1.9, which is a significantly higher indicator than in previous surveys (e.g., in the first through third quarters of 2010 it was between 1.2 –1.3)[2]. This suggests certain problems with the survey sample –this time it includes on average greater households, which makes the interpretation and comparability of the obtained data more difficult.

It can be predicted that this year unemployment will drop at a slower rate than last year as the incompatibility of jobseekers' skills with the demand by enterprises and the resulting structural unemployment become ever more topical. Thus the average percentage of jobseekers this year is forecast at about 16%.