Unemployment decreased sharply; further decreases depend on overcoming structural problems

The labour survey data published by the Central Statistical Department today confirm that any worries that unemployment may not be shrinking are unfounded. The percentage of jobseekers in the third quarter of 2012 was 13.5% of the economically active population, which is the lowest indicator since the end of 2008. Thus the recovery of the labour market, which has been taking place continuously since spring of 2010, once again found reflection not only in a rise in employment but also in a drop of unemployment. In previous quarters unemployment decreases were hindered by short-term factors (restructuring of the 100-lats programme, rise in participation rate and seasonal factors).

The unemployment dynamics in the first three quarters of 2012 indicates that the annual average jobseekers rate could be 1.0–1.5 percentage points lower than the 16.2% of last year. We predicted this already before (see here and here).

In 2013, unemployment is expected to drop further, albeit drift-down speed can be expected not to exceed one experienced this year. On the one hand, the rather rapid gross domestic product growth will promote labour market recovery next year as well, since employment dynamics lags behind changes in production output by a few quarters. On the other hand, the unemployment slowdown will be increasingly influenced by any success in overcoming structural unemployment. Some entrepreneurs are complaining about a lack of (qualified) labour: according to the latest data of the European Commission, labour shortages as the main factor hindering entrepreneurship are mentioned by 13.3% of the construction entrepreneurs surveyed (8.7% in manufacturing, 7.1% in services). The unemployment level is much higher among people with elementary education than among university graduates (25.1% and 6.9%), and it is the main reason behind the “problem” of unemployment among young people. With salary rises remaining moderate and matching productivity, the developments in the labour market do not currently represent a threat to the achieved price stability.

In the "Eurostat" data bases the historical data on jobseekers rate adjusted to the 2011 Census are found. They indicate that at the peak of unemployment (first quarter of 2010) jobseekers rate was 21.6%, i.e. 1.1 percentage points higher than estimated at the time. Thus unemployment dropped faster in the last 2.5 years than thought up to now.

In recent weeks, some of the mass media disseminated the “news” that the unemployment level in Latvia is the third highest in the European Union, not hesitating to compare Latvia’s second quarter data to the third quarter data of other countries. Actually Latvia ranks sixth – after Spain, Greece, Ireland, Portugal and Slovakia (we were 5-th a year ago). Any further progress depends on how successful we are in overcoming structural unemployment. That means that the necessity for structural reforms in the country is still topical despite the optimistic trends in the labour market.