The Ministry of Economics has prepared medium- and long-term labour market forecasts covering the employment needs of sectors by occupations and education until 2040. The forecasts are based on the target scenario for economic growth and their corresponding demographic forecasts. Labour market forecasts take into account the current global economic development processes, including the impact of the Covid-19 pandemic on Latvia’s economy and labour market in the coming years.
“Changes in population habits introduced by the crisis not only narrow individual activities, but also create new opportunities and needs in the labour market. The sectors less affected by Covid-19 are expected to recover more quickly and will be the main driver of the economy in the coming years. Latvia’s breakthrough in development and welfare can be achieved by rapid development of goods and services, and the availability of human resources and jobs, reducing unemployment and the share of low-skilled workers, increasing innovation and research capacity, promoting digitisation solutions and productivity will be important prerequisites,” emphasises the Minister of Economics Jānis Vitenbergs.
“The Covid-19 crisis has had a negative impact on the labour market, so immediate and comprehensive measures are needed to prevent them. The analysis of the economic consequences of Covid-19 and the labour market situation, as well as identification of sectoral needs, a business survey expect the most significant increase in new jobs in the medium term in professional, scientific and technical services, construction, information and communication services, as well as in manufacturing. According to the Economic Development Plan developed by the Ministry of Economics, these sectors are expected to create nearly 25 thousand new jobs by 2027, representing approximately 9/10 of all new jobs during the corresponding period,” continues the Minister.
The labour market will return to pre-crisis levels around 2022-2023.
In view of the shrinking economic activity due to Covid-19, the total employment rate is expected to fall by 7.5% in 2020 (by almost 69 thousand) compared to 2019, while the unemployment rate is expected to rise to 11%*. The situation in the labour market could stabilise and slowly return to growth in the second half of 2020, but in 2021 there could already be an increase in the number of employees – by 4.2% compared to 2020. The unemployment rate could fall to 8.1% in 2021.
The relative rates of employment and unemployment could return to the levels of 2019 around 2022-2023, but the number of employees in absolute terms will not return to pre-crisis levels in the nearest years, affected by both demographic processes and the need to increase labour productivity.
Some of the structural effects of the Covid-19 pandemic may persist for a long time.
The crisis caused by the Covid-19 pandemic has limited economic activity in most areas of the national economy, particularly affecting those sectors directly linked to population movement and assembly, such as passenger transport, travel agencies and tour operators, accommodation and catering services, different areas of entertainment, art and culture, etc. According to MoE, in the directly affected sectors, the number of jobs in 2019 represented around 60 thousand or nearly 7% of the total number of jobs in the national economy. In many of these sectors, activity may remain at low levels for a long time, so some of these jobs may be lost.
Changes in population habits introduced by the crisis not only narrow individual activities, but also create new opportunities and needs in the labour market. The less affected sectors are expected to recover more quickly and will be the main driver for the economy to nearest years. The most significant increase in new jobs is expected in the medium term in professional, scientific and technical services, construction, information and communication services, as well as in manufacturing. These sectors will create nearly 25 thousand new jobs by 2027 representing approximately 9/10 of all new jobs in the corresponding period.
In the medium term, the pressure on the labour market will continue to be maintained by demographic processes, while the main job opportunities will be driven by demand for replacement labour.
The population in Latvia will continue to shrink in the coming years, while the population ageing trends will become more pronounced. The population could fall by around 65 thousand by 2027, and by almost 122 thousand by 2040, compared with the beginning of 2020. In total, the population in Latvia could reach 1.79 million in 2040.
The most significant reduction in population will be observed among people of working age. The population aged 15-64 is expected to fall by nearly 90 thousand or more than 7% by 2027, which will also have a negative reflection on the overall labour supply.
The number of economically active population as a whole could fall by 1.3% by 2027. At the same time, the negative impact of demographic trends on labour supply will be reduced by the increase in economic activity of the population. By 2027, the population participation rate in the labour market could exceed 71%. On the other hand, the unemployment rate could fall below the 6% level by 2027, thereby emphasising the problem of labour shortage.
In view of the ageing trend of the labour force in the medium term, the main job opportunities will be created by replacement demand. By 2027, as a result of labour force ageing and exit from the labour market, labour demand in general may fall by 170 thousand. The most significant increase in labour demand replacement demand is expected in medium-level qualification occupations, where more than 74 thousand vacancies can be created, thereby increasing labour shortage for medium-level qualification specialists with vocational education, particularly in sectors such as transport services, construction, manufacturing and also agriculture and trade.
The labour market will be increasingly affected by economy digitisation and job automation trends.
Innovation cycles have become much faster in previous years. Self-service trading terminals, virtual assistants and bots, autonomous vehicles, big data processing and cloud computing are only part of innovation, which has a significant impact on labour force and skills demand. More jobs will be automated along with technological developments in the coming years. The largest drop in jobs is expected in occupations with a large proportion of manual and repeating activities, and in specialities related to direct service, such as shop assistants and cash register clerks in retail trade, call operators and similar occupations. Consequently, medium-level qualification jobs could be affected the most by trends in automation in the long-term.
Meanwhile, economy digitalisation trends and job robotisation will increase demand for higher-skilled labour force. Overall, by 2040, the number of jobs in higher-skilled occupations could increase by around 80 thousand and account for more than half (52% or 461 thousand) of the total number of jobs in the national economy. It should be noted that job automation is less likely in areas/professions requiring high levels of education, a lot of social interaction and abilities in managing, and facing day-to-day challenges with the planning and coordination of complex environment/circumstances.
The people with general secondary education, basic education and lower education levels will face most problems in finding a job, while shortage for ICT and engineering professionals will be observed.
In both the medium and long term, the risk of unemployment for people with low levels of education and without a profession will increase significantly. Labour demand in elementary occupations might reduce by about 17 thousand by 2027 and by more than 46 thousand by 2040. The surplus of low-skilled labour will grow in the coming years.
Increased daily use of different technologies and innovations will increase demand for high-skilled labour force with education in exact sciences, particularly for information technology and engineering professionals.
Overall, in the medium term, the following major labour market mismatches could be observed:
- Shortage of high qualification specialists in life sciences, ICT and engineering. Until 2027 the shortage of high qualification specialists in STEM disciplines may increase to ~14 thousand.
- Surplus of higher qualified labour force with education in social sciences, business and law. Until 2027 the surplus of labour force with higher education in social sciences, business and humanities may increase to ~17 thousand.
- Shortage of labour force with vocational secondary education. In the medium term this may result in a shortage of labour force with secondary vocational education (~40 thousand), and this shortage will be observed almost in all education academic disciplines, especially in engineering and manufacturing.
- Surplus of labour force with general secondary education, basic education and lower education level. Labour surplus with general secondary education, basic education and lower education level is expected to increase in the medium term. Until 2027 the surplus of such labour force may reach ~85 thousands (~24 thousand with general secondary education, ~61 thousand with basic and lower education).
Labour market forecasts have been prepared by the Ministry of Economics since 2008 and are based on national economy development and demography scenarios prepared by the Ministry of Economics. Labour market forecasts allow for anticipating future labour market imbalances. They show possible trends in the labour market development and possible risks if the current education system and education supply structure are retained. By identifying problems, solutions for materialization of labour market reforms in the medium term have been prepared aimed at promoting a stable and balanced economic growth in the country.
* Real unemployment and employment reduction, including employees/jobs in downtime.