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The Ministry of Economics (ME) has updated medium and long-term labor market forecasts, covering industry employment needs by profession and education until 2040. These forecasts are based on the target scenario for economic growth and corresponding demographic projections, also considering current global economic development processes, geopolitical challenges, and trends in artificial intelligence development.
"Our goal is to ensure that, despite global challenges, Latvia continues to move towards its long-term development goals in the coming years. This means reorienting Latvia's economy towards more knowledge-intensive activities, basing the main competitive advantages on technological factors, production efficiency, innovations, as well as the ability to adapt to and exploit the opportunities created by global changes, thereby ensuring an increase in the value of goods and services exports," emphasizes the Minister of Economics, Viktors Valainis.
The labor market situation in Latvia will continue to be determined by supply-side factors. The decline in population up to 2040 will slow down, but societal aging will continue, and the number of working-age residents will decrease, affecting the overall labor supply in the future.
Due to expected demographic trends, the key precondition for economic growth is increasing productivity levels. One of the main challenges is creating new competitive advantages related to investments in human capital, technology, innovation, research, and digitalization. Creating new competitive advantages is also crucial for expanding export markets and increasing export volumes, which should become the main growth driver.
Labor productivity will continue to be supported by job automation, accelerated by broader use of artificial intelligence (AI). AI development opens much wider automation opportunities, from improvements in work organization and customer service to the creation of new products and services, thus affecting almost all labor market segments. Jobs with high AI application probability include receptionists and customer service specialists, accountants, sales workers, researchers and data analysts, designers, and IT specialists. Simultaneously, AI will have less impact on professions such as managers, healthcare, education, lawyers, actors, and others where human involvement is significant. It is also important to note that AI development creates new jobs, for example, providing AI services and process monitoring, thus increasing demand for specialists with skills to work and apply AI in everyday tasks.
Regardless of economic shocks, the labor market will remain tight, and unemployment will be close to the natural level. Overall, unemployment will continue to decrease in both the medium and long term. It is expected that by 2026, the unemployment rate could fall below 6%. In both the medium and long term, unemployment will be close to its natural level (within the 5-6% range). The highest unemployment risks are expected among people with low education levels and without professional skills/qualifications, as well as in regions farther from economic activity centers.
Changes in the economic structure will increase demand for highly qualified labor while reducing the number of low and medium qualification jobs. Overall, by 2040, the share of high qualification jobs could increase by approximately 7.2 percentage points in total labor demand, while the share of medium and low qualification professions could decrease by 3.1 and 4.1 percentage points, respectively, compared to 2023. The demand for labor in simple professions could decrease by almost 33%, or 35.8 thousand jobs, while medium qualification jobs could decrease by almost 26 thousand or 6.8%. By 2040, the number of high qualification jobs could increase by more than 65 thousand, creating 454 thousand jobs or about half (almost 51%) of the total number of jobs in the economy. It is expected that by 2040, demand for labor with higher education could increase by 46.7 thousand.
The most significant growth in new jobs in the medium term is expected in construction, professional, scientific, and technical services, as well as information and communication services. Meanwhile, in the long term (until 2040), the most significant contribution to new jobs could come from the commercial services sector, particularly in information and communication services, as well as professional, scientific, and technical services.
The main job opportunities will arise from replacement demand. By 2040, due to labor aging and exit from the labor market, approximately 278 thousand jobs could become available, of which 118 thousand vacancies will be in high qualification professions, 123 thousand in medium qualification professions, and 37 thousand in simple professions. The most significant replacement labor demand is expected in senior specialist professions - about 30% of those currently employed in these professions could leave the labor market by 2040. Overall, replacement demand could account for almost 70% of the total number of vacancies in the labor market by 2040.
Given the restructuring of labor demand towards more knowledge-intensive activities and the narrowing of labor supply, the following significant labor market mismatches are expected by 2030:
- A shortage of up to ~10 thousand in high qualification specialists in natural sciences, ICT, and engineering; at the same time, the increase in STEM students, as a result of the Ministry of Education and Science's actions, is positively assessed.
- A surplus of up to ~12.5 thousand high qualification labor with education in social sciences, commerce, and humanities.
- A shortage of labor with professional secondary education up to ~45.7 thousand, with a shortage expected in almost all educational thematic groups, especially in engineering and manufacturing.
- A surplus of labor with general secondary education, basic education, and lower education levels could reach ~89.7 thousand (with general secondary education ~29.4 thousand, with basic education and lower ~60.3 thousand).
As is known, the Ministry of Economics has been developing labor market forecasts since 2008, based on the Ministry's economic development and demographic scenarios. Labor market forecasts provide an early insight into potential labor market mismatches in the future. They show possible labor market development trends and potential risks, given the current education system and human capital supply structure. By identifying problems, proposals for solutions have been developed to implement labor market adjustments in the medium term, creating prerequisites and promoting stable and balanced national economic growth.
Summary of the 2024 Medium and Long-term Labor Market Forecasts
On June 13, 2024, a discussion titled “Labor Market Forecasts: Current Situation, Challenges, Opportunities” took place at the Ministry of Economics. The presentations during the discussion were:
- "ME Medium and Long-term Labor Market Forecasts (2024)" by Normunds Ozols, Deputy Head of the Analytics Department of the Ministry of Economics.
- "Human Capital Strategy Updates" by Indra Leonova, Director of the Human Capital Development Department of the Ministry of Economics.
- "Current Labor Market in 2024" by Anta Praņēviča, Member of the Board and Leading Consultant of “Figure Baltic Advisory”.