The workforce problem could be solved with an average gross wage of at least 1,400 Euro per month, which would motivate the return of emigrants, automation, controlled attraction of guest workers, as well as the manufacture of high added value export goods - concluded experts at the Citadele Index discussion. Meanwhile, the speed of wage increases may be a trap for the Latvian economy.
Business owners are increasingly admitting that they have problems attracting the employees they need - according to the Citadele Index business owner survey. In the past two years, Citadele Index results on workforce availability have significantly decreased: from -20 points in the first half of 2016 to -29 points this year.
Due to the difficult demographic situation, the job market in Latvia is becoming smaller. Compounding the issue, wages in Latvia are currently rising twice as quickly as employers had been planning to raise them, according to the Citadele Index survey and statistics on the increase in average wages. Citadele Bank economist Mārtiņš Āboliņš warns that a rise in wages could turn out to be too fast, as employers will not be able to earn so much; this will become a trap for the Latvian economy - wages too high for the current economy, but too low to stop emigration.
Have local workforce resources been exhausted?
In the discussion organised by Citadele Bank on the lack of workforce and increase in wages, experts admitted that local workforce resources have largely been exhausted.
Minister of Economics Arvils Ašeradens admitted that tension is building in the job market - workforce resources are gradually depleting, while wages are rising. He mentioned that this could be slowed down by re-emigration—encouraging those who have left Latvia to return—and regional mobility.
“Over 600 emigrants, who for emotional or personal reasons would like to return and work in Latvia, have registered themselves in our database. Local workforce resources have been exhausted, and internal mobility is just part of the solution. We have to orient ourselves towards people who have left Latvia. Both business owners and the government have to develop more active communication with these people,” said founder of work and information site Yourmove.lv, Reinis Znotiņš.
Citadele Bank Board Member Santa Purgaile mentioned that growth in wages is not the only solution to workforce problems, asking people to look at this as a more complex issue: “Of course wages are important to people, but other factors including work environment, meaningful employment, workplace stability, social security, and whether the necessary infrastructure - transport to their place of work, schools for their children - is close to where people live, are also important. Regarding re-emigration, it is also important that our educational institutions give the children of re-emigrated Latvians the chance to adapt and develop their Latvian language skills.”
The Minister emphasised that, finally, local councils have formed mechanisms which are beginning to work successfully in giving information and assistance to those who wish to return and work in Latvia.
How much should be paid in wages?
Citadele Bank economist Mārtiņš Āboliņš, in answer to a question regarding how much employers should be paying in wages to hold on to their employees, said: “In the Riga region, where last year, finally, the balance of migration was neutral, meaning that around the same number emigrated as returned, the average wage was over 1,000 Euro per month before taxes. Meanwhile, for those working between the ages of 30 and 40, the average wage was around 1,200 Euro. So it would be difficult to keep employees in the Riga region with a smaller wage. Outside of Riga, there are still more emigrants than those returning, because the average wage has not yet reached the level which would prevent people from moving away. At the same time, business owners outside of Riga mention more often than business owners in Riga that an increase in wages would not only decrease the business’ profit, but also threaten its operation; therefore without investment in development it would be difficult to significantly increase wages.”
“Emigrants want to receive at least 1,000 Euro after taxes,” said Reinis Znotiņš, emphasising that the key is communication. “People have to talk about businesses which offer competitive wages and good working conditions. It is just as important to talk about quality of life in Latvia compared with other European countries. For example, renting a two-room apartment in London is around 4.3 times more expensive than renting a similar property in Riga. That’s why wages must be looked at in the context of the place where you live. I would suggest that employers use these kinds of statistics more effectively, explaining the decrease in wages that should be taken into account when returning to Latvia. Unfortunately, a large proportion of employers don’t go into these things. Also, talking about wages - some emigrants are surprised when we inform them of work opportunities and wages in Latvia, because they often believe that wages remain at the levels they were at during the financial crisis.”
The Minister of Economics admitted that the migration problem in this country will be solved when wages are more than 1,400 Euro per month, which is the minimum wage level in the emigrant target countries.
How can we be competitive?
Arvils Ašeradens mentioned that, in Latvia, productivity in most industries is significantly behind the EU average: “There is a big gap between expenses and productivity, and wages are rising faster than productivity. Latvia is losing its competitiveness in low expense sectors. Business owners have saved up experience and capital; now the next step needs to be taken. They have to begin restructuring their operations to high added value products and services. Just as crucial is investing in training. Business owners must unite, create the necessary programmes to train people, and provide themselves with employees. The government is ready to help and finance this.”
Head of road construction organisation Igate and wooden pallet manufacturer and exporter Marko KEA, Māris Peilāns, emphasises the importance of the state making sure that Latvian businesses remain competitive with the businesses of other countries in the export market, and therefore able to pay more in wages to its employees and more taxes to the state. Currently, raw material and workforce expenses are two positions in which Latvian businesses can compete. Other expenses, such as fuel, electricity, taxes and availability of equipment, are similar to other European countries or even more expensive, with quality—of gas, for example—being worse.
“In investing over a million Euro into automated wooden pallet manufacturing equipment, we reduced our number of employees from 15 to 4. This meant we could produce high-quality products and provide our employees with a wage two to three times larger than our competition. And for the five years since we invested in equipment, we have been working without profit. Manufacturing businesses have a dilemma ahead and must choose whether to invest in equipment or increase wages. They can’t do both.”
At the same time, he mentioned that “there will always be businesses where not everything can be mechanised or automated. In these, there will always be a need for a less-qualified workforce with limited wage opportunities. That’s why we are learning from European experience and importing our workforce, leaving our own people for higher-qualified jobs. It must also be said that not enough people are being born here.”
Māris Peilāns encouraged the government and politicians to reduce obstacles for the use of guest workers for less-qualified work. “When moving abroad, Latvians are willing to work more and at lower-skilled jobs. They are not willing to do this in Latvia, because they would earn much more abroad doing those jobs. That’s why we need guest workers from, for example, Ukraine or Belarus, who would be willing to do this work here. Poland, our competition in the export market, has already opened their market up to guest workers. We have been working for four months to attract employees from Ukraine, but the current political situation forbids this.”
The Minister of Economics mentioned that the government had taken the decision not to open up the job market to the so-called cheap workforce, but admitted that sooner or later they would have to return to this issue. Currently, Latvian business owners can more easily attract highly qualified overseas experts.
About Citadele Index
The Citadele Index survey is done in collaboration with research centre SKDS in the spring of 2018, surveying the heads of 750 businesses operating in Latvia.