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20 June 2018

Lithuania: employment obstacles and how to improve the labour market participation

With a weak social protection system and high social inequalities, Lithuania has been recommended, by both the European Commissions and the OECD, to work towards boosting the living standards. Moreover, the capacity of social partners to play their role in the functioning of the labour market is seen as of the utmost importance.

Lithuania faces a massive demographic challenge, with the population having declined by more than 1% annually since the early 2000s – mostly a result of large and persistent emigration, driven primarily by low domestic wages and poor working conditions. Despite economic growth over the past two decades that has narrowed income and productivity gaps, income inequality remains very high, and households at the bottom of the income distribution have benefited little from the recovery.

Labour market participation in Lithuania was, in the aftermath of the financial and economic crisis, for a long time very weak. Large shares of working-age people either did not work or did so only to a limited extent. By 2013, several years after the start of the labour-market recovery, 21% were still without employment during the entire year, and a further 11% had weak labour-market attachment, working only a fraction of the year, or on restricted working hours. A paper, published by the OECD in June 2018, describes the current employment obstacles under three broad headings: (i) work-related capabilities, (ii) incentives, and (iii) employment opportunities. The resulting typology of labour-market difficulties provides insights into the most pressing policy priorities in supporting different groups into employment. A notable finding is that just over one third of jobless or low-intensity workers face three, or even more, of these barriers, simultaneously - an argument not to treat individual obstacles to employment in isolation.

Moreover, the social protection system is weak, and the threat of old-age poverty is permanent. One of the key challenges for the near future will be providing employment opportunities to all groups and raising job quality, combined with social policies that effectively reduce high inequalities in society and boost the living standards of precarious and vulnerable parts of the population. These proposals have been brought forward in the OECD’s issue for Lithuania in the series ‘Reviews of Labour Market and Social Policies’.

There are contradictory developments in the labour market, however, with the number of employed persons falling by 0.5% in 2017, even though the employment rate has reached a record-high and unemployment fell. This trend is forecast to continue in 2018 and 2019, with demand for labour expected to remain strong and the unemployment rate expected to remain below 7% over the forecast horizon. According to analyses of the European Commission, low- and medium- skilled have workers have disproportionally fewer labour market opportunities compared to the highly-skilled, although this trend has slowed in the last 10 years. To some extent, skills mismatches and labour shortages can be linked to emigration, unfavourable working conditions and demographic trends (including ageing), but they also underscore the need to improve the quality and labour market relevance of the country’s education system. The European Commission also underlines the importance of social dialogue that can help to strengthen the functioning of the labour market. Therefore, it is necessary to invest in building the capacity of the social partners and promote and support collective bargaining at sectoral and territorial levels, the Commission argues.

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