OREANDA-NEWS. April 19, 2011. During the economic recession, the unemployment rate in Lithuania increased more than four times and reached record levels: almost every fifth individual willing and able to work is currently unable to find a job. Of particular concern is the steadily growing number of long-term unemployed, which may have detrimental economic and social consequences and become the greatest threat to the future growth of the Lithuanian economy, reported the press-centre of Nordea.
 
The private sector is the major employer in Lithuania today, and now has somewhat less than one million employees. The public sector, which currently has approximately 400,000 employees, also plays a key role in the labour market. However, the Government’s plans for balancing the national budget do not allow for any increase in the number of public sector employees in the near future, which means that the unemployment rate in the immediate future will be determined, to a great extent, by the potential to create new jobs demonstrated by the private sector. 

In the years 2001–2007, i.e. during economic growth, the private sector created 234,000 new jobs. However, the contributions of individual economic sectors to the decrease in the unemployment rate were different. With the increasing national consumption and developing trade, the service sector created 179,000 new jobs by actively hiring the population born during the ‘demographic explosion’ of the 1980s. The production sector (agriculture, industry, and construction) also raised the employment rate, although at a somewhat slower pace: over the period in question, this sector created 55,000 jobs.    

The construction sector, which was experiencing its ‘golden age’, was most active in creating new jobs by poaching employees from the agricultural sector, which was undergoing rapid modernisation and no longer required as much manual work as before, and inviting some of the industrial workers who had lost their jobs after the dissolution of the USSR (in 1992–1998, the number of workers in the industrial sector dropped from 400,000 to 250,000). The industrial sector found it hard to create new jobs: the number of employees only increased by some 38,000.    

Structural changes in the Lithuanian labour market

Certain structural changes in the Lithuanian labour market became manifest during the economic recession. These are characterised by a shrinking number of employees in the production sector and a growing number of employees in the service sector. From 2007 to 2010, the number of employees in the private sector dropped by 186,000, of which every fourth employee worked in production and only one worked in the service sector. These changes on the labour market determined that by the end of 2008 the service sector became the major employer in Lithuania and the situation is unlikely to change in the near future: in 2010, the number employed in the service sector increased by 22,000, while the number employed in the production and public sectors decreased by 17,000 and 21,000 respectively. The overall decrease in the number of employees in the production sector was, to a great extent, determined by the recession of the construction sector, while the number of employees in the industrial sector during the economic recession also dropped considerably and was the lowest since Lithuania regained independence.
 
Industry: between modernisation and emigration

During the period of economic growth, traditional industries (food, textiles, and wood processing) cut their number of employees or increased them only slightly. This behaviour was due to increased competition on international markets, which resulted in the need for these companies, in order to cut production costs, to either upgrade their production processes by transferring an increased share of the work to the ‘hands of robots’ or to transfer their production to countries offering a cheaper labour force. For instance, over ten years, the number of people employed in the textile industry more than halved due to increasing competitive pressure from Asian manufacturers. If we assume that no second Luddite movement will occur in Lithuania and that Asian countries will continue to export their products to the EU, the number of employees in the traditional sectors is unlikely to undergo rapid growth.      

During the period of economic growth, hi-tech and medium-tech companies increased their payroll but the bankruptcies of several major companies have determined that this growth was far from rapid. The economic recession that followed only destroyed all the gains of this sector.  
In order for this sector to develop in Lithuania, huge challenges are underway because Lithuanian companies must compete not only with technologically advanced companies of the old world but also with the aggressively growing new economies. For instance, China creates over 2 million jobs in this sector per year (mostly in the production of computers, electronic equipment, and vehicles).

Construction sector: after the end of the ‘golden age’ 

During the period of economic growth, people who lost their jobs in the industrial and agricultural sectors migrated to the construction sector, which used to absorb a great number of these inter-sector economic migrants like a sponge. However, the freezing of the real estate market that started in 2008 not only stopped this flow of migration but also left considerable numbers of construction sector employees without a job. Considering that 90% of the workforce in the construction sector is made up of males, these labour market changes have significantly impacted the employment rate among men, which at the beginning of 2010 rose to 23% and was almost twice as high as that among women. It is the construction sector that can be considered the greatest culprit of the increased unemployment rate, in which the number of employees over the two years of the recession has almost halved, while the continuing recession in the construction sector itself has led the number of employees remaining at a record low in 2010.

Great challenges await these unemployed in the future because, due to the slow creation of new jobs in the industrial and agricultural sectors, inter-sector migration to these sectors is unlikely to be rapid and no second ‘golden age’ of the construction sector is likely to happen in the near future. Historic experience shows that, following the end of a construction boom, the rate of unemployment remains high for some time. In Finland, for instance, where the unemployment rate grew to 17% at the beginning of the 1990s, it only reduced to single digits seven years later.
Service sector: the Eldorado of the labour market?

The number of people employed in the service sector continues to show moderate growth, although the jobs created in the sector do not compensate for the number of jobs lost in the production sector. Furthermore, a number of service companies are dependent on or directly service industrial companies, which means that a strong national industry (not necessarily one that creates numerous jobs) is an important factor ensuring sustainable growth of the number of employees in the service sector. This is perfectly demonstrated by the experience of EU countries, since it is the countries which have strong industries (such as Germany, Netherlands, and Austria) that can boast a low rate of unemployment, while the countries that do not have a strong industrial basis (such as Spain and Greece) suffer from systemic unemployment. Lithuania, which does not have a strong industrial sector, will find it hard to develop a domestically-oriented service sector, which is why most hopes should be vested in the transport sector and the successfully developing IT service export sector.

Where do workers disappear? 

Our assessment of the structural changes on the Lithuanian labour market shows that the most effective ways to combat unemployment include the encouragement of investment in industries which create new jobs (e.g. development of industrial parks), encouragement of activity in the construction sector (e.g. renovation of apartment buildings), and worker requalification from production to service workers (e.g. from the construction to the transport sector). Otherwise, if no positive changes occur on the labour market, production sector workers may well turn inter-sector migration into inter-state migration by showing preference for German and other Western European companies. In 2010 alone, 6.2% of 20–35-year-old workers officially emigrated from Lithuania, while over the past 10 years nearly one-sixth of the population of the same age left the country.