Bank of Lithuania, Secure Nordic, project, Commission, SEB

Inevitable shifts in Lithuania’s labour market: demographic decline, migration and technological change

Persistent adverse demographic trends, technological advancements and migration-led regional disparities – these are the challenges facing the Lithuanian labour market, the solution to which will underpin our future jobs and welfare. Today the Bank of Lithuania hosts its annual economics conference that has brought together national and foreign experts to identify the most sensitive issues of the labour market, share best practices and offer solutions.

“Our labour market is one of the most bled dry in the European Union. Over the past 20 years, the working age population in Lithuania has shrunk by nearly 25%. If no significant changes are made, over the next decade declines in labour supply will be comparable to the current size of the working population in Klaipėda and Šiauliai combined,” said Vitas Vasiliauskas, Chairman of the Board of the Bank of Lithuania.

According to him, dwindling labour supply might lead to increasing tensions in the labour market, unsustainable wage growth, loss of competitiveness and more restrictions to business expansion. This, in turn, may slow down economic growth and have negative repercussions for public finances. Nonetheless, net migration, which after several decades has turned positive, helps tackle the shortage of workers at least in part.

“If the flows of migration remain broadly unchanged by the end of the year, 2019 will be the first year since the restoration of independence that people coming to live in Lithuania will outnumber those leaving. This will help reduce pressure in the country’s labour market. However, apart from the benefits of higher immigration, we must also consider the potential challenges,” Vasiliauskas stated.

According to the Chairman of the Board, the country needs long-term and far-sighted migration policy in order to reap the maximum benefit from immigration.

One of the opportunities for the decreasing and ageing population, which, at the same time, represents one of the threats, concerns technological progress and accelerated development of human-performed task automation. Automation brings on higher productivity and might help battle challenges posed by the decreasing labour supply in Lithuania. However, people whose jobs will be taken over by robots and machines will have to retrain and acquire new skills in order to be able to have access to more highly qualified jobs. According to OECD calculations, roughly a third of the workforce in Lithuania already falls into the category of skills mismatch. Therefore, Lithuania should move towards a system of education that would be flexible and focused on life-long learning, both formal and informal, including adult education and effective retraining. This is the only way to get people ready for rapid structural changes. Otherwise, income inequality will keep growing, underpinned by marginalisation driven by technological progress.

Increasing changes to the nature of work and labour needs, which are brought about by technological developments, are accompanied by growing exclusion in the country’s peripheral regions as well-paid jobs are largely created in metropolitan areas, which then attract the best talents from rural areas. The conference will also tackle potential solutions to regional disparities, ranging from targeted ¬regional policies to focusing exclusively on larger cities.

*** Labour Market in the 21st Century:

The Way Forward is the third annual economics conference held by the Bank of Lithuania. The conference aims to bring together national and foreign experts, representatives from academia and business to discuss the most pressing issues and key risks as well as suggest possible solutions to policymakers. The first conference focused on issues pertaining to income inequality. Last year, discussions centred on ways to create a sustainable pension system that would seem trustworthy not only to its creators but also the people of Lithuania. This year’s conference is devoted to challenges of the labour market and will see a range of speakers from the Bank of Lithuania, the Government’s Strategic Analysis Centre, the Organisation for Economic Cooperation and Development, Invest Lithuania, the Lithuanian Social Research Centre, Harvard University, the University of Bremen and the University of Warsaw.