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OECD Reviews of Labour Market and Social Policies: Latvia 2016

image of OECD Reviews of Labour Market and Social Policies: Latvia 2016

Latvia has undergone major economic and social change since the early 1990s. Despite an exceptionally deep recession following the global financial crisis, impressive economic growth over the past two decades has narrowed income and productivity gaps relative to comparator countries in the OECD. But Latvians report low degrees of life satisfaction, very large numbers of Latvians have left the country, and growth has not been inclusive. A volatile economy and very large income disparities create pressing needs for more effective social and labour-market policies. The government’s reform programme rightly acknowledges inequality as a key challenge. However, without sustained policy efforts and adequate resources, there is a risk that productivity and income growth could remain below potential and social cohesion could be further weakened by high or rising inequality.

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A more productive labour force in Latvia

With a challenging demographic outlook, future growth prospects rest on Latvia’s ability to make the most of its available human resources. Although labour productivity has increased significantly since 2000, a number of structural barriers slow a further narrowing of the remaining gap relative to well-performing OECD countries. Factors that hold back Latvia’s productivity growth include a very sizable shadow economy, long-term joblessness, as well as significant skills shortages and mismatch. To tackle productivity barriers and reduce labour market inequality, active labour market policies should be strengthened and upskilling strategies should be more directly linked with the needs of employers. Efforts to curb informality and under-reporting of earnings should be maintained and stepped up further, including by reviewing a range of regulatory provisions that may push some groups of workers into informal employment.

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