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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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Reinforcing Latvia's active social policies

Major reforms of social protection policies in the 1990s addressed the pressing fiscal challenges arising from a relatively generous social protection system during the transition to a market economy. The reforms also aimed to strengthen work and reporting incentives by introducing strong links between earnings histories and support entitlements. Today, Latvia’s weakly redistributive government taxes and transfers are one reason why income inequality is significantly higher than in most OECD countries. Public perception echoes the limited effectiveness of government policies in this area, and making social protection more effective and adequately resourced should become a more central element of the government’s inclusive growth strategy. Volatile economic growth and periods of substantial long-term unemployment underline the role of needsbased assistance benefits and associated services as essential complements to contribution-based social provisions. Unemployment benefits for active job seekers should be made more accessible, and a comprehensive review should analyse the consequences of the expected pensions gap for poverty and income adequacy during old age.

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