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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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Responding to the decline of Latvia's population

Latvia’s population is declining at a rapid pace due to ageing and very high emigration. Emigration has slowed after peaking during the recent economic crisis, but continues to exceed natural population decrease and has been higher than in any OECD country over the past decade. The working-age population has also been shrinking faster than in any OECD country, and the old-age dependency ratio is expected to increase by some 20% over the next decade. Approximately 12% of Latvian-born people now live abroad and many of them are unlikely to come back. To stem the negative impact of falling population numbers on economic progress and social cohesion, Latvia should invest significant additional efforts to strengthen links with Latvians abroad, retain talent in Latvia, actively target labour migrants to help address skills shortages, and review existing barriers to labour migration, such as formal language requirements.

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