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OECD Reviews of Labour Market and Social Policies: Lithuania

image of OECD Reviews of Labour Market and Social Policies: Lithuania

Lithuania 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 comparable countries in the OECD. But Lithuania faces a massive demographic challenge, mostly as a result of large and persistent emigration driven primarily by low wages and poor working conditions. Income inequality is also very high, and households at the bottom of the income distribution have recently benefited very little from the recovery. Major reforms of the labour code, the unemployment insurance system, employment policies and pensions were recently undertaken within the New Social Model to improve labour maket adaptibility and income security. This report provides comprehensive analysis of Lithuania’s policies and practices compared with best practice in the field of labour, social and migration from the OECD countries. It contains several recommendations to tackle key challenges facing Lithuania. This report will be of interest in Lithuania as well as other countries looking to promote a more inclusive economy.

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Towards a more inclusive labour market in Lithuania

Labour market outcomes have improved on many counts since the crisis, but employment opportunities remain depressed for some groups and job quality is often low. New legislation passed as part of the New Social Model significantly reformed labour institutions. Lithuania considerably liberalised employment protection for permanent and non-standard contracts, which reduces incentives for informal employment but risks further lowering job quality. Continuous reforms to labour inspection have improved its effectiveness, but further progress in labour law enforcement is needed, notably in the form of higher sanctions in case of violations. To ensure the balance between flexibility and worker protection, the currently weak social dialogue needs to be strengthened. Spending on active labour market policies should be increased. This would permit intensifying the support to needy jobseekers and raising participation in well-designed training programmes to better respond to the large upskilling needs. Many recent initiatives aim at reducing skill mismatch, but financial incentives for vocational training – and employer-provided training more largely – need to be further developed.

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