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Economic Diary. Latvia Week 29 of 2012

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Two very unpleasant things became known this week. Firstly, State Auditor Induna Sudraba uncovered that the Finance Ministry is being awfully generous with the salaries of its workers. Secondly, the Economy Ministry reports that by 2030 there will be plenty of work in Latvia, but no one to actually do it.

Flying asleep and awake

Riga airport welcomed its seven millionth transit passenger, who arrived for only 25 minutes. A man from Nepal became the hero of the day: he stopped in Riga during his transit flight from Munich to Helsinki. The young man was given a free ticket for business class, a sport bag and sneakers. But the joy was spoiled by numbers: passenger flow declined in the first six months of 2012, compared with the same period of 2011. The airport’s statistics are worsening, without doing into too much detail, because of the restructuring of the national airBaltic airline, which ensures the capital 63.8% of all new arrivals/departures.

Meanwhile, corporate communications Vice-President of airBaltic Janis Vanags explains: «Before 2008, transit passengers made up only 10% of the total number of passengers. Local client numbers started decreasing shortly after the crisis – especially in terms of those passengers that arrive in Riga only to be transported to another airplane and travel further. As a result their proportion increased: 6-7 serviced passengers were transit passengers. Their current numbers decreased to 50%».

Last year, Riga airport serviced a total of 5.1 million passengers, including 1.9 million transit passengers.

Economy should not be economical

State Auditor Inguna Sudraba called the worker compensation system of the Finance Ministry (FM) unfair – considering that it is an institution that is meant to be an example of economy and carefulness in spending public money. The attention of the department of the FM caught this irregularity in May: salaries became «heavier» compared with 2011 by 23%, up to 731.2 thousand LVL. The increase of expenses was explained with the necessity to guarantee remuneration to the personnel that would be equal to that of other ministries. In its report the State Auditor’s office states: in 2010, the average salary in the central apparatus of the institution was 1 047 LVL, while the average index among state institutions was only 471 LVL, and 512 LVL in the third quarter of 2011.

Not only the amount caught the State Auditor’s attention, but also how this money is being distributed. Every fourth worker received overtime, and 44% of the personnel were issued added bonuses for the quality of work. In its audit report the State Auditor’s office notes: the institution’s practice is clearly against the unified work payment system in the government sector. Officials there can receive significantly more money than their colleagues of the same rank in other institutions.

The ministry itself denies these accusations. Its representative – Aleksis Jarockis – claims that the worker compensation system of the central apparatus does not violate normative regulations. According to him, the institution needs qualified workers and the compensation system was reworked specifically to ensure them their appropriate pay. This is why the increase of the earnings of FM workers did not impact the general volume of costs.

Who is the slowest here now?

Estonia is planning on reducing the rate of insurance deposits on unemployment from 4.2% to 3%. Keeping in mind the sluggishness of the Latvian government, the decrease of the tax pressure on workforce in our neighbouring country could lead to a massive outflow of business from Latvia, experts believe. A lighter regime had been active in Estonia in the period from June to August 2009 (during the economic boom the general payment size was merely 0.9%). Talks have been going on about rate reduction in Lithuania as well. Algirdas Semeta, ex-Finance Minister of Lithuania and the current European Commissioner for Taxation and Customs Union, openly mentioned this recently.

According to Eurostat agency data, the general low-income workforce tax is 43.3% in Latvia, 39.7% in Estonia and 38.3% in Lithuania. «If we fall behind Estonia in tax reduction rates, companies from urban areas will re-register in our neighbouring country. People from Valka will register in Valga, and the Estonian budget will receive additional funds,»- warns the Vice-President of the Latvian Chamber of Commerce and Industry Lienite Caune.

Personnel solve everything

The FM analysed the situation in Latvia regarding work reserves and compiled a projection for the nearest two decades until 2030. If this document is to be believed, unemployment rate throughout the country will reduce to 5.5% – even lower than in the «bellowing» 2007, when the most severe personnel deficit was present in all industries and this index was 6.1%. Reserves will also be depleted by then: if now there are 51% of the entire working population «on active duty», after 18 years 65% will be active. When analysing the situation industry by industry, the ministry discovered that there will mainly be a deficit of operators of machines and equipment, technicians, skilled workers and craftsmen, as well as semi-skilled professionals, in agriculture, metalworking, and electronics in 2030.

When commenting on the situation, Daniels Pavluts noted: there will be a significant increase of the role of high added value industries, aiming at export. On the one hand, these tendencies invoke optimism, on the other hand – they note the necessity for structural change on the job market. «According to our projections, the largest personnel deficit could be present in engineering industries, information and communication technology, different spheres of healthcare. Meanwhile, every tenth graduate of judicial and economic faculty will have to work in a field different to what they finished. Those with diplomas in humanitarian sciences, art and pedagogy should expect the same,»- Pavluts says.

Complex measures are necessary to avoid a serious misbalance in the next 5-10 years, measures that would ensure a reform in the sphere of education with an emphasis on preparing specialists in required fields, as well as the opportunity to increase the qualification or re-profiling for people that have lost their jobs.


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