An Assessment of Post-Crisis Policy Options
While economic recovery has begun in Latvia, labor market demand has yet to rebound, unemployment remains stubbornly high, and labor market participation is lower than before the economic crisis. Given the increasingly aged and shrinking population, increased labor participation and labor productivity are critical challenges for growth in the country. Consequently, policies to combat long-term unemployment and to draw people into the workforce are crucial elements of the Government's long-term strategy.
During the economic crisis, social safety nets expanded in Latvia, unlike in some other countries with large austerity programs. Recent data suggests that there has been an increase in real spending on means-tested programs, such as housing benefits and the Guaranteed Minimum Income (GMI) program. This represents a reversal in the decline of the GMI program during 2004 and 2008, when both the number of beneficiaries and spending dropped to particularly low levels.
As Latvia enters the recovery stage following the economic crisis, extensive research is being undertaken to look at policy options for the country. Along with the United Kingdom, the Netherlands, and Nordic countries, Latvia is using detailed individual-level administrative data for evidence-based policy analysis.
In Riga on 15 May, the World Bank, together with the Ministry of Welfare, presented summary findings and policy options (PDF) for Latvia based on a recent study:
- In Latvia, the majority of people without work, or with unstable work, includes people in the 50+ age group, poorly-educated youth, and mothers with household responsibilities.
- There is no evidence of large-scale dependence on social welfare benefits. However, benefit programs are not generous and have low coverage.
- 40% of beneficiaries access minimum income benefits only once and for a short period of time: such benefits act as a stop-gap for many people, and not a permanent income source. Therefore, the adequacy of benefit levels and coverage are a concern.
- Spending on means-tested benefit programs is low.
- The tax and benefit system could be modified and made more generous for low-income households.
- A more gradual phasing-out of benefits is recommended rather than the current system where minimum income recipients lose 1 Lat in benefits for each additional Lat they earn.
Following the presentation of the study's summary findings, the Minister of Welfare, Ilze Viņķele, and State Secretary, Ieva Jaunzeme, put forward a policy timetable to address some of those findings.
The full results of the study will be presented by the Government of Latvia and the World Bank during a conference in Riga on 3-4 June, 2013.