OECD Skills Strategy Latvia

Assessment and Recommendations

Report

OECD Skills Studies

19 December 2019

4. Reducing skills imbalances in the labour market

Abstract

Reducing skills imbalances in the labour market could lower hiring costs, increase productivity, and improve the ability of firms to innovate and adopt new technologies. This chapter assesses skills imbalances in Latvia and presents three opportunities to reduce skills imbalances: 1) strengthening the responsiveness of the tertiary education system to changing skills demand; 2) retaining talent in Latvia by stimulating sustainable wage growth and improving working conditions; and 3) facilitating internal mobility and attracting skilled workers from abroad.

Introduction: The importance of reducing skills imbalances in the labour market

A skills imbalance is a misalignment between the demand and supply of skills in an economy, and can involve skills shortages and skills mismatches. Skills shortages refer to a disequilibrium condition in which the demand for a specific type of skill exceeds its supply in the labour market at the prevailing market wage rate. In the opposite scenario, skill surpluses arise when the supply of a specific type of skill exceeds its demand in the labour market. Skills mismatch describes situations where the skills of workers exceed (over-skilling) or fall short (under-skilling) of those required for the job under current market conditions (Shah and Burke, 2005[1]; OECD, 2017[2]). Mismatch can be measured along different dimensions, including skills, qualifications and field of study.

Skills imbalances imply costs for individuals, firms and the economy as a whole. Firms experiencing skills shortages may be constrained in their ability to innovate and adopt new technologies, thus reducing their productivity. While over-qualification can sometimes have a positive effect on firm productivity in certain working environments, such as firms in high-tech or knowledge intensive industries (see Mahy et al. (2015[3])), it is often found to negatively influence firm productivity (Tsang, 1987[4]). The effect of under-qualification on firm productivity is also generally found to be negative. Skills mismatch has negative impacts for individuals, including a higher risk of unemployment, lower wages and lower job satisfaction. OECD evidence suggests that higher skills mismatch is associated with lower labour productivity through a misallocation of workers to jobs (Adalet McGowan and Andrews, 2015[5]).

As the skills needed in the labour market continue to undergo changes due to globalisation, digitalisation and demographic change, reducing skills imbalances remains a pressing policy priority. In Latvia, the emigration of highly educated workers is a significant challenge and has contributed to skills shortages. Most employers report that skills shortages are a major obstacle to long-term investment decisions (EIB, 2017[6]). These shortages appear particularly acute in science, technology, engineering and mathematics (STEM). The share of Latvian workers who are under-skilled for their jobs is high by international standards, and 18% of workers are under-qualified (compared to 12% who are over-qualified). Depopulation may push employers to hire workers who do not have the skills or qualifications necessary for the job because they cannot find workers who do. Addressing skills imbalances has been a key challenge for Latvia in recent years, and has been highlighted in several national policy planning documents (Latvia2030, NDP2020, Guidelines on National Industrial Policy for 2014-2010; see Annex Table 1.B.1 in Chapter 1).

This chapter provides an overview of the key players involved in addressing skills imbalances, as well as a snapshot of Latvia’s current performance regarding skills shortages and mismatch. It discusses three opportunities to reduce skills imbalances: 1) strengthening the responsiveness of the tertiary education system to changing skills demand; 2) retaining talent in Latvia by stimulating sustainable wage growth and improving working conditions; and 3) facilitating internal mobility and attracting skilled workers from abroad.

Latvia’s efforts in reducing skills imbalances: overview and recent performance

Overview of the key players involved in addressing skills imbalances

Addressing skills imbalances involves a multi-pronged approach that requires the involvement of a wide range of stakeholders across levels of government and policy domains. The overall governance of Latvia’s skills system is discussed in more detail in Chapter 5, but it is worth noting here the key players involved in addressing skills imbalances in Latvia. The State Employment Agency (SEA) matches jobseekers with jobs and provides them with training opportunities. In education policy, sectoral expert councils (SEC), composed of representatives of employer organisations and trade unions, foster responsiveness between the vocational education and training (VET) curriculum and labour market demand. The State Education Development Agency provides career guidance services in general and VET schools, helping to inform students about which skills are in demand. Various stakeholders, including the Ministry of Education and Science, the State Education Development Agency, the Ministry of Welfare, the Ministry of Economics, social partners and municipalities, are responsible for the system of adult learning, which is an important element in bringing skills supply in line with skills demand (more details in Chapter 3). Finally, the Office of Citizenship and Migration Affairs is responsible for the implementation of migration policy, which can help to address skills shortages by attracting skilled workers from abroad.

Overview of Latvia’s performance

Latvia’s labour market has tightened in recent years, and job vacancies now exceed the number of jobseekers. High emigration and population ageing have contributed to rising labour and skills shortages. Skills shortages are concentrated in urban areas, particularly the Riga region where 80% of all job vacancies are located. While shortages are currently evident in high-skilled/cognitive occupations, by 2025 shortages are projected to be most severe in occupations that require a vocational secondary education, including those in engineering and manufacturing, and the construction and processing sectors. Shortages are also projected in certain occupations that require a tertiary level education, particularly those in STEM and health and social welfare. Compared to other OECD countries, the share of workers in Latvia who are under-skilled for their jobs is high, and more workers are under-qualified than over-qualified. Low job quality in terms of wages and working conditions creates incentives for skilled workers to seek opportunities abroad.

Skills shortages in Latvia

Latvia’s economy has been in recovery following a severe recession during which the unemployment rate reached 19.5% of the total labour force in 2010. In 2018, the unemployment rate was 7.4%, which is an improvement, but still higher than before the financial crisis (6.1% in 2007) and above the EU and OECD averages (6.8% and 5.3%, respectively). The Beveridge curve, which describes the relationship between the unemployment rate and the job vacancy rate, has shifted outwards since 2008 (Figure 4.1). This outward shift – caused by the job vacancy rate rising above pre-crisis levels while the unemployment rate has not yet returned to pre-crisis levels – could point to a misalignment between the characteristics of jobseekers and those that employers seek. According to the Ministry of Economics, the outward shift is mainly explained by regional differences in the Latvian labour market and low internal labour mobility (Ministry of Economics, 2018[7]).

Global trends such as technological change and globalisation contribute to skills shortages by transforming the demand and supply of skills. Technological change raises demand for knowledge and skills that complement new technologies, while at the same time reducing demand for human labour to perform routine tasks, as these tasks can be easily codified and therefore performed more cheaply by machines and computers. Globalisation is also having a profound impact on the skills needed in the labour market, as greater integration in global value chains contributes to growing demand for the skills needed to specialise in high-tech manufacturing industries and complex business services. In Latvia, the share of business sector jobs sustained by consumers in foreign markets (a measure of global value chain integration) increased from 35% in 2004 to 43% in 2014, suggesting that Latvia is affected by this trend.

In addition to globalisation and technological change, demographic factors are key to explaining current skills shortages in Latvia. Over the past 20 years the population has fallen by 20% due to population ageing and high levels of emigration (OECD, 2016[8]; Ministry of Economics, 2018[7]). The Ministry of Economics forecasts that the population will continue to decline in the medium and long term, with the working-age population declining faster than the total population (Ministry of Economics, 2018[7]). This declining working-age population contributes to both labour shortages and skills shortages in Latvia, as emigrants, especially the most recent, are more highly educated on average than the resident population (OECD, 2013[9]; Hazans, 2017[10]). Latvia has one of the highest rates of emigration in Europe (Figure 4.2, Panel A), and brain drain is also high (Figure 4.3). In 2015/2016, some 11% of Latvian-born people age 15 and older with tertiary level education lived outside of Latvia (OECD, n.d.[11]). Emigration flows have been in decline since their peak in 2010, and have nearly returned to pre-crisis levels: 1% of the working-age population emigrated in 2018, compared with 0.8% in 2007 (Figure 4.2, Panel B).

Figure 4.1. Beveridge curve for Latvia, Q1 2008 to Q3 2018

Figure 4.3. Brain drain in Latvia and other OECD countries

Share of the tertiary educated population living outside of Latvia, 2015-2016

Skills shortages have increased in recent years in Latvia. One indicator of skills shortages is the job vacancy to unemployment ratio, which has risen between 2009 and 2018 (Hazans, 2017[10]). In addition, according to an EU-wide survey of firms, 76% of employers in Latvia reported that trouble finding staff with the right skills was a major obstacle to long-term investment decisions in 2017 (much higher than 47% on average across countries for which data are available) (EIB, 2017[6]). This represents an increase since 2016 (66%). Firms in the services sector were most likely to report skills shortages as a major obstacle to investment (90%), followed by construction (86%) and manufacturing (77%).

Latvia currently supports more high-skilled jobs than medium- or low-skilled jobs (Figure 4.4). About 40% of employment is in high-skilled/cognitive occupations (managers, professionals, technicians and associate professionals), while 31% and 28% of employment is in medium-skilled/routine and low-skilled/manual occupations, respectively (Figure 4.4). On the whole, there appears to be a shortfall of workers with a tertiary education to fill high-skilled jobs (Figure 4.4, Panel B). This assessment is consistent with research commissioned by the State Employment Agency (RAIT Custom Research Baltic, 2019[16]), which found that employers most frequently report the lack of qualified specialists as the primary reason for not filling long-term vacancies, and that such shortages are most severe in cognitive occupations (managers, senior specialists, and professionals). According to analysis from the European Centre for the Development of Vocational Training (Cedefop), Latvia faces shortages in several high-skilled occupations, including engineers, ICT professionals, health professionals, top managers, and business and administration professionals. This analysis also finds that Latvia faces short-term shortages in low-skilled agricultural occupations, though demand for agricultural jobs is declining, and shortages are mostly due to replacement demand as the labour force ages. Surpluses are observed in building frame and related trades workers, personal service workers, sales workers, protective services workers, and secretaries and clerks (Cedefop, 2016[17]).

Although policy efforts to make vocational pathways more attractive have increased the proportion of young people continuing their vocational education, forecasts by the Ministry of Economics (Ministry of Economics, 2018[7]) suggest that by 2025, skills shortages will be largest among medium-skilled occupations requiring a vocational secondary education (Figure 4.5, Panel A). There will be shortages in practically all fields, but especially in engineering, manufacturing, and construction (Ministry of Economics (2018[7]), data not shown). The 2018 forecasts project shortages of 31 000 workers, which is lower than the 2016 forecasts of 41 000 workers, thanks to recent reforms Latvia has made to improve the VET system and make it more attractive (see Chapter 2 for details).

Figure 4.4. Current labour force demand and supply in Latvia

Figure 4.5. Forecasts of labour force demand relative to supply in 2025, Latvia

Based on forecasts from the Ministry of Economics regarding labour market imbalances, demand for workers with a tertiary education is expected to be in balance with supply by 2025 (Figure 4.5, Panel A); although shortages could arise in certain high-skilled occupations, such as those in engineering, manufacturing and construction; life sciences, mathematics and computing; as well as health and social care professionals (Figure 4.5, Panel B). By 2025 it is expected that there will be surpluses among graduates trained in the services, humanities and arts, social sciences, business and law. Even though the share of STEM graduates among total graduates increased from 13% to 20% between 2008 and 2017, the education system is still not producing enough STEM graduates to fill expected job vacancies.

Low-skilled adults with only a primary education or a general secondary education will face large surpluses in the coming years, according to forecasts from the Ministry of Economics (Figure 4.5, Panel A), particularly those working in services and elementary occupations. Currently 9% of the working-age population are only educated to primary education level or have not finished primary education, and this share is not expected to decline (Ministry of Economics, 2018[7]).

The OECD Skills for Jobs database provides an international comparison of shortages and surpluses in specific skills. Figure 4.6 shows the most recent indicators for Latvia, which suggest significant shortages of many types of skills. Skills shortages are evident in the knowledge of engineering and technology, mathematics and engineering, education and training, business and management, communications, and mathematics and sciences. There are also shortages in transversal skills such as verbal abilities, systems skills, quantitative abilities and complex problem solving. Relative to other EU countries, shortages are more pronounced in the knowledge of engineering and technology, and much less severe in health services and education and training. The largest surpluses are for skills in production and processing and building and construction, as well as manual and physical abilities (e.g. endurance, physical strength, flexibility, balance and co-ordination).

Figure 4.6. Skills shortage and surplus, Latvia and EU, 2015

Skills needs indicator

Rising demand for labour during the economic recovery has not been evenly shared across the country. New jobs are generated primarily in the most economically active regions of the country, including the Riga and Pieriga regions, while the largest number of jobseekers are located in less economically active regions, such as Latgale and Zemgale. The registered unemployment rate in the Latgale region is almost four times higher than in the Riga region, where 80% of all job vacancies are located (OECD, 2019[20]; Ministry of Economics, 2018[7]). Such extreme differences in labour market conditions across regions are indicative of barriers to internal labour mobility, which prevent the free movement of labour and skills to the regions where they are most needed.

While the share of unemployed adults who have been looking for a job for a year or longer (the long-term unemployed) has declined over the recovery from 55% in 2011 to 39% in 2017, it is still high (the OECD average was 31% in 2017). Elevated long-term unemployment has contributed to a high share of discouraged workers (inactive persons of working age who no longer seek work because they believe they will not find any). The number of discouraged workers in Latvia has declined since 2010, but remained at 4% of the non-employed working-age population in 2017, which is higher than all OECD countries except for Portugal and Italy (OECD, 2019[20]). The risk of long-term unemployment is particularly high for some vulnerable groups, such as older men, low-educated adults and those living in rural regions (OECD, 2019[20]).

Low wages for tertiary educated employees create strong incentives for emigration, as skilled workers can reap a higher return for their skills investment by leaving the country. Latvia has the highest share of low-wage employment (defined as two-thirds of the median gross hourly earnings) among EU countries (Figure 4.7). Employees without a tertiary degree have a higher risk of being in low-wage employment. However, even among employees with a tertiary degree, 12% earned low wages in 2014, compared with only 6% for the EU average, and only lower than Estonia, Ireland and the Netherlands. Low wages have historically been a source of competitive advantage, and Latvia’s recovery from the global financial crisis took place largely on the back of low labour costs and low-technology manufacturing sectors (Ministry of Economics, 2013[21]).

Figure 4.7. Low-wage earners as a proportion of all employees, Latvia and EU countries, 2014

Share of employees

Mismatch by qualifications and skills

Compared to other OECD countries, the share of workers in Latvia who are under-skilled for their jobs is high, and more workers are under-qualified than over-qualified. At 12%, Latvia’s over-qualification rate in 2016 fell among the lowest third of OECD countries (Figure 4.8). Under-qualification is somewhat higher at 18%, however it still falls among the lowest half of OECD countries. About 35% of Latvian workers are in a field that is different to the one in which they studied (Figure 4.8), which is slightly above the OECD average (32%). Generally, field-of-study mismatch is only associated with wage penalties if combined with over-qualification (Montt, 2015[23]), which is low in Latvia. In terms of having the skills necessary for their job, more Latvians report being over-skilled than under-skilled (Figure 4.8). About 21% of adult employees report being over-skilled for their job, while 10% report being under-skilled, according to Cedefop’s Skills Panorama (Cedefop, 2019[24]). By international comparison, however, this rate of under-skilling is high, and is only higher in Estonia (15%) and Lithuania (12%). High emigration and population ageing may push employers to hire workers who do not have the skills or qualifications necessary for the job, because they cannot find workers who do.

Figure 4.8. Qualification and field-of-study mismatch, Latvia and selected OECD countries, 2016

Share of mismatched workers

Opportunities to improve Latvia’s performance

Addressing skills imbalances involves a multi-pronged approach that includes creating responsive education and training systems, providing effective career guidance, supporting lifelong learning, attracting skilled workers from abroad, retaining talent by promoting job quality and good wages, and developing labour market institutions and policies that support labour mobility and flexibility (OECD, 2019[25]). Based on survey responses from stakeholders, and taking into account the fact that some opportunities for reducing skills imbalances have already been covered in other chapters, the following three opportunities were prioritised for Latvia:

1. Strengthening the responsiveness of the tertiary education system to changing skills demand.

2. Retaining talent in Latvia by stimulating sustainable wage growth and improving working conditions for high-demand occupations.

3. Facilitating internal mobility and attracting skilled workers from abroad.

Opportunity 1: Strengthening the responsiveness of the tertiary education system to changing skills demand

As noted above, Latvia’s tertiary education system does not produce sufficient graduates in STEM fields and health and social welfare, while it produces a surplus of graduates in the humanities, social sciences and the arts (Figure 4.5, Panel B). There are currently fewer STEM specialists being trained than the labour market will require in coming years, although the situation has improved with the proportion of STEM among total graduates increasing from 13% to 20% between 2008 and 2017. Demand for vocational graduates is projected to outstrip supply by 2025 (Ministry of Economics, 2018[7]). For stakeholders participating in the pre-workshop survey carried out as part of this report, the need to make curricula in tertiary education more flexible and adaptable was the top priority in reducing skills imbalances.

Latvia has taken steps to improve the labour market relevance of tertiary education through financial incentives for students and funding mechanisms for institutions. For students, a loan and grant scheme was put in place to incentivise careers in nursing, given persistent shortages in this sector. Students may access loans to study nursing, which they do not have to repay if they work in the field for three years after graduation. The government allocates state budget funded study places to higher education institutions for licensed and accredited study programmes according to a set of criteria developed by the Ministry of Education and Science. These include a measure of the labour market relevance of the study programmes offered (based on supply and demand forecasts from the Ministry of Economics), and whether STEM study programmes are prioritised (to support the government’s goal to raise the current share of total graduates in STEM fields from 20% in 2017 to 27% of total graduates by 2020). Institutions are also rewarded with bonus funding if graduates of teacher training programmes are employed as teachers after graduation. In 2017, 418 of the 473 graduates from teacher training programmes started or continued work as teachers in education institutions. This practice is similar to the more general one employed in Finland, where education institutions receive bonus funding if a graduate goes to work in a profession for which they studied in that institution (OECD, 2017[26]).

There is room for improvement in aligning tertiary education to changing skill needs. Latvia has already taken steps to steer education investments towards in-demand skills through financial incentives and funding mechanisms. Better collaboration between tertiary education institutions and employers is needed, as well as efforts to extend work-based learning opportunities to tertiary education, and to raise awareness about the importance of career guidance among university management.

Fostering collaboration between tertiary education institutions and industry

Fostering collaboration between tertiary education institutions and industry is needed so that students graduate with skills that are relevant to the labour market. During workshops, stakeholders noted that there are insufficient linkages between tertiary education institutions and industry professionals. This is confirmed by evidence from the Community Innovation Survey, which finds that only 7% of employers co-operate with the tertiary education sector in Latvia, among the lowest share of co-operation across surveyed countries (Figure 4.9). Recent OECD work identifies various forms of partnerships that education institutions can establish with industry (OECD, 2018[27]). These partnerships range from formal or mandated roles for social partners in the governance of education institutions (as in Norway, Box 4.1), to less formal involvement, including providing labour market intelligence, supporting programme accreditation, or working with academic staff in the design and review of curricula to ensure they meet labour market needs (as in Australia and Estonia, Box 4.1). Latvia is one of the few OECD countries where social partners are not included in the internal governance boards of tertiary education institutions (OECD, 2019[28]; Borowiecki and Paunov, 2018[29]). Expanding work-based learning into tertiary education and encouraging staff mobility between tertiary institutions and social partners can also enhance the labour market relevance of education programmes.

Figure 4.9. Share of enterprises co-operating with the tertiary education sector or research institutes, 2014

Latvia’s efforts to encourage collaboration between tertiary education institutions and industry have so far focused on quality assurance. Since 1995, employer representatives have been involved in quality assurance panels that are responsible for evaluating the quality of study programmes, partially on the basis of labour market relevance. Panel members conduct interviews with students, graduates and employers, and analyse data provided by the institution on graduate labour market outcomes. The inclusion of labour market related criteria in external assessment procedures is believed to motivate tertiary education institutions to better align learning outcomes with labour market demands.

During workshops, stakeholders expressed that employers could be more involved in curriculum development in tertiary education, possibly via the SECs. This would be similar to how industry reference committees develop and review training packages in vocational education programmes in Australia (Box 4.1). However, SECs already face capacity and financial constraints in their existing responsibilities to participate in the development of occupational standards, which set out what someone needs to do and know in a particular occupational area or role, and often form the basis of vocational qualifications. Legislation from 2016 requires that all occupational standards are updated once every five years, however, the process for updating occupational standards in tertiary education is complicated and costly, and this requirement is not being met. Council members often lack the technical expertise and knowledge to translate skills needs into occupational standards, and could benefit from additional support. Some countries have established agencies responsible for co-ordinating and supporting the activities of sectoral councils. For instance, Portugal’s National Agency for Qualification and Vocational Education and Training provides financial resources to pay for the participation of experts in updating VET qualifications, and helps with the administration of sectoral councils (Box 4.1).

Box 4.1. Relevant examples: Fostering collaboration between tertiary education institutions and industry

Employer involvement in tertiary education governance in Norway

In Norway, social partners participate as external members in the governing boards of domestic tertiary education institutions. The Universities and University Colleges Act stipulates that 4 out of 11 seats on each tertiary education governance board must be taken up by an external member (including industry representatives). In this way, social partners with close links to the labour market are able to contribute to decision-making processes related to the institution’s strategy for education, research or other engagement activities.

Sector skills councils in Estonia

Estonia’s sector skills councils are administrative bodies that operate out of the Estonian Qualifications Authority, and consist of employer representatives, employers, and sectoral associations. Financed by the national government, the primary role of sector skills councils is to develop and implement the occupational qualifications standards in their sector. Sector skills councils may engage with the Estonian Qualifications Authority, involve experts or set up working groups to perform their functions.

Industry reference committees in Australia

In Australia, industry reference committees (IRCs) provide advice to the Australian Industry Skills Committee to guide the development and review of training packages in vocational education. IRCs are volunteer bodies made up of industry experts from business, employers, trade associations, unions and training providers. With the support of sectoral skills organisations, IRCs gather intelligence about their industry sectors, which is used to inform the advice they provide and to make sure that the national training system provides the qualifications, knowledge and skill sets that industry needs.

Portugal’s National Agency for Qualification and Vocational Education and Training (ANQEP)

One of the key responsibilities of ANQEP (Agência Nacional para a Qualificaçâo e o Ensino Profissional) is to co-ordinate the continuous updating of the National Qualifications Catalogue, which is carried out by the sectoral councils. Sectoral council members are delegated from other organisations and work on a voluntary basis. They face challenges in updating training content as labour market demands change frequently, and there are only 16 councils responsible for 300 qualifications. ANQEP provides financial resources to pay experts to participate in the updating process, and also helps with the administration of councils by sending invitations to members, setting the agenda and chairing meetings.

Source: Adapted from OECD (2018[27]), Higher Education in Norway: Labour Market Relevance and Outcomes, https://dx.doi.org/10.1787/9789264301757-en; OECD (2018[31]), Getting Skills Right: Australia, https://dx.doi.org/10.1787/9789264303539-en; OECD (forthcoming[32]), Strengthening the Governance of Skills Systems.

Recommendation for fostering collaboration between tertiary education institutions and industry

Build the capacity of SECs to engage in updating and designing curricula in tertiary education. This would improve linkages between employers and tertiary education institutions. Members of SECs should receive financial, technical and administrative support to translate skills needs into occupational standards and qualifications. At the same time, procedures involved in updating occupational standards should be simplified. As SECs develop their capacity, they could be involved in the licensing and quality assurance of professional qualifications, as well as in the development of curricula. When involving employers in curriculum development, care should be taken not to neglect key foundational skills.

Encouraging employers to provide work-based learning

Work-based learning is an important way for students to develop skills that have a clear value in the labour market, but this mode of training delivery has yet to be introduced in tertiary education in Latvia, and is only starting to develop in secondary education (see Chapter 2). Latvia introduced pilot projects to develop work-based learning in secondary vocational education in 2013/2014 and 2014/2015, and based on the outcomes of these pilot projects the government succeeded in implementing a legal framework for work-based learning in secondary vocational education in 2016. To introduce work-based learning at the tertiary level would require implementing a new legal framework which takes into account the autonomy and self-governance of tertiary education institutions, as well as their quality assurance requirements. Latvia could begin by carrying out pilot projects at the tertiary level, as Estonia has recently done. Under Estonia’s pilot project, which runs from 2018 to 2019, work-based learning programmes are offered at the Tallinn Health Care College in occupational therapy, and at the Mainor Business School in the tourism and restaurant enterprise programme.1

Creating work-based learning opportunities for students requires strong engagement with employers. Employer involvement in the pilot project at the secondary level was low (Golca and Rajevska, 2017[33]), partially due to the prevalence of SMEs which are often reluctant to get involved with work placements due to the related logistical difficulties and administrative costs (OECD, 2019[28]). As recommended in OECD (2019[28]), encouraging SMEs to offer training jointly, as many countries do (Box 4.2), could facilitate their participation in work-based learning.

Box 4.2. Relevant examples: Encouraging employers to provide work-based learning

Training alliances in Switzerland

In Switzerland, two basic types of training alliances are found: the training company network and the collaborative training alliance. In the training company network, two or more companies form a network to provide apprenticeship training. While the host training company is responsible for the main part of apprenticeship training, partner companies cover parts of training where their specialist capacity is more relevant. The host company also generally takes care of apprenticeship-related administrative tasks. Under the collaborative training alliance, a managing organisation co-ordinates the training, which is carried out in the different participating companies of the alliance.

Training alliances in Austria

In Austria, training alliances support companies that cannot provide apprentices with the full range of skills required for the specific occupation. Alliances can involve an exchange of apprentices between two or more companies, sending apprentices to one or several other companies or to their training workshop (usually for a fee), and attendance at training institutions for a fee. Some provinces support training alliances by providing information and support to companies about possible partner companies and educational institutions, and by co-ordinating training alliance activities.

Apprenticeship training agencies in Norway

In Norway, apprenticeship training agencies (opplæringskontor, ATA) are owned by companies and aim to establish new apprenticeship places, supervise apprentices, train staff involved in the instruction of apprentices, and organise the administrative tasks involved with being a training company. Many ATAs organise the theoretical part of apprentice training. While country authorities must approve each company that takes apprentices, ATAs often sign the apprenticeship contracts on behalf of enterprises, thereby becoming accountable for the completion of the apprenticeship and its results. About 70-80% of companies with apprentices are associated with an ATA. These bodies are funded by state grants, and companies typically pay half of the amount received from the state for apprenticeship training to ATAs. The prices of ATA services are set in agreement between ATAs and member companies.

Source: Adapted from Kuczera and Shinyoung (2019[34]), Vocational Education and Training in Sweden, https://doi.org/10.1787/g2g9fac5-en.

Recommendation for encouraging employers to provide work-based learning

Establish a legal framework for work-based learning in tertiary education and carry out pilot projects. Assist SMEs in pooling the responsibilities associated with providing work-based learning opportunities. Consider encouraging the integration of work-based learning in tertiary education programme curricula by including it as a criterion for the performance-based funding of education institutions (in addition to labour market relevance and STEM prioritisation).

Raising awareness about the role of career guidance in tertiary education

The role of career guidance in secondary education and adult education was discussed in Chapters 2 and 3, respectively. In the context of tertiary education, high-quality career guidance can help young people entering or leaving tertiary education to make good decisions about which skills to invest in and where their skills would be most valued in the labour market. Such guidance can help reduce skills imbalances by helping students make education and career decisions which are responsive to the needs of the labour market.

In Latvia, tertiary education institutions are responsible for providing career and guidance services. Although the Higher Education Law Article 50(5) states that every student is entitled to receive such services, in practice only a few public and private institutions have career centres or offer services in an integrated way, such as the University of Latvia, Riga Technical University, Riga Stradiņš University, BA School of Business and Finance, Rēzekne Academy of Technologies, RISEBA University Applied Sciences, and ISMA. Services are typically provided free of charge for all current and prospective students, as well as for graduates in some universities. Services include the provision of information on current job vacancies, support for finding internships, counselling about the choice of study programmes, company visits and activities promoting student entrepreneurship. Raising awareness among university management concerning the role of career guidance services could help to expand the number and prominence of career centres in tertiary institutions in Latvia. This would widen access to these services, thus improving the soundness of enrolment decisions, reducing drop-out rates as students choose fields they are best suited to, and improving graduate employment in study-related fields.

Recommendation for raising awareness about the role of career guidance in tertiary education

Raise awareness among university management concerning the role of career guidance services in promoting sound enrolment decisions, lower drop-out rates, and graduate employment in study-related fields.

Opportunity 2: Retaining talent in Latvia by stimulating sustainable wage growth and improving working conditions

The emigration of highly educated workers is a major challenge for Latvia, and contributes to skills shortages. By reducing the labour supply and changing its composition, the emigration of highly educated workers leads to skills shortages that increase the wages of highly educated workers who remain in the country, while lowering the wages of low-educated workers (IZA, Germany, 2015[35]). In Latvia, evidence suggests that the loss of skilled labour caused by emigration has contributed to shortages of high- and medium-skilled professionals educated in science, mathematics, ICT and medicine (including nurses and doctors), as well as experienced engineers and technicians (Hazans, 2017[10]). These fields are over-represented among emigrants relative to the population living in Latvia.

Over the long term, high-skilled emigration dampens productivity and growth. The loss of many highly-educated workers can reduce the productivity of the economy as a whole, which leads to lower wages for everyone (IZA, Germany, 2015[35]). These productivity effects are particularly strong in small countries like Latvia, and are caused by a number of factors: fewer opportunities for knowledge transfer, lost return on public training investment, poor substitutability of high-skilled and low-skilled workers, and reduced opportunities to achieve economies of scale in skill-intensive activities (World Bank, 2005[36]). By reducing the size of the domestic market, emigration discourages investment and leads to business closures, both of which can have a negative impact on growth. The International Monetary Fund estimates the negative effect that emigration has on GDP growth in Latvia to be among the strongest globally (Hazans, 2017[10]).

Thus, there is a vicious cycle at work: the emigration of highly educated workers reduces productivity, which leads to low wages; at the same time, low wages and better opportunities abroad are an important part of the reason that Latvians leave the country in the first place (Hazans, 2017[10]). In 2016, average net annual earnings in Latvia, when controlling for purchasing power, represented between 34% and 40% of average net annual earnings in popular destination countries such as the United Kingdom, Norway, Germany and Ireland (Hazans, 2017[10]). A survey that polled emigrants about their intentions to return to Latvia found that the stated likelihood of returning to Latvia within five years declined with education level: it was 20% among low-educated individuals, 19% among medium-educated individuals, 14% for college-educated and those with a bachelor degree, and only 11% for those with a masters or doctoral degree. Since the crisis, the most common reasons given by highly educated emigrants for not returning to Latvia include “I cannot find a decent job in Latvia” (76%) and “I would not get adequate social support (benefits, pensions, etc.) in Latvia” (74%) (Hazans, 2017[10]). Not being able to find a decent job highlights the low quality of jobs in Latvia. The 2017 Eurofound Survey (Eurofound, 2017[37]) found that the share of workers in Latvia in poor quality jobs is very high (37% compared to the EU average of 20%), and only lower than in Hungary (39%), Greece (41%), and Romania (54%). Poor quality jobs in the survey are characterised by low autonomy and task discretion, low earnings and poor career prospects.

To stem the flow of highly educated emigrants out of the country, Latvia should improve overall job quality in all occupations, but particularly in high-demand occupations. Job quality improvements would make Latvia a more attractive place to work for return migrants, as well as other skilled workers from abroad – both of which could help to alleviate skills shortages. In the pre-workshop questionnaire, stakeholders highlighted the need to improve working conditions and wages for high-demand occupations as one of the top priorities for reducing skills imbalances.

While the Latvian economy supports many high-skilled jobs (Figure 4.4), wages are low. In 2018, 40% of employment was in occupations considered to be high skilled or to require cognitive skills, including managers, professionals, technicians and associate professionals. However, wages are relatively low, even for those with a tertiary education. Average wages in Latvia are among the lowest in the EU, and tertiary educated workers have one of the highest shares of low-wage employment (Figure 4.7).

Although they are low, real wages have grown in recent years, particularly in sectors of the economy experiencing skills shortages. However, the gains are not sustainable due to low productivity growth. Latvia recorded real wage growth of 7% from Q4 2012 to Q4 2017, which compares with 1% real wage growth across OECD countries (OECD, 2018[38]). Wage growth between 2008 and 2015 was particularly strong in sectors of the economy facing skills shortages (Hazans, 2017[10]). This suggests that employers are responding to declining labour supply, in particular to skills shortages, by raising wages. However, as noted in the Ministry of Economics’ forecast report (Ministry of Economics, 2018[7]), productivity growth has not kept pace with wage growth. This is partly because the Latvian economy is highly specialised in low-technology manufacturing, which is positioned low on global value chains.

Skills shortages could be eased by improving wages and working conditions. To support sustainable wage growth, efforts are needed on the demand side to boost productivity growth, including by moving up global value chains and improving the use of skills in the workplace. Improving access to social protections would also help to improve working conditions.

Upgrading to higher value-added activities in global value chains

Latvia is currently positioned low on global value chains, which contributes to its low productivity growth. The share of total manufacturing activity in Latvia represented by low-technology manufacturing industries has declined over the last 13 years, but still represents 60% of total activity (Ministry of Economics, 2013[21]). To achieve productivity gains from participation in global value chains, Latvia needs to focus simultaneously on the development of skills and innovation (OECD, 2017[39]). Skill development can help countries to position themselves higher up on global value chains (OECD, 2017[39]). For instance, compared to low-tech manufacturing, high- and medium-tech manufacturing is more intensive in STEM tasks. Skills development is necessary to achieve productivity gains in global value chains, as it enables technology absorption and diffusion to the rest of the economy (OECD, 2017[39]).

Innovation and technological adoption also play a critical role in achieving productivity gains (OECD, 2017[40]) and moving to higher value-added activities; however, Latvia has been slow to adopt new technologies as it would mean giving up competitive advantages based on low cost (Ministry of Economics, 2013[21]). Currently, Latvian firms lag behind in adopting productivity enhancing digital technologies such as cloud computing and big data (OECD, 2017[40]). Expenditure on research and development (R&D) is also low: Latvia’s gross domestic expenditure on R&D was only 0.6% of GDP in 2015, one of the lowest among OECD member and partner economies. SMEs in Latvia, which comprise the majority of firms, are also about 70% less productive than large firms, a gap that is larger than Estonia (54%) or the Czech Republic (60%) (OECD, 2017[41]). Recent work (OECD, 2017[40]) suggests that adopting productivity enhancing technologies and increasing strategic spending on R&D would help Latvia seize opportunities for productivity growth and access the global markets and value chains created by the digital transformation. Whether firms adopt new technologies, however, depends on a variety of factors, including labour costs. When labour costs are low, as they are in Latvia, firms may not see the immediate benefits of investing in technology. Other barriers to the adoption of new technologies include high cost, lack of own resources and lack of access to finance (Ministry of Economics, 2013[21]). The Ministry of Economics recommends that the state should “gradually give up competitive advantages based on lower costs and focus on a transition to competitive advantages provided by production of sophisticated products with higher value added.” (Ministry of Economics, 2013[21]).

The Latvian government has several strategies in place that involve strategic skills development and technology adoption to raise productivity. The Ministry of Economics offers subsidised training to firms in ten strategic industries in skills that support innovation (SO 1.2.2. “To promote innovation in enterprises”) as part of a programme with a budget of EUR 24.9 million devoted to training over the 2014-2020 period. An external evaluation of a similar predecessor programme found little impact on productivity and disproportionate participation by large firms (who generally have better access to training opportunities than SMEs without government intervention). In response, the current programme was designed to cover a higher share of training costs for SMEs relative to larger firms. Evaluation results are not yet available, but unofficial data from the Ministry of Economics indicates that micro-, small- and medium-sized enterprises are the main beneficiaries. Other skills development programmes, including SO 8.4.1 “Developing Professional Competencies of Employees,” are discussed further in Chapter 3 on fostering adult learning.

The Ministry of Education and Science’s “Smart Specialisation Strategy” (Research and Innovation Strategy for Smart Specialisation – RIS3) was developed in co-ordination with the National Industrial Policy (2014-2020) from the Ministry of Economics. Together, the two documents form the country’s economic development plan, which is focused on making structural changes to the economy to increase the share of higher value-added products and services in exports. This includes the development of industrial zones or “clusters”, access to venture capital, the development of a platform to enhance research-industry collaboration (Box 4.3), and an increase in innovation capacity through skills training. A recent assessment of the strategy found no improvement in total investment in R&D; however, some improvement was observed in the share of exports represented by high- and medium-high technology industries, as well as in the concentration and productivity (number of scientific articles published in recognised international databases) of state-funded scientific institutions (Ministry of Economics, 2018[42]).

The Ministry of Economics recognises the need for greater co-ordination with regional policy and with the Ministry of Education and Science in preparing the next national industrial policy (2021-2028). More efforts may also be needed to target the specific challenges faced by SMEs in adopting new technologies. Stakeholders reported that the main barriers firms face to conducting their own R&D are low motivation to invest time and human resources, lack of financial capacity, and lack of a strategic vision. Latvian SMEs could benefit from a programme similar to the one piloted in Spain (Box 4.3) which offers tailored consulting services combined with loans to help small manufacturing firms develop a technology adoption action plan.

Box 4.3. Relevant examples: Upgrading to higher value-added activities in global value chains

Investing in research-industry collaboration in Latvia

CAMART2 is a project to enhance research-industry collaboration and increase the commercialisation of research output. Jointly funded by the Latvian government and EU Horizon 2020 (EUR 31 million over 2017-2023), CAMART2 is specifically aimed at upgrading the existing Centre of Excellence in Advanced Material Research and Technology (CAMART) at the Institute of Solid State Physics (ISSP). As part of the project, CAMART created a platform (www.materize.com) to export scientific services and improve co-operation with industry in the field of advanced technology. The platform presents ISSP work in a non-academic manner that is accessible for business. The platform also facilitates the organisation of events focused on the development of research capacity, collaboration and excellence, including the Deep Science Hackathon, scientific seminars with visiting lecturers and networking events.

Helping SMEs to move to higher value-added activities in Spain

Spain’s Industria Conectada 4.0 was introduced in 2015 and provides manufacturing firms with information, guidance and financing to harness the benefits of the digital revolution. The programme is managed by the Ministry of Industry and has three components: an online self-diagnosis tool, an in-person consulting service, and loans. The free self-diagnosis tool allows firms to complete an online questionnaire and to receive an assessment of their level of digital maturation, which can range from “static” to “leadership”. Firms also learn how they compare to similar sized firms in the same sector, and are notified about the benefits of moving to a higher level of digital maturity in terms of growth and competitiveness. The consulting service provides individualised support and results in a firm-specific action plan. Loans (EUR 97 million in total) are available to help firms in their digital transformation. No evaluations of the programme have yet been completed.

Source: OECD (2017[43]), Getting Skills Right: Spain, https://dx.doi.org/10.1787/9789264282346-en.

Recommendation for upgrading to higher value-added activities in global value chains

Support SMEs who face constraints in moving to higher value-added activities. Offer financial incentives to support innovative and technology-based enterprises in their early stages, as well as consulting services for SMEs to assist them in moving to higher value-added activities, including via technology adoption.

Improving the use of skills in the workplace

Improving the way skills are used in the workplace helps to improve productivity, as well as raise wages and job satisfaction. The effective use of skills in the workplace has a substantial impact on wages, productivity and job satisfaction – over and above the effect of skill level itself (OECD, 2016[44]). Cedefop’s European Skills and Jobs Survey (ESJS) measures the importance and complexity of different skills used in the workplace. In Latvia, 26% of employees reported that their jobs do not need any ICT skills at all (Figure 4.10). This is the highest share across all EU countries, with the exception of Romania, and suggests room for improvement in making the most use of workers’ skills. The low use of ICT skills partially reflects the current composition of the Latvian economy, where 60% of total manufacturing activity is in low-technology industries.

Figure 4.10. A high share of employees do not require ICT skills to do their jobs

Share of employees who report needing ICT skills to do their job, by level of ICT skill

OECD work has shown that firm management practices, as well as the way work is organised and jobs are designed, can have a strong impact on how skills are used in the workplace (OECD, 2016[44]). Such practices are often referred to as “high performance work practices” (HPWP), and include an emphasis on teamwork, autonomy, task discretion, mentoring, job and task rotation, and applying new learning. OECD analysis using the Survey of Adult Skills (PIAAC) shows that HPWPs explain a large share of the variance observed across firms in the use of reading, writing, numeracy, ICT and problem-solving skills at work (OECD, 2016[44]). The 2017 Eurofound Survey (Eurofound, 2017[37]) found that only 32% of Latvian workers reported having used task rotation in their jobs, compared with 45% across EU countries. Latvia also performs below the EU average in the Eurofound’s measure of management quality, as well as in indicators of autonomy (ability to set one’s own working time arrangements, to choose the order of tasks, or to choose one’s working method). Stimulating better management and work organisation practices should be a priority for Latvia. As the majority of firms in Latvia are SMEs, which generally lag behind larger firms in terms of good management practices (Centre for Economic Performance, 2015[46]), they may need stronger incentives and more support to improve their managerial capabilities. In New Zealand, for example, the High-Performance Working Initiative (HPWI) provides business coaching for SMEs to improve work organisation and other business practices for higher productivity and employee job satisfaction (Box 4.4) Coaching services are co-funded by the government and the firm.

Box 4.4. Relevant example: Improving the use of skills in the workplace

Supporting SMEs to improve the use of skills in the workplace in New Zealand

The pursuit of workplace innovation in New Zealand has centred on improving productivity performance. The country has singled out the poor utilisation of skills in the workplace as a key policy issue. In this context, the High-Performance Working Initiative (HPWI) provides business coaching for SMEs to help streamline work practices to improve performance, while also increasing employee engagement and satisfaction. Business improvement consultants work with firms to improve their productivity. Funding is provided by the government agency Callaghan Innovation, with the firm providing half the funding. The HPWI is part of a wider suite of services provided by Callaghan Innovation to help businesses improve their performance through improving their innovation skills.

Source: OECD (2016[47]), Employment Outlook 2016, https://dx.doi.org/10.1787/empl_outlook-2016-en.

Recommendation for improving the use of skills in the workplace

Support SMEs in making optimal use of their employees’ skills. Introduce advisory services (e.g. consulting and coaching) to provide SMEs with tailored advice about how to implement high-performance workplace practices, including how to develop a training plan and how to organise work for optimal skills use.

Improving access to social protections

Strengthening collective agreements and improving social protections in Latvia would help to improve working conditions, making the country a more attractive place to work. Collective bargaining is relatively weak in Latvia (OECD, 2016[8]), and union coverage is low (Eurofound, 2017[37]). Skilled workers therefore have relatively little capacity to improve wages and working conditions through labour organisation, despite the threat of emigration giving them strong bargaining power. Improving social protections would also make the prospect of staying in or returning to Latvia more attractive. A recent OECD review of the pension system in Latvia (OECD, 2018[48]) showed that the basic pension represents only 8% of gross average earnings, against the OECD average of 19%, and has not increased in nominal terms in more than 10 years. Latvia could take steps to bring social protections more in line with those in popular destination countries, while being careful not to create disincentives for formal employment.

Recommendation for improving access to social protections

Strengthen collective agreements and union coverage to give workers the capacity to negotiate better wages (in line with productivity improvements) and working conditions, including social protection for workers and their families.

Opportunity 3: Facilitating internal mobility and attracting skilled workers from abroad

To address skills shortages in the context of a declining population, Latvia should focus on ways to facilitate internal mobility and to attract workers from abroad who have the skills necessary to fill positions in shortage occupations.

Latvia needs to make the most of its existing skills supply by creating favourable conditions for internal labour mobility. There are currently wide differences in labour market conditions across regions: the registered unemployment rate in the Latgale region is almost four times higher than in the Riga region, where 80% of all job vacancies are located (Ministry of Economics, 2018[7]). Such extreme differences in labour market conditions across regions are indicative of barriers to internal labour mobility, which prevent the free movement of labour and skills to the regions where they are most needed.

Latvia could also develop policies to attract skilled workers from abroad who have the skills needed to fill positions in shortage occupations. As a result of large and continuing emigration, Latvia has a substantial diaspora abroad. However, fewer than 20% of emigrants surveyed in 2014 planned to return within the next five years (OECD, 2016[8]), and after five years abroad their return becomes even less likely. To address skills shortages, Latvia must therefore pay more attention to the possibility of meeting its labour and skills needs through the smart migration of foreign-born workers. This will be a challenge, though, as political support for migration is low: 55% of Latvians said that the immigration of people from other EU member states evokes a negative feeling, compared with 40% on average across EU countries (European Commission, 2015[49]).

Facilitating internal labour mobility

Regional mobility in Latvia is lower than the OECD average, but on par with other European OECD countries. In recent years (2013-2016), 1.3% of the working-age (15-64) population were estimated to change their region of residence on an annual basis. This falls below the OECD average of 2.1%, though is about average compared to other European OECD countries (OECD, 2019[20]). However, comparing movements within countries is not entirely accurate given that Latvia is much smaller than the average European country, and these estimates do not control for geographic size. As such, the problem of low internal labour mobility in Latvia is actually greater than implied by these estimates.

A key barrier to internal labour mobility in Latvia is access to housing, in particular an underdeveloped rental market. Urban centres face skills shortages marked by high numbers of unfilled job vacancies; however, an inadequate supply of rental housing prevents individuals from moving to regions where job vacancies are located. Estimates from the Ministry of Economics suggest that Latvia’s current housing deficit is 2.7 million square metres of housing, and is projected to reach 5.6 million square metres by 2035. Data from the 2017 Eurostat Statistics on Income and Living Conditions (SILC) survey show a high level of home ownership in Latvia, with 82% of the population living in owner-occupied dwellings, compared with 69% across countries in the European Union. High home ownership rates are associated with higher skills mismatch (OECD, 2017[41]), as home owners from regions with high unemployment are unlikely to be able to afford housing in areas with good employment opportunities, due to differences in housing demand and prices.

The Latvian rental market is underdeveloped for several reasons. First, investments in renovation and/or new building construction have stalled because average household incomes are not yet sufficiently high to support such investments. Latvia’s current stock of residential housing is generally of low quality: 70% of apartment blocks are over 50 years-old and have low energy efficiency levels (Ministry of Economics, forthcoming[50]). Second, property owners are often deterred from offering rental housing because of low legal certainty around rental contracts: court decisions are required to evict a tenant who does not pay rent, and these decisions may take more than six months (OECD, 2017[41]). Third, insufficient availability of social housing may deter owners from offering housing for rent (OECD, 2017[41]). By law, decisions to evict low-income tenants can be implemented only if social housing is available, but government spending on social housing in Latvia is among the lowest in the OECD, and waiting lists are long, especially in high-demand areas.

Latvia has taken actions to support internal mobility. Since 2013, the public employment service has reimbursed transportation or living expenses associated with taking up a distant job offer (when it is located at least 20 km from the current residence) or engaging in distance training. An OECD impact evaluation of this programme suggests an overall positive effect on the job-related mobility of unemployed persons (OECD, 2019[20]). Since March 2018, highly-qualified specialists aged 35 or younger have been able to access financing of up to EUR 50 000 to provide the necessary guarantee for purchasing or building a new house (Ministry of Economics, 2018[7]). Other measures to support internal mobility are still in the proposal phase, for example, there is a recent proposal to support the construction of houses for rent in regions with growing employment – except Riga and surrounding regions (presumably because the private sector already has sufficient incentive to invest there). If approved (proposed cost is EUR 8 million), the proposal would support the creation of up to 100 apartments per municipality (Ministry of Economics, 2018[7]). The OECD has also started working with Latvia on a project dedicated to improving the availability of affordable housing.

Recommendation for facilitating internal labour mobility

Facilitate internal labour mobility by addressing rental housing market barriers, as recommended by the OECD (2017[41]). This would involve improving legal certainty in rental regulation and encouraging out-of-court procedures; providing more funding for low-cost rented housing in areas of rising employment; and expanding the mobility programme, which provides temporary support for relocation and transport.

Attracting skilled workers from abroad

While immigration rates have been rising, Latvia still attracts relatively few immigrants: inflows represented 0.7% of the resident population in 2018 (Figure 4.2, Panel B), compared with an OECD average of 1% (Brandt, 2016[51]). An online survey of Latvia’s emigrants conducted in August-October 2014 found that not being able to find a decent job in Latvia was the top factor preventing Latvians, including the highly educated, from returning (Hazans, 2017[10]). The recommendations made in the previous section to stimulate better wages and working conditions and make better use of workers’ skills are necessary to attract more skilled workers to Latvia.

Given the scale of Latvia’s demographic challenges, and the fact that difficulty finding a decent job is identified as the main barrier to return migration, active outreach to skilled workers abroad is needed. Most of Latvia’s current outreach efforts are targeted at the Latvian diaspora and at researchers and scientists. Latvia offers free and up-to-date information and personalised assistance for incoming, outgoing and returning Latvian researchers and their families (e.g. information about job opportunities, research fellowships and grants, and practical information about daily life). In addition, Latvians Abroad is a database of Latvian scientists living abroad that the government uses to offer reintegration programmes for Latvian scientists and to promote research and collaboration. Efforts to reach out to foreign-born migrants are more limited, but Latvia has started to do this through the EURAXESS network, a European initiative to deliver information to researchers. Since 2018, the Latvian government has used this network to broadcast opportunities to EU and third-party nationals to come to Latvia to do scientific work. Many countries set up “migrant resource centres” or hold job fairs in the countries from where they would like to recruit. Latvia’s employment services do not currently actively reach out to third-country nationals (OECD, 2016[8]).

More active outreach is needed to put skilled workers in touch with quality jobs in Latvia. Latvia should centralise all information about public and private sector jobs, as well as business and investment opportunities, in an online “one-stop shop”, with translations available in EU official languages. The Swedish immigration portal2 provides a good practice example, with up-to-date information on skills needs and job offers by region, online language training, information on regulated occupations and recognition of foreign qualifications, as well as the possibility to apply for work permits online. All of this is available in numerous languages.

Latvia has taken steps to facilitate the retention of international graduates, but more could be done. Across OECD member countries, 3 million students engage in study abroad, with retention rates in destination countries around 30-35% (OECD, 2019[25]). The enrolment of international students in tertiary education is low in Latvia compared to major European destinations, but comparable to enrolment in neighbouring countries (OECD, 2016[8]). Latvia is currently building its capacity to attract more foreign students. For example, it is using EU structural funding to train current teaching staff in English language skills, and making an effort to attract foreign teaching staff to Latvia. Tertiary education institutions are also developing new study programmes in English, although this requires consolidating study programmes as the supply of English speaking teaching staff is limited. As noted in OECD (2016[8]), without the corresponding relaxation of language requirements in the labour market (the State Language Law requires knowledge of Latvian for all occupations “if it is in the public interest” or if the worker must interact with clients directly), more instruction in English or other EU official languages will probably not help keep international graduates in the country. Other initiatives offered by Latvia include public scholarships to foreign students and researchers from a limited set of source countries that have bilateral agreements with Latvia, and since 2018, offering international graduates a 12 month extension to allow them to remain in the country to carry out a job search. Latvia should set up further infrastructure to facilitate the retention of international graduates, including exemptions from the labour market test (OECD, 2016[8]), which requires that employers post a job vacancy for one month in order to prove that the position could not be filled domestically.

Latvia should further develop its “smart migration” policy to attract workers with specific skills who can help alleviate skills shortages. In February 2018, the Cabinet of Ministers approved a simplified procedure for obtaining an EU work permit3 for highly qualified workers from countries outside of the EU (there is already free movement of labour of citizens of EU member countries within the EU) to professions with significant labour shortages. A list of about 240 occupations have been determined to be in shortage based on the Ministry of Economics’ analysis. For these occupations employers may conduct a shortened labour market test (10 days instead of one month) and foreign recruits may receive a work permit (EU blue card) at a lower salary threshold (1.2 times the average wage, rather than 1.5 times). In addition to this employer-initiated procedure, Latvia could also establish a procedure to allow qualified individuals to express interest to migrate to Latvia, similar to New Zealand’s Expression of Interest system (Box 4.5). Potential migrants who meet criteria, such as being qualified in one of the shortage occupations, would be admitted into the pool. Employers could then access this pool of candidates via an online database and invite them to apply to work in Latvia, which would allow for faster entry into the country.

Strong language policies are needed to promote integration and to attract return migrants whose families do not speak Latvian. Latvians abroad with a foreign partner are disproportionately highly educated (62% compared with 42% for those with no foreign partner) (OECD, 2016[8]), making them a resource to attract to address skills shortages. However, the insufficient public supply of general and professionally oriented Latvian language courses for the adult population has been identified as one of the main barriers to the better integration of ethnic minorities (Hazans, 2011[52]; OECD, 2015[53]). Language training for migrants is most effective when geared towards labour market integration, and ideally offered on the job (OECD, 2019[25]). In Flanders (Belgium), for instance, the Flemish employment service offers job-oriented language courses, called “Dutch in the Workplace.” In Portugal, vocation-specific language courses are part of the “Portuguese for All” training scheme that is available at no cost to the immigrant population in certain sectors (retail, hospitality, beauty care, civil construction and civil engineering).

Box 4.5. Relevant example: Attracting skilled workers from abroad

New Zealand’s Expression of Interest system and SkillFinder tool

New Zealand pioneered the first expression of interest (EoI) system in 2003, in the context of a wider review of its supply-driven permanent migration system. The introduction of the two-step EoI process moved New Zealand from a policy of passive acceptance of residence applications to a more active selection of skilled migrants.

An EoI system is a two-step application process: 1) selection for the pool; and 2) selection to apply. Potential migrants express an interest in migrating to New Zealand and are admitted into a pool if they meet certain criteria that aim to maximise the economic contribution of migrants. Once in the pool, they may be selected and receive an invitation to apply. Candidates who do not receive an invitation to apply to a specific migration scheme are dropped from the pool after a fixed period.

New Zealand also operates a matching system through the SkillFinder platform for foreign nationals who would like to work in New Zealand. Employers or recruiters can request profiles from the database if they are interested in specific skills profiles. The database is managed by the government agency responsible for labour migration.

Source: OECD (2019[54]), Building an EU Talent Pool: A New Approach to Migration Management‎ for Europe, https://dx.doi.org/10.1787/6ea982a0-en.

Recommendations for attracting skilled workers from abroad

Develop Latvia’s “smart migration” policy to alleviate labour and skills shortages by introducing an “Expression of Interest” system to allow potential migrants who meet criteria to enter a pool that employers can select from. Support the retention of international graduates by relaxing or eliminating the labour market test. The SEA should make its job opportunities website a one-stop shop for potential migrants and accessible in multiple languages. The SEA could also engage in more active outreach to potential skilled migrants, such as through migrant centres or job fairs abroad, to match them with quality jobs in Latvia.
Increase the supply of job-oriented language training to support integration of skilled workers and their families.

Recommendations for reducing skills imbalances in the labour market

Opportunity 1: Strengthening the responsiveness of the tertiary education system to changing skills demand
Fostering collaboration between tertiary education institutions and industry	Build the capacity of SECs to engage in updating and designing curricula in tertiary education.
Encouraging employers to provide work-based learning	Establish a legal framework for work-based learning in tertiary education.
Raising awareness about the role of career guidance in tertiary education	Raise awareness among university management concerning the importance of career guidance services.
Opportunity 2: Retaining talent in Latvia by stimulating sustainable wage growth and improving working conditions
Upgrading to higher value-added activities in global value chains	Support SMEs who face constraints in moving to higher value-added activities.
Improving the use of skills in the workplace	Support SMEs in making optimal use of their employees’ skills.
Improving access to social protections	Strengthen collective agreements and union coverage to give workers the capacity to negotiate better wages.
Opportunity 3: Facilitating internal mobility and attracting skilled workers from abroad
Facilitating internal mobility	Facilitate internal labour mobility by addressing rental housing market barriers.
Attracting skilled workers from abroad	Develop Latvia’s “smart migration” policy. Increase the supply of job-oriented language training.

References

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Notes

← 1. https://eacea.ec.europa.eu/national-policies/eurydice/content/national-reforms-higher-education-20_en.

← 2. https://sweden.se/society/collection/working-in-sweden/.

← 3. The European Commission sets the guidelines for acquiring an EU Blue Card, and the member state uses the guidelines to complement existing immigration law. Each country has slightly different rules and procedures for obtaining an EU Blue Card.

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