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International Internet Magazine. Baltic States news & analytics Saturday, 09.12.2023, 16:04

Summer has affected the labour market positively, but autumn is here

Anete Migale economist, Latvijas Banka, 23.11.2020.Print version
In response to the current spread of the COVID-19 pandemic, a national state of emergency was declared on 9 November 2020. Against this background, it may seem inappropriate to speak about improvements in the labour market. However, while overall the pandemic has undoubtedly affected the labour market negatively, it has shown strong resilience to this impact.

According to the data compiled by the Central Statistical Bureau, the unemployment rate decreased by 0.2 percentage point quarter-on-quarter to 8.4% in the third quarter. The monthly data on registered unemployment likewise pointed to a decline. However, a minor  increase in the number of the registered unemployed recorded since the declaration of the state of emergency also suggests that this is no time for complacency.

In the third quarter, the gradual lifting of several restrictions helped to improve employment opportunities, thus supporting the revival of economic activity over the summer period and strengthening the sentiment of the heavily affected businesses and households, although it has failed to return to its pre-crisis level. The government support measures that helped to maintain employment and operation of businesses during the temporary furlough period also played their part. This is important to note since the negative effect on the unemployment rate has so far been less pronounced as compared to the previous financial crisis.

However, as autumn sets in and the COVID-19 infection rates rise, the measures to contain the virus will, once again, dampen economic activity, leading to a new turmoil in the labour market. The COVID-19 containment measures will continue to dampen activity in sectors such as accommodation and food services, art, recreation and entertainment services. The trade sector will also be affected. It should be noted that economic activity would be hindered even without restrictions since an uncontrolled outbreak would lead to a rising number of cases and businesses discontinuing their operation due to quarantine.  

The path of the economy largely depends on the successful containment of the COVID-19 pandemic and the necessity to take additional measures. On the one hand, the currently discussed government support measures (e.g. furlough benefits) are more targeted and, in contrast to the previous state of emergency, also refer to partial employment that may be relevant to maintain employment in the sectors affected by the restrictions. Moreover, this time the support is also aimed at meeting the working capital needs of businesses and, accompanied by the support for wages, may cover a substantial portion of costs during the period of temporary restrictions. Likewise, businesses have already gained experience in the spring, and this might make it easier for them to adapt to the current restrictions.

On the other hand, businesses already heavily affected by the previous restrictions are running out of funds. In November, when the state of emergency leading to renewed constraints on business activity was declared, part of businesses may benefit from the temporary discontinuation of their activity. Besides, there is not much room for hope that the accommodation sector will recover rapidly as the number of cases abroad also remains high. Therefore, a number of businesses will most likely not survive this period, and the unemployment rate will rise in the first months of the next year.

If the restrictions fail to contain the spread of the virus and the situation persists, an increasingly large part of the economy will be affected by the rising numbers of new cases and restrictions (including other sectors than those affected by the restrictions currently). This would require additional support measures.

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