OECD: Latvia needs to boost productivity, reduce inequality

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A substantial report released Thursday by the Organization for Economic Cooperation and Development (OECD), which Latvia hopes soon to join, flags up a range of large holes in the country's labor market and social policy initiatives.

The “OECD Reviews of Labor Market and Social Policies: Latvia” provides a series of recommendations for the government to tackle the country’s demographic challenge, reduce inequalities in the labor market, boost productivity and improve living standards and well-being.

Th report forms part of a wider review of these policies as part of Latvia’s accession process to the OECD, though signs are that Latvia may now miss its target of winning approval for full membership this year.

"Latvia’s highly volatile economic growth, one of the highest levels of income inequality in the European Union and a working age population that is shrinking faster than in any OECD country create a pressing need for effective social policies," the OECD says.

Future growth prospects rest on Latvia's ability to raise labor productivity, the OECD believes, and factors holding back improvements in this area include a large shadow economy estimated to represent around a quarter of GDP, high levels of long-term unemployment, as well as a significant skills shortage.

"To increase productivity and reduce labor market inequality, active labor market policies should be strengthened and upskilling strategies should be more directly linked with the needs of employers. Efforts to curb informality and under-reporting of earnings should be maintained and stepped up further, including by reviewing a range of regulatory provisions that may currently push some groups of workers into informal employment," the OECD says.

Making social protection a priority is key, according to the report which argues the existing system of taxes and transfers does relatively little to reduce income inequality, an issue, together with poverty, that Latvians report very little satisfaction around the government’s efforts to tackle.

At just over 16% of GDP, public social spending is well below the OECD average of 21%.

Among its recommendations, the OECD says that Latvia should make adequate social protection and employment support measures more accessible for those who need them by improving coverage for jobseekers and addressing projected pensions gaps to reduce the risk of rising pensioner poverty.

The full report can be read HERE.

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