IMF: Latvia could lose one third of labor force by 2050

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Demography is becoming one of Latvia's chief economic problems, and if it will not be solved quickly it will prevent Latvia from reaching a level of well-being similar to that of Western Europe. 

That's what reported July 25 based on the conclusions of the International Monetary Fund (IMF). 

In early summer reps of the IMF visited Latvia on an official visit (mission) and gave their opinion over the functioning of the Latvian economy. Among positive trends, such as an increasingly resilient economy following the previous crisis, there are problems and chief among them is demography.

"The population continues to decline on average by 1 percent per year. To a great extent this is still due to ongoing emigration, especially of young and skilled Latvians. This affects the size and productivity of the working age population, puts pressure on the labor market, and makes it harder to sustain high growth in living standards over the long term," the IMF concluded.

Meanwhile another IMF study published in July says growth could shrink 50%. This report concentrates on Central and Eastern Europe in particular. The IMF concludes that only in Bulgaria the demographic situation will be worse than in Latvia, which would rank behind Moldova, Ukraine, Romania, and Russia.

The base scenario says that Latvia could lose one third of its population, or 400,000 people, by 2050. Lithuania's population could shrink 17% and Estonia's 13% during this time.

The labor force could shrink more than a third by that time, with projections for Lithuania and Estonia at 27% and 25% respectively. 

According to IMF forecasts the fastest decrease is expected within the next decade when Latvia could lose up to 20% of its labor force, Lithuania 17% and Estonia 12%.

Under this scenario Latvia would only reach 80% of the average living standard as compared to the old EU member states. "The fall in labor supply typically explains about 60 percent of the total decline," the IMF said.

But the base scenario supposes no reforms would be taken to counterbalance the shrinking labor supply. 

Unsurprisingly, the IMF suggests bringing in foreign workers as one way to address failing demographics.

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