Abstract and Keywords
The first section of this chapter begins with a brief overview of the education system during socialism. It focuses on the changes and developments in the Latvian education system after Latvia regained independence, and examines the main components of Latvia's education system. It provides an overview of the vertical and horizontal dimensions of the education system, showing gender disproportion in tertiary education. The second section addressees the issue of existing ethnic, linguistic and regional diversity that has resulted in a growing divide between rich and poor, and between urban and rural areas. It also considers the developments of the labour market institutions. The final section addresses the Latvian welfare system, which has been central to the political debate in Latvia. It focuses on the issues of active labour market policy (ALMP) and developments of unemployment insurance, guaranteed minimum income (GMI) and family policy.
After regaining independence in 1991, Latvia has undergone essential changes in its education system, labour market and welfare state development. Its political sytem has been relatively effective in providing comparatively stable government and the benefits of the democratisation process. However, Latvia's existing ethnic, linguistic and regional diversity shows inequitable access to opportunities, as well as social, economic and political differentiation among its population. To some extent, these problems can be attributed to Latvia's economic transition and the development process of its new political and economic system.
The first section begins with a brief overview of the education system during socialism. It focuses on the changes and developments in the Latvian education system after Latvia regained independence, and examines the main components of Latvia's education system (mainly at secondary and tertiary levels). It provides an overview of the vertical and horizontal dimensions of the education system, showing gender disproportion in tertiary education.
There is then a review of the trends of the Latvian labour market. It begins with a short introduction on Latvia's economic development. Employment dynamics in Latvia include labour force activity rates and hidden employment and unemployment dynamics. This section addresses the issue of existing ethnic, linguistic and regional diversity that has resulted in a growing divide between rich and poor, and between urban and rural areas. Finally, the section considers the developments of the labour market institutions.
The final section addresses the Latvian welfare system, which has been central to the political debate in Latvia. It focuses on the issues of active labour market policy (ALMP) and developments of unemployment insurance, guaranteed minimum income (GMI) and family policy. Additionally, it analyses the problems, prospects and achievements of the Latvian welfare system. In the field of employment policy, the main task is to reduce the unemployment rate and to ensure maximum effectiveness in employing citizens, including young people. The Latvian social security reform can be considered successful from the standpoint of consolidating of market and democratic principles. With regard to Latvian family policy the need for more (p.214) effective policy measures aimed at reconciliation of work and family life is stressed.
Structure of the Latvian education system
Overview of the Latvian education system after the Second World War
The differentiation in Soviet education began after basic or ‘incomplete’ secondary education, which lasts eight years, age 7–14. A child could receive this incomplete secondary education either in a general secondary school or in an eight-grade school. At secondary level, schools were divided into three main types: general secondary, specialised secondary, and vocational schools. The majority of students attended general secondary schools, which provided the best quality of education and the most favourable chances of continued tertiary education. Young people recruited into specialised schools (tehnikums) received training for semi-professions, either in the humanities, medicine or engineering fields. One could enter a specialised secondary school either after finishing the 8th grade or after a secondary education.
Vocational schools were designed to produce workers for industry and agriculture, and were therefore closely tied to large industrial enterprises and collectivised agriculture. Vocational schools were intentionally designed to take the less academically gifted and attempted to provide them with both professional training and a generalised upper-secondary education. These schools also performed important social functions for young people who did not gain entry into selective general secondary or secondary professional education. Overall, however, vocational schools were strongly stereotyped as those providing low-quality education. Thus, entering a vocational school substantially reduced a student's chances for entering and attaining tertiary education.
Although during the Soviet era higher education was free of charge, the available openings were strictly planned and limited. The main field of study was engineering (50% in the former USSR), while the proportion of students in the social sciences was less than 10%.
Education system since 19901
Basic education begins at the age of seven and lasts a total of nine years: four years of primary (International Standard Classification of Education, ISCED 1), followed by five years of basic (lower-secondary) school (ISCED 2).2Some schools only provide for grades 1–6, incorporating the entire primary stage but with the following stage incomplete (see Figure 8.1).
(p.216) Other schools may offer the full nine-year curriculum covering the full basic education of nine years. Furthermore, the curriculum of basic education can be also acquired at evening shift schools. There are no entrance examinations to basic schools, and in those founded by central or local governments there are no tuition fees. Graduates receive a certificate of basic nine-year school completion, which marks the end of compulsory schooling. Students who have not completed the requirements must continue until they finish the programme or until they reach the age of 18. At the end of grade 9, there are formal state examinations – in mathematics, history, Latvian, and a first language for students in minority schools – and compulsory tests in four subjects.
Comprehensive schools are schools that encompass grades 1–12, thus combining primary, low-secondary, and secondary general education. Reflecting the increased demand for general secondary education, enrolments in grades 10–12 increased by 32.4% between 1995/96 and 1999/2000. Part-time and private school enrolments, although only a small proportion of overall enrolments, increased the fastest, particularly in grades 10–12. Between 1995/96 and 1999/2000, the increase for the former constituted 45% and 82% for the latter. The proportion of children whose language of instruction is Latvian is 72% and Russian is 27%. In Riga, Latvian was the language of instruction in only 51% of the schools and for 39% of the enrolments; in rural areas, except in the southeast, the percentage of children whose language of instruction is Latvian is significantly higher.
After leaving basic education, students have a range of options for further schooling: general secondary, vocational education or secondary professional (all ISCED 3). (Upper)-secondary education in Latvia concerns schooling from grades 10–12 (ages 16–18). In order to be admitted to secondary school, pupils have to hold the basic education certificate, although some schools impose further requirements. There are comprehensive day secondary schools, evening shift secondary schools, gymnasia and state gymnasia. There are three types of education programmes in general secondary education: general, humanitarian and social sciences and natural and exact sciences.
To be awarded a certificate of general secondary education, students have to pass final core examinations and reach a satisfactory level in seven non-examination subjects. Examinations at the end of grade 12 are set at two levels: basic and profile (advanced). Students have to pass a certain number of centralised examinations. The recipients of centralised examinations certificates are eligible for admission to higher education.
Secondary professional education is oriented towards certain professions. The current system of vocational education in Latvia is based on the pre-1991 network of institutions adapted in accordance with the 1991 Education Act. Most of these institutions are directly run by the central government, although (p.217) the creation of private and local authority vocational education institutions has increased. Vocational education is geared to some 330 professions and areas of specialisation, a decrease from over 1,000 in Soviet times. Programmes and enrolments have shifted away from those linked to the former economy toward those in demand in the restructured labour market, including business and commerce, services, transport, and communications. There are several types of schools providing vocational training. Basic vocational education provides instruction and training geared to simple occupations for those who have not completed basic education by the age of 15. Courses in secondary vocational education vary from two to four years of education and training, each of which includes at least some elements of general secondary education. Only students in a four-year programme complete a full course of secondary education and their graduates are eligible for university studies. There are also post-secondary vocational schools for holders of general secondary education certificates, and schools for craftspeople. Secondary professional education institutions, until recently named as ‘secondary specialised education institutions’, provided education and training in various programmes, such as business, nursing, art, music and technical and technological subjects. The curricula developed from basic education entail four to five years of study and include a full course of general secondary education.
Since 2000, Latvia has introduced college education, which is based on secondary education and lasts two to three years. The curriculum is mainly concentrated on theoretical knowledge and professional training in fields such as nursing and pharmacy, but there are college programmes also in the fields of culture, law and technologies. College education is defined as the first level of higher professional education with ISCED 4 qualification. Some colleges provide two types of programmes – vocational programmes after basic education and college programmes after secondary education.
Latvian institutions of higher education are divided into universities and non-universities. Universities offer three levels of degrees (bachelor, master, and doctor). Non-university type higher education institutions (ISCED 5b) offer applied professionally oriented study programmes, and undertake applied academic research. Their aim is to provide opportunities for acquiring extensive, professional and applied academically based higher education. Some institutions of higher professional education provide doctoral studies, and carry out research in separate branches of science, national economy and arts. The study programmes at these institutions lead to the award of degrees, and correspond to university-type professional education at ISCED 5a and 6.
The academic degree of bachelor is conferred on successful completion of three-to four-year higher education programmes.3 The academic degree of master is conferred after the second stage of academic education, which takes (p.218) one-and-a-half to two years. This degree is required for admission to doctoral studies that lead to a doctoral degree (comparable to a PhD).
Vertical dimension of the education system
Figure 8.2depicts the trends in education enrolment of the school-aged population in Latvia starting from the early 1980s. Obviously, the vast majority of this population has been enrolled in full-time comprehensive schools. However, during the early 1980s, a meaningful proportion of pupils in comprehensive schools were enrolled part time, either in evening schools or via correspondence courses. These types of schools are no longer significant in the 1990s.
The enrolment in any type of vocational education has been decreasing since the 1980s, whereas an equal proportion of young have been enrolled in vocational and secondary special education. Unfortunately since the late 1990s, statistics do not differentiate between these various types of vocational education. Overall, vocational education pupils constitute only a minor part of all those enrolled in schooling in Latvia.
Finally, a substantial increase in enrolment in tertiary education is visible, starting in particular from the mid-1990s. The share of those enrolled in (p.219) universities grew from 10% of all young people in the mid-1990s to about 25% in 2003/04.
Enrolment in vocational education shows that traditionally more males (60%) than females (40%) prefer vocational education and training than the general education track. Females chose the general secondary track more often (57%) and consequently, the higher education track is much more popular among females (63% from the total enrolment) (Statistical Data Collection, 2006: 15 and 47).
Since 1991, student enrolment has been shifting strongly toward general secondary education, and within secondary education toward selective programmes that lead to higher education. A total of 63% of those who complete grade 9 in 1998 progressed to general secondary education, compared to 20% for vocational schools and 12% for secondary professional schools (see Figure 3). Drop-out rates for 1998 were approximately 13.9% for vocational education schools and 13.8% for secondary vocational education, compared to 3.0% for general education.
Secondary level of education
Stratification and track differentiation
Major decisions concerning education track are made at the age of 15 and 16, when pupils decide whether to continue on a general secondary or professional secondary education track. In some cases, pupils at the age 14 and their parents might make their first decisions, choosing to proceed in basic vocational education rather than on a general track.
The Latvian education system, similar to the education systems of other Baltic countries, has been traditionally characterised by a stronger focus on general rather than on vocational education. Enrolment in the general tracks (p.220) on the upper-secondary level has even further increased during the 1990s, which is visible in Figure 8.4. Simultaneously, enrolment in the vocational tracks on the upper-secondary level declined (from about 35% to 20%), particularly for programmes not leading to a matriculation diploma. A decrease in the vocational programmes with matriculation is also evident, but of a lesser magnitude. Overall, from 1990/91 through to 2005/06, the number of vocational schools and secondary professional schools has decreased by 33% (from 143 to 96). These changes have resulted mainly from the merging of small, single profile schools and the emergence of private schools.
Vocational education enrolments, especially in vocational schools, remain heavily concentrated in service and engineering programmes. If the new entrants are an indication of demand, 55.6% of school students are entering engineering programmes. The proportion of vocational school students enrolling in social sciences and service professions has also been growing (OECD, 2001).
Organisation of vocational training
Vocational education in Latvia is mainly school-based. The majority of schools are state schools, and a few are municipal schools. Vocational school graduates often lack practical skills, either because they receive no practical (p.221) training or because what they do receive is of poor quality, partially due to their schools’ obsolete technical equipment and their teachers’ insufficient knowledge of what the labour market requires.
The Law on Professional Education (1999) has brought several important changes to vocational education. The main principles introduced by this law ensure that the results of training are labour-market accepted, and that the Latvian education system allows involvement of social partners in formulating occupational standards, drawing up education programmes and assessing students’ skills.
Standardisation and quality differentiation of secondary education
According to the Organisation for Economic Co-operation and Development (OECD 2001), nation-wide standards exist for lower-secondary education, but not for upper-secondary. Indeed, at the end of their secondary education, students have to pass a number of centralised examinations. Subject standards in curriculum content requirements were introduced in Latvia in 1992, but remained little more than a list of knowledge to be covered and assessed at each grade. In 1996, the Ministry of Education and Science began a process of developing the National Compulsory Education Standard for compulsory schooling. It provides a framework within which local units and schools can design localised syllabi without losing nationally accepted standards. Moreover, it includes explicit learning outcomes in four education spheres for students completing grades 3, 6 and 9: language, self and society, arts and natural sciences. No similar national standards exist for upper-secondary schooling and higher education thus far.
Differentiation within secondary education remains quite pronounced. PISA (Programme for International Student Assessment) results show that, on average, students from schools with Latvian as the language of instruction show better results than students from schools with Russian as the language of instruction, and that students who live in bigger cities show higher results than those who live in rural areas (Kangro et al, 2003).
Tertiary level of education
Restructuring of tertiary education resulted in changes in the field of study chosen by students (see Figure 8.5). Another important issue with regard to the horizontal dimension of tertiary education is the representation of women in various fields of studies. Women are significantly overrepresented in health and welfare (85%), teaching, training and education sciences (83%), as well as in humanities and the arts (79%). There is also a slight (p.222) overrepresentation of female students in social sciences, business and law (64%), as well as in service specialties, although for the latter the proportion of women enrolled decreased from 58% in 2002/03 to 51% 2003/04. However, such fields of study as engineering, technology, natural sciences and mathematics are largely male-dominated, with only 22% and 38% of females being enrolled in them, respectively (Latvian Central Statistical Bureau, 2002–04).
A rapid and dramatic fall from 45% to 12% is observed in the proportion of students choosing engineering. Conversely, an enormous increase in social sciences entrants is observed, with the proportion reaching almost 55% of all students by 2003/04, well above average rates in industrialised countries. The significance of the increase can hardly be overestimated, particularly since in the early 1980s social sciences constituted slightly less than 10% of all specialties studies at the tertiary level. The proportion of students in humanities and arts (15.8% in 1980, 21.1% in 1990, 7.2% in 2003), agriculture (8.3% in 1980, 1.6% in 2003), natural sciences and mathematics (9.4% in 1980, 5.0% in 2003), as well as in health and welfare (6.5% in 1980,3.4% in 2003) decreased sharply. The already high rate of students in teacher training and education sciences increased further (6.9% in 1980, 11.8% in (p.223) 1993, 20.5% in 1998, 14.6% in 2003), albeit with a slight decline in the early 2000s.
Another important issue with regard to the horizontal dimension of tertiary education is representation of women in various fields of studies.4 Women are significantly overrepresented in health and welfare (85%), teaching, training, and education sciences (83%), as well as in humanities and arts (79%). There is also a slight overrepresentation of female students in social sciences, business, and law (64%), as well as in service specialties, though for the latter the proportion of women enrolled decreased from 58% in 2002/03 to 51% 2003/04. However, such fields of study as engineering, technology, natural sciences and mathematics are largely male-dominated, with only 22% and 38% of females being enrolled in them, respectively (Latvian Central Statistical Bureau, 2002–04).
Standardisation, quality differentiation and openness of tertiary education
According to the OECD (2001), nation-wide standards do not exist at the tertiary education level. In 2001, the Cabinet of Ministers adopted standards for 1st and 2nd level higher professional education, which define the compulsory contents of each education level.5
Each institution of higher education must register with a Register of Higher Education Establishments, which is a duty of the Ministry of Education and Science, and the data have to be publicly available on request. Higher education institutions must license their programmes before starting them, and must have accreditation at least three years after starting the programme. Accreditation is organised by the Ministry of Education and Science and ensured by the Agency of Assessment of Quality of Higher Education, and has to include both national and international experts. The list of accredited higher education institutions and colleges (i.e., those that may issue diplomas recognised by the state) and accredited programmes have to published in the official newspaper at the end of each academic year.
At the tertiary level in Latvia, there are both public and private education providers. At the beginning of the 2006/07 academic year, there were 17 state colleges, 9 private colleges, 20 state higher education institutions and 14 private higher education institutions. Being a student of a state college or state university does not mean that students do not need to pay tuition fees. In fact, the proportion of students who pay tuition fees increased from 64% in 1999/2000 to 77% in 2005/06 (Latvian Central Statistical Bureau, 2008).
Tuition fees differ in various programmes and various higher education institutions. They might differ from 250 to 8,700 LVL (€356 to €12,379) in state higher education institutions, to 340–4,100 LVL (€484 to €5,834) per academic year in private institutions. There is no real correlation between the real expenses of the programme and the level of the study programme. The (p.224) tuition fees depend on the number of applicants in the programme and their paying capacity. In general, tuition fees at the higher education institutions in the capital of Riga are higher than in other regions.
In order to assist individuals who want to become students and who have to pay tuition fees, in 1997 a system of study loans was established. Both full-time and part-time students may apply for a study loan. A student (social) loan was also established, which helps students to cover living costs. A student loan is available for full-time students for 10 months a year. It is 120 LVL (€171) per month, starting in February 2006. Loans have to be paid back starting from the 12th month after the graduation or the 3rd month after interruption of studies. Loans have to be paid within five or ten years, depending on the sum. In addition, there are also a number of ‘budget student places’, which is defined by the Ministry of Education and Sciences.
Latvia's economic development can be divided into three stages during 1990–2006. Each of these periods is characterised by several important tendencies, which created political and economical changes in Latvia. The first period, from 1990–93, was a period of institutional reform (legal and state administration) in order to develop the infrastructure necessary for the market economy and the reform of prices and market, which started with liberalisation of prices and foreign trade (Trapenciere et al, 1999). This stage ended with the restoration of a national currency. The formerly socialist Latvia started to change from a command economy to a market economy. Deep systematic and structural reforms in the national economy were necessary because the technological level of industry was low in comparison with Western European countries. Privatisation was dominated by two main factors. Instead of mass privatisation, a case-by-case approach was used, with the emphasis on seeking strategic partners and selling controlling interests in enterprises. Additionally, there was a small-scale voucher scheme under which about 15% of company shares were made available in public offerings (OECD, 2000). Primarily, state-owned companies were privatised because privatisation focused on small and medium-sized enterprises (SMEs). However, the large utility companies remained under at least partial state ownership, especially in the fields of telecommunication and energy. When characterising that period, it is important to emphasise the sharp decrease of production and GDP. Beginning in 1990, the gross domestic product (GDP) registered a strong decline in real terms during the first years of transition (Figure 8.6). This transitional recession peaked at 32.1% in 1992, representing one of the strongest recessions in Central and Eastern Europe (p.225) (CEE) countries after 1990. Inflation was extremely high because most price controls were removed at the beginning of the 1990s and relative prices adjusted to relative scarcities. This hyperinflation induced a strong decline of the real value of cash benefits and wages. Efforts directed towards macroeconomic stabilisation, such as tight monetary and fiscal policies, were successful and inflation dropped from 951.2% in 1992 to single-digit levels afterwards.
The second period lasted from 1994–99, when the main measures for the stabilisation of Latvia's economy were realised, including reforms of the financial sector and tax reforms. During this period, the private sector started to develop through privatisation and attracting foreign capital. This period was characterised by a policy of economic stabilisation and restructuring. The most characteristic features were increasingly stabilising consumer prices and an annual increase of GDP. The export–import balance of goods and services became negative, but there was a rapid increase in foreign capital and investments, which is related to privatisation. Around 1995, there were crises in the banking sector, which were followed by consolidation and incorporation of banks. In response to these crises, the government accelerated privatisation and other reforms. This positively influenced the national economy, and by 1997, growth in Latvia was among the fastest in transition economies, with a peak of 8.3%. In 1998, a renewed drop in GDP growth took place in Latvia because of the Russian crisis, which, in combination with the Asian crisis, created a serious drying-up of international capital flows to transition countries like Latvia.
The last period that started in 2000 is characterised by dynamic economic development. Structural reforms began in 2000. These reforms were related to Latvia approaching the economic environment of the European Union (EU), and to its preparation to enter the EU and to organise its economy to make it more competitive. The economy returned to its positive growth path in 2000. Economic performance became better and better in the new millennium. GDP growth increased from 3.3% in 1999 to 11.9% in 2006. The increase was concentrated in three dominating branches – the manufacturing industry, commerce and transport. Economic recovery also induced high investment dynamics and increased stability of the financial environment. National debts remained rather low and the budget deficit became less pronounced. However, this period is also characterised by several problems, such as high levels of unemployment, increasing inflation circa mid-2003, and explicit disproportions of regional and social development, with a concentration of resources in Riga.
Labour market dynamics
In Latvia's economy, structural changes are in progress, which is indicated by the redistribution of employment among economic sectors. In 1990, at the beginning of the economic transition, 17.3% of the employed individuals worked in agriculture, 37.4% in industry and 45.2% in services (Figure 8.7). Although the agricultural share of total employment was already high in 1990, it increased to a maximum of 21.5% in 1997. During the period from 1997–2005, however, the agricultural employment share declined steadily and significantly to 12.1% in 2005. The initial shift toward agricultural employment is the result of the combination of two related policies: the privatisation of agricultural production and agrarian reform. For example, privatisation enabled around 200,000 small businesses in the period between 1992 and 1998 (Trapenciere et al, 1999). These new farms were usually cultivated on small family plots, contributing only marginally to GDP. Agricultural employment was dominated by subsistence farming, and/or as an important source of secondary income. Furthermore, it is often an employment opportunity of last resort for many laid-off workers and pensioners, which might be interpreted as a form of ‘hidden unemployment’ (OECD, 2003).
(p.227) In contrast, the employment share in industry and construction decreased permanently during the whole transition period, to 25.8%. The industrial sector is characterised by a predominance of large enterprises, especially in heavy industry and engineering that was developed mostly after the Second World War under Soviet rule. These industries that were formerly deeply integrated in the Soviet economy often had problems avoiding stagnation of output. In contrast, positive trends have largely persisted in the wood and apparel industries (OECD, 2003). The service sector's share of total employment increased to 62% in 2005, and today represents almost as many employees as in most OECD countries. Dominant activities are in wholesale and retail trade, financial and related services and public administration (common in most transition countries) (OECD, 2003). Thus, the service sector seems to be the driving force in the Latvian economy.
The transition period was characterised by a very strong decrease in employment and an increasing mismatch between labour demand and supply. Structural economic change has led to large-scale job destruction, which has not been fully balanced by new job creation. Figure 8.8 shows that labour force participation rates of the population aged 15–64 sharply declined from 79.3% in 1990 to 67.4% in 2006.6Figure 8.8 also shows gender-specific time trends in labour force participation. Both male and female labour force participation has the same evolution pattern over time, although there is a (p.228) difference in levels: the female activity rate is roughly 10 percentage points below that of men.
In 2006, the lowest activity rate is recorded for the youngest age cohorts (15–24), at 36.4% (Table 8.1). The population aged 15–24 is the cohort most affected by the fall in employment, whose activity rate fell from 56.1% to 36.4% between 1990 and 2006. This fall is partially related to increasing enrolment in higher education, but it may also reflect the increasing labour market integration problems of the young age cohort.
Table 8.1: Labour force participation rate by age cohort, 1990–2006
(p.229) In contrast, the middle-age cohorts reached very high activity rates of between 85%-95% during the transition period, but decreased by 10 percentage points compared to 1990. Participation rates of people aged 65 and over are relatively high, at around 9%-15% compared to the EU15.
Official registered unemployment in the public employment service, measured as a share of the active population (15–64 years old), was extremely low at the beginning of the transition period, at 2.3% in 1992. This is largely because unemployment was an unknown phenomenon during the communist era (Figure 8.9). The transition to a market economy led to an increase in unemployment figures.
In accordance with the two economic recessions at the beginning of the 1990s and in 1998, there were increases in the unemployment rates. In general, Latvia suffered from an increase in unemployment rates that peaked at approximately 9.2% of the labour force in 1998, after which it fluctuated at between 7%-9%. A comparison between the LFS unemployment rate and the registered unemployment rate reveals that the LFS unemployment rate is much higher. For example, LFS unemployment was 14.9% compared to 7% registered unemployment in 1997. The differences between registered (p.230) unemployment and LFS unemployment exist because the former represents all individuals who register officially, whereas the latter is a self-assessed measure. Furthermore, evolution patterns are different between LFS and registered unemployment: LFS unemployment decreased steadily whereas registered unemployment increased. This led to a convergent trend during the last few years, such that the discrepancy between the two measures diminished.
In Latvia, as in many other countries, the transition of youth from school to active life and labour integration remains an important labour market problem. The youngest age cohort of 15-to 24-year-olds is the category most exposed to unemployment. Apart from labour demand restrictions, which are especially related to working experience, difficulties in the professional integration of youth are also caused by the insufficient match between labour demand and the qualifications offered by the education system. However, a significant decrease appeared, falling from 34.1% in 1996 to 13% in 2005 (ILO, 2008). In addition to young people, another disadvantaged category of the labour market is that of the long-term unemployed. According to Eurostat (2008) data, the long-term unemployment rate, i.e., people unemployed for over 12 months, decreased from 9.6% in 1995 to 4.1% in 2005.
Minority ethnic groups, migration and regional differences
In Latvia, unemployment rates also vary between minority ethnic groups and regions. Belonging to a minority ethnic group increased the unemployment risk by 4%-5% in Latvia (OECD, 2003). The minority ethnic group represents a large share of the Latvian society: e.g. Latvians account for 57.7% of the population, Russians for 29.6% and other nationalities for 12.7% (European Commission, 2003).
Although Latvia is a relatively small country, the variation in employment and unemployment rates at the regional level is marked in comparison to other Eastern Europe countries (Antila and Ylöstalo, 2003). There is a sharp distinction between the capital of Riga, a few other large cities, and the remaining towns and countryside. Employment is heavily concentrated in Riga and the Riga region. Low employment and the highest level of unemployment are evident in depressed areas, especially in Latgale in eastern Latvia, which suffers from about 20% unemployment because of the closure of large state enterprises that previously worked for the Soviet market (Trapenciere et al, 1999). Of all the officially registered unemployed, 38.4% live in big cities and 61.6% live in rural areas. Among the long-term unemployed, the distribution is even less balanced: only 29.1% live in cities and 70.9% live in rural areas. These were primarily tractor drivers, dairy maids, cattle-breeders, agricultural workers, truck drivers and construction (p.231) workers. The figures demonstrate that the enterprises that have dismissed people are primarily located in rural areas.
Labour market institutions
After its independence, Latvia equipped itself with a regulatory framework for labour markets, which is liberal by European standards (OECD, 2003): liberal employment protection regulations, decentralised wage setting and collective bargaining. The old Soviet Labour Law from 1972 was in force during the first transition years but many particular elements of it have been gradually modernised since 1991, especially inspired by the need to conform to EU and International Labour Organization (ILO) standards (Trapenciere et al, 1999).
Employment protection regulation
Whereas under the centrally planned economic system, workers enjoyed a fairly high degree of employment protection in their jobs, a substantial moderation of workers’ protection occurred during the transition. The objective was to facilitate workforce adjustment for firms in order to make enterprises more flexible while guaranteeingemployment protection for workers. Latvia and other CEE countries tend to be most restrictive concerning collective dismissals compared to the EU (see Table 2.7 in Chapter Two of this book). Latvia's regulation concerning regular employment coincides with the average pattern found in CEE and EU15 countries. Rules for temporary contracts are more restrictive in Latvia than in other CEE countries on average. For example, the use of temporary contracts is restricted to specific objective reasons and cannot last longer than two years, including consecutive temporary contracts (Clauwaert et al, 2003).
Latvia's industrial relations systems were dominated by the state before the transition. After 1990, the system moved to a free and mostly decentralised bargaining style as in many other CEE countries. Wage bargaining usually takes place at the company level or to a lesser extent at the sectoral level, whereas the regional or national level bargaining does not exist (Visser, 2004:Table 1.8).
Union membership has declined sharply during the 1990s from total coverage of the workforce registered at the beginning of the transition. According to Paas et al (2003), the Latvian unionisation rate decreased to 30% during the mid-1990s to 25% during the late 1990s. Van Gyes et al (2007: Figure 2) report a further decrease from 25% in 1998 to 16% in 2004. (p.232) This decrease can be explained as in other CEE countries by the abolishment of compulsory membership and economic turbulence. Currently in Latvia there is a new mood of optimism among young people joining the unions (Antila and Ylöstalo, 2003).
Even more important than the number of unionised workers is their coverage by collective agreements. Van Gyes et al (2007: Figure 4) estimate the percentage of employees covered by collective agreements as under 20% for 2002, representing the second lowest level of union coverage compared to other CEE countries. Surprisingly, in contrast to Western European countries, coverage by collective agreements does not usually differ much from union membership in Latvia as well as in the other transition economies (Paas et al, 2003).
Labour market policy
Active labour market policy
The Law on Employment was implemented in 1992 to define the regulatory role of the state on the labour market. It foresaw the development of the state employment service as an agency to regulate the labour market. Its network was completed in 1993–94. It is also involved in active labour market measures: locating work for the unemployed, educating and retraining them, and involving them in salaried temporary public work. Altogether, during the early transition period, labour market policy was characterised by insignificant expenditure on active measures because of low unemployment rates. Nevertheless, the state tried to take an active role in labour market policy.
The main types of measures promoted have been training and retraining measures for the unemployed, accounting for about 60% of active programme expenditure in 2001 (Paas et al, 2003). A key tool in fighting unemployment was retraining the unemployed, which began in 1992, with around two thirds of the active labour market measures allocated for training. Of the 115,000 newly registered unemployed in 1994, only 8.3% expressed a willingness to change professions. Two thirds of the unemployed willing to study were women. The unemployed were offered more than 30 different study programmes, including computer literacy, accounting, private entrepreneurship, sewing, secretarial skills, welding, brick-laying, tree-felling and carpentry. In order to motivate the unemployed to take up studies, the state granted stipends of 50% of the minimum wage during the courses. As of 1994, the unemployed may receive the grant during their course of studies (for a period not exceeding six months), regardless of whether they are (p.233) entitled to receive unemployment benefit. This measure has been effective: in 1994 the number of retrained unemployed people from rural areas has increased, particularly in the Latgale region. According to state employment service data, about 35%-50% of such people find employment within half a year after completing their studies.
One of the forms of training was creation of ‘job clubs’. Their role is mainly social-psychological rehabilitation, to stimulate the initiative of unemployed people and to encourage the development of a dialogue between employers and the unemployed. Experience showed that the chances of the unemployed successfully completing their studies and adjusting to the labour market demand largely depend on age and education. Furthermore, more than one million LVL was allocated from the state budget for the provision of salaried temporary public works in 1994.
However, data from the late 1990s and early 2000s indicate that, compared to other countries, ALMP plays a small role in Latvia, with expenditure of about 0.14% of GDP during the late 1990s (OECD, 2003). By comparison, such spending in OECD countries ranged from 0.09% of GDP in Japan to about 2% of GDP in Sweden. The total inflow of ALMP participants in 2001 corresponded to 4% of the labour force in Latvia, with public works comprising a large amount of the total. According to the expenditure, the most important active measure is professional training (60%), followed by public works (36%) and job clubs (4%) (Paas et al, 2003: Table 6). Priority of involvement is given to people from disadvantaged groups, such as people with a disability, young people, long-term unemployed and non-Latvian speakers. In contrast, Latvia's volume of expenditure on passive measures, most importantly unemployment benefit, has been remarkable (0.42%-0.86% of the GDP) due to their relatively high average unemployment benefit (Eamets, 2004).
The Law on Employment (1992) fixed the total duration of unemployment benefit receipts to six months within a 12-month period, although this period could be prolonged for up to 12 months by local governments. Unemployment benefit amounted to 90% of the minimum wage for those who lost employment through no fault of their own, and 70% of the minimum wage for those who have never been employed. The latter category included graduates of education institutions, people released from correctional institutions, etc. After expiration of the six-month period during which they were entitled to receive unemployment benefit, many inhabitants who reside far from state employment service departments and offices in rural areas did not turn to the service to register as long-term unemployed.
(p.234) In 1995, the system was reformed. The Law on Compulsory Social Insurance defined that unemployment benefit directly depended on years of insurance and average salary during the last six months. For example, for insurance periods of one to five years, unemployment benefit amounted to 50% of the average salary of the last six months spent in employment. For longer insurance periods, the replacement rate increased: 55% for 5–15 years of insurance, 60% for 15–25 years of insurance and 65% for over 25 years of insurance. The full amount of the benefit was paid for the first three months of benefit receipt. Thereafter, the amount was reduced to 80% of the initial benefit for the third to sixth month, and 60% of the initial benefit for the sixth to ninth month. Unemployment benefit is still paid for nine months. Furthermore, the law states that both employer and employee pay taxes for insurance against unemployment. In the course of the reforms, the number of registered unemployed who received unemployment benefit declined from 82% in mid-1992 to 30% in mid-1996.
Table 8.2: Characteristics of the Latvian unemployment benefit system
Average monthly unemployment benefit in LVL by I insurance period in years
1–5 (1999), 1–9 (from 2000)
in % of average net wage
in % of minimum wage
5–15 (1999), 10–19 (from 2000)
In % of average net wage
In % of minimum wage
15–20 (1999). 20–29 (from 2000)
In % of average net wage
in % of minimum wage
〉20 (1999), 〉30 (from 2000)
in % of average net wage
in % of minimum wage
Share of registered unemployed receiving benefits
Subsequently, the rule for calculating unemployment benefit changed. From 2000 onwards, contribution periods of one to nine years were required for a (p.235) replacement rate of 50% (they previously required one to five years), 0–19 years of contribution payments were required for a replacement rate of 55% (they previously required 5–15 years), and 20–29 years of contribution payments were required for a replacement rate of 60% (they previously required 15–25 years). Replacement rates for people with relatively longer contribution histories therefor decreased. Furthermore, for the third to sixth month of benefit receipt, only 75% (instead of the previous 80%) of the initial benefit is paid, and for the sixth to ninth month, only 50% (instead of the previous 60%) of the initial benefit is paid. The latter reform reduced benefit levels for all recipients.
Table 8.2summarises the central characteristics of the Latvian unemployment system. Individuals having been insured for one year were receiving, on average, 40% of the average net wage and 83% of the minimum wage in unemployment benefits in 1999. Relative to these reference categories, their position has not declined in the following years. In 2006, they even received 91% of the minimum wage as unemployment benefit. For groups with longer insurance periods, benefit levels declined somewhat between 1999 and 2005 relative to the average net wage. To receive unemployment benefit close to the level of the minimum wage, individuals require rather long contribution periods. The share of unemployed receiving benefits was very high at the beginning of the transition (80% in 1992), but declined substantially thereafter as eligibility criteria were tightened, stabilising at around 40%-50% in the early 2000s.
A legal minimum wage exists and is set by the government following recommendations by the Tripartite Consulting Council. At the beginning of the transition, the minimum wage was rather low. For example, the ratio of the minimum to average wages was set at 35% in 1991, but fell to just over 26% in 1993 (Paas et al, 2003). Thereafter, the minimum wage rose substantially, reaching 53% of the net average wage of employees in 2004 (Table 8.3). It declined again thereafter, but between 2005 and 2008 the level doubled in nominal terms from 80 LVL in 2005 to 160 LVL on 1 January, 2008.
Table 8.3: Minimum wage in Latvia (in LVL), as of 1 January in respective year
Monthly minimum wage, LVL
As a % of net average wage
Source:Latvian Central Statistical Bureau (2008)
Data from Eurostat indicate that expenditure on family policies amounts to around 20% of total social insurance expenditure (minus expenditure for old-age insurance). Of this, around 80% is spent on cash family benefits, while in-kind benefits constitute only 20% of expenditure on family policies. These relative amounts have remained almost constant between 1997 and 2004.
Kindergartens are under the responsibility of municipalities, who define the working hours, salaries for staff and support to municipal kindergartens. In 2006, the Ministry of Education began paying part of the salaries for municipal kindergarten teachers. Salaries for staff of private kindergartens and childcare centres are not paid by the municipality or state. Family policy did not foresee the construction of kindergartens, as, according to legislation, it is the responsibility of municipalities. This has resulted in very long queues for kindergarten places. The waiting list constitutes 156,122 children as of 1 January, 2006 (Latvian Central Statistical Bureau, 2008). Legislation imposes strong rules for opening a kindergarten; therefore, the number of private kindergartens has remained small.
The number of kindergartens have decreased dramatically – from 1,123 in 1990 to 611 in 1996 and then to 550 in 2003. Accordingly, enrolment has decreased from 53.9% of children aged three to six in 1989 to 40.1% in 1994. Since 1994, enrolment rates grew again. However, declining fertility rates may be a central factor behind this ‘recovery’: the total fertility rate declined from 2.0 children per woman in 1990 to 1.11 in 1998 (Central statistical bureau data). Starting in 2002, pre-school education (‘compulsory preparation for school’) for five to six-year-old children became obligatory. Pre-school for five to six-year-olds is provided in kindergartens, schools and centres for child development. Pre-school education for this group means provision for the preparation for school, which might take place twice a week, three hours per day. It does not mean that each child who is five to six years old is included in full-time childcare facilities. There are no other studies on the topic.
(p.237) Children not attending kindergartens are obliged to receive some ‘preparation for school’, which may take place in school buildings, child development centres, etc. The pre-school education at schools or hobby education centres is usually organised twice a week, about two to three hours per day. This has increased the enrolment of five to six-year-olds to 90% in 2005. The enrolment was 40% (ages one to six) in 1995 and has reached 63% in 2005 (ages one to six). The data reflect the number of children in any kind of child care, encompassing full-time enrolment and part-time enrolment in any kind of child centres that provide care for a few hours per day.
A study on the reconciliation of work and family life in Latvia found that availability of pre-school education in Latvia is rather limited, and that the majority of pre-school education establishments offer education to children aged three and older. The earliest age when children are accepted at public child care is one to two years. However, the number of places for young children is very limited. According to statistics, in 2006, there were 1,367 places in nurseries in the whole country for children aged one and younger. Private pre-school establishments usually accept children from the age of two.
Table 8.4: Age group specific pre-school enrolment rates (1997–2005)
Source: Latvian Central Statistical Bureau (various years)
The majority of public childcare establishments work five days a week, 12 hours per day. The most typical working hours are 7.00am (8.00am) -19.00pm. Municipalities approve the working hours of municipal kindergartens. The majority of municipal kindergartens request that children arrive before 9.00am, but are flexible about the departure time. The price for childcare depends on several conditions. At municipal kindergartens, parents have to pay for food (breakfast, lunch, afternoon snack). The average price is 1 LVL (€1.4) per day. Although the price for kindergarten care is not very (p.238) high, there are families that cannot afford to pay it. These poor families may apply for municipal support to cover the costs. They need to apply for poor household status (50% from minimum salary per household member). The municipality will then cover the childcare costs for a definite period (usually three months). If the financial situation of the household has not improved during this time, they may apply for assistance again. Single-parent households do not have any priority on the waiting list for kindergarten places. In private childcare centres, the monthly price in 2006/07 was 160 LVL + 30 LVL for food, which means that only better-off households with two breadwinners could afford it. Municipalities do not support private childcare.
To ensure a minimum standard of living for themselves and their families, individuals may apply for GMI benefit. The GMI level was defined by the Cabinet of Ministers in 2003. In 2007, it amounted to 27 LVL per month. Local governments are in charge of administering payments and determining the benefit level for applicants. Benefit levels are means-tested, taking into account the income (including family benefits) of the household. They are calculated as the difference between the income of the household and the statutory minimum, which amounted to 27 LVL per month for a single person, 63.40 LVL for a single-parent family with two children, and 90.40 LVL for a couple with two children. As a reference, the monthly average income for 2006 was 302 LVL gross and 216 LVL net, while the minimum wage was set at 120 LVL. Benefits are not subject to taxation. Local governments may, however, grant a higher minimum income level if funds permit. The GMI benefit is granted for the time period for which the status of needy family or person has been assigned, but cannot exceed three months. After three months, the person is entitled to apply for the GMI benefit again. Maximum duration of receipt of benefit for one person is nine months in the course of one calendar year.
In order to receive the benefit for ensuring the GMI level, the family or person must address the social office of the local government where he or she has registered his or her place of residence, and submit a number of documents. To stimulate beneficiaries to obtain income from paid work and not to become dependent on benefits, a limitation on the maximum amount of benefit has been established. The local government has the authority to pay other benefits after the demand for the GMI benefit has been satisfied, depending on the situation of the local budget.
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(2) The 1998 Education Law specified that compulsory education includes the preparation of five-or six-year-old children and included basic education, which might continue until the age of 18. One year of pre-school was established as the first stage of compulsory education in Latvia for five-or six-year-olds.
(3) In some cases (such as that of teacher education), professional training may take place concurrently with bachelor studies, and may last five years.
(4) The total proportion of women in tertiary education during 2002–04 was 62% (Latvian Central Statistical Bureau, 2002–04).
(5) The scope of the 1st level higher professional education is 80–120 credit points (CP), and the scope for the 2nd level higher professional education is at least 160 CP. Each programme has to include theoretical courses, practice, a qualification work for the 1st level, and a state examination, which includes bachelor thesis or diploma work.
(6) The labour force is the total number of people employed and unemployed.