Low impact of the pandemic on growth, and a fast labour market recovery, but inequality remains a challenge
After regaining its independence in 1990, Lithuania embarked on a major economic transition from command to social market economy. This contributed to a catching-up towards the living standards in the European Union. The country’s EU membership in 2004 further helped to promote convergence. Lithuania’s per capita income is today at 87% of the EU average.
Labour markets benefited from these developments before the Covid-19 pandemic. The employment rate stood at over 77%, above the EU average of 72%, while unemployment fell to 6%. The shrinking population became a major bottleneck to growth. Lithuania’s population has fallen by nearly 25 % since the early 1990s due to high emigration and adverse demographic trends. Although net migration turned positive in 2019, the outflow of skilled labour continued, limiting the potential for growth. The shortage of workers has been growing in recent years while labour costs have increased considerably. Labour immigration from non-EU countries like Ukraine and Belarus is growing.
The economic recession caused by the Covid-19 pandemic was mild, but the negative labour market impact was considerable. GDP contracted by only 0.1% in 2020, substantially below the EU average of 6%. Strong pre pandemic growth and a rapid and robust government response to Covid-19 helped to weather the crisis. The fiscal stimulus package (11% of GDP) focused on income support for households, liquidity for businesses and support for the healthcare sector. Social partners participated in the design of the package. ILO estimates show that during the lockdowns 5.5% of all working hours, an equivalent of 71,300 full-time jobs, were lost (EU27 average: 7.4%). Part of these losses were absorbed by a reduction in working hours, but unemployment also increased from 6% in 2019 to 8.5% in 2020 and youth employment quickly expanded from 12% in 2019 to almost 20% in 2020 (EU average 16%). Headline unemployment figures have since declined, reaching pre-pandemic levels by late 2021, and youth unemployment even fell below 2019 levels, magnifying the challenge of labour shortages. The latter is also apparent in the near double digit percentage increase in wages, which, even when cleaned of inflation, stands at over 4% for 2021. However, concerns about inflation may become more prominent, as the import-dependent economy posted one of the highest inflation rates in the EU towards the end of 2021.
One of the biggest remaining challenges from before the Covid-19 crisis is that the gains of the country’s rapid economic development have not been equally shared. The risk of poverty or social exclusion remains among the highest in the EU (25% vs 22%, 2020). The country also has one of the highest income inequalities among all EU countries. Yet, the gender pay gap in Lithuania is relatively low (13% vs.EU27 average of 14%), as is the gender employment gap - at 2% the lowest in the EU. The pandemic underlines the need to go for a more inclusive growth model and to strengthen social protection.
The ILO in Lithuania
Lithuania is a member state of the ILO since 1991.
The ILO assisted Lithuania in its economic and labour market transformation and in its accession to the EU in 2004. Main areas of work included social dialogue, labour force surveys, effects of privatization and labour market transition, active labour market programmes, and labour law reform.
In 2021, the ILO supported Lithuanian trade unions to establish legal advisory services for migrant workers from Ukraine and Belarus.
Text last updated 3/22