Wednesday, November 22, 2006

And While We're on the Subject of Unemployment

Today, the statistics bureau of Europe's two freest economies, Estonia and Latvia released their employment data. In Estonia, unemployment have fallen to 5.4% from 7.0% a year ago, while in Latvia, unemployment have fallen from 8.7% to 6.2%. In both cases, this occurred despite a significant increase in labor force participation. Total employment rose a full 6.2% in Estonia and by 7.2% in Latvia. While this rate of increase is unsustainable because first of all, there is a cyclical element in the Baltic boom (Both Estonia and Latvia have pegged their currencies to the euro and is therefore forced to adopt the loose monetary policy of the ECB) and secondly because Estonia and Latvia will soon run out of potential workers, this illustrates that low taxes and low welfare benefits will help to increase employment, contrary to the assumptions of certain leftist economists.


Blogger Jüri Saar said...

Even areas with the highest unemployment in Estonia are beginning to experience labor shortages. For the last year hiring someone competent in Tallinn has become increasingly difficult and lack of employees will probably start to drag down GDP growth as well.

There also seems to be fewer people willing to try to start their own business as finding employees for new businesses has become increasingly difficult increasing the risk of going into business, while salaries are are rising at 15+ per cent a year.

Meanwhile already established companies are becoming more and more comfortable with the present situation and the quality of services is also starting to suffer. Some of companies and employers are are in a situation, where they can't firing employees who they would have fired just a few years ago. Now firing someone means a difficult time of finding someone to replace them.

The high rate of employment is fast becoming a barrier to market entry in several sectors.

Sure, the productivity of Estonian's has room to develop, but this will take time...probably years. I run a business incubator in Tallinn and the only companies that we see being created are ones that allow companies to outsource some of their activites - accounting and personnel management to name two.

Jüri, from Tallinn.

PS. Is there any point to commenting your posts? I'll keep reading either way :)

3:19 PM  

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