• Sergei Kuznetsov

Baltic Migration Holds Some Upsides

26.02.2015
The three Baltic countries have seen some of the world's largest ever peacetime population transfers as hundreds of thousands of Lithuanians, Latvians and Estonians have left for higher salaries and better opportunities in western Europe – but their departure has a few upsides for those left behind, from higher remittances to lower unemployment.

The scale of the population shift is astounding, even by the standards of central Europe. Lithuania, a country of 3m, has seen the greatest exodus. In all, 440,000 Lithuanians have emigrated between 2004 and 2013, primarily to the UK and Ireland, while immigration remains relatively low.

“Net emigration accounted for one tenth of the population. This is one of the largest losses in the whole EU, not to mention the Baltic states,” Vilija Tauraite, senior economist at SEB Bank in Lithuania, tells the Central European Financial Observer.

Emigration has both short- and long-term negative effects. “It means a loss of labour power as well as a shrinking domestic market,” says Ms Tauraite. “Of course, there is also huge social damage when families live separately or children grow up with their relatives instead of their parents.”

Latvia, a country of 2m, has seen 13% of its population leave while Estonia has done better, with only 4% departing, says Vaiva Seckute, senior economist at Swedbank in Lithuania.

Olegs Krasnopjorovs, chief economist at the Monetary Policy Department of the Bank of Latvia, says emigration contributed to Latvia’s unsustainable boom in 2005-2007 by causing a labour shortage which led to unsustainable wage growth of about 30% per year. The rise in salaries exceeded labour productivity growth, aggravating demand-pull inflation and resulting in a loss of cost competitiveness.

There is a bit of a silver lining to migration, albeit only a temporary one. Emigrant remittances are an important source of income for Baltic stay-behinds. In Lithuania in particular, remittances make up around 5% of the country’s GDP.

“As far as official numbers are concerned, remittances are now equal to roughly a quarter of total wages and salaries received in Lithuania. According to different surveys, the actual figure could be even double that amount if unofficial transfers in cash and goods were to be counted. In the long run, the effect of remittances will naturally decrease,” Ms Tauraite explains. Once settled in their new countries, migrants may shift from sending money to families left behind.

Emigration has also paradoxically spurred income convergence in Latvia because there are fewer Latvians left to share the wealth. “During the last decade, GDP per capita has grown by about 20 percentage points to 64% of the EU average in 2013,” says Mr Krasnopjorovs. “That is one of the most spectacular rises in the EU. Yet part of this can be attributed to emigration. Emigrants could not take much capital with them. Therefore, the capital per capita ratio increased as a result of emigration, and income levels also went up.”

Despite the scale of net migration from Estonia being significantly lower than its neighbours, Orsolya Soosaar, an economist at Eesti Pank, believes the outflow of mainly young working age people has had serious consequences for the country’s economy. “It exacerbates labour shortages and puts pressure on wages. There are some fields where the outflow of specialists is relatively high because skills are easily transferable – for example healthcare personnel, transportation workers and construction workers,” she says.

Emigration is largely a phenomenon of the young, which also worsens the ageing of Baltic societies. That creates future risks for social security systems forced to take care of growing numbers of the elderly while being financed by fewer taxpayers. Departing families also have babies in London and Dublin, not Vilnius and Riga.

Under the growing pressure of mass emigration, the authorities in Lithuania and Latvia have started to think about how to encourage some of their people to return. Lithuania has set up a programme aimed at informing emigrants about work opportunities back home.

Latvia has run its own re-immigration support programme for the last few years, primarily aiming at providing information, promoting links and offering practical help for those who wish to return. “There is a wide variety of measures, such as improving the accessibility of labour market information, teaching the Latvian language, cooperating with the diaspora, and supporting pupils who return to the Latvian education system. The programme is particularly targeted to high-skilled emigrants (for which there is a great demand in Latvia),” explains Mr Krasnopjorovs.

But potential returnees are more interested in jobs than in information. “The best means of attracting emigrants back is to provide new employment opportunities and investment attraction, which are usually offered by private companies rather than by the state,” says Ms Tauraite. One glimmer of hope comes from business process offshoring, as growing numbers of such centres have relocated to central Europe. They offer competitive salaries and a Western job culture, and so may entice some emigrants to return.

The Baltic states are also beginning to attract some immigrants from Ukraine, Belarus and Russia, who have helped alleviate labour shortages by taking specialised jobs like truck drivers, filling the gap left by Baltic emigrants.

However current migration from the east is only a trickle compared to the flood of departures. Hiring non-EU workers is also made difficult by red tape. A further problem is that even though the outflow of people has been huge, unemployment is still too high to be much of a lure for immigrants, ranging from 7.5% in Estonia to 9.5% in Lithuania.

Then there is the long-standing Baltic problem with their legacy of being Soviet colonies. Latvia and Estonia in particular have large Russian minorities, however both make a point of requiring knowledge of the local language, a barrier for Slavic immigrants.

“High-skilled labour is demanded in some sectors, but for high-skilled vacancies knowledge of the Latvian language is compulsory, so eastern immigrants are unlikely to fill some open jobs,” says Mr Krasnopjorovs.

For Central European Financial Observer Sergei Kuznetsov in Minsk.

 

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