Austerity, unemployment and emigration in Lithuania: a closer look (3 graphs).

from Merijn Knibbe

One of the important questions about the present economic mess in the Eurozone is if austerity and ‘Ueber-unemployment’ will lead to a (large) increase of international migration. Will millions upon millions of Spanish people leave their country? If so (which is of course to be expected), will this exacerbate the problems – as an ever smaller population will have to pay back ever larger debts?We might look at the Baltic states for an answer, as these countries (Estonia, Latvia, Lithuania) did not only experience crises which, at that time, were unusually severe but also because they decided to embrace austerity to improve the economic situation.  On January 27, I published some graphs on this blog about Lithuania which, according to me, indicated that crisis plus austerity indeed led to a dramatic increase in emigration. Unemployment was not going down because of job growth – but because people left the country. A commenter, Gvidas Vilkas, however stated that:

“The emigration figures shown here are those of residents that officially discontinue their residence in Lithuania. Many Balts living and working abroad maintain their residence in the region. In 2010, the Lithuanian government introduced a nominal flat rate for health care on Lithuanian residents that did not pay social security through their employment (we’re talking small amounts here, about 20 Euros per month). This led to a spike in the number of people turning up at their local registry offices to have themselves crossed of the register. This is not necessarily a direct effect of the so-called austerity measures, but generally shows the number of people leaving because of lack of infrastructure, prevalence of corruption, etc. (The Latvian government is introducing a similar charge this year – wait for its effect in official emigration numbers in the next months).”

So, time for a closer look at the Lithuanian data, which are especially interesting as Lithuania is one of the testing grounds for austerity. What happened (all data: Statistics Lithuania, which has an excellent English website)?
1.    The crisis caused a fast increase of the unemployment rate. Since the second quarter of 2010, unemployment is however decreasing again. Though still sky high – it is going down in a ‘robust’ way (graph 1).

2.    There are however several reasons why unemployment can go down. The number of employed people can increase – or the labor force can shrink. What happened in Lithuania? Graph 2 shows the employment and the participation rate, the difference (expressed as a percentage of the participation rate) is equal to the unemployment rate (for statistical geeks: all of this: U-3 concept).  The graph also shows an index of total employment and participation (head count), which is indexed to be equal to the employment rate/participation rate in the first quarter of 2007. The graph shows that:
a.    The participation rate went up (!) after the crisis, which seems to be a European pattern which differs from the USA pattern. But that’s a sideline. Fortunately, unemployment did not go down because disillusioned people left the labor force.
b.    After the second quarter of 2010, the employment rate also increased and the unemployment rate went down despite the increase of the participation rate. Wow!
c.    However… a different picture emerges when welook at the absolute number of people in the labor force and at work. The labor force is shrinking in an absolute way, despite increasing participation, and the number of employed is not really showing any kind of impressing increase during the last quarters…

3.    Where did all these people go? Graph 3 shows monthly data on emigration and immigration. Vilkas is ompletly right that the new law caused a sudden increase in the number (un)registering as residents of Lithuania. But though this shows that emigration was underegistered before the change of the law, it also shows that emigration was, in reality, quite high! Note that it’s also from this time on that the index and the rate data in graph 2 start to differ. Also emigration stayed quite high after the backlog had disappeared. My conclusion therefore was and is that emigration jumped to extra-ordinary levels after the crisis and austerity – and that austerity does not only shrink the economies but even entire countries. Sadly, unemployment in Lithuania is not down because employment increased – but because people left the country. And mind that it are not the old and feeble who emigrate.