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

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.

  1. Podargus
    April 9, 2012 at 9:32 pm

    So,where are these people emigrating to? Are they they really welcome in their target countries?
    The world is full up.Overfull,actually.I think the days of large scale migration are over unless you are thinking in terms of military assisted movement,aka invasion.

    • merijnknibbe
      April 10, 2012 at 7:32 am

      Actually, it’s surprising where they are going to. Lots of Portuguese are going to Brazil and Mozambique (former colonies where they speak Portuguese), Lots of Baltics seem to go the the UK, Spanish people move to South America. Australia seems to be a favorite place for people residing in Ireland. Greek people are even moving to Turkey (or maybe I should say Istanbul). People are also going to Germany, which witnessed an increase in population in 2011 after many years of decline. But the surprising point: many people are leaving Europe. Language seem to be quite important. Learn German!

    • April 11, 2012 at 2:57 am

      I agree with your opinion very much. All of the world are full up! It’s a fact. especially the developing countries, they want to be rich expeditiously. even if there is or not a balance of economic and population.

  2. velo
    April 10, 2012 at 6:33 am

    Surpisingly good analysis.
    I think Lithuania case is extreem example that will not nesessarely lead to relocation of all PIGS region.
    Lithuanians are used to live with relocation over the centuries starting from force deportations after 1861, 1863 uprisings, 1940, 1946-1946 to Siberia.
    It was vast emigration to US in the beginnig of 20th century.
    The second reason is wide spreaded opinion on the Lithuania pension system “bancrupcy”.
    Having legal tax payer status in richer countries for about 5 years they get the warrant on pension in that countries together with local one.
    The third is geometric progression in emigration when first emigrants settle and send the message back with big part of “advertisement element”.
    Each government working on short term strategy and “happy” about decresing of social security pays recepients.

  3. Ignacio
    April 10, 2012 at 2:05 pm

    Good analysis. Nevertheless I would not try to extrapolate these data to the future of Spain for many reasons. An important difference is a question of scale. Another important difference is that there are many inmigrants that came before the crisis. I also guess that social safety nets are larger in Spain that in Lithuania. My opinion is that before thinking on migratory movements we should focus on austerity itself and total employment. I don’t know how compares the actual fall in state spending in Spain and in Lithuania. It is quite a bit difficult to quantify. For instance, the new spanish government has probably “inflated” government deficit in 2011 in order to blame the opposition and get credit for their ability to reduce deficit with less pain than expected. So, when the government says that they will cut government expenses by 40 billion euros, the real cuts will be lower since they have transferred some 2012 expenses to 2011 balance sheets.

  4. Cass London
    April 11, 2012 at 2:34 pm

    There are 2 Lithuanians working on the front desk and at least 5 working in the canteen of the office I am writing from in London. That’s a lot for a nation of 3 million. They tell me there are only old people left in their home towns.

    The worry here is that catastrophe in Greece, Portugal or Spain might cause a northerly migration so large that the northern countries would be forced to reintroduce visas for southern nationals. This would represent a de facto north-south partition of the EU.

  5. Gvidas Vilkas
    April 12, 2012 at 2:10 pm

    Merijn, thank you for the additional analysis.
    I totally agree with you that emigration from the Baltics went up over the past years – for a number of reasons. I do take issue with you over your use of the term ‘austerity’ and an overly simplistic interpretation of the reasons for emigration from this region.
    I understand austerity to mean public sector savings, which – by all means affect the private sector – but aim primarily at reducing public sector expenditures directly.
    If you look at the data at http://db1.stat.gov.lt/statbank/SelectVarVal/Define.asp?Maintable=M3060209&PLanguage=1 (apologies for not being able to link to the output) you will see that employee numbers in the Lithuanian public sector have decreased by 7% between Q1 2008 and Q4 2011, while in the private sector they went down by more than 13% (in Q4 2009 that was -21%!).
    My understanding is that the ‘Great Financial Deleveraging’ in 2008-10 caused widespread disillusions (cue infrastructure shortcomings, corruption) and loss of hope, encouraging people to look for alternative lives abroad. This does point to the strengths of the internal market in Europe.
    Lithuania is by far not the greatest place to live in, nor is it the worst. Government expenditure reductions, however, are in my opinion not the driving factor here. In fact, a public sector employment ratio close to 40% combined with notorious inefficiency and corruption in the sector are much more likely to be a primary motivator in emigration from Lithuania than austerity per se.
    Interestingly, immigration into Lithuania by Lithuanian citizens went up by a whopping 250% percent compared to the average of the previous five years to 14000 in 2011: http://db1.stat.gov.lt/statbank/SelectVarVal/Define.asp?Maintable=M3020114&PLanguage=1
    (Table M3020113 in the database suggests that Lithuanian citizens returned from the UK & Ireland).

  6. August 20, 2019 at 11:17 am

    Lithuania is an incredible country .. in such a short period of time to achieve such a level of economy

  1. March 17, 2013 at 2:21 am

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