Labour Market Flexibility and Migration in the Baltic States: Macro Evidences

Abstract

The Eastern enlargement of the European Union and the requirements of the European Monetary Union call for increased flexibility of labour markets in both the current EU members and candidate countries. If labour markets and institutions are rigid in the monetary union, market disequilibrium is likely to grow. The present paper aims to give a macroeconomic overview of the Baltic States' labour market in the period 1995-2001, laying emphasis on the issues of labour market flexibility and labour migration in the context of EU eastward enlargement. The Baltic States comprise a particular regional cluster and an interesting case for making generalizations about the processes of transition and EU eastward enlargement, and developing a new field of economics - the economics of transition and integration. In real terms, one has to admit, the influence of the Baltic economies on the EU eastward enlargement processes can hardly be significant, as the very small size of the Baltic markets bears no comparison with either the markets of the current EU member states (EU15) or the other candidate countries (CC). The Baltic States have dutifully observed the main international standards regulating labour relations in accordance with the EU rules. Comparing the Baltic States' labour market with those of EU15 and the other candidate countries, one comes to the conclusion that the Baltic States' labour markets are flexible. The most flexible among them is the Estonian labour market followed by that of Latvia. However, predictably, after joining the EU, the labour markets of the new members may become more rigid due to the increasing influence on them of institutions and trade unions, and due to more generous funding of labour market policies. Moreover, a decline of wage flexibility can be predicted. Free movement of labour as a natural consequence of EU enlargement will also exert pressure on the Baltic labour markets due to the possible migration of better-qualified and flexible labour force, and cross-border movement of labour within the Baltic Sea Region countries. Coupled with ageing of the population, it may increase shortage of skilled labour. Consequently, if labour mobility increases and labour market flexibility declines remarkably during the enlargement processes, market disequilibrium is likely to grow in the Baltic States as well.