Facebook Blogging

Edward Hugh has a lively and enjoyable Facebook community where he publishes frequent breaking news economics links and short updates. If you would like to receive these updates on a regular basis and join the debate please invite Edward as a friend by clicking the Facebook link at the top of the right sidebar.

Wednesday, March 12, 2008

Estonia and Latvia Unemployment February 2008

Although the situation is far from dramatic at the present time, Estonian unemployment is toicking up steadily, and in February 2008 there were 16 740 registered unemployed in Estonia, and increase of 982 or 6.2% from January. Nonetheless the unemployment rate remains very low at 2.6% according to recent data from the Estonian Labour Market Board.

A similar process is to be observed in Latvia, according to data from the State Employment Board, although in Latvia the unemployment rate (at 5%) is somewhat higher, while the increase in unemployment between January and February - from 53325 to 53429, or 104 - was much more modest.


Latvian abroad said...

There may be worse things coming. The rumours are that many real-estate related companies (from realtors to construction material industry) are about to start laying off people.

And a friend who is doing some construction work on his house reports that contractors are giving 25% discounts on labour, compared to their previous prices.

Latvian abroad said...

OK, that's 25% off the well-inflated price at the peak of the construction boom. But it's still a big discount.

Edward Hugh said...

Hi LA,

"There may be worse things coming."

Unfortunately, LA; I'm absolutely sure there are. The numbers you mention for wages in construction are what we might suspect, even if, as you say they are off an inflated peak. This is why I keep mentioning the possibility (should that be danger) of sharp wage deflation. The contraction in domestic demand is so steep that at some point the pressure to keep pushing up wages can turn into its opposite, and the whole thing has been so "roller-coaster", that the impetus downwards can mirror to some extent the impetus upwards.

At the moment inflation is still very much stuck in the system, but as the thing slows this can't continue indefinitely, simple economics of supply and demand tells us that.

What you seem to have is a severe credit crunch being applied in a very tightly constrained labour market. So wages and prices are slow to adjust, but they will eventually adjust.

The last time we saw anything similar to all this (and I don't mean to get scary here, its just there are few historical examples to go by) was in the US in 1930, when again there was a sharp credit crunch, but prices were very slow to adapt initially, since the US was short of labour in key age groups as they had shut off immigration in 1922.

Of course then the thing ddid adapt, and they had 10% deflation in each of the three following years. Clearly Latvia need not be anything like this dramatic, there are mitigating factors like EU funds. But the correction will be reasonably sharp IMHO, and we will see some sort of deflation.

For the rest, the situation with realtors etc sounds remarkably like Spain, here in Catalonia the press claimed some 50% of employess in estate agents lost their jobs between August and xmas. And bank lending in Spain came to a dead stop in December.

Try looking at the first graph in this post if you want to see an almost textbook example of a "sudden stop". Indeed lots of the charts - retail sales, industrial output - now coming out of Spain look just like they were from the Baltics.

Congratulations, you have a wonderful opportunity to learn a vast amount of macroeconomics in a very short time. As we say in English "every cloud has a silver lining", otherwise put even in the darkest moments we should try to be optimistic.