E. Leontjeva. The state can print money, not people

The state can print money, not people

Governments have responded to the pandemic by printing money, thus disrupting the usual economic relationships. Financial capital, which was long regarded as a most-demanded resource, has lost its position to raw materials which in turn have lost to labour force. Today’s labour shortages are diminishing our ability to make use of all other resources.

Elena Leontjeva.

Elena Leontjeva.

A springboard of the century: time to invest and expand

The global crisis and global structural changes provide a rare opportunity for businesses to make more contracts, invest in expansion and innovations or build new facilities—demand in the market is almost limitless. For a small country like Lithuania, this is the opportunity of the century that is hardly likely to evolve again any time soon. But we have to act now. Investing has to happen now. Time becomes a key factor of success.

Every investment decision starts with a feasibility study where one of the most important questions to ask is whether necessary workforce is available in sufficient numbers. It has been obvious for some time now that labour market prospects for new investments in Lithuania are ambiguous. This ambiguity presents a clear signal to investors that this is not a good place to put their capital in, unless there are generous state subsidies to attract and to win over labour force. This, however, would not be good news for the businesses around. This would cause even more severe workforce shortages.

But perhaps our economy does not need to expand—maybe all it needs is for businesses to make better use of the existing machinery, open up a second or even a third shift and by doing so secure more contracts, more customers? Business owners respond by asking how to run an additional shift when they are short on 10-20% of workers to make the existing capacities work. The speed of the pandemic has added an extra burden—a business has to have a workforce reserve in order to complete shifts, survive sick leaves, self-isolation mandates, and to cover for those who have chosen voluntary unemployment in protest to COVID-19 measures (because government relief policies accommodate that…).

It is not surprising then that many businesses are unable to exploit even part of their manufacturing potential. They are forced to balance the need to deliver on the existing contractual obligations and, of course, make use of every opportunity to grow. It is tough to recognize that a once-in-a-lifetime opportunity to take part in the global redistribution of markets may be missed. It is even more difficult to believe that global redistribution has touched the most sensitive segment—labour force and talent.

The market worth its weight in gold

A human being is the rarest and most valuable resource. If a production line is short on hands to work it, these hands become a greater talent than any genius, an engineer or an architect. Of course, everything is being done  not to halt production, forcing people to work under stress, take on more workload, accept the growing risk of both conflict and accidents at work.

The services sector is also short of workers. To what effect? Shortages are leading to longer service times, poorer quality and rising prices, and the burden is incrementally being passed onto the consumer. Waiting time for a service that used to be instantly available now extends into months. And once you do get that service, you have to contend with whatever the culture of service, quality or price there is. People dream of having their plumbing fixtures fixed, paintings hanged up and gazebos painted. The private sector is not the only one stuck. There are unprecedented shortages of social care and health care professionals, meaning that the most vulnerable in our society are not getting the care they need.

So the most important economic policy task that is needed now is mobilising into work all those who could but do not work for various reasons. Interestingly, many people who are officially recorded as unemployed do not consider themselves jobless. The difference between the unemployment figures recorded by the Employment Service and Statistics Lithuania based on population surveys is in the vicinity of a hundred thousand people!

The statistics on job vacancies do not reflect the reality either as the records only include the job vacancies registered with the Employment Service, but for employers the Employment Service is often the last resort only when they want to hire somebody who is currently unemployed or when they want to start the official process of employing a foreign national. In all other cases, hiring happens through recruitment firms, classified ads and communities. The actual worker shortages are more severe than officially published.

Failing to employ the unemployed

In Lithuania, the unemployment trap is one of the biggest in Europe. According to 2020 figures, the unemployment trap was 87% in Lithuania when the EU average was 74%. The unemployment trap shows that it is just “not worth it” for people to get back to the labour market. It means that people who lose their jobs once are at risk of becoming long-term unemployed because their pay wouldn’t be much higher than social benefits. Often, social benefits are supplemented by income from undeclared work. Also, people who work illegally may additionally be trapped by debt—payday loans, neglected children, and other social issues. Shadow economies tend to suck in and never let go: people who build relationships and work for longer periods of time in the informal sector tend to stay there. People lose their skills, competences of working in a team, social skills, motivation and, most sadly, they lose the sense of responsibility. Even the recent growth of wages, 12% on average in recent years, has proved helpless against the unemployment trap set up decades ago.

Not depriving people of motivation to work is just the first step. The second one is to organise the work of responsible public institutions in a way that rewards achievements rather than process. Perhaps then the Employment Service will finally start delivering on its mission. Perhaps then professional private recruitment agencies could be engaged into the process of retraining and finding jobs for the unemployed and in the process of integrating foreign nationals. Currently, the Employment Service spends a lot of time serving those who are not even looking for a job at all but register as unemployed simply to make use of public health care and other benefits generously provided by the state.

Efforts to bring people back to a dignified life requires more than just money: they need support to overcome the attraction of unemployment or illegal work by learning about the importance of personal responsibility and the principles of legitimate work. This is a difficult task but it means genuine help to people who find themselves in tough circumstances.

A strange kind of leadership

The labour market crisis and the global battle over talent naturally draw attention to our demographic outlook. By 2050, Lithuania will be one of the oldest societies in Europe with a mere 1.7 working individual per one retiree. This makes it difficult to predict how long we will have to work until retirement and how big of a pension we might expect when we finally do retire. Putting aside the long-time attempts to boost the birth rate and support returning migrants, it is worth looking at what policies we need to promote legal immigration.

The existing lengthy and burdensome bureaucratic procedures do not protect against potential problems, but they do prevent most-in-demand talent from coming into the country. A situation where it takes four to six months to bring a technologist or an engineer from Ukraine could mean a death sentence for business. If there isn’t a person to repair machines, or a person to develop and adapt electronic systems, losses are way higher than just wealth not created by that single person. Today we’re risking entire chains of wealth creation.

At a time when both the economy and social care are desperate for more brains and hands, our migration policy just falls so terribly short of reflecting today’s needs. The state defines the labour market need and translates that need into figures, lists of needed professions, lists of eligible companies and quotas. And then it puts all those wishing to hire migrant workers through complex and snail’s pace bureaucratic procedures! The state seems to forget that it is market players who are best positioned to identify those needs, that it is constantly changing labour market demand that takes care of sorting everything out, while government’s attempts to describe and put it into the most perfect of lists and quotas once a year are doomed to fall behind and paralyze market processes.

On top of all those government lists and quotas, public authorities check whether migrant workers have education and work experience that meet the employer’s needs, swamping everyone in meaningless and costly red tape. This harms both foreign workers who cannot come and work here and businesses that are forced to limit their production at a time when they can growth manyfold. Ultimately, we all are worse-off because wealth creation stops today and will be lower tomorrow.

A battle is being fought over the human talent, brains and hands globally, so the challenge for the state today is to find ways to invest in the most precious of capitals—the human capital.

By Elena Leontjeva, President of the Lithuanian Free Market Institute. 

An op-ed originally was published at 4liberty.eu