Immigration boosts labour force

Workers DELFI / Kiril Čachovskij

Unemployment has shrunk 0.4pp in the second quarter of 2019 but was 0.2pp higher than a year ago – the first annual increase in unemployment since 2010. However, the reasons for the increase in unemployment is not a sign of distress or weakening in economic activity. The primary reason for the increase in unemployment was increasing economic activity rate, Swedbank reported.

Nearly 78% of people aged 15-64 were economically active in the second quarter and it improved by 1.1pp annually. The overall labour force grew by 1.1% in annual terms and exceeded employment growth of 0.8% causing an increase in the unemployment rate. 

The share of unemployed under 1 month grew quite dramatically at 20.6%, similarly group of unemployed 1 to 5 months grew by 16%. On one hand, it could be the first sign of deteriorating labour market, but it could also mean a spike in job switchers due to favourable economic conditions or it could reflect immigrant job seekers. The number of long term unemployed, meanwhile, has shrunk by 6.6% annually. 

Outlook: Moderate gains in employment 

The risk of overheating labour market has receded somewhat as economic outlook worsens, and migration trends improve. While vacancy rates are stable at a relatively high level, companies have become less worried about labour shortages. Reversal of migration trends likely provides significant support to the labour market. Net migration stands at +6061 for the first seven months, while total immigration for the last 12 months is nearly 40 000 people or 2.86% of all employed people. 

Current trends in the labour market are likely to persist in the future. We expect unemployment to remain at current levels, with moderate gains in employment supported by increasing activity rates and positive migration trends. Of course, the situation could deteriorate if the global economic outlook worsens significantly next year due to the escalation of the trade war, no-deal Brexit, etc.

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