I don't understand why are you saying that Latvia can't have lower unemployment? Saying that emigration is responsible for high unemployment is a circular logic.
Latvia used to have very low unemployment for decades. Of course, it was during Soviet times. After that one wrong economic policy followed another and the rest in history.
At the moment the whole EU experiences high unemployment and it makes Latvia's high unemployment look a little bit better. But let's just assume for a moment that this trend reverses. What will happen in Latvia then? More emigration of course.
A tale of four countries, part III: The ‘Nothing Special’ recession 8
It may look a bit like Hollywood - make one movie and let it be followed by countless sequels - but I find there is a bit extra to say in my comparison of Iceland, UK, Sweden and Latvia, the four countries with four different exchange rate experiences. Previous articles here and here.
Latvia's recession which led to a cumulative drop in GDP of 23.9% was by this measure the biggest in Europe if not in the world during the financial crisis, see figures 1 and 2. The following is in no way an excuse for this decline - it was massive and caused a lot of harm - but it deserves to be put into perspective.
Figure 1: GDP, 2001 Q1 - 2011 Q3, seasonally adjusted, peak = 100
Figure 2: PTT; Peak-to-trough - cumulative GDP decline, %
Another way to evaluate the impact of the recession is to look at how long it lasted. Many may not believe this but it actually only lasted for seven quarters i.e. a bit less than two years (Q4 2007 - Q3 2009). As is seen from Figure 3 that is comparable to Sweden and the UK and somewhat less than in Iceland. In Greece the duration of the recession is approaching 20 quarters with no end in sight....
Figure 3: Recession duration: Number of quarters
A third way to look at the recession could be to ask: When GDP hit bottom (Q3 2009 in Latvia) how far back in time does one have to travel to find an equally low GDP or, as I often call it, how far back in time did a country get ‘bombed' by the recession? For Latvia the answers is between Q4 2004 and Q1 2005 i.e. almost five years. This sounds massive - five years back in time; a level of GDP as it was shortly after EU membership but as Figure 4 shows this is more or less similar to what was seen in the three other comparator countries. Again, nothing very special about Latvia.
Figure 4: "Bombed back" - number of quarters ‘bombed' back in time
A fourth way could be to look at the impact on unemployment. I did this in my previous entry (Figure 3) and indeed unemployment was affected much more in Latvia than elsewhere but even this cheats a bit - during the boom Latvia experienced rather low unemployment, reaching at its lowest 5.4% in Q4 2007. But it is low unemployment that is special in Latvia, not high unemployment - unemployment figures in their single digits have only been experienced here for 14 quarters (Q2 2005 - Q3 2008); otherwise unemployment has always been above 10%, a policy failure in itself but not related to the boom and recession.
All in all this little tale (and it is the last; I promise...) is not to brush the recession under the carpet - not at all - but it was more or less only spectacular in terms of the size of GDP decline, which was, however, preceded by a similarly spectacular GDP increase in the ‘fat years'.
Those who only look at the 23.9% decline and feel horrified fail to understand just how extremely overheated the economy was in Q4 2007 and that is a last - but misleading - way of looking at the recession: How far is GDP behind its peak?
Remaining gap - Q3 2011 relative to peak
Sweden's GDP is already ahead of its peak before the crisis while Latvia has a 16% gap to close but comparing Q4 2007 and, as here, Q3 2011 is essentially meaningless - the situation of Q4 2007 will never return in Latvia: The level of employment of that time will never ever be reached again and for two reasons, namely that unemployment is highly unlikely to be that low again and that employment never ever will be as high as then and this for two reasons, migration and demographics.
Big recession, sure, policy failure, sure - but the here presented ‘not-so-different' aspects of the recession deserve merit, too. Staring, blindly, at the 23.9% is a mistake.
Morten Hansen is Head of Economics Department, Stockholm School of Economics in Riga
Populārākie viedokļi
First, spectacular „drop in GDP of 23.9% was the biggest in Europe if not in the world” and even SSE Riga professor cannot downplay the impact of that. But of course, staring, blindly, at the 23.9% is a mistake, so let’s put it into perspective.
Looking back the war like collapse in GDP was preceded by more than 7% of average annual growth rate in the period of 1996-2004, and NOT only by “a similarly spectacular GDP increase in the ‘fat years’,” which en masse was engineered and executed by Swedish banks. Of course with active help of local myrmidons, graspers and ‘Nothing Specials’ (where have you been that time?).
I firmly agree that unemployment that has always been above 10% is a policy failure in itself, in particular – monetary policy failure, returning to your subject of our exchange rate experience. However, you must be kidding saying that it is “not related to the boom and recession”, what about the structural unemployment? Or you share the opinion of superb Dr. oec. Zīle in this respect?
In addition will you argue the 10.x % unemployment is about the same as 16.3% just because they both are ‘double digit’ ? Or that there is some kind of magical difference between single digit and unemployment (9,9% vs 10,1%)?
Finally, you conveniently skip the demographics. How much do you think for our country costs loss of about 400’000 unborn children and emigrated most active and educated people, most of which of reproductive age?
once I already have asked you similar question: Would you call it ‘Nothing Special’ if that would happen in your country?
Looking back the war like collapse in GDP was preceded by more than 7% of average annual growth rate in the period of 1996-2004, and NOT only by “a similarly spectacular GDP increase in the ‘fat years’,” which en masse was engineered and executed by Swedish banks. Of course with active help of local myrmidons, graspers and ‘Nothing Specials’ (where have you been that time?).
I firmly agree that unemployment that has always been above 10% is a policy failure in itself, in particular – monetary policy failure, returning to your subject of our exchange rate experience. However, you must be kidding saying that it is “not related to the boom and recession”, what about the structural unemployment? Or you share the opinion of superb Dr. oec. Zīle in this respect?
In addition will you argue the 10.x % unemployment is about the same as 16.3% just because they both are ‘double digit’ ? Or that there is some kind of magical difference between single digit and unemployment (9,9% vs 10,1%)?
Finally, you conveniently skip the demographics. How much do you think for our country costs loss of about 400’000 unborn children and emigrated most active and educated people, most of which of reproductive age?
once I already have asked you similar question: Would you call it ‘Nothing Special’ if that would happen in your country?
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