Emigration and demographics are CEE's next crisis

By bne IntelliNews May 16, 2012

Mike Collier in Riga -

Since accession to the EU, it has been assumed that the countries of Central and Eastern Europe would provide a virtually unlimited supply of good-quality, cheap labour to the West. But demographic trends across the region suggest that like the other dominant resource of developed economies - oil - the time to worry about shortages at both ends of the supply chain is already here, and nowhere provides a better example of the looming crisis than Latvia.

"We have a joke that in 2030 the last Latvian can switch off the light at Riga airport," says Aldis Austers, chairman of the European Latvians' Association. "Emigration creates two major problems: it weakens the fiscal position of the state... and the outflow presents questions on the preservation of national identity."

Austers was among the speakers at an April seminar in the Latvian capital considering how to turn the decade-long tide of emigrants from the small Baltic state. It was the second event in as many weeks, following on from an even more apocalyptic forum run by the American Chamber of Commerce titled: "Too late to defuse the ticking time-bomb for Latvia?"

In Austers' view, the Latvian diaspora needs to be turned into a potential resource rather than a drag on development. "Development agencies do not see the potential... You need the diaspora's knowledge and skills to break the vicious circle of emigration," Austers argues.

The figures are daunting. A 2011 survey revealed the Latvian population shrank from 2.2m in 2000 to just 2.0 - a 13% reduction in little more than a decade. The UK and Ireland are particularly popular destinations, and the fear is that the emigrants who tend to be younger and better educated than the general population may never return. According to projections by the Economy Ministry, if nothing is done to tackle the exodus, the population could drop to just 1.6m by 2020. Even before then, the country might experience serious labour shortages that will hinder its continuing recovery from what was the deepest recession in the world during the global financial crisis of 2008-09, when GDP fell by a quarter over two years.

The scale of Latvia's economic collapse saw even more Latvians leaving their homeland in search of work as unemployment topped 20%. "In 2020, we might be facing a 15% decrease in the working age population and a 10% increase in economic demand," says Economy Minister Daniels Pavluts. "The first issue is to stop emigration; the second stage is to utilise the diaspora. As a labour supply of last resort, we have to think about attracting skilled workers from abroad."

The fear is that the real picture could be even worse than predicted due to the lack of reliable, comprehensive migration data, as the European Commission's representative in the country, Inna Steinbuka, admits. "I spent six years working in Eurostat... and I learned from my own experience that correct measurement of migration is not currently possible for all sorts of reasons," she says.

However, Steinbuka is convinced Latvia's brain drain is "no longer a risk, it is a reality."

Professor Mihails Hazans, a leading academic whose studies paint a particularly bleak picture of what he unflinchingly calls Latvia's "demographic disaster," agrees. "The census number is just an upper estimate and no one really knows how many there are in reality," he says.

Hazans' views are not popular in official circles, but he does have a knack of producing data to back up his arguments that makes him difficult to counter. According to his research, emigration is rapidly accelerating the pace of underlying demographic decline. "The important thing is we supply labour to countries that have much less of a demographic challenge - so it's a much bigger problem," he says.

"Most emigrants are young - about 80% of recent emigrants are younger than 35 - hence the remaining population is ageing faster," he warns.

Thus the "donor" countries of CEE will actually leapfrog the likes of Germany, the UK and France in terms of ageing population - hardly the sort of convergence catch-up they had in mind when they joined the EU. "Do we have some hope that they will come back? Unfortunately not very much. The longer they stay, the more likely they will stay forever. After three years, the number who are planning to come back in the short run drops from 10% to 3%," he says.

Hazans even has ideas about how to stop the outflow, suggesting that the destination countries to which migrants head could pay some sort of labour levy to lessen the impact on donor countries. It sounds completely unworkable, but at least it's something. For despite everyone agreeing that the CEE brain-and-body drain is becoming a real crisis, ideas about what to do about it are thinner on the ground than residents in the disappearing villages of Latgale.

But with the worst of the economic crisis apparently over, officials are finally turning their attention towards the shrinking population. "The demographic situation is certainly one of the big worries of society," Prime Minister Valdis Dombrovskis tells bne, pointing to his decision to set up a special Demographic Council to come up with new ideas to counter a situation he describes as "among the worst in the EU27."

So far, fresh initiatives have included proposals to improve access to kindergartens, give increased social security contributions to parents and revive fertility treatment programmes that were cut during the crisis.

Dombrovskis is also floating the idea of using EU funds to try and persuade skilled expatriate scientists to return to their homeland to carry out research instead of working abroad - not that far from a rarefied version of Hazans' labour levy in some ways. "I see that as an issue of the brain drain," Dombrovskis says. "But the main reason behind emigration is the economic situation: lack of jobs, and lack of well-paid jobs. That's what we need to concentrate on if we need to deal fundamentally with emigration."

But large-scale emigration has social as well as economic costs. When parents leave to work abroad, children are left behind and the strain on them can be extremely damaging, says Dace Beinare, a family-based care adviser with the charity SOS Children's Villages. "Many children are left with grandparents and are effectively abandoned when a parent or both parents have left... They are forced to be more responsible than they are capable of being at that age and face many emotional problems," she tells bne.

"Emotional problems will eventually become problems for society as a whole," Beinare concludes.

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