Latvia: Both Sides of the Economic Recovery Success Story

Abstract

Latvian social policy is close to the neoliberal model of the welfare state based on macroeconomic indicators of low welfare state spending, high income inequality, low minimum wage and low degree of decommodification. Latvia was among the first countries to be stung by the crisis in 2008. Key words became: austerity, fiscal consolidation and structural adjustment measures. A minimum social safety network was introduced to improve targeted social support. Funding from the European Social Fund was instrumental in mitigating unemployment, facilitating a large temporary works programme. Latvia joined the Euro zone in 2014 and is quite successfully returning loans. Such is one side of the success story. However the effect of crisis on Latvia’s population was and still is one of the hardest in the European Union. Depopulation, continuous negative increase of population since 1991 in combination with outmigration and rapid ageing—such are the main challenges of the country. Unemployment remains high with large share of long-term unemployed. Emigration is ongoing due to an inadequate level of wages. A very high level of pension sustainability is possible due to the low level of solidarity and redistribution that is immanent to a notional defined contribution pension scheme. Active support of family policy during the crisis and post-crisis time is a good example of social investment, but not sufficient to improve the situation in general. The crisis has greatly contributed to the already existing distrust in public institutions and policies which can become a threat to legitimacy at some point.