Saturday, July 7, 2007

Running Out In Lithuania

Michal Lehuta has a post on Central European Economics Watch which links to an article in IHT on the question of labour shortages in Slovakia.

As Michal notes this could "Perhaps (be) a policy inspiration for the Slovak government?" He also notes however that the Slovak "government recently made the requirements for obtaining citizenship tougher."

All of this is steadily coming to the boil.

Claus Vistesen has done some data analysis for Lithuania and the results are Claus Vistesen has done some very worrying number data analysis for Lithuania. Basically, if to feed growth they need 5,000 workers a month, and they only have 50,000 unemployed left on the books, in ten months they run absolutely dry, and this is, of course, impossible. Unfortunately they will crash first. In theory with wages rising so rapidly you should be able to leverage increased participation (all the theories on how to cope with ageing are based on this) but it just does not seem to be happening, or rather it doesn't seem to be happening to the extent people expected. Understanding why this is the case may turn out to be important.

Claus is now working on data for Poland, since unemployment there is dropping very rapidly too. On a back of the envelope guess they have a maximum of two to three years before they go into the Baltic spiral, and if this hits Poland then the whole EU8 will know about it. Bulgaria is obviously also another high risk situation, due to the rate of population loss they have been having.

The Economist has a piece on the situation in the Baltics, and they say this tucked away in the middle:

"So how to cool things down? For countries that can do it, keeping their interest rates above the euro's and letting their currencies appreciate helps. So does bringing in foreign workers from places such as Ukraine in order to reduce upward wage pressures. Slovakia is a prime example of how to pull off both tricks."

Obviously Economist journalists don't read the IHT.

Clearly there is a huge debate going on in the background here vis-a-vis the relative weighting of demographic versus institutional components in economic growth. As you know, I tend to give quite a lot of emphasis to demographics (which doesn't mean I don't consider institutional changes important), while the Economist goes the other way. All of this is now about to be tested in the EU8 context. I hope letting the "experiment" run there isn't going to be the price of me being proved right.

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