State Can Print Money, Not People

Ryoji Iwata via Unsplash

Governments have responded to the pandemic by printing money, thus disrupting the usual economic relationships. Financial capital, which was long been regarded as a most-demanded resource, has lost its position to raw materials which in turn have lost to labor force. Today’s labor shortages are diminishing our ability to make use of all other resources.

A Springboard of the Century: Time to Invest and Expand

The global crisis and global structural changes provide a rare opportunity for businesses to make more contracts, invest in expansion and innovations, build new laboratories or chip-making facilities—demand in the market is almost limitless.

For a small country like Lithuania, this is the opportunity of the century that is hardly likely to evolve again any time soon. But we need to act now. Investing has to happen now. Time becomes a key factor of success.

Every investment decision starts with a feasibility study where one of the most important questions to ask is whether properly qualified workforce in sufficient numbers is available. It has been recognized for some time now that labor market prospects for new investments in Lithuania are ambiguous.

This ambiguity presents a clear signal to investors that this is not a good place to put their capital in, unless there are generous state subsidies to attract and to win over labor force. This, however, would not be good news for the businesses around. There would be even more severe workforce shortages.

But perhaps our economy does not need to expand—maybe all it needs is for businesses to make better use of the existing machinery, open up a second or even a third shift thus winning more contracts, more customers? Business owners respond by asking how to run an additional shift when they are short of 10-20% of workers to make the existing capacities work.

The speed of the pandemic adds an extra burden—a business has to have a workforce reserve in order to complete shifts, survive sick leaves, self-isolation mandates, and to cover for those who have chosen voluntary unemployment in protest to COVID-19 measures. Because the relief policies accommodate that.

It is not surprising then that many businesses are unable to exploit even part of their manufacturing potential. They are forced to balance the need to deliver on the existing contractual obligations and, of course, make use of every opportunity to grow. It is tough to recognize that a once-in-a-lifetime opportunity to take part in the global redistribution of markets may be missed.

It is even more difficult to believe that global redistribution has touched the most sensitive segment—labour force and talent.

The Market Is Worth More Than Gold

A human being is the rarest and most valuable resource. If a production line is short on hands to work it, they become a bigger talent than a genius, engineer or an architect. Of course, every attempt is made not to halt production, forcing people to work under stress, take on more workload, accept the growing risk of both conflict and accidents at work.

The services sector is also short of workers. What happens? Shortages lead to longer service times, poorer quality and rising prices, and the burden is incrementally passed onto the consumer. Waiting time for a service that used to be instantly available now extends into months. And once you do get that service, you have to contend with whatever culture of service, quality and price.

People dream of having their plumbing fixtures fixed, paintings hanged up and gazebos painted. The private sector is not the only one suffering. There are unprecedented shortages of social care and health care professionals, meaning that the most vulnerable in our society do not get the care they need.

Hence the most important task of an economic policy—to mobilize into work all those who could but do not work for various reasons. It is interesting to note that people who are officially recorded as unemployed do not consider themselves jobless.

The difference between unemployment figures recorded by the Employment Service and Statistics Lithuania based on population surveys is in the vicinity of a hundred thousand people.

Statistical figures on job vacancies also do not correspond to the reality as the records only include job vacancies registered with the Employment Service, but for employers the Employment Service is often the last resort when they want to hire somebody who is currently unemployed (and many have been dissuaded from doing this by now), or to officially start the process of employing a foreign national.

In all other cases, hiring happens through recruitment firms, classified ads and communities. The actual worker shortages are more severe than officially published.

Failing to Employ the Unemployed

In Lithuania, the unemployment trap is one of the biggest in Europe. According to 2020 figures, the unemployment trap was 87% in Lithuania when the EU average was 74%. The unemployment trap shows that it is just “not worth it” for people to get back to the labor market. It means that people who lose their jobs once are at risk of becoming long-term unemployed because their pay wouldn’t be much higher than social benefits.

Often, social benefits are supplemented by income from undeclared work. Also, people who work illegally may additionally be trapped by debt—payday loans, neglected children, and other social issues. Shadow economies tend to suck in and never let go: people who build relationships and work for longer periods of time in the informal sector rarely tend to return to legal work.

People lose their skills, competences of working in a team, social skills, motivation and, most sadly, they lose the sense of responsibility. Even pay rises in recent years, 12% on average, have proved to be helpless against the unemployment trap set up decades ago.

Not depriving people of motivation to work is just the first step. The second one is to organize the work of responsible public institutions in a way that rewards achievements rather than processes. This eventually may lead to the successful implementation of the Employment Service’s mission, opportunities of engaging specialized personnel recruitment firms into the process of retraining and hiring the unemployed, foreign worker integration programs.

Currently, the Employment Service spends a lot of time working with those who are not looking for a job at all and declare unemployment simply to make use of public health care and other benefits paid for by the state.

Efforts to bring people back to a wholesome life requires more than just money: they need support to overcome the attraction of unemployment or illegal work through learning responsibility and the principles of legal work. This is difficult but real help to people who find themselves in tough circumstances.

A Strange Kind of Leadership

Labor market crisis and the global battle over talent naturally draw attention to our demographic outlook. By 2050, Lithuania will be one of the oldest societies in Europe, with a mere 1.7 working individual per one retiree. This makes it difficult to predict how long we will  have to work until retirement and how big of a pension we might expect when we finally do retire.

In addition to long-term attempts to boost the birth rate and support returning emigrants, it is worth while looking at adopting the policy of legal, targeted and prudent immigration.

The existing long and desperately burdensome bureaucratic procedures do not protect against potential problems, but they do prevent most-in-demand talent from coming into the country. A situation where it takes four to six months to bring a technologist or an engineer recruited in Ukraine to work in Lithuania could mean a death sentence for the business.

If there isn’t a person to repair machines, or a person to develop and adapt electronic systems, losses are way higher than just wealth not created by that single person. Today we’re risking entire chains of wealth creation.

At a time when both the economy and social care are screaming about the need for more hands, at its core our migration policy remains to be based on an obsolete approach—define the labor market need, describe the need, translate the need into figures, lists of professions, importing firms and quotas, and then run anyone wishing to make use of a legal migration opportunity through complex and snail’s pace procedures.

The state seems to forget that it is the entities operating in the market that are best suited to identify the need. Demand in the labor market itself—which changes every day and which we try to describe and wrap up in the most perfect of lists and quotas once a year—will inevitably lead to lagging behind in life and eventually will put a stop to that life.

On top of that, public institutions start checking whether the prospect employee’s diploma meets the employer’s needs or whether the person has enough work experience, meaning that the entire country gets swamped in expensive and pointless red tape.

This policy harms both foreign workers who cannot get into the country and work here and businesses that are forced to limit their production capacities at a time when they could be accelerated severalfold. As a result, all citizens suffer because wealth creation stops today and will be smaller tomorrow.

There is a battle going on over the human talent, brains and hands. So the challenge for the state today is to find ways of investing into the most precious of capitals—the human capital.

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Elena Leontjeva