MONITORING DEMAND AND SUPPLY OF SKILLS

Transcription

1 Methodological Centre for Vocational Education and Training MONITORING DEMAND AND SUPPLY OF SKILLS Analysis Report on Labour Market and Education and Training Indicators Vilnius, 2008

2 MONITORING DEMAND AND SUPPLY OF SKILLS Experts: Aleksandras Abišala, Giedr Beleckien, Arūnas B kšta, Antanas Vidimantas Bumelis, Vincentas Dienys, Bronislava Kaminskien, John McGrath, Vitalija Motiekaitien, Loreta Račelien, Albertas Šlekys, Lina Vaitkut We are sincerely grateful to vocational education and training providers and everyone who helped us in this activity. We hope that the information presented will be helpful in the planning of the educational system development and in increasing correspondence of education and training to the needs of economy. 2

3 KEY TRENDS AND CONCLUSIONS Introduction Since 2005, the Methodological Centre for Vocational Education and Training has been performing a project, Development of the National System of Vocational Education and Training Standards. The purpose of the project is to develop the national system of vocational education and training standards which would help increase conformity between education and training on the one hand and labour market needs on the other hand as well as provide better conditions for life-long learning. One of the main activities of the project is to develop a methodology for identifying future skills (further referred to as FS) applicable in a variety of economic sectors and test it. The project is of national importance and is funded by the European Social Fund. The study was developed by a group of experts representing a variety of Lithuanian bodies and establishments (educational, scientific, statistical, social security and labour, business, etc.). Assistance was provided by experts from Ireland having the expertise in implementing similar type of activities. The purpose of the study is twofold. On the one hand, its aim is to identify problematic, with regard to the shortage of skills, sectors of the national economy. On the other hand, the study aims at assessing the applicability of the future skills methodology in real life situations. The structure of the study consists of 5 chapters. Chapter One provides a brief overview of the future skills identification methodology. Chapter Two describes the economic trends as they are seen in 15 economic sectors. Chapter Three analysis the demand for skills and Chapter Four looks at the supply of skills. The last section, Chapter Five, pinpoints, on the basis of the appropriate variable estimates, problem areas with regard to the shortage of skills in different economic sectors and makes conclusions about the overall study. Demand for Skills During the recent four years, the number of the Lithuanian population has dropped by approximately 61,000 people. The main reason for that is a negative change in natural population and migration. From 2004 to 2007, the number of young people aged up to 15 decreased by approximately 11.6 per cent. Therefore, there is a genuine threat that in the future the problem of a scarce labour force will become even more acute. Since 2003, the aggregate birth rate has been going up in Lithuania, yet it remains to be one of the smallest among European countries. In 2006, as compared to 2005, the number of emigrants shrunk almost twice. The majority of country leavers were young people aged (accounting for approximately 40 per cent), followed by people aged According to official statistics, there were approximately 3.4 million people living in Lithuania in The working age population (aged 15-64) made up approximately 2.3 million, including almost 85,000 unemployed. The majority of the employed (88.2 per cent) were full-time workers. In , the average number of employees in full-time units increased by approximately 142,000 people, i.e. 3.4 per cent per year. In 2007, the number of the employed grew by 6 per cent. Analysts predict that in the nearest future changes in the number of the employed should not be significant, increasing by 0.1 per cent per year. During the aforementioned period, the unemployment rate diminished almost three times (from 17.4 per cent in 2001 to 5.6 per cent in 2006) and is currently one of the smallest among European 3

4 countries. According to the projections published by the Ministry of Finance, the unemployment rate should drop to 4.5 per cent in 2007 and slightly go up again (to 5.2 per cent) in The majority of the employed are people aged The share of the employed aged makes up 7.4 per cent and people aged 55 and above account for 13.2 per cent of the working population. The employed with higher than secondary education account for almost 49 per cent of all the employed. In the area of financial intermediation, this indicator was almost twice as big. The majority of females work in the area of health care, social work, education, hotels and restaurants and the smallest number of them are employed in mining and quarrying as well as construction sectors. The lion s share of all the employees is in manufacturing, wholesale, retail trade and education. In the area of manufacturing, the biggest number of workers is in the food and textile sectors. From 2004 to 2007, the number of employees increased in practically all the economic sectors, except for education and electricity, gas and water supply. In , the sharpest increase in the number of employees was experienced in financial intermediation, real estate and construction. Among different branches of manufacturing, the biggest growth was seen in metal industry, manufacture of rubber and plastic goods and transport equipment. The biggest reduction of employees was identified in manufacture of electrical and optical equipment as well as leather and textiles. According to the preliminary data of 2007, the biggest supply of vacancies was in manufacturing, wholesale and retail trade, and construction. Among different branches of manufacturing, the majority of job vacancies were available in textile and food industry. The biggest shortage of employees (where the supply of job vacancies exceeded the number of the unemployed) was noticed in construction, financial intermediation, hotel and restaurant and transport activity groups. In manufacturing, labour was scarce in manufacture of non-metallic mineral products, chemical and electronics industry. Looking at the age of employees, the youngest sector is hotels and restaurants. Persons aged up to 25 constitute there as much as 28.2 per cent. The oldest sector is mining and quarrying with the biggest share of employees aged 55 and above, i.e per cent. Groups of occupations having the biggest number of employees include skilled workers and craftsmen and professionals. In , the fastest growth of employees was identified in the group which includes legislators, senior public officials, managers of enterprises, establishments and organisations. The largest decline in the number of workers was experienced in the group of skilled workers in agriculture and fishery. Supply of Skills In 2006, vocational training schools admitted 19,913 students, which is 3 per cent less than in The same year saw a slight increase in the demand for BA studies: 47,240 students entered higher education establishments, i.e. 2 per cent more than in Among those who chose vocational education and training, the most popular disciplines were business and administration as well as engineering and engineering professions. Among those who preferred university education, the most popular choice was of Business and administration. In fact, the same trends were prevailing during the previous year. In 2006, 46,400 students graduated from higher and vocational schools. Out of that number, 71.2 per cent acquired higher than secondary education. However, the level of employment among workers exceeds the number of professionals (including civil servants) two times. Possibly, quite a number of the employed with higher education perform work requiring lower level of qualification. 4

5 During , the number of issued business certificates increased by almost 1.4 times. The majority of them were issued in the sectors of wholesale and retail trade, and construction. According to the groups of occupations, the biggest number of business certificates was issued to the service and trade sector employees, skilled workers and craftsmen and professionals. In 2007, foreigners were issued 5,500 work permits in Lithuania, i.e. 3.5 times more than in Among those who obtained the permit, the majority are skilled workers and craftsmen, plant and machine operators and assemblers working in the sectors of manufacturing, transport, storage, communication and construction. The share of professionals among foreigners issued work permits to get employed in Lithuania is 6 per cent. Bearing in mind the shortage of the labour force and rapid economic development, the volume of foreigners to be issued work permits in Lithuania will increase. Conclusions In principle, the future skills identification methodology proved successful. Monitoring of skills according to the limited number of indicators (Annex 1) helps to identify problematic sectors of economy with regard to the shortage of skills. Therefore, it is worthwhile carrying out this process on the annual basis. It would help identify the current and future problems related to employee qualifications and the needs for education and training. The assessments were made on the basis of historical data and they only show the current issues at stake. To be able to identify future needs, there is a lack of clear scenario of economic development and long-term projections of the number of employees (by economic activities and groups of occupations). Pursuant to the Law on Support of Employment of the Republic of Lithuania the plan is to make projections of the needs for qualifications. Therefore, it is recommended that the list of indicators should be supplemented by the aforementioned data and the indicator of employment of graduates. The latter may be looked at on the basis of the data available in SODRA. The analysis performed revealed certain weaknesses of the educational system with regard to its conformity with the needs of economic development. For instance, the level of post-secondary/nonhigher education has practically disappeared. Sadly so, because there is a substantial number of occupations requiring only such level of education. The introduction of this intermediary level in the system of education would offer a broader range of education options and satisfy the market needs more effectively. Another problem of the system of education is related to a rather inefficient mechanism of entering higher education establishments. Future students have the option of sending their documents to several universities at the same time and they choose to study at the faculty which accepts them, forgetting the purpose or quality of their studies. According to the data we have, the number of vocational education and training students is decreasing whereas the number of university students is going up. Currently, the market is predominantly looking for manual workers. Presumably, a number of persons with higher education carry out the work requiring a lower level of qualification, which is ineffective from the studying costs point of view. It is recommended that the requirements for entering university should be modified to include a condition that some studies need prior vocational education and work experience. Development of an intermediary non-higher education level, modification of requirements for entering universities, ensuring a smooth transition from lower to higher level of education would help solve the problem of conformity between the supply and demand of skills in the market and encourage mobility of people between different levels of education. 5

6 In the future, the qualification of employees will be greatly effected by the rapid modernisation of economic sectors and international competition. The use of new technologies sets new requirements for training/studying curricula and their quality in particular. International competition demands that our organisational set-ups and management knowledge is improved. Although it is not easy to project the change of skills, yet certain trends could be identified. According to the data we have, there is a probability of demand for professionals knowledgeable about new technologies. Findings of the sector surveys show that it is a must for professionals to be literate in new technologies and their processes. The emphasis is also made on quality knowledge. The ability to work with new technologies is also very important for skilled workers. In addition to that, all the employees should be able to study and learn, which is essential in the rapidly changing business environment. The overall system of education, and each of its links, should focus on training scientifically-minded and technically capable employees. The analysis revealed the shortage of skills in the following sectors: construction, hotels and restaurants, transport, storage and communication, and financial intermediation. The problem is more related to the quantitative shortage of employees. It could be addressed by using the new opportunity of organising vocational education and training of apprenticeship, as laid down in the Law Amending the Law on Vocational Education and Training (2007) as well as by employing foreigners. In manufacturing, the shortage of skills is seen in manufacture of non-metallic mineral products, chemical and electronic industries. These branches of manufacturing suffer from qualitative shortage of skills, i.e. the current qualifications of employees do not satisfy the requirements. Therefore it is important to carry out a more detailed analysis of skills demand and modify the content of training and education accordingly. 6

7 TABLE OF CONTENTS 1. MONITORING OF SKILLS Introduction Authors of the Study Objective of the Study Regular Future Skills Monitoring Steps ECONOMIC AND TECHNOLOGICAL TRENDS Introduction Economic Development Sectors Development DEMAND FOR SKILLS Introduction Demographic Trends Employment Trends in National Economy Employment Trends by Economic Sectors Employment Trends by Different Branches of Manufacturing Employment Trends By Groups of Occupational Groups Job Vacancies and Tension Level by Economic Sectors SKILLS SUPPLY Introduction Education and Groups of Occupations Supply of Employees by Field and Level of Education Issued Business Certificates Work Permits issued to Foreigners in Lithuania SKILLS SHORTAGE Introduction Areas with Shortage of Skills Conclusions...44 ANNEX 1. LIST OF INDICATORS FOR MONITORING FUTURE SKILLS

8 1. MONITORING OF SKILLS 1.1. Introduction Since 2005, the Methodological Centre for Vocational Education and Training has been performing a project, Development of the National System of Vocational Education and Training Standards. The purpose of the project is to develop the national system of vocational education and training standards which would help increase conformity between training and education on the one hand and global performance needs on the other hand as well as provide better conditions for life-long learning. One of the main activities of the project is to develop a methodology for identifying the future skills (further referred to as FS) applicable in a variety of economic sectors and test it. The project is of national importance and is funded by the European Social Fund. Knowledge about the shortage of skills or their combination in the market helps identify current and future problems related to the qualification of employees. Therefore, it is essential to ensure consistent collection, storage, systemisation and analysis of the relevant education and labour market data. According to the methodology of identifying future skills, the system of skills monitoring and forecasting (further referred to as SSMF) comprises two parts: regular: FS monitoring according to the final list of indicators compiled on the basis of systematically collected information; detailed: special focus on the area with the biggest shortage of skills identified. The purpose of the study is to present the findings of the piloted regular SSMF. In this study, the term skills means knowledge and experience in performing certain intellectual and/or physical actions in a concrete area of activity where experience is the outcome of formal education, nonformal education or self-education and work in a concrete occupation post. The future skills means the quantitative and qualitative expression of the shortage of skills (the lack of employees with certain qualification and the inconformity of employee qualification with the occupational requirements, respectively). Levels of education are determined by the structure of the Lithuanian system of education. They are brought in line with ISCED 1. Occupation posts are grouped on the basis of ISCO, Lithuanian classification of professions (where profession is linked to the work actually performed by an employee). It is used to collect a variety of statistical data. The information collected is analysed according to major groups of occupation posts, the so-called profession groups. The term sector (a branch of economy) is used as it is defined in the Statistical Classification of Economic Activities in the European Community (NACE). The majority of publicly available statistical information in Lithuania is presented in 15 economic sectors which will constitute the subject matter of the analysis presented below. 1 International standard classification of education 8

9 1.2. Authors of the Study The study was developed by a group of experts representing a variety of Lithuanian bodies and establishments (educational, scientific, statistical, social security and labour, business, etc.). Assistance was provided by experts from Ireland having the expertise in implementing similar type of activities Objective of the Study The purpose of the study is twofold. On the one hand, its aim is to identify problematic, with regard to the shortage of skills, sectors of the national economy. On the other hand, the study aims at assessing the applicability of the future skills methodology in real life situations and develop recommendations to have it improved Regular Future Skills Monitoring Steps 1. On the basis of the identified indicators, assessment is made of economic, technological, demographic trends as well as the development of demand and supply of skills. The latter are assessed by looking at every economic sector and making a comparison with the national average. 2. Assessment of the population structure is based on the following criteria: number of children (aged > 15), number of working age population (15-64), including full-time workers, part-time workers and non-employed (unemployed and inactive: students, retired persons, etc.), number of senior population (aged 65+), including employed and non-employed. 3. On the basis of the trends identified, the key factors are determined which may have an impact upon the change of skills. 4. The level of skills shortage is assessed in different economic sectors. The level of shortage of skills is identified on the basis of the relevant variable estimates. 5. The findings are summarised and recommendations are developed. 9

10 2. ECONOMIC AND TECHNOLOGICAL TRENDS 2.1. Introduction This chapter will make a short overview of economic and technological trends. The analysis has been performed on the basis of statistical indicators, specially developed for the study, and publicly available information. The period under review is Indicators for 2007 were assessed on the basis of preliminary data. The gross value added is presented in prices applied during that period and the number of employees is given on the basis of the data taken from the Population Employment Survey and the Earnings Survey (personal proprietorships did not take part in the surveys). The trends are observed in 15 different economic sectors Economic Development Gross Value Added. During the period under review, the Lithuanian economy experienced a steady growth. In , the gross value added augmented by approximately 44.8 per cent, i.e. by 11.2 per cent per year. The biggest weight, in the structure of the gross value added, among different economic sectors is carried by services (Fig. 2.1). They include trade, hotels and restaurants, transport, financial intermediation, real estate, public administration, education, health and other community, social and personal service economic activities. In recent years, the contribution of the construction sector has been constantly growing. Currently, construction creates about 10 per cent of the gross value added, whereas production services (trade, transport and communication) make up around 30 per cent. During the period under review, the share of the gross value added has been also increasing among financial service enterprises. Fig Change of Gross Value Added and Output in % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 61.0% 61.3% 61.2% 59.8% 7.3% 7.6% 8.8% 9.9% 25.9% 25.4% 24.9% 24.4% 5.8% 5.7% 5.2% Gross Value Added Production 5.9% % 48.00% 47.80% 47.60% 7.80% 8.00% 9.30% 9.30% 38.50% 38.70% 37.90% 38.50% 5.10% 5.30% 5.00% 4.70% Services Construction Industry (mining, processing industry, electricity, gas and water supply) Agriculture, forestry and fishery Output. Output is understood as the result of the overall activity, which is reflected by the turnover (earnings from typical activity for sold goods and services). During the reporting period, the turnover increased almost 10

11 as much as the gross value added, by approximately 43.2 per cent, i.e. by about 10.8 per cent per year. In 2007, turnover was growing was slower than the average annual turnover growth, accounting for approximately 7.4 per cent. Similarly to the gross value added, the biggest weight here in the output structure is carried by services (Fig. 2.1). Foreign trade. The period under review experienced growth in the volume of both export and import (Fig. 2.2.). The volume of import, as compared to the volume of export, was expanding faster (the average annual growth made up accordingly 18.6 and 16.5 per cent). However, in 2007, their growth was sluggish and, (12.5 and 10.3 per cent accordingly.). The foreign trade balance was negative throughout the entire period of those four years. In , the foreign trade deficit almost doubled. Fig Change of Foreign Trade in (million Litas) export import balance Number of enterprises. The change in the number of enterprises is assessed on the basis of annual changes of operating companies. (Fig. 2.3). During the period under review, the number of operating enterprises was constantly rising in the construction sector. In the area of manufacturing, the number of enterprises was going down. The biggest change of operating enterprises is characteristic of service providers. 11

12 Fig Annual Change of Operating Enterprises in Agriculture, forestry and fishery Industry (mining, processing industry, electricity, gas and water supply) Construction Services Earnings and productivity. During the recent four years, the labour force has been constantly growing in price. The average monthly gross 2 earnings augmented by approximately 800 Litas, i.e. around 17.4 per cent per year. During the last year, 2007, the growth was even more significant, reaching 30.3 per cent. However, despite the rapid rate of increasing work pay, Lithuania is still lagging significantly behind the EU average 3. The growth rate of productivity (value added per hour of actual work) was far slower that the rate of increasing earnings. In , it augmented by approximately 7 per cent per year. Although in 2006, the increase in productivity was more intensive and accounted for 14 per cent, yet it is still behind the European indicators. Innovative enterprises. According to the definition of innovations, those enterprises which have installed new or significantly improved products and services as well as new or significantly improved technological processes are called innovative enterprises. According to the data presented by the Statistics Department, in 2004 innovative activities were pursued by 23.4 per cent of enterprises, one third of them were industrial companies. While implementing innovative projects, the biggest attention is paid at the procurement of plant, machinery and equipment. Economic growth rate and change in the number of employees. In , the economic growth 4 exceeded 7 per cent (Fig. 2.4). Analysts predict that the trends of the economic growth will remain positive, yet the growth rate may experience a slow-down (the projected annual change of GDP in 2008 is 5.3 per cent 5 ). During the recent four years, the number of employees grew in practically all the economic sectors, except fro education, supply of electricity, gas and water. The average number of employees in full-time units 2 Earnings before tax 3 Lithuania s Economic Prospects, 2007, DnB NORD Bankas 4 The economic growth is measured by the percentage growth of GDP in chain-linked volume. 5 Medium-Term Projections of Economic Indicators published in September 2007 and Prospects of Projects published in November-December 2007, Ministry of Finance 12

13 increased by approximately 142,000 people, i.e. 3.4 per cent per year. In 2007, the number of the employed grew by 6 per cent. Analysts predict a certain growth of employees in the nearest future. The unemployment rate in Lithuania is one of the smallest among the European countries. According to the Population Employment Survey, it accounted for 5.6 per cent in Projections published by the Ministry of Finance suggest that the rate of unemployment should drop to 4.5 per cent in 2007 and slightly go up again (to 5.2 per cent) in The structure of the gross value added and employment by economic sectors in 2007 is presented in Fig. 2.5, whereas the comparison of activity indicators is shown in Table 2.1. Fig Rate of Economic Growth and Change in the Number of Employees in % 8.0% 6.0% 4.0% 2.0% 0.0% Economic growth Change in number of employees Fig. 2.5.Gross Value Added and Number of Employees (Population Employment Survey) by Type of Economic Sector in % 5.0% 10.0% 15.0% 20.0% 25.0% Agriculture, hunting and forestry 5.1% 12.3% Mining and quarrying 0.5% 0.3% Manufacturing 17.7% 20.5% Electricity, gas and water supply 3.8% 1.8% Construction Wholesale and retail trade; repair of motor vehicles and motorcycles; repair of personal and household goods Hotels and restaurants 1.4% 2.6% 8.8% 9.9% 17.0% 17.0% Transport, storage and communication 6.6% 12.7% Financial intermediation 2.5% 1.1% Real estate, renting and other business activities 5.2% 11.8% Public administration and defence; compulsory social security 5.2% 5.1% Education 4.7% 8.8% Health and social work Other community, social and personal service activities 3.1% 2.6% 4.2% 7.1% GVA Employment 13

14 2.3. Sectors Development Agriculture, hunting and forestry. In , the decline in agriculture was caused by unfavourable weather conditions and the growth in prices of technical equipment. This had an impact upon the growth of output rate, which was among the smallest in the country in The other data of 2007 are more optimistic. As compared to 2006, the gross value added increased by 28.6 per cent, the GDP growth rate in this sector exceeded the national average 1.4 times and the number of operating enterprises went up. According to the analysis made by DnB NORD Bankas 6, agricultural companies were modernising their farms during the period under review, which results in higher productivity (exceeding the growth rate in the national economy). However, productivity in agriculture, as compared to the national indicator, is 2.3 times smaller. Although earnings in this sector were growing faster than in other economic sectors, they still remain to be the smallest. Analysts state that agriculture is already suffering from the shortage of a skilled labour force. Mining and quarrying. Lithuania is not rich in natural resources and hence the share of this sector in the GDP structure is rather small, making up around 0.5 per cent. In 2007, as compared to the year before, the mining and quarrying industry suffered from a decline, both in terms of the gross value added and output volume. On the other hand, it experienced some positive changes: an accelerated GDP growth rate (for several years in succession it had been negative, whereas in 2007 it reached 1.9 per cent) and a positive foreign trade balance (for the period of several years). The productivity of the sector productivity slightly worsened in 2007 yet it still remained two times bigger that the relevant national indicator. The labour force was becoming more expensive at a rate slower than in the overall economy. However, the average monthly gross earnings are still among the highest in all economic sectors. Analysts are rather optimistic about the prospects of the mining and quarrying sector. They believe that the demand for it should remain high and that discovery of new oilfields is merely a question of time and investment and new. 7 6 Lithuania s Economic Prospects, 2007, DnB NORD Bankas 7 Lithuania s Economic Prospects, 2007, DnB NORD Bankas 14

15 Table 2.1. Comparison of Performance Indicators of Various Economic Sectors Agriculture, hunting and forestry Mining and quarrying Manufacturing Electricity, gas and water supply Construction Average annual value added growth in , % Average annual output growth in , % GDP growth in 2007, % Foreign trade balance (deficit/surplus); Average monthly export growth in , % Productivit y 8 in 2006, Litas Average annual earnings 9 growth in , % Average monthly gross earnings in Litas in 2007; occasional comparison Average annual growth of the number of employees 10 in , % Visas ūkis (deficit) (surplus) (surplus) = O (deficit) (deficit) Wholesale and retail trade; repair of motor vehicles and motorcycles; repair of personal and household goods Hotels and restaurants Transport, storage and communication (deficit) = (deficit) = 10.1= 9.8 (deficit) = 5.0 Financial intermediation Real estate renting and other business activities (deficit) = 10.3 Public administration and defence; compulsory social security Education Health and social work Other community, social and personal service activities (deficit) (deficit) = (deficit) As compared to total economy indicator - higher; - lower; = - the same or almost the same Manufacturing. This sector is one of the largest economic sectors in Lithuania. It creates approximately one fifth of the overall value added. During the period of four years, the gross value added created by manufacturing, increased about approximately 39 per cent, i.e. about 9.8 per cent per year. In 2007, the sector s growth experienced a slight slow-down, accounting for 8.7 per cent, and was smaller that the relevant national indicator. A reduction in growth is seen both from the GDP growth rate and its output. More specifically, in , the GDP growth rate decelerated about 1.9 times and in 2007 was almost 1.5 times smaller than the relevant economic indicator. The foreign trade balance has been positive for several years in succession. The price of the labour force was going up faster than in the overall economy and the average monthly gross earnings in fact corresponded to the national indicator. Experts from DnB NORD are not too positive about the prospects lying ahead of manufacturing. The main threats for this sector are the following: a speedy rate of employee salaries getting higher, local raw material becoming more expensive, 8 Value added per hour of actual work 9 Average monthly gross earnings. 10 Earnings Survey 15

16 prices of energy resources going up and new challenges in foreign markets (for example, lifting of quotas for Chinese textiles in the European Union). The structure of the gross value added and employment in manufacturing (2007 data) is shown in Fig. 2.6 below. Fig Value Added of and Number of Employees in Manufacturing Earnings Survey), % 5.0% 10.0% 15.0% 20.0% 25.0% Manufacture of food products, beverages and tobacco Manufacture of textiles and textile products Manufacture of leather and leather products Manufacture of wood and wood products Manufacture of pulp, paper and paper products; publishing and printing Manufacture of refined petroleum products Manufacture of chemicals, chemical products and chemically made fibers Manufacture of rubber and plastic products Manufacture of other non-metal products Manufacture of basic metals and fabricated metal products Manufacture of machinery and equipment n.e.c Manufacture of electrical and optical equipment Manufacture of transport equipment Manufacturing n.e.c 9.6% 0.3% 0.6% 8.0% 11.2% 1.5% 2.4% 5.4% 4.9% 10.4% 8.5% 6.0% 3.6% 5.4% 4.5% 6.4% % 4.2% 5.4% 5.9% 4.4% 3.3% 8.2% 11.3% 19.0% 20.7% 18.8% GVA Employment Food enterprises create almost one fifth of the value-added of manufacturing. This branch of the manufacturing sector has the highest number of employees. Analysts are positive about the prospects of its development. An identified threat is the scarcity of local resources and their growing prices. During the period under review, textiles experienced no growth (Table 2.2). According to experts, although the demand for textile production exists and productivity is growing, yet the development prospects of this type of industry remain unclear. The same could be mentioned about the leather industry, which is the lowest contributor (accounting for 0.3 per cent) of the gross value added in manufacturing. The branch of wood, paper and furniture manufacturing shows a moderate rate of development. Internationally, it is quite a competitive branch of manufacturing and its future it linked to the production of furniture and wooden houses, bio-energy and other wood related activities. However, a threat to its rapid development may come from scarce raw materials, growing prices of energy and human resources, as well as the Chinese competition. In , manufacture of chemicals, rubber and plastic products, basic metals, fabricated metal products as well as other non-metallic mineral products (the latter is very much tied to the development of the construction sector) experienced the fastest growth among all the branches of manufacturing. They showed rather high productivity nation-wide and sufficient competitiveness internationally. Similar trends are expected to be maintained during the upcoming several years. The manufacture of electrical and optical equipment has suffered from negative trends of development in the latest years. The main reasons for that are the lack of foreign investment, skilled labour and the presence of competition by Asian manufacturers. The future development remains obscure. The rates of development in manufacturing machine and equipment are seen 16

17 as modest, as compared to the other branches of manufacturing. Similarly to electronics, this group of activities suffer from the shortage of skilled staff, which may slow-down development in the future. During the period under review, manufacture of transport equipment enjoyed rather fast development. Its future prospects are promising, particularly if the demand for the labour force were met and more funds were collected for modernising the industry. Table 2.2. Comparison of Manufacturing Performance Indicators Manufacture of food products, beverages and tobacco Manufacture of textiles and textile products Average annual gross value added growth, %, Average annual output growth, %, GDP growth, %, 2007 Foreign trade balance (deficit, surplus); Average annual export growth, %, Productivity 11 Litas, 2006 Average annual earnings 12 growth, %, Average monthly gross earnings, Litas, 2007.; occasional comparison Average annual growth in number of employee s, %, Total economy (deficit) , Manufacturing (surplus) , (surplus) (surplus) Manufacture of leather and leather products Manufacture of wood and wood products Manufacture of pulp, paper and paper products; publishing and printing (surplus) (surplus) (surplus) = 1.3 Manufacture of refined oil products (deficit) Manufacture of chemicals, chemical products and chemical fibres Manufacture of rubber and plastic products Manufacture of other non-metallic mineral products Manufacture of basic metals and fabricated metal products Manufacture of machinery and equipment n.e.c. Manufacture of electrical and optical equipment Manufacture of transport equipment (deficit) (surplus) (deficit) (surplus) (surplus) (surplus) = (surplus) Manufacturing n.e.c (surplus) As compared to the manufacturing indicator - higher; - lower; = - the same or almost the same Electricity, gas and water supply. This sector is very important both for household activities and business. The consumption of energy is constantly increasing in the country. During , the gross value added created by the sector of electricity, gas and water supply increased by 25.4 per cent, i.e. approximately 6.4 per cent per year. However, during the same period, the GDP growth rate dropped from 6.8 per cent in 2004 to -1.2 per cent in Output volume in the sector was almost two times smaller than the national 11 Value added per hour of actual work 12 Average monthly gross earnings 13 Data taken from the Earnings Survey 17

18 indicator. The foreign trade balance was negative. The sector showed one of the highest productivity in the national economy (almost two times higher than the national productivity). The price of the labour force was going up much slower than in the majority of other economic sectors, whereas the average monthly gross earnings are among the highest in the country. This sector gets particular attention from politicians. Its future development is associated with the projects aimed at strengthening national security (for instance, construction of a new nuclear power plant). Construction. This sector is rapidly developing. In , the gross value added created by construction enterprises jumped by approximately 97 per cent, i.e. about 24 per cent per year. The rate of output growth was almost 1.6 times bigger than the national rate. Its fast development is also seen from the constantly growing GDP rate: in 2007, it reached 20.5 per cent and was 2.3 higher that the relevant national indicator. The foreign trade balance was negative and the deficit augmented approximately 1.7 times. Although productivity of construction companies increased from 18.7 per cent in 2004 to 23.4 per cent in 2006, it is still lower than the appropriate national indicator. The labour force in the sector was getting more expensive at a rate faster than nationally and the average monthly gross earnings are among the highest in the country. The prospects of the construction sector are seen positively. However, the data of 2007 suggest that the sector s development will continue at a slower pace. Wholesale and retail trade. Increasing income of the population and more borrowing on its part had a positive role to play for the development of the sector. During , its gross value added increased my approximately 39 per cent, i.e. by about 9.8 per cent per year; its output augmented; the GDP growth rate accelerated and exceeded the national growth rate in The foreign trade balance was negative and the deficit grew approximately 1.7 times. Similarly to construction, this sector s productivity was constantly growing, yet it remained to be lower than the national indicator. Although the labour force was getting more expensive at a rate faster than nationally, the average monthly gross earnings did not reach the national average. The prospects of the sector in the nearest future are positive. Hotels and restaurants. The gross value added of this sector is only 1.3 per cent and is one of the smallest among the other national economic sectors. In the recent four years, the sector has not been developing fast, i.e. it has been growing slower than the national economy. In , the GDP growth rate dropped to 2.4 per cent and was almost 4 times smaller than the national indicator. The foreign trade balance was negative and the deficit grew about 1.5 times. During the period under review, the sector s productivity was practically the same and almost two times smaller than the relevant national indicator. Although salaries were growing more rapidly than on the national level, still the average monthly gross earnings are the smallest among economic sectors. The development of hotels and restaurants is associated with the growing flow tourists and such events like Vilnius: European Capital of Culture 2009 or the European Basketball Championship. The level of preparedness for such events will strongly effect the future development of hotels and restaurants. Transport, storage and communication (further referred to as transport). The share of the gross value added of the transport sector is one of the biggest, accounting for approximately 13 per cent. The growth rate of the sector was practically the same as the national growth rate. The foreign trade balance was negative and the 18

19 deficit remained almost the same during the period of four years. This group of activities is highly productive, exceeding the national productivity level almost two times. The average monthly gross earnings are the same as the national indicator. Experts from DnB NORD Bankas think that positive conditions for development of the sector include a favourable geographical situation of the country, growing CIS markets and a reviving European market. 14 Financial intermediation. In recent years, the sector has showed rapid development. The main reason for that was increasing consumption and borrowing. In , the gross value added created by financial intermediation companies boosted by approximately 100 per cent, i.e. by about 25.1 per cent per year. During that period, the GDP was growing steadily to experience a slow-down in 2007, when it was approximately 1.6 times smaller than the relevant national indicator. The price of the labour force was going up slower in the sector as compared to the other economic sectors, yet the average monthly gross earnings were among the highest nationally. The same could be mentioned about the sector productivity: it exceeded the national indicator two times. Various national experts believe that the level of consumption and borrowing should not decrease substantially. Therefore, the sector is expected to grow in the future, but its rate may be slower than before. Real estate renting and other business activities (further referred to as property). The share of property in the overall structure of the gross value added is one of the biggest (accounting for about 11 per cent). In , the growth of the sector exceeded the rate of the overall economy. The reason for that is the growing economy, increasing purchasing power of the population, attractive crediting policy and similar matters. During the period of four years, the gross value added created by the property sector augmented by approximately 54 per cent, i.e. about 13.6 per cent per year. Admittedly, in 2007, as compared to the situation during the previous year, the growth rate of the gross value added decelerated and accounted for as little as 4.5 per cent. During the period under review, the foreign trade balance was negative, whereas the deficit slightly shrunk. Similarly to financial intermediation, this group of activities shows high productivity, i.e. almost two times higher than the national productivity. The number of employees was growing in this sector as much as in construction, hence exceeding the relevant national indicator almost three times. The average monthly gross earnings are in fact the same as the national indicator. Experts from DnB NORD Bankas believe that Lithuania, being a geographically attractive country, having a good highway infrastructure and actively developing the business of cargo shipment by road, will be in demand for logistical warehousing. They also think that the market of commercial trade premises will develop. The future prospects of the housing segment will highly depend on the behaviour and expectations of the market participants. Public administration and defence; compulsory social security (further referred to as public administration). In four years time, the gross value added created by the sector of public administration increased by approximately 24 per cent, i.e. by about 6.0 per cent per year. However, in 2007, as compared to 2006, the volume of the GVA was smaller (-1.1 per cent). The same trend is applicable to the output volume. In 2007, its growth accounted to as little as 1.4 per cent, whereas the average annual output growth during the period under review was 8.1 per cent. Although the sector productivity augmented from 19.8 per cent in 2004 to 25.3 per cent in 2006, it still remains lower than the national indicator. The rate of the labour force getting 14 Lithuania s Economic Prospects, 2007, DnB NORD Bankas 19

20 more expensive was two times slower than in the overall economy. However, the average monthly gross earnings are approximately 1.3 times higher than the relevant national indicator. Education. This sector is particularly important for successful economic development as it is responsible for training and educating employees and members of society. The state should support the sector by its investments and implementation of different measures, which is not the case today. In , the gross value added created by the sector increased by almost 25 per cent, i.e. approximately 6.2 per cent per year. Although productivity in education augmented from 14.9 per cent in 2004 to 17 per cent in 2006, yet it still remains 1.6 times smaller than the national indicator. The rate of the labour force becoming more expensive was somewhat sluggish as compared to the situation nationally and the average monthly gross earnings remain to be one of the smallest among economic sectors, i.e. approximately 1.2 smaller than the relevant national indicator. The main threat for future development in education is the reduction of skilled labour force which is attracted by more favourable conditions in other economic sectors. Health and social work. During the period of four years, the gross value added created by the health and social work sector grew by approximately 55.2 per cent, i.e. about 13.8 per cent per year. The same trend was seen in the output volume: the growth accounted for approximately 12,7 per cent per year and was bigger than the respective national indicator. Although productivity was also improving is this sector, yet it still remains almost two times worse than the national indicator. The labour force is this sector was becoming more expensive at a rate quicker than in other economic sectors and the average monthly gross earnings reached the national level in Other community, social and personal service activities. The growth rate of this group of activities is lagging significantly behind the overall economic development, with the exception of increasing work pay. Although remuneration in this sector was two times bigger than the national indicator, the average gross monthly earnings remain the smallest in the country. 20

21 3. DEMAND FOR SKILLS 3.1. Introduction This chapter will present a brief overview of demographic, employment, vacancies and tension level trends in the country s market. The information includes different aspects of age, duration of the working day, level of education among the employed and distribution of genders. The analysis was performed on the basis of statistical indicators developed specifically for the study. The indicators were estimated using the data from administrative, population employment and earnings surveys. The number of vacancies and unemployed persons was taken from the data of the Lithuanian Labour Exchange. The period under review is Indicators for 2007 were assessed on the basis of preliminary data Demographic Trends During the recent four year, the number of population decreased by almost 61,000 people. The main reason for that is a negative change in natural population and migration. These trends affected the population age structure. Presently, every sixth man and every fourth women is 60 years old and above. From 2004 to 2007 the number of young people aged up to 15 decreased by approximately 11.6 per cent. (Fig. 3.1). Therefore, there is a genuine threat that in the future the problem of a scarce labour force will become even more acute. Fig Trends of Distribution of Population by Age (in thous., ) aged >15 Aged 65+ Fig Aggregate Birth Rate in Europe, 2006 (EUROSTAT data) France Ireland Norway Sweden Finland UK Denmark Netherlands Luxembourg Estonia Cyprus Macedonia Switzerland Lichtenstein Malta Austria Greece Croatia Bulgarija Latvija Portugal Hungary Czech Rep Germany Lithuania Romania Slovenia Poland Slovakia