CONTINUING EMIGRATION BEGINNING TO AFFECT LABOR

UNCLAS SECTION 01 OF 02 VILNIUS 000962

SIPDIS

SENSITIVE

STATE FOR EUR/NB, DRL/IL, PRM/ENA

E.O. 12958: N/A
TAGS: ELAB ECON SMIG PGOV LH
SUBJECT: CONTINUING EMIGRATION BEGINNING TO AFFECT LABOR
MARKETS

REF: A. 04 VILNIUS 1493


B. 04 VILNIUS 1522


1. SUMMARY: Lithuanians continue to emigrate since their
country joined the EU last year. As Lithuania's skilled
workers emigrate, the number of foreign laborers from Belarus
and Ukraine has increased. The Government acknowledges the
need for programs to manage emigration, encourage emigrants
to return and prevent a near-term brain drain, but has not
yet decided on a course of action. END SUMMARY.

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A Steady Flow Westward
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2. Many of Lithuania's citizens seek their fortune abroad, as
they have since the country obtained independence in 1991.
Official statistics indicate that 15,000 Lithuanians
emigrated in 2004, and that an additional 10,000 left in the
first half of 2005. Polls show that up to 20 percent of the
country's 3.4 million citizens would like to emigrate, at
least temporarily. Officially, the GOL estimates that
320,000 people, or 10% of the population, have emigrated over
the past 14 years.


3. NGOs, such as the Civil Society Institute (CSI),maintain
that official statistics understate the situation. The CSI
estimates that more than 500,000 may have already left
Lithuania, and that another three to six percent of the
population will leave over the next ten years. Several
factors contribute to the high rate of emigration, including
higher salaries abroad, unemployment in Lithuania, and the
strong Lithuanian communities overseas that facilitate the
adjustment of new immigrants to their life abroad.

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Filling the Gaps in the Labor Market
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4. The outflow of labor is already bringing about labor
shortages, especially at the lower end of the labor market,
in textiles, shipbuilding, retailing, and construction. A
representative of a local private employment agency reported
that "the situation in the labor market has changed
dramatically. A year ago, most of the time we were selecting
from among candidates; now we are looking for them."
Employers at a recent Amcham breakfast complained about the
labor shortage, with one American forest products investor
telling the Ambassador that he has had trouble finding
workers "for some time." Taxi companies say that 20 percent
of their positions are unfilled. Wages have been rising
rapidly in the sectors where there are shortages, but are
still not competitive with Western Europe.


5. The declining availability of qualified workers has had
little effect on chronic unemployment. Unemployment, while
declining, remains over nine percent, but urban rates are
much lower, at three to four percent in some cities.
Honoreta Masalskiene of the GOL Labor Exchange said that many
of the unemployed are "not employable" and commented that
only 20 percent of the 100,000 job seekers registered with
the Exchange are qualified for work. She said that "if an
employer calls us looking for workers, we have no one to
offer."


6. Immigration to Lithuania, especially from Eastern European
countries, is filling the gaps in the labor market.
According to the Statistics Department, 2,202 people
immigrated into Lithuania during the first half of 2005, a
statistically insignificant increase over the first half of

2004. The number of residence permit applications, however,
is increasing at a faster pace. Masalskiene told us that the
number of work permits issued has dramatically increased in
2005, with 913 issued in the first seven months of the year
alone, compared to 877 in all of 2004. She attributed the
increase directly to replacement of emigrating workers and to
Lithuania's low number of available skilled workers.
According to Violeta Rozkoviene, Head of the Immigration
Section in the Migration Department, there are now 25 to 30
thousand legal foreign residents in Lithuania, primarily
Russians, Ukrainians and Belarusians.


7. Work permits are relatively simple for employers to
obtain. However, since unemployment is still high and
employers must demonstrate they cannot fill the position
locally, most immigrants are skilled industrial workers.
Masalskiene said that undocumented laborers remain extremely
rare, and could recall only one example - that of a Chinese
restaurant worker. She anticipates, however, that illegal
immigration will increase when Lithuania joins the Schengen
zone in 2007.

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Planning Ahead
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8. VP Market, the largest retail/grocery operator in the
Baltics with over 15,000 employees, reports that while labor
shortages are not severe now, they anticipate problems in the
future. They recently announced a pilot program to import
over one hundred workers from Ukraine and Moldova.

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Bringing the Expats Home
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9. Undersecretary of Labor Rimantas Kairelis told us that the
GOL "cannot just wait for (the emigres) to return," but must
create an action plan both to maintain relations with
expatriate citizens and to encourage their eventual return.
The Ministry of Foreign Affairs has recently released several
proposals to maintain overseas workers' ties with Lithuania,
although they have not yet found funding. The MFA hopes that
Lithuanians residing overseas who maintain their ties will be
more likely to return. The proposals include sponsorship of
Lithuanian schools in foreign countries, creating "virtual
schools" on the Internet to maintain knowledge of Lithuanian
language and culture and establishing a special attache
position for emigrant issues in Lithuanian embassies located
in countries with large numbers of Lithuanian expatriates.


10. Disincentives for emigrants to return can be substantial,
including lower incomes at home, difficulties returning to
the local job market, and liability for back taxes upon
returning to Lithuania. Some local employers are reluctant
to hire recent returnees, fearing their return will be only
temporary.


11. The Parliament will discuss removing the income tax
penalty on repatriation in its fall legislative session. The
proposal will likely eliminate returnees' liability to pay
the difference between taxes they paid in the country of
foreign residence and those to which their income would have
been subject in Lithuania. Workers who pay no taxes abroad
would still be subject to taxes upon their return. The GOL
estimates the cost to revenues of such a tax code revision at
LTL 22.5 million, or EUR 6 million.

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Comment
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12. The labor shortages that have appeared during the last
year have not yet affected Lithuania's fast-paced economic
growth, but they loom as a potentially serious constraint on
the economy's prospects in the future. If this small country
hopes to sustain six percent-plus economic growth, as it has
over the past five years, it will have to staunch the flow of
its citizens going abroad - or replace them. Failure to do
so will drive up production costs. This could have a range
of deleterious effects, threatening foreign investment
inflows and complicating the economy's achievement of
inflation targets required to qualify for adoption of the
Euro in 2007.


13. The most obvious solution also entails risks to this
relatively homogenous society. If it continues to fill the
gap from countries in the near neighborhood, Lithuania may
have to deal with the social, linguistic, and cultural impact
of an increasingly multicultural workforce -- many of whom
are more comfortable speaking Russian than Lithuanian.
MULL