Executive summary

Remarkable resilience to the COVID-19 pandemic has characterised the Lithuanian labour market during the past years. The employment rate has returned close to its pre-pandemic level (72.4% among 15-64 year-olds) by 2021, 4.6 percentage points higher than the OECD average. Labour force participation in Lithuania has also increased faster than on average in the OECD during the last decade, and exceeded its pre-pandemic level in 2021. Despite these mostly positive developments, Lithuania is still facing labour market challenges. For example, the high labour force participation rate partly reflects an unemployment rate that was higher than the OECD average in 2021 (7.4% vs 6.3%). There are still wide employment gaps by educational attainment and municipalities, and a substantial gender wage gap. Furthermore, Lithuania’s population shrank by 26% between 1990 and 2020 and is forecast to shrink further by 22% by 2050, while the working-age population is declining even faster. To build a more inclusive labour market and counteract the consequences of the population decline, Lithuania should strengthen employment support through active labour market policies (ALMPs). In addition to jobseekers registered with the Lithuanian Public Employment Service (LES), ALMPs should reach out to other groups, including: discouraged workers and other inactive people who would like and are able to work; people in low-paid jobs and at risk of job loss; and people at or beyond the pension age who would like to continue working.

The labour market reform of 2017, prepared closely with researchers, centralised and modernised the set-up of ALMP provision and aimed to strengthen its effectiveness. The new “social model” strengthened the role of the social partners in ALMP design, re-organised the LES, and revised the design of ALMPs. Despite the good intentions, spending on ALMPs was not scaled up following the reform. Lithuania spent only 0.21% of GDP on ALMPs in 2019 (versus 0.45% in the OECD on average) and only 1% of the labour force participated in ALMPs versus 5% in the OECD on average. At the same time, changes to ALMP composition following the reform have not materialised yet and the package of ALMPs provided does not respond well to the needs of jobseekers.

Lithuania’s rich data which can be linked across registers can play an important role in improving the design and delivery of ALMPs while supporting the case for scaling up the budget of interventions that work. The availability of such data and the legal basis for ALMP monitoring and evaluation introduced with the social model offer a unique opportunity for Lithuania to implement more evidence-informed policy making. Additional efforts in this domain could help Lithuania improve the effectiveness and cost-effectiveness of its ALMPs as well as the tools, approaches and processes used by LES.

Lithuania needs to make further efforts to make ALMPs more effective, more available, and to target them more to people who need them the most. The key policy recommendations emerging from this review include:

Increase spending on ALMPs, with an emphasis on programmes that support upskilling and reskilling and promote employment in the primary labour market, and ensure funding sustainability.
Expand the reach of ALMPs by strengthening the LES engagement with employers and strengthening comprehensive support to people furthest from the labour market who need employment services corresponding to their individual needs combined with other services, such as social, health and education services.
Improve targeting by assessing individual needs for services and by promoting the use of the new profiling tool and evaluating its impact. Ensure support is provided according to clients’ needs and in line with the measures’ effectiveness for different groups of jobseekers.
Expand upskilling and reskilling opportunities, particularly for people who need them the most and for whom the social returns in terms of achieving a more inclusive labour market may be greatest, notably older jobseekers aged 50 and above, low-skilled persons and long-term unemployed.
Promote access to online training, possibly in modular form to support upskilling and reskilling, enabling more varied training opportunities particularly for jobseekers in remote areas.
Ensure that the employment subsidies reach groups that are further from the labour market such as older jobseekers and people living in non-urban areas.
Invest in evidence-informed policy making by establishing a mechanism for counterfactual impact evaluations (CIE) of ALMPs, enriching the data available for carrying out CIEs and expanding research opportunities.
Complement CIEs of ALMPs with process evaluations (assessing how implementation corresponds to strategies and policy design), as well as impact evaluations of the tools and approaches used by LES and use the results of CIEs to conduct systematic cost-benefit analyses to demonstrate the cost-effectiveness of ALMPs and make the LES business case.
Modernise the IT infrastructure in the LES to support data analytics and knowledge dissemination, such as data warehouse or data lake solutions linked to user-friendly business intelligence tools.

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