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EACEA National Policies Platform: Youthwiki


3. Employment & Entrepreneurship

3.1 General context

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  1. Labour market situation in the country
  2. Definitions and concepts

Labour market situation in the country


Until 1990 Lithuania’s industries and agriculture were part of the planned economy of the Soviet Union. Unemployment did not exist. Each person who acquired educational qualification was guaranteed to get a job. After the re-establishment of the independence in 1990 the situation in the labour market changed: the processes of the labour market, such as economic restructuring, the growth of the private sector and the development of market relations, have had a direct influence on employment and, consequently, on the education needs and opportunities of inhabitants (Kogan, Gebel, & Noelke, 2008). The period, from 1990-94, was marked by economic decline, as in all post-communist countries. From 1990 until 1992, the key task of the Lithuanian government was to implement statehood by passing new laws and establishing new institutions. A permanent national currency, the Litas (LTL), was introduced in 1993. The period from 1995-98 was characterised by economic stability and rapid growth. The period from 1999-2000, was characterised by economic recession due to the Russian crisis that hit Lithuania particularly hard due to its strong ties with the Russian economy. The economy returned to a positive growth path in 2000. The fifth period from 2000 onwards was dominated by the EU accession process that ended in Lithuania’s EU membership in 2004. Since 2004 when Lithuania became the member of the EU Lithuania’s economic potential (GDP per capita) has been one of the lowest in the European Union and was characterised by high dynamic fluctuations. Economic development has been affected by low living standards (in 2011 the poverty and social exclusion rate in Lithuania was above 30%) and low average and minimum wages. This results in the reduced attractiveness of the Lithuanian labour market and in turn encouraged emigration (the emigration rate in Lithuania has been one of the highest in the EU since 2000) and risk of poverty trap (the Gini coefficient was close to 33% in 2011). As a result of high emigration and negative natural population growth, the total number of Lithuanian residents fell from 3.5 million in 2001 to 3 million by the beginning of 2012  (Gruzevskis & Blaziene, 2013). The youth unemployment rate in Lithuania (15-24 years old) was 19.3% in 2014, down from 35.7% in 2010. The youth unemployment rate approximately doubles the overall unemployment rate. Youth Unemployment Rate in Lithuania increased to 16.50 percent in July from 13.10 percent in June of 2016 (it averaged 22.53 percent from 1998 until 2016, reaching an all time high of 36.20 percent in February of 2010 and a record low of 7.60 percent in June of 2007. Youth unemployment varies greatly by region. Major urban areas (i.e. Klaipėda, Vilnius and Kaunas) have the lowest youth unemployment rates, while youth unemployment rates are higher in rural areas. Youth unemployment is currently a political priority in Lithuania. Labour market participation rates for youth in Lithuania are lower than the EU average. In 2014, the labour market participation rate for youth in Lithuania was 34.2% (the EU average rate was 41.7%). The annual number of young people emigrating from Lithuania has increased steadily during the 2000s, reaching about 10 000 in 2013 – corresponding to about one quarter of total emigration outflows for the year. Lithuanian youth were hit hard by the global economic and financial crisis, with the unemployment rate increasing sharply and peaking to over 35% in 2010 (OECD, 2015). Much as 50% of unemployed individuals are long-term ones and structural by nature (mismatch between skills and qualifications and labour market needs). Although business conditions in Lithuania are continuously being improved by means of tax reductions, liberalisation of labour relations, and promotion of investment, periods of economic growth have been characterised by lack of job growth (Gruzevskis & Blaziene, 2013). Labour market outcomes for Lithuanian youth (aged 15-24) have recovered quickly from the 2007-2009 economic crisis, today they remain poor from an international comparative perspective (OECD, 2015). Low youth employment rates combined with high inactivity rates and a raising proportion of young NEETs in the population suggest that action should be taken to bring youth back to the labour market. Even where youth are in employment, the quality of their job is often poor. Wages are generally low, earning opportunities scarce, and income inequalities high (OECD, 2015). The key features of Lithuanian youth labour marked are:  1) relatively high job quantity, but the share of youth in the working age population is expected to decline in the upcoming years; 2) in 2014, youth have low employment rates (27.6%), high inactivity rates (65.8%) and unemployment rates (19.3%); 3) a rising proportion of the youth (aged 15-29) is NEET: 12.9% in 2014, up from 10.7% in 2005; 4) the incidence of low pay is common: around one fifth of youth earn at the minimum wage or below, and around 61% earn at the median wage or below. This is similar to what is observed among adult workers; 5) Lithuanian youth are usually employed under permanent and full-time contracts (respectively 91.5% and 86.4% of youth in dependent employment); 6) skills mismatches are significant: over 30% of young people are either under- or over-qualified for their jobs (OECD, 2015). The ageing process that is behind these developments has been ongoing for decades, driven by two primary contributing forces: declines in fertility, themselves further strengthened by the significant transformations in family life undergone by the country since the 1990s; and improvements in longevity, resulting from advances in health  (OECD, 2015). Key concern relates to the underrepresentation of the youth in the Lithuanian labour market. In the second quarter of 2015, only 27.9% of young Lithuanians were employed, compared to 40% across the OECD and 32.9% across the European Union (OECD, 2015). Lithuanian youth face relatively high inactivity rates (67.2%, versus 53.4% across the OECD and 57.2% across the European Union) (OECD, 2015). Youth with primary education face a much higher risk of unemployment or inactivity than their peers with higher educational attainments and employment rates are also lower among youth with lower levels of education (OECD, 2015). Differences in labour market outcomes for youth are also substantial across municipalities and young women have lower employment rates (24.1% versus 31%), resulting primarily from higher inactivity rates (70.4% versus 61.4%), while their unemployment rates are lower (18.7% versus 19.6%) (OECD, 2015). In Lithuania the share of young NEETs is relatively low by OECD standards, it is increasing rapidly  (OECD, 2015). In 2014, 12.9% of young people (aged 15-29) were NEET, up from 10.7% in 2005. Youth with secondary education are significantly more likely to be NEETs than youth with tertiary education, partly reflecting the fact that the latter have greater opportunities to continue studying (OECD, 2015). Youth with primary and secondary education are more exposed to the risk of becoming inactive. Geographical differences are substantial, alongside gender differences: young women are slightly more likely to be NEET than young men (14.7% versus 13.5%), they are almost twice more likely than men to be inactive and out of school (OECD, 2015).

The quality of jobs for youth in Lithuania is poor Labour market performance depends not only on the number, but also on the type of jobs that are created.  Job quality of young Lithuanian workers is characterised by relatively low earnings and high income inequality; higher unemployment risk combined with low unemployment insurance; as well as insufficient resources at the workplace (OECD, 2015). Lithuanian youth face a high risk of unemployment and have rather low income protection in case of unemployment (OECD, 2015). In the event of unemployment, young workers are comparatively less insured (OECD, 2015). Young workers in Lithuania work less under time pressure or irregular working hours, their physical health is less likely to be affected by their jobs and they are less often subject to work place intimidation while at the same time, around seven out of ten young workers in Lithuania report that they lack work autonomy and learning opportunities, and are unsatisfied with the management practices and work atmosphere in general (OECD, 2015). The incidence of low-pay is widespread amongst Lithuanian youth. Lithuanian youth are usually employed under permanent and full-time contracts and temporary contracts are often thought to be a stepping stone to more stable employment for those youth who have limited skills and experience, although often youth are more likely to get locked into such jobs than prime age workers (OECD, 2015). Far less young people are hired under part-time employment in Lithuania than in OECD and European countries: 13.6% of youth in dependent employment work part-time in Lithuania, compared to an average of 28.9% and 28.4% across the OECD and the European Union respectively  (OECD, 2015). In Lithuania informal employment is especially widespread among young workers, who are typically less knowledgeable of labour markets and their functioning and therefore less protected (Okunevičiūtė-Neverauskienė & Pocius, 2008). 

Definitions and concepts

The specific terminology related to employment and entrepreneurship in Lithuania captures understandings and aspects of the situation in general and  distinctive aspects of youth situation in the labour market. These are as follows: 1) people who are officially registered as unemployed and receive unemployment benefits; 2) official and unofficial unemployment. In general, a person's status in the labour market falls into one of three categories: employed, unemployed or economically inactive. In Lithuania, the unemployment rate measures the number of people actively looking for a job as a percentage of the labour force. Employed persons are individuals with a minimum required age who work during a certain time for a business. The labour force participation rates is the number of persons who are employed and unemployed but looking for a job divided by the total working-age population. The long term unemployment rate refers to the share of unemployed persons since 12 months or more in the total number of active persons (those who are either employed or unemployed) in the labour market.  A legal minimum wage exists and is set at the national level. Minimum wage in Lithuania was 380 EUR/month in 2016. The youth unemployment rate is the number of unemployed 15-24 year-olds expressed as a percentage of the youth labour force. Unemployed people are those who report that they are without work, that they are available for work or/and that they have taken active steps to find work in the last four weeks.

The entrepreneurship rate and business ownership rate are developed by the Global Entrepreneurship Monitor (the entrepreneurship rate is defined as the proportion of the adult population (age 18 to 64) that are actively involved in setting up a business they will own or co-own; this business has not paid salaries, wages or any other payments to the owners for more than three months; the new business ownership rate is the proportion of the adult population that are currently an owner-manager of a new business that has paid salaries, wages or any other payments to the owners for more than three months, but not more than 42 months; both of these rates are computed using a common household survey). According to these two rates, youth in Lithuania are among the most active in entrepreneurship in the EU (8.3% of youth in Lithuania over the 2009-2013 period were actively involved in the process of setting up a business; this is above the overall rate of 5.2%; it is also essentially double the EU average rate for youth (4.2%) (OECD, 2015). The new business ownership rate also suggests a high level of entrepreneurship activity among youth in Lithuania (in the 2009-2013 period, 6.9% of youth were new business owners, which is the highest rate among EU countries). The new business ownership rate for youth in Lithuania is essentially double the EU average rate (3.5%) for this period (OECD, 2015). Youth self-employment rate in Lithuania appears to be slightly higher than the EU average although self-employment data for youth are limited in Lithuania  (OECD, 2015). In 2014, the youth self-employment rate was 4.9%, which was slightly higher than the EU average. Overall, the self-employment rate in Lithuania has diverged with the EU average since 2005. 10.6% of those employed in Lithuania were self-employment in 2014, relative to 14.4% of those in the EU  (OECD, 2015).