Labour costs in Latvia continue to rise, and with them, company priorities are shifting. More and more businesses are planning to invest in automation and digitalisation, while attracting and retaining qualified labour is becoming one of the greatest challenges. This problem is particularly acute for small businesses in the regions, where demographic trends limit the availability of labour. At the same time, the introduction of technology does not reduce the need for staff – it changes the skills expected of employees.

Eurostat data show that last year, one employee cost a company an average of 16.3 euros per hour in Latvia, 17.8 euros in Lithuania, and 21.1 euros in Estonia. In the Baltics, these costs remain below the Eurozone average, yet a rise in costs is also evident here – in Lithuania, hourly labour costs grew by 9% last year, one of the sharpest increases in the Eurozone. Rising labour costs are increasingly prompting companies to invest in automation, digitalisation, and other solutions that help to increase productivity and maintain competitiveness. Luminor survey data show that one in four small and medium-sized enterprises planned to invest in artificial intelligence and automation solutions this year, as well as to increase expenditure on salaries and invest in employee training and talent development.

“Automation generally helps companies increase efficiency and complete some tasks with fewer resources, but at the same time, it creates a new problem, as employees capable of working with the new systems are required. Our survey data indicate that only 6% of small and medium-sized enterprises believe that artificial intelligence will allow them to reduce the number of employees in the future. This means that the need to invest in employee training is growing, which increases overall costs while simultaneously strengthening the ability of companies to retain qualified staff in the long term. For both smaller companies with a turnover of up to one million euros and medium and large enterprises, one of the main challenges is often not only developing new skills but also retaining existing staff. This problem is particularly pronounced in the regions, where companies face not only a lack of qualified specialists but also a general shortage of labour. Therefore, the competitiveness of companies is increasingly determined by their ability to invest in both technology and people simultaneously,” notes Uģis Počs, Head of the Small and Medium Enterprise Service Department at Luminor bank.

The latest labour market data also confirm this – although unemployment rose slightly at the beginning of the year compared to the previous quarter, year-on-year there are positive changes and a breakthrough specifically in youth employment. The Labour Force Survey by the Central Statistical Bureau indicates that the unemployment rate in Latvia was 7% in the first quarter of 2026. At the same time, the number of economically inactive people has risen to 427.4 thousand compared to the previous quarter, indicating a labour reserve. A positive turn is evident among young people (15-24 years old), where employment in the first quarter reached 31.6% (59.6 thousand employed), while youth unemployment fell to 9.4% (6.2 thousand unemployed), setting the lowest level in the last 18 years.