Latvia’s Human Capital Development Strategy was initially scheduled for implementation in 2024, however, as of 2026 it has still not been approved. Such delays cast serious doubt on the government’s commitment to human capital development and undermine Latvia’s ability to address its most urgent workforce and productivity challenges. Without swift action, Latvia risks compromising its own long-term competitiveness.
Foreign Investors and employers have constantly identified labour shortages as one of the most significant constraints on business growth. One of the key selling points to investors when introducing Latvia as a potential place for investment was its combination of relatively skilled labour and low labour costs. However, as economic conditions shift, the critical question is whether Latvia can still rely on this advantage or whether rising wages without improvements in productivity and persistent labour shortages are steadily eroding it.
In response to Latvia’s growing structural challenges in this sector, the Latvian Human Capital Development Strategy 2024–2027[1] was developed in 2023. However, since then, because of the insufficient funding and its ambiguous goals, it has been reworked into the Human Capital Development Action Plan in 2024[2]. However, two years later, following multiple revisions and repeatedly postponed adoption timelines, the Plan has still not been formally adopted!
Why the Plan implementation is important: In 2025, Latvia’s labour market remains heavily constrained by a demographic decline, emigration, and persistent skills mismatches, which continue to limit productivity and economic growth[3]. Employers still face a tight labour market and shortages across key sectors, particularly where specialised skills are required[4]. With fewer people and many workers lacking the skills employers need, companies struggle to fill vacancies and operate at full capacity. Additionally, rising labour demand has contributed to continuous wage growth, with average gross earnings in Latvia surpassing €1,800 in 2025[5], compared to around €1,685 on average in 2024[6]. Confirming a sustained upward wage trend that is further narrowing Latvia’s traditional labour-cost advantage.
Claudio Rivera, FICIL’s Labour Force & Requalification Work Group leader and Founding Director of Bachelor Programs at Riga Business School: “Without a clear plan, Latvia risks a continued decline in workforce availability, rising labour costs that outpace productivity, weakened attractiveness for high-value investment, and a gradual erosion of its competitiveness in the region. Delayed action may also deepen the mismatch between labour-market needs and education outcomes.”
Governance and Accountability
These persistent challenges point not only to policy gaps, but also to weaknesses in governance and accountability mechanisms responsible for delivering human capital reforms.
Responsibility for human capital development formally spans across several ministries. Since in 2023, Ministries of Economics, Education and Science, and Welfare formed the Human Capital Development Council (HCDC)[7].However, this shared responsibility has weakened ownership, contributing to delays in decision-making and implementation. As a result, no single actor is clearly accountable for progress, limiting the Council’s ability to move from coordination to execution.
FICIL critically therefore recommends reassessing whether the HCDC is the most effective governance mechanism, or whether stronger, more centralised leadership is required. For example, one entity, acting as a centralised coordinating body, could provide unified leadership and oversight across relevant domains, while ensuring a more targeted and efficient use of financial instruments. Clear governance is essential to assign responsibility for implementation, prioritise funding decisions and ensure that human capital measures are delivered on time and produce measurable results.
Fiscal Constrains
It has been stated that the development and adoption of the Strategy have been delayed due to fiscal constraints. It remains unclear whether the real obstacle is a genuine lack of available funding or a deeper issue, namely, that human capital development is not being treated as a national priority in Latvia. A large share of the measures included in the Strategy requires substantial investment. Therefore, FICIL has emphasized the need to specify the estimated funding required for each measure. As this would enable realistic prioritisation, improve budget planning, and allow policymakers to assess whether proposed actions are feasible and adequately resourced rather than merely aspirational.
In 2025, Latvia’s investment in education from primary to higher education stands at 3.8% of GDP, below the OECD average of 4.7%, according to OECD data[8]. This marks a decline from 4.1% of GDP in 2024[9], reinforcing concerns about underinvestment. The OECD has repeatedly warned that Latvia’s national investment in human capital remains chronically low and that addressing skilled labour shortages will require investing more in people, not less.[10]
Latvia now faces a defining choice. Although funding to the defence sector should be a priority, it must not come at the expense of the nation’s human capital development. Investing in people is the most effective and sustainable way to ensure both current and future prosperity. In FICIL’s view, without immediate political ownership, guaranteed funding, and binding governance mechanisms, the Human Capital Development Plan will remain a hollow promise rather than a functioning policy. Education and skills development are not optional budget lines- they are the foundation of productivity, resilience, and Latvia’s long-term survival as a competitive economy.
Sources:
[1] https://www.em.gov.lv/lv/jaunums/cilvekkapitala-attistibas-padome-apstiprina-cilvekkapitala-attistibas-strategijas-projektu?.
[2] https://tapportals.mk.gov.lv/legal_acts/2d477536-f88c-439c-a768-7f9cb025f7d9?.
[3] https://www.imf.org/-/media/files/publications/cr/2025/english/1lvaea2025001-source-pdf.pdf.
[4] https://www.em.gov.lv/en/article/second-quarter-2025-increase-labor-market-activity-observed.
[5] https://www.csp.gov.lv/lv/jaunums/videjais-atalgojums-pirms-nodoklu-nomaksas-1-808-eiro.
[6] https://eng.lsm.lv/article/economy/employment/27.02.2025-wages-rose-by-nearly-10-in-latvia-in-2024.a589012/.
[7] https://www.em.gov.lv/en/article/human-capital-development-council-discusses-workforce-attraction-and-reducing-administrative-barriers?
[8] https://www.oecd.org/en/publications/2025/09/education-at-a-glance-2025-country-notes_9749f4ff/latvia_b3db81a8.html.
[9] https://www.oecd.org/content/dam/oecd/en/publications/reports/2024/09/education-at-a-glance-2024-country-notes_532eb29d/latvia_9e902bcb/5c8d1469-en.pdf.
[10] https://www.oecd.org/content/dam/oecd/en/publications/reports/2024/04/oecd-economic-surveys-latvia-2024_e4f4bb60/dfeae75b-en.pdf?.