**NUTS 3 regions: uneven development** . Figure 13 gives a simple description of labor market conditions in Latvia’s regions in 2002. The Riga region is well ahead, while Latgale seems to be depressed, and differences between the other three regions are relatively small; somewhat higher wages in Kurzeme have to be seen against lower unemployment rates in Vidzeme and Zemgale. Some recent, unfavorable, developments in Vidzeme are, however, documented in Section 3, below.  On the other hand, unemployment rate in Latgale dropped from 21 percent in 2000 to 17 percent in 2002 (Appendix Table 9).  Nevertheless, the difference in unemployment rates (both LFS-based and registered) between the Riga region and Latgale is striking given the small size of the country. This is especially true when combined with the 60% wage advantage in Riga (Figure 13) and a much higher share of discouraged workers in Latgale (Appendix Table 11).  The fact that State Employment Service was until recently only available to jobseekers at their official place of residence clearly added to labor market rigidities. Still, the problems of Latgale, a relatively remote region, would not be solved by commuting or (at least in the medium term) by migration. Thus, job creation in this region is essential.

**Figure 13.  Unemployment Rates (left scale, percent) and Relative Average Wages (right scale) in Latvia’s Regions, 2002**

<!-- Start of picture text --> 20 120<br>100<br>15<br>80<br>10 60<br>40<br>5<br>20<br>0 0<br>Riga region Kurzeme Zemgale Vidzeme Latgale<br>jobseekers (LFS based unemployment rate, age 15-74)<br>registered unemployment rate<br>long-term registered unemployment rate<br>gross wages (Riga region = 100)<br><!-- End of picture text --> _Source_ : Central Statistical Bureau of Latvia and Calculations. Registered unemployment rates are based on number of economically active population in the age brackets from 15 years to the retirement age.

**Evolution of regional labor markets.** A large increase in the unemployment gap between Latgale and the rest of the country emerged in 1993-1995 (see Appendix Figure 8).  Since this time, the general trend was of an improving the relative standing of this region in terms of unemployment. However, a further worsening in wages disparities between Latgale and other regions was experienced. The relative wage advantage of Kurzeme declined between 1993 and 2000. Recently, unemployment rates have become more similar to those in other regions.  The position of the Zemgale labor market (as seen from the perspective of administrative data) was more or less stable throughout the whole period. During the last three years wage growth was very similar across all regions except Kurzeme, where it was slower. Vidzeme was the only region in which registered unemployment increased.  A deeper analysis in the next chapter shows, however, that the gap between Riga and other regions both in terms of relative wages and unemployment risk in 2002 was wider than five years ago.

**NUTS 4 regions: persistent disparities.** Labor market conditions also differ within the five NUTS 3 regions. Appendix Figure 7 suggests a negative relationship between unemployment rates and wage levels across districts. The 33 NUTS 4 level regions include Riga, with three-quarters of a million residents, 6

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