In response to 2008-09 economic crisis and slow economic recovery in its aftermath, Lithuania undertook reforms to liberalize its labor market. The new Labor Code that came into effect on July 1, 2017 was based on so called flexicurity model first created and implemented in Denmark to provide beneficial combination of flexibility in terms of employment, with security in terms of adequate provision for retraining and income support for those in transition between jobs.

For two and a half years preceding passage of the new labor laws, politics in Lithuania was dominated by highly contentious debates on the pros and cons of the labor market liberalization. The proponents of the reforms claimed that the new Labor Code will allow the creation of up to 85 thousand new jobs and will reduce unemployment. It was also claimed that more flexible employment would be especially beneficial in extending possibilities to combine work and family-related responsibilities. Thus, gender inequalities would decrease because flexible, part-time employment contracts for primary caregivers would allow to shorten breaks in labor market participation due to childbearing and family care needs.

Critics of the liberalization reforms asserted that the new jobs forecast were by far inflated. Furthermore, it was argued that the new labor law represented attempt to transplant to Lithuania not a full-fledged, but a truncated Danish flexicurity model that provided for flexibility but without adequate or comparable security. It was argued, liberalization of the labor law will most likely lead to increase precariousness of all workers, weaken their social protection, and lead to decline in wages of low-paid workers as it happened in the neighboring Poland when so called ‘civil law contracts’ aka ‘junk contracts’ were introduced in the early 2000s.

Both, pro and against labor liberalization positions in Lithuania assume that changes in the labor law directly affect the structure of the labor market: change the law and, in response, the labor market will change as well. However, such argument is reductionist and too simplistic because changes in labor laws are only one among many factors that affect labor market in general and gender differences in employment, in particular. Since impact of the changes to the labor law is mediated by a number of factors, its effect on the labor market situation and associated gender gaps can vary from reduction to increase, but also could result in marginal or no impact at all. As the first data on the changes in the labor market after the labor law reform appears, it allows for testing the claims upon which the labor legislation law was debated and signed into law. Of a special interest is the impact of the Labor code reform in Lithuania on the flexible work arrangements with regards to gender differences in its outcomes.

Looking at the general labor market situation in Lithuania, positive trends were observed in Lithuania for the period of 2014-2019. An increase in employment rate was significant for both genders if comparing the start and the end of the period, as well as since the introduction of the Labor code in the middle of 2017. The prevalence of full-time work arrangements increased for employed men with no care-related responsibilities, while it decreased for women with care-related responsibilities. Also working schedules became more flexible for both men and women with care-related responsibilities. Despite the introduction of several new types of employment contracts, the share of standard permanent contracts was increasing. Evaluation of the working time as optimal increased for both sexes.

However, the argument is that all these positive changes would have happened in the Lithuanian labor market after introduction of the new Labor code even if there was no change in employment laws. Our strategy for identifying the reform effects is based on an assumption that higher effect of the new legislation, if any, can be expected on women with care-related responsibilities due to their higher demand for flexibility, compared to both women with no such responsibilities and men with or without care-related responsibilities.

The identified reform effects are significant in three areas: reduction in the employment level, reduction in the prevalence of contracted work and a high positive effect in the prevalence of permanent contracts. These are contradictive results to those intended by the reform. Nevertheless, the first effect can be explained by reduced conditions and costs for dismissal of employees in the new Labor code. The second effect can be explained by the convergence of the conditions provided by the different new types of contracts to the conditions of self-employment, albite the latter is less taxed. The positive effect on increase in permanent contracts can be explained as a positive externality of the reform. I.e. lower costs associated with having an employee on a permanent contract in the context of their long-lasting dominance and high demand for labor in the booming Lithuanian economy between 2017-2019 allowed for higher probability of being hired on a permanent basis, albite with reduced protection it now provides. Important to note that the above-mentioned negative effect of the new Labor code on employment did not show up during the analyzed period, as they were neutralized by the positive effect of the economic cycle. Nevertheless, it is not unreasonable to assume that the negative effects on employment would manifest themselves within the negative economic cycle.

Finally, no effect of the reform was observed for changes in the prevalence of full-time versus part-time work, standard versus non-standard working hours and evaluation of working time as being more or less optimal. Hence, it can be stated that the Labor code reform in Lithuania has not, at least within its first year of functioning, achieved more flexibility in the labor market for those who have higher demands for it and no associated increase in the satisfaction with the time balance between work and care-related responsibilities.

by Jekaterina Navicke