Donal Smith
OECD Economic Surveys: Lithuania 2025
Abstract
Lithuania faces severe demographic pressures with a declining working age population, which exacerbate existing labour shortages and undermine international competitiveness. Encouraging return migration and improving the system for attracting foreign workers would help consolidate the recent reversal in migration flows and alleviate labour shortages. In addition, more could be done to foster the employment of older workers, while a reform of the vocational education system would help address skills shortages among younger workers. The demographic change will increase pension-related costs, with high old-age poverty and low life expectancy for men making it difficult to contain them in the short term. Improving health outcomes in a cost-effective way will require further rationalising the hospital network, addressing healthcare staff shortages, and promoting healthier lifestyles with adequate price incentives and other prevention actions.
Lithuania’s population will face a steep decline over the coming decades. There were 2.9 million people living in Lithuania in 2024, 0.8 million fewer than in 1992, and population is projected to further decrease to 2.2 million by 2050 (Figure 4.1, Panel A). According to UN demographic projections, Lithuania will have the 6th largest relative reduction in population in the world by 2050 (United Nations, 2022[1]).
The decline of the working-age population is projected to be one of the largest of any country in the OECD (Figure 4.1, Panel C) (Box 4.1). This continues a long-term trend; the working-age population has been shrinking since 1992 going from just over 2.2 million to 1.7 million in 2024, and projected to fall to around 1.3 million by 2050. 2024 also marks the year when, for the first time, more people will retire than enter the labour market. Amid an overall reduction in size, the population is also ageing. The old-age dependency ratio - the share of the population 65 years and older relative to the 20–64-year-old population – is projected to increase by almost 20 percentage points up to 2050 and will remain one of the highest in the OECD (Figure 4.1, Panel D).
Detailed and cross-country comparable demographic projections for Lithuania are produced by the United Nations (UN) and Eurostat. Over 2022-2050 the UN project that the working age population in Lithuania will shrink by 30%, whereas Eurostat projects a 27% decline. The larger decline in the UN projection leads to a higher dependency ratio in 2050 compared to Eurostat. Both demographic projections rely on a range of assumptions for future paths of fertility, mortality and net migration. While Eurostat and UN projections differ to some degree in their assumptions on fertility and mortality, the major difference for Lithuania arises from the net migration assumptions. Reflecting the timing of when the projections where formulated, Eurostat migration numbers capture some of the influx of Ukrainian refugees and also include positive net migration in the decade to 2050. This leads to an average net migration between 2022-2050 that is positive and thus adds the labour force. The UN projection maintains the historical trend of continuously negative net migration over the period 2022-2050, weighing on the working age population.
While lower than the OECD average due to a decline in recent years, fertility is above the very low rates experienced by some East Asian and Southern European countries (Figure 4.1, Panel B). This does not seem to be related to factors hindering the participation of women in the labour market. Female participation in the labour force is high. The gender employment gap is among the lowest in the OECD, the share of women in managerial roles is above the OECD average, the gender pay gap is below average and not related to childbearing (Chapter 1). This may reflect generous family support policies relative to the OECD average, including with respect to paid maternity leave and family benefits (OECD, 2023[3]). Gross childcare fees as a percentage of average earnings are among the lowest in the OECD, and the participation in childcare of 3-5 years olds is above the OECD average (OECD, 2023[3]). Across OECD countries, aggregate employment of women has been significantly positively associated with fertility rates since OECD countries started to introduce family support policies in the early 1990s (Fluchtmann, van Veen and Adema, 2023[4]).
Even in the optimistic case where fertility were to rebound in the next years, demographic projections show that this would hardly limit the projected increase in the old-age dependency ratio over the next decades (Figure 4.2). Against this background, this Chapter will not focus on the drivers of fertility, nor on policies to support it.
Source: United Nations World Population Prospects 2022 (Medium scenario), OECD calculations.
Source: United Nations World Population Prospects 2022
A major factor explaining the shrinking population, and working age population, have been large net migration flows. This began in 1989, just before independence, and accelerated in the early 2000s. From independence to just before the war in Ukraine (1990-2021), net migration outflows relative to population were the largest in Central and Eastern Europe (Figure 4.3). At the peak in the 2000s, Lithuania lost around 35,000 people, i.e. 1% of its population, each year due to migration. A reversal of net migration flows started in 2019 and accelerated in 2022. This was driven the inflow of Ukrainian refugees, an uptick in return migration and a drop in emigration. In the most recent 5-year period up to 2023, average emigration stood at around 25,000 per year. This is down from an average of 49,000 per year from the previous 5-year period (2014 - 2018).
Source: Eurostat
The declining labour force will impair the potential output of the economy, future growth prospects and international competitiveness. While the fact that people are living longer is an accomplishment in itself and brings new opportunities for workers, firms and society, ageing will create significant challenges for Lithuania’s labour market as well as its pension and healthcare systems, both of which are expected to see their costs rise over the next decades (Figure 4.4). This will require substantial reforms. Finding areas for raising spending efficiency in the delivery of these age-related public services will be one way forward, but there will also be areas where future spending increases will be inevitable and require stable funding sources.
Change in expenditure between 2022 and 2070
Source: European Commission 2024 Ageing report.
This chapter looks at ways to mitigate the impact of a shrinking labour force and considers a package of policies that would increase the resilience of the healthcare and pension systems to future spending pressures.
4.2.1. Demographic change will reduce the labour force, with implications for output and competitiveness
As a small-open economy that is highly reliant on trade, with a trade to GDP ratio of over 170%, Lithuania is exposed to changes in its labour supply relative to other economies. The economic impact on Lithuania, resulting from domestic and foreign demographic changes, can be modelled through the use of a global general equilibrium model (Box 4.2). The steep decline in the working-age population would reduce GDP by around 10% by 2050. Exports will also contract by around 10%, partly related to a reduction in cost-competitiveness due to declining labour supply (Figure 4.5, Panels A and B). Global demographic changes will also trigger a geographical reallocation of exports and imports in all countries including Lithuania under a scenario where no policy action is taken (Figure 4.5, Panels C and D).
The OECD METRO model is a multi-country and multi-sector computable general equilibrium (CGE) model that can be used to analyse the consequences of global demographic change and migration on the Lithuanian economy.
Since METRO is a global general equilibrium model, it accounts for the fact that shifts in countries’ relative labour endowments affect sectoral wages, cost competitiveness and the full set of connections between importers and exporters. Its sectoral breakdown captures differences in labour intensity and exposure to international competition across sectors. As a result, it allows estimating the impact of demographic changes on production, imports and exports at sectoral level in each country, as well as their impact on global trade patterns. While migration also has many social and economic implications, this analysis considers only the economic dimension of production and trade.
METRO does not aim at explaining demographic or migration changes but takes them as given. Those changes are only considered through their impact on the size of the labour force, and it is assumed that productivity does not depend on the age composition of the workforce. Nevertheless, the present simulations do not only consider the demographic changes affecting the Lithuanian economy, but those happening in all countries simultaneously. They use the latest 2022 UN global demographic projections as a basis and consider two scenarios:
The first scenario, referred to as the benchmark demographic scenario, relies on the medium variant of the UN demographic projections up to 2050. The migration data for Lithuania is first updated to 2022 with national sources to reflect the recent inflow of Ukrainian refugees.
The second scenario, referred to as the favourable migration scenario, considers increased net migration flows to Lithuania. More precisely, this scenario adds an extra 15,000 to net migration above the UN baseline projection of around -2,000 per year for Lithuania. The resulting net migration of 13,000 is approximately the average of net migration from 2018-2021, before the war in Ukraine. These additional migrants are allocated proportionally across source countries using a bilateral migration flow matrix estimated over the past.
Note: ROE refers to Rest of Europe and ROW to the Rest of the World. NEU includes Denmark, Sweden, Norway and Finland. In Panel B, the market share is measured as the share of imports of given region that is accounted for by Lithuania. Simulations show a 8% fall in Lithuania’s market share in German imports.
Source: OECD METRO simulation.
Lithuania’s current labour shortages, measured by the stock of open vacancies relative to total employment, are pronounced relative to other countries and impact every sector of the economy and exceeded 20% in six sectors in 2023 (Figure 4.6). These sectors account for over 20% of total employment and just over a quarter of output. Shortage professions in manufacturing and construction cover a wide array of skilled manual workers, engineers as well as managers and supervisors. Vacancies have increased recently, with an average of around 25,000 over 2021-2023, compared to around 16,000 over 2014-2020.
Source: OECD labour force statistics database, statistics Lithuania and OECD calculations
Labour shortages are acute in technical professions and contribute to strong wage growth (Chapter 1). In 2023 the highest growth was seen for builders, drivers, and machinery operators with wage increases of almost 20%. Some sectors like information technology (IT) do not have as large a number of vacancies but still struggle to fill specialised positions. The public sector faces significant recruitment difficulties for some professions including teachers in scientific disciplines and nurses. As labour shortages in the healthcare sectors are expected to worsen over the next decade, this will likely fuel further public-sector wage growth. Recruitment difficulties in the public sector may be exacerbated by low mandatory retirement ages that force workers who could continue to work into retirement. For example, some public sector workers face mandatory retirement ages which can be as low as 55 (OECD, 2023[8]). To improve the situation, the public sector could move towards more flexible retirement arrangements with a graduated system of retirement with steps from full to part-time status for older workers. Lithuanians who reach the retirement age can continue to work in the private sector and combine a salary with their full old-age pension. In case of deferred retirement, the pension is increased by 8% per year (Vinkus and Buškutė, 2023[9]). This should be promoted with awareness campaigns for those willing and able to stay in the labour force.
4.2.2. Boosting migration can mitigate the impact of the demographic shock
Immigration, coupled with a successful labour market integration of immigrants, can boost labour supply and mitigate the impact of the demographic shock. With continued economic growth there has been a recent reversal of migration outflows, even before the influx of refugees from Ukraine (Box 4.4). Simulations suggest that increasing net migration by 15,000 per year compared to the UN projections, and thus extending the net migration trend observed in recent years, would reduce the fall in production by around a half across all sectors compared to the baseline projections (Figure 4.7).
Source: OECD METRO simulation.
Given the free movement of persons within the European Union (EU), Lithuania’s migration policy defines the scope for the entry of third-country workers from outside the EU. Recent legislative amendments have sought to enable easier entry to Lithuania for high-skill non-EU professionals (Box 4.3). The changes aim to make it easier for them to obtain a Blue Card residence permit, for example by removing the need for a work test and by lowering the salary requirement for professionals in high value-added professions. While attracting high-skill workers is crucial to face specific shortages and raise the growth potential of the economy, low-skilled workers are also needed. Population ageing will require a greater number of low- and medium-skill workers in healthcare and long-term care, for example (STRATA, 2022[10]). While these sectors are already confronted with growing labour shortages, they have relied little on immigration so far. Foreign-born workers represent one of the lowest shares of healthcare staff of any OECD country (OECD, 2023[11]). Future migration programmes should balance the need for migrants of all skill levels to alleviate shortages across sectors.
While most non-EU workers have been admitted based on profession-specific quotas until recently, this has been replaced with an economy-wide quota from 2025 onwards. Until this quota is reached, businesses will be able to obtain temporary residence permits for work for their employees following a simplified administrative procedure under which they are exempt from first opening the position on the domestic job market. This legislative change is a step in the right direction as it strengthens the role of relative wages in signalling where labour shortages are the most acute and immigrants are most needed. At the same time, this reduces the scope for political capture by interest groups representing powerful economic sectors.
Nevertheless, the new system does not give long-term perspectives to migrants for settling in Lithuania, which may discourage applications. For example, temporary residence permits for work are only granted for a maximum duration of two years with a possibility of renewal, and family reunification is not possible until at least two years after arrival. Moreover, third-country workers are expected to remain with their employer and can only move to another job after applying for and receiving permission from the Migration Department. This strengthens the bargaining power of employers as workers are essentially locked into the initial contract, which risks holding down wages, eroding working conditions and already weak health and safety standards and damaging overall growth prospects in the long-term,
To improve the situation, longer-duration and more flexible temporary residence permits for work could be granted to third-country workers meeting certain qualification, experience and integration capacity criteria, which could be assessed based on a points system. For example, integration capacity may be assessed based on the knowledge of the Lithuanian or English languages, and existing connections in the country. Qualification and experience could be assessed based on broad criteria favouring labour mobility rather than being tied to narrow professions. The existence of a job offer could also be counted as evidence of relevant qualification and experience, as practiced in Canada.
EU citizens
EU citizens and their family members who intend to work in Lithuania do not need to obtain a work and residence permit under the Treaty on the Functioning of the EU.
Non-EU citizens
Citizens of select non-EU OECD countries, e.g., the United States, Canada, the United Kingdom, Japan, Australia, New Zealand and South Korea, are not subject to a residence or work permit requirement to work in Lithuania. For other workers from outside this group and the EU (third-country workers) there are a number of pathways.
Recent amendments to the Law on the Legal Status of Foreigners mean that from July 2024, third-country nationals who intend to work in Lithuania must obtain a temporary residence permit (TRP). This applies to all workers aside from seasonal workers and posted workers, who can still apply for a work permit and a national visa. The TRP is issued for two categories of workers –highly qualified workers and other workers. A TRP can be issued for up to 2 years for workers and up to 3 years for highly qualified workers. During the validity of a TRP, third-country nationals can only work with the employer who has undertaken the initial employment contract. Workers cannot change employer during the first six months of employment and thereafter, they must apply for permission to the Migration Department. Aside from a few exceptional cases, the general rule is that if TRP holders are required to leave the country if dismissed. Third-country nationals arriving with a TRP can bring their family members if they have resided in Lithuania for the preceding two years and are in possession of a TRP valid for at least one more year.
High-skill workers may also be eligible for a Blue Card, a European initiative to attract highly skilled non-EU citizens to work and live in 25 of the 27 EU countries. This Card is issued for up to 3 years, with possible extensions, and applies to specialists with higher education or sufficient professional experience. The salary must not be less than 1.5 the average salary for those highly qualified, or 1.2 the average otherwise. The Blue Card profession list differs from the shortage list as the profession must be both in shortage and create high value added, as determined by the Ministry of Economy and Innovation. 3,924 Blue Cards were issued in 2022, as compared to over 23,000 work permits. Most work permits – more than 70% in 2021 and 2022 – were issued to long-distance drivers, employed by Lithuanian firms but providing international transport services largely outside of Lithuania.
Return migration has a significant potential for Lithuania. There are approximately 1.3 million persons of Lithuanian descent residing abroad, i.e. about 45% of the resident population and well above the number of job vacancies in Lithuania (Ministery of Foreign Affairs, 2021[12]). Strengthening efforts towards this large diaspora may help Lithuania to strive in the international competition for migrant workers and attract migrants that are relatively easy to integrate. Over the decade up to 2022, 34% of the Lithuanians who emigrated left to other EU countries, while the UK (46%) and Norway (10%) were the main destinations outside the EU. In the last four years, more Lithuanians have returned home than left. Each year, between 15,000 and 20,000 Lithuanians, mostly young professionals aged between 30 and 40, return. The latest annual diaspora survey from 2023 indicates that 20% of the Lithuanian diaspora are planning to return, with more considering it in the future. Lower wage gaps than in the past and strong growth may support return migration.
New initiatives such as the 2024 Global Lithuania Strategy platform provide additional services for returning citizens. Key initiatives under this strategy include an information portal, “Grįžtu LT”, to facilitate the return process for Lithuanians considering moving back. Similarly, the "Gal į Lietuvą?" initiative developed by Public Employment Service, offers information about the labour market, working conditions, and social guarantees in Lithuania. There are also job fairs organised to support return migration. Other initiatives are aimed at students and offering young professionals an opportunity to join the Lithuanian public sector. These should be evaluated for success and used to identify barriers to re-entry.
Efforts to communicate employment opportunities in Lithuania to the diaspora and facilitate return migration such as through hosting job fairs abroad should be continued and enhanced (OECD, 2018[13]; OECD, 2016[14]). A greater focus on school integration would assist the return of families. This has been identified as a barrier in surveys of the diaspora. Current diaspora policy tends to be focused on high-skilled workers. The target pool of workers could be enlarged if the same initiatives were broadened to cover medium- and low-skilled workers (OECD, 2018[13]). Improved language education would also assist the integration of second-generation diaspora.
An extensive set of policies has contributed to Lithuania’s success in integrating Ukrainian refugees into the labour market (Figure 4.8). Over 34,000 Ukrainians are now employed. This has contributed to an alleviation of shortages particularly in manufacturing, with over 6,000 Ukrainians employed in 2024. Construction and transportation have over 3,000 employed in each. However, this may not be a long-term solution. In the future, flows will subside and surveys also reveal that only 10% of Ukrainian refugees are certain they want to remain in Lithuania permanently (Tkachuk, Kostrykina and Janeliūnas, 2023[15]).
As of 2023, more than 85,000 Ukrainians now live in Lithuania, representing the biggest community of foreign citizens living in the country and one of the highest shares relative to population in Europe. Most arrived as war refugees under the EU temporary protection mechanism (Figure 4.8).
The Public Employment Service (PES) employed Ukrainians to help war refugees who did not speak Lithuanian and organised meetings between employers and refugees to facilitate job matching. Some companies have also offered onsite childcare to help arriving migrants start working given the large share of mothers with young children among the refugees. In June 2022, the Law on Employment was amended, and refugees became eligible for subsidised employment. The wage subsidy is equal to 75% of the wage costs, with a maximum duration of 36 months.
One of the prerequisites for many professional positions such as teaching, construction, healthcare, food production, and hospitality is good knowledge of Lithuanian. This is tested by the Lithuanian Language Inspectorate and is required by law. To assist integration, this regulation has been temporarily waived for Ukrainians in some sectors, leaving the language requirement to the discretion of employers. Targeted funding was allocated to municipalities for teaching Lithuanian to Ukrainian refugees. Language training for Ukrainians is organised in 21 municipalities, in addition to the Refugee Reception Centre.
Source: OECD (2023), International Migration Outlook 2023, OECD Publishing, Paris; Eurostat and OECD calculations (Vincenza Desiderio and Hooper, 2023[16]; Eurofound, 2024[17]).
4.2.3. Automation and digital technology could help mitigate labour shortages
A decline in the working-age population could be partly offset by other factors of production such as an increased use of capital or technology. Korea, Japan and Singapore stand out as examples of rapidly ageing societies with a significant reliance on robots. A greater adoption of robots and other automation technologies in ageing societies may be one of the explanations for the absence of an empirical link between ageing and growth across a large sample of OECD and non-OECD countries (André, Gal and Schief, 2024[18]). Emulating this progress, Lithuania could foster automation and new technologies to reduce the labour intensity of output, at least in some economic sectors. Nevertheless, automation may not be an affordable or workable solution in all of them, such as those with a strong social interaction component.
4.2.4. Unemployment remains elevated, particularly for older workers
Despite labour shortages, a declining working age population and an employment rate close to the OECD average, Lithuania’s unemployment rate is above the OECD average. Unemployment is concentrated among older workers (Figure 4.9), which contrasts with most OECD countries, where elevated unemployment is driven by a high unemployment among young people. The participation rate of older workers is above the OECD average with a high employment rate and simultaneously high unemployment rate. This leaves room to further exploit the potential of this age group, but this will require addressing skill mismatches.
Source: OECD labour statistics database.
More can be done to strengthen life-long learning for older workers
Spending on active labour market programmes in Lithuania has been low in the past, with a particular lack of resources for adult education (Figure 4.10) (OECD, 2023[19]). The lack of resources is spread across different dimensions of individual, employer-driven and government-funded adult education (OECD, 2019[20]). Recent initiatives aim at improving the situation. In 2023, an individual learning account system was introduced. This offers continuing learning programmes and career guidance. A funding of EUR 500 is provided to each participant. An online platform was launched in 2024. An Employer Box, under the Ministry of Education is also planned. This is a programme to encourage employer-driven training of company employees. The aim is to allow for a combination of state and company funding for the training.
0 (poorer financing arrangements) - 1 (better financing arrangements)
Note: The overall indicator is composed of sub-indicators of financing at the individual, employer and government levels for adult education. The sub-indicators that are included assess the degree to which investments are made by different actors, and to what extent the costs of training constitute a limiting factor to employers’ provision and individuals’ participation (OECD, 2019[20]).
Source: OECD (2019), Getting Skills Right: Future-Ready Adult Learning Systems, Getting Skills Right, OECD Publishing, Paris.
There is a strong asymmetry of information between workers and suppliers with regards to the quality of trainings that can be accessed with individual learning accounts (OECD, 2019[21]). Going forward, training quality should be monitored and the impact on worker employability carefully evaluated. It might also be useful to concentrate available resources on those workers who are most in need of individual training and cannot afford it.
The staff of Public Employment Services receives no specific training for dealing with the needs of older jobseekers and Lithuania has no specific active labour market programmes (ALMPs) targeting unemployed persons over 55. Nevertheless, older workers can have specific needs and additional complexities in entering the labour force as disabilities arising from poor health can impact a significant share of them (OECD, 2023[8]). Many countries have specific programmes with targeted ALMPs (Box 4.5). These can include counselling and coaching for workers with health limitations and engaging with local services (OECD, 2021[22]). In the Netherlands, on-the-job coaching services are available for workers that have been newly hired, including for workers with health impairments. More targeting of the needs of older workers would be beneficial given the combination of poor health status, relatively high unemployment, transportation constraints and disparate regional opportunities observed in Lithuania. Specific training for public employment service staff would also help to better meet the needs of older jobseekers.
Germany’s Federal Ministry of Labour and Social Affairs financed the “Perspective 50 Plus – Employment Pacts for Older Workers in the Regions” from 2005 to 2015. This programme aimed to reactivate and integrate older workers (50+) into employment, predominantly those who were low- or semi-skilled and long-term unemployed. Furthermore, the programme worked to change the attitudes of employers as well as to identify and share best practices and innovative tools. 77 regional employment pacts were set up, in partnership with nearly all jobcentres as well as with a wide range of local stakeholders such as companies, chambers and various associations, trade unions, municipalities, training institutions, churches and social service providers. Services made available through the programme included coaching, profiling, training in communication skills, job application training, job training, internships and wage subsidies. An evaluation of the first phase of the programme conducted in 2007 showed that its success rested on the combination of individualised counselling and coaching and proactive outreach towards employers. The most recent evaluation showed that placement results were better than in the case of more traditional approaches, including a model using less intensive counselling and more ALMPs.
The Estonian Public Employment Services (PES) developed and implemented a specific work ability assessment and introduced specific support measures for persons with reduced work ability and for employers willing to offer jobs for the target groups. This is important for older workers due to the strong interplay between old age and the prevalence of disability preventing employment (OECD, 2023[8]). This has seen the introduction of disability employment counsellors as new specialised staff along with staff training.
Source: (OECD, 2021[22]).
Despite their importance for unlocking the full potential of the labour force, ALMPs have been suffering from unstable funding in Lithuania. Most ALMPs are primarily funded through EU sources while national funding is mainly used as co-financing (OECD, 2022[23]). This unusual financing model is exposed to EU funding cycles and less responsive to changes in labour market conditions and needs for ALMP support. It also makes the long-term planning to adjust to a structural shift to an older labour force more difficult. ALMPs would be better served being funded predominantly from domestic sources. This could be achieved by a reallocation of EU and domestic funds, with EU funds covering short-term programmes and domestic funding used for long-term commitments.
Health status hampers the participation of older workers
Health outcomes and poor working conditions hamper the labour market participation of older workers. Older workers in Lithuania are disproportionally affected by poor health and low job quality, with nearly half of workers aged 50+ reporting negative effects on their health due to work –significantly higher than the EU average (OECD, 2023[8]). A strengthening of the overall quality of healthcare (see below) and in particular of health and safety standards with more inspections and higher fines could improve the overall health of the population and the working environment for all workers. Greater access to occupational health services could allow older workers to remain active for longer.
Reducing age discrimination can increase employment rates of older people
Prejudices against older workers are prevalent (Figure 4.11) (OECD, 2021[24]). Although age discrimination is illegal, more older people report experiencing age discrimination than their counterparts in many other EU countries.
Note: Average refers to the unweighted average of the 24 European countries shown.
Source: OECD labour statistics database; OECD (2021), A report on the assessment of the current situation of active ageing in Lithuania, OECD Publishing, Paris.
Most OECD countries have pro-active initiatives to change employer attitudes towards older workers. These include legislation and awareness campaigns. Although legislation cannot eradicate all forms of age discrimination, a strong and well-enforced anti-discrimination framework can eliminate more overt forms of discrimination (OECD, 2019[25]). Targeted policies include the “Vacancies for all ages” programme in the Netherlands. Classified ads for job vacancies placed in newspapers and on the Internet are screened for age discrimination. Employers responsible for placing offending classifieds receive a letter explaining why that particular notice is discriminatory and receive information about equal treatment legislation. A continued focus on enforcement of anti-age discrimination laws and awareness campaigns can help to combat negative attitudes towards older workers.
4.2.5. Improving the VET system would facilitate the labour market integration of the young
While more people reach secondary education in Lithuania than in other countries, graduates from vocational education and training (VET) courses receive lower-quality training and have generally weaker employment outcomes (Figure 4.12). 18% Lithuanians aged 25-34 year-old possess a VET qualification as their highest level of attainment (OECD, 2023[26]), but VET education contributes far less to young people’s skills and knowledge acquisition than in other countries (OECD, 2023[27]). VET has a low social perception and the transition of VET students to tertiary education is minimal. Overall, despite the considerable efforts to raise enrolment in VET education and improve its attractiveness, national targets have not been met. Furthermore, work-based learning (WBL) is limited and almost 30% of VET students complete no work experience during their studies (OECD, 2023[27]). Upcoming demographic pressures exacerbate the need for improving the quality of VET courses, in which almost one fifth of young workers are enrolled, and addressing skills mismatches in the labour market.
Employment rates by educational attainment of people aged 25-34, 2021
Source: OECD (2023), Strengthening Upper Secondary Education in Lithuania, OECD Publishing, Paris.
A reorganisation of VET programmes could boost their attractiveness and help alleviate technical skills shortages. Strengthening the system of vocational education would also assist with active labour market programmes (ALMP), as 16% of ALMP participants were involved in vocational training in 2023. Vocational students should be given clear work-related competencies or pathways to tertiary education. This could be achieved by creating two separate vocational options. A first general work-based programme would give students extra support to meet minimum requirements in core subjects and prepare them for the labour market. A second stream would have a narrower range of subjects and offer a pathway into technically focused employment, such as apprenticeship, or technical tertiary education (OECD, 2023[27]).
To improve the relevance of VET programmes, the involvement of employers in programme design could be increased. For example, in Germany, 89% of vocational upper secondary students are enrolled in combined school and work-based programmes (OECD, 2023[28]), with relatively long apprenticeship contracts that facilitate school-to-work transitions (OECD, 2020[29]). Similarly, vocational programmes also attract a large share of upper-secondary students in Switzerland, mostly with combined school-programmes and long work-based experience (OECD, 2020[29]; OECD, 2023[30]).
4.2.6. Teleworking can help mitigate regional disparities in employment opportunities
Lithuania’s two largest cities of Vilnius and Kaunas have low unemployment and a high number of vacancies, but unemployment in other regions can be three times as high (Figure 4.13). While skill mismatches contribute to this regional heterogeneity, rebalancing the available workforce across regions may help to reduce overall labour shortages. This is the objective of some recent initiatives. The Regional Development Programme, approved in 2022, foresees EUR 300 million of investment up to 2029. This will focus on public infrastructure, the establishment of industrial areas, business collaboration spaces and tourism infrastructure. Since January 2024, a new Service Organization Department of the Public Employment Service with five Regional Career Planning Units has been established. The aim of the new service is to change the administrative structure of existing employment offices and improve the quality of labour market services. The main objective of such institutions is to help people choose a career that is in demand, reflects the main labour market trends, and promotes digitalisation and the green and circular economy.
2023
Source: Statistics Lithuania; OECD calculations.
More than 80% workers who would like to telework do not have the possibility to do so. In practice, only 5% telework. Teleworking rates are well below the European average and below those of other Baltic countries (Vitola and Christopoulos, 2023[31]). In 2017 a revised Labour Code was introduced which legislated provisions for remote working. Since August 2022 some workers have had the right to request remote work and teleworking. However, surveys of job advertisements in 2023 revealed that in Vilnius and Kaunas only 0.2% and 0.3%, respectively, of advertisements offered teleworking. This may, in part, reflect the relatively weak development of digital skills (OECD, 2022[32]). Teleworking may help to rebalance labour supply across regions without requiring all workers to move closer to the largest cities. Company scepticism remains a barrier. Policy focused on promoting a culture of flexibility in management and nurturing digital skills could open up teleworking as a way to address regional imbalances and labour shortages (OECD, 2023[33]). Digital skills and managerial technical skills are below the OECD average and could be boosted over the long-term through the school curricula and in the short-term through enhanced adult education (Koutsogeorgopoulou, 2023[34]). In conjunction with skills development, progress on the implementation of the National Broadband Plan, ensuring universal access to high-speed broadband by 2027, would unlock more teleworking potential. Furthermore, a swift planning and permit system in combination with revised rental legislation could alleviate housing shortages in urban areas and help to foster labour mobility (OECD, 2020[35]).
Lithuania has a three-pillar pension system, of which the largest component is an unfunded, pay-as-you go defined-benefit scheme covering around 95% of retirees (Box 4.6). As an unfunded scheme, future benefits will have to be met from future tax revenues and represents a potential fiscal risk.
Note: The automatic adjustment mechanism and the supplementary indexation rule to tackle old-age poverty are not included in European Commission projections. Source: European Commission Ageing Report (2024).
The share of public pension spending in GDP is currently one of the lowest in the OECD, but is expected to experience a large increase (Figure 4.14, Panel A) (European Commission, 2024[2]). The main driving force behind the increase is the rise in the old-age dependency ratio (Figure 4.14, Panel B). Nevertheless, pension spending is projected to remain below the EU average. But even with current low pension expenditure, the public pension system will require an increasing amount of budget resources from 2028, the public pension deficit is projected to increase continuously and reach 2.1% of GDP in 2070, following several upward revisions of the projections (European Commission, 2024[2]).
The Lithuanian old-age pension system consists of three pillars: a statutory public unfunded pay-as-you go (PAYG) defined-benefit system (first pillar), a statutory privately funded defined-contribution system financed with personal contributions and state subsidies (second pillar), and a private defined-contribution system financed with tax-favoured savings (third pillar).
● The first pillar is the most important in terms of coverage and provision of income in old age. Around 600,000 or 95% of the retirement-age population receive benefits from this scheme. Participation is mandatory for all employees and self-employed workers. The first pillar pension is composed of two parts: 1) a basic benefit amounting to EUR 246 in 2023 is available to those with at least 15 years of work history, complemented by 2) an earnings-related benefit. The latter is based on a points system, where 1 point is accrued for each year of contributions paid from the average wage and each point was worth an additional monthly benefit amount of EUR 5.7 in 2023. A social assistance pension is paid to those with no pension entitlements, which are approximately 6.5% of pensioners. A specific “state pension” exists for specific groups such as victims of Soviet repression and military personnel, representing around 100,000 people or 16% of the retirement-age population.
● The second pillar is a funded defined-contribution scheme created in 2004. Around 54% of employees actively contribute to the scheme. The scheme has an auto-enrolment mechanism with the possibility to opt-out initially, but when a person chooses to participate, this decision is irrevocable. This pillar is funded by personal contributions, complemented by state subsidies. The individual contribution rate is 3% of the gross wage, topped up with an additional state contribution of 1.5% of the nationwide average wage two years earlier. There are no government guarantees on the return of the scheme.
● The third pillar is funded with individual, tax-favoured savings. Around 8% of the working population participate in this pillar. Participation in this scheme can be terminated and pension savings can be withdrawn at any time. Current contributions for private pension savings are tax deductible up to a ceiling of 25% of an individuals’ salary and up to EUR 1 500 per year. However, from 2025 this tax deductibility does not apply any more for new contracts.
4.3.1. Further increases in the retirement age would require improvements in health conditions and only provide limited gains
In 2022, the statutory retirement age was 64.3 years for men and 63.7 for women, close to the OECD average. The retirement age is being increased annually by 4 months for women and by 2 months for men until it reaches the age of 65 for both genders in 2026. After this point no further increases are planned.
Significant disparities in life expectancy between men and women and between socio-economic groups limit the scope for further increases in the legal retirement age, at least in the short term. While average life expectancy at birth was 76 in 2022, four years below the OECD average, the disparity between men and women of 9 years was the second largest in the OECD. Similarly, people with different education backgrounds also face large differences in life expectancy (Lübker and Murtin, 2023[39]). Both life expectancy for men (71.5 in 2022) and the difference between life expectancy and the legal retirement age for men are among the lowest in the OECD (Figure 4.15). Any further increase in the legal retirement age would thus hinge on improvements in health conditions (see below) and ensuring that average life expectancy gains translate into similar gains for all subgroups in the population. The available evidence from Statistics Lithuania shows heterogenous developments in life expectancy across regions in recent years. For example, life expectancy at birth in Vilnius, the wealthiest region in the country, has increased by over two years over 2018-23. By contrast, it has decreased in Tauragė county, where GDP per capita is almost half that in Vilnius.
Gap between life expectancy at birth and the legal retirement age for men, 2022
Note: Calculations are based on life expectancy for 2022 and the legal retirement age in 2022.
Source: OECD Pensions at a Glance 2023 and OECD Health at a Glance 2023
Change in public pension spending over 2022-70: deviation from baseline projection due to linking retirement age to life expectancy, % of GDP
Note: The baseline projection is the one featuring in Figure 4.14.
Source: European Commission Ageing Report (2024)
Even in the optimistic scenario where average life expectancy gains would be equally shared, simulations show that linking retirement age to life expectancy would only provide limited financial gains in Lithuania. While such a measure would reduce pension costs by 0.9% of GDP on average in the EU, savings would only amount to 0.2% of GDP in Lithuania (Figure 4.16). The less favourable result for Lithuania is probably related to the fact that the cohorts that would retire later due to longer life expectancy are rather small.
4.3.2. Old-age poverty makes it difficult to restore financial sustainability
Net replacement rates are the lowest in the OECD (Figure 4.17) and low pension benefit levels have led to high rates of old-age poverty, significantly above the population average. An individual who has worked in Lithuania for 35 years and earned twice the minimum wage would receive a pension of around EUR 500 per month, just over a third of his earnings while working. While recently increased due to the cost of living crisis, the social assistance old-age pension amounted to EUR 197 per month in 2024, well below the poverty threshold of 564 euros (Eurostat, 2024[40]). The social assistance pension is complemented by in-kind benefits such as free utility services. Pensioners receiving a social assistance pension are often elderly or disabled persons with insufficient rights for a social insurance pension and represent around 6.5% of pensioners (Vinkus and Buškutė, 2023[9]). In order to reduce extreme poverty among the elderly, Lithuania should consider progressively raising minimum pensions and related in-kind benefits towards the poverty threshold. This could be financed through higher personal income taxes on those with higher wages, thus increasing the progressivity of the tax system.
The pension benefit ratio - the ratio of the average pension benefit to the economy-wide average wage - is projected to remain stable over the long-term, making improvements in the relative poverty situation unlikely. Therefore, there is not much room to improve the financial sustainability of the pension system by limiting the increase in pension benefits. Moreover, the old-age dependency ratio will increase from 30% to 50% by 2050 (Figure 4.1). Having such a large share of the population in pension age may increase political pressure to devote more resources to tackling old-age poverty and raising pension payments. Therefore, the available projections (Figure 4.14) should be considered as a lower bound of future pension cost developments.
Source: OECD Pensions at a Glance 2023.
4.3.3. New rules aim to address pension sustainability and poverty
Previous attempts to rein in pension expenditures and improve long-term pension sustainability include an automatic adjustment mechanism put in place in 2018. Pensions are normally indexed to the growth rate of average wages over a 7-year period, comprising the past three years, the current year, and three forecasted years. However, if the application of this indexation generates a deficit in the pension system, it is suspended and pensions are left unchanged (Vinkus and Buškutė, 2023[9]). With the pension system already projected to enter a deficit, this rule, while commendable on sustainability grounds, will restrain pension benefit adjustments, increase the wedge between wages and pensions, and increase old-age poverty.
In response to concerns about old-age poverty, a supplementary indexation mechanism was introduced in 2022 based on poverty rates. If the at-risk-of- poverty rate of people aged 65+ exceeds 25% and/or the average old-age pension is projected to fall below 50% of the average net salary, the default indexation mechanism is revised upwards (OECD, 2023[41]). In 2023, this rule added 5.8% on top of the base 9.0% indexation of pension benefits. The rule will only apply if the state insurance budget is expected to be in surplus and the adjustment is expected to cost less than 75% of the surplus. In another step to combat poverty, from 2022, the pro-rata reduction in the contributory basic pension for shorter careers was abolished. Now, the full amount of the basic pension is received after at least 15 years of work, not the previous 33 years.
Going forward, with projected deficits and a high level of-old age poverty, these two rules will come into conflict. This is why available pension cost projections (Figure 4.14) do not account for these rules. So far, the automatic adjustment mechanism never had to be activated, but it seems likely that it would trigger political resistance if it led to a further increase in old-age poverty. At the same time, the supplementary indexation mechanism looks costly and insufficiently targeted at low pensions. Future projections could better quantify the dynamics of poverty among pensioners (Box 4.7).
Devising a better indexation system would require that the government produce more detailed projections, focusing not only on overall pension costs but also looking at the impact on poverty of future pension reforms. This would allow comparing the costs and benefits of different revaluation strategies of pensions and agreeing on a system that would address financial sustainability and old-age poverty issues in a consistent way. Besides the unfunded pay-as-you-go (PAYG) state pension, there may be scope to strengthen the role of private pension schemes (pillars 2 and 3), whose assets are low (Figure 4.18). The low assets can in part be explained by a late creation date of private schemes, even relative to other Central and Eastern European (CEE) countries. Moreover, the number of active contributors fell from 58% of the labour force in 2018 to 50% in 2023, in part due to a one-off possibility granted in 2019 to opt out from the schemes. Opt-outs continue to be a sizable number in the flow of pensioners. In January 2024, around 60,000 people were automatically enrolled into the funded scheme. However, by the end of June, the deadline for possible opt-out, 57% of potential new participants had opted out. Despite low funding, future pension expenditure will increasingly rely on this pillar, by 2050 it will account for 5% of gross total pension expenditure based on expected increasing participation and growing assets over time (Vinkus and Buškutė, 2023[9]).
Every three years, the European Commission and the Social Protection Committee publish a Pension Adequacy Report. This aims to provide an overview of the current and future adequacy of old-age incomes in EU Member States. The future dynamics of adequacy can be measured by the at-risk-of-poverty rate of older people. However, results for this indicator are only given for past years in the report, with no projections provided.
To address this weakness, a 2024 European Commission report illustrates how a dynamic microsimulation model could be used to produce projections of the future at-risk-of-poverty rates of older people and pensioners. These projections have been implemented for a selection of countries (Belgium, Slovenia, Czechia, and Norway) and are consistent with projections of both Eurostat (for demographic variables) and the Ageing Working Group.
Similarly, the Institute of Fiscal Studies projected future pensioner poverty using a dynamic microsimulation model for England. This utilised projections on mortality, health, receipt of disability benefits and labour market outcomes for thousands of individuals who were aged 50 and over. Different tax and benefit systems were applied to this simulated pensioner population to examine their effects on future pensioners’ net incomes and hence future pensioner poverty.
Source: OECD Pension Markets in Focus 2023.
Future shocks are best handled by a diversity in pension funding between unfunded PAYG and funded asset-backed schemes (OECD, 2016[44]). Disincentives against opting-out and early withdrawal could be strengthened. Contrary to most other CEE countries, Lithuania’s second pillar is not mandatory. Private pensions can help improve retirement incomes. They also have a role to play in the deepening of Lithuanian capital markets (Chapter 2). Limiting the possibility to opt out from the second pillar to a list of well-defined criteria could be considered to strengthen participation in funded pension schemes. Increasing relatively low levels of adult financial literacy and a better communication of their benefits would also contribute to increase participation in funded pension schemes (OECD, 2023[45]). Financial literacy could be improved by a combination of public information campaigns and information provided on government websites and via the Central Bank.
4.4.1. Life expectancy remains low with income and gender gaps in health
Lithuania has made progress in improving health outcomes over the past two decades. Life expectancy at birth rose by 4.4 years between 2000 and 2019, to 76.5 years (Figure 4.19, Panel A). This was driven by large declines in mortality from cardiovascular diseases, cancer, and respiratory diseases. However, life expectancy remains among the lowest in the OECD. Life expectancy is held down, in particular, by low male life expectancy. The gap between male and female life expectancy was 9.3 years in 2022 (Figure 4.19, Panel B). This gender gap is the second largest in the OECD, well above the OECD average of 5.4 years, and can in part be attributed to the high mortality from heart disease and external causes among men (OECD, 2023[11]). External causes of death include categories such as accidents, violence, suicide and medical misadventure. Socioeconomic status strongly influences health outcomes with the health gap between low-income and high-income workers/people among the largest in the OECD (Figure 4.19, Panel C).
Note: In 2021 the COVID-19 pandemic reduced life expectancy in almost all OECD countries.
Source: OECD Health at a Glance 2023.
While Lithuanians have been living longer, they are not necessarily spending those additional years in good health (Figure 4.20, Panel A). Healthy life years, defined as the number of years spent free of long-term activity limitations or disabilities, have in fact decreased since 2010, by over two years, when across the EU they have increased by almost two years. In 2021, healthy life years at age 65 were 8 years lower for men and 4 years lower for women in comparison to the EU average. The generally poor state of health spills over into the labour market with a high number of sick days (Figure 4.20, Panel B). Going forward, with projected demographic pressures on healthcare, pensions and the size of the labour force, improving the health of the population generally, and into old age in particular, can help contain the cost of demographic change across multiple areas.
Note: Data comparability is limited, and caution is required in making cross-country comparisons of perceived health status as people’s rating of their health is subjective and can be affected by cultural factors, and there may also be variations in the categories used to measure perceived health across surveys/countries (OECD, 2023[11]).
Source: OECD (2023), Health at a Glance 2023: OECD Indicators, OECD Publishing, Paris.
4.4.2. The projected increase in healthcare spending is limited but subject to upward risks
Spending on health is lower than in many other OECD countries and despite a rapidly ageing population it is projected to increase only modestly (Figure 4.21). Population ageing is a driver of health expenditure increases since the probability of having a major illness increases with age. Survival curves for the UK, for example, indicate that at age bracket 55-59, 80% of people survive without a major illness. However, at 75-79 this figure decreases to 40%. Overall public healthcare spending in Lithuania is projected to increase from 4.3% of GDP in 2024 to 5.1% in 2060 (European Commission, 2024[2]). This does not match the rise in the population over 65 and would leave Lithuania with the lowest share of GDP spent on health per person over 65 of any country in the EU (Figure 4.21, Panel B). In general, a country with a larger share of the population over 65 would be expected to have a higher share of GDP devoted to healthcare. There are thus upward risks around the projected modest increase in health spending, which strengthens the case for finding efficiency saving now to contain future costs increases.
Note: OECD estimate for 2022. 2. Refers to 2021. 3. Refers to 2020.
Source: OECD Health Statistics 2023; and OECD calculations.
With low budgets for the compulsory national health insurance fund, households self-funded one third of total health services expenditure through out-of-pocket payments in 2022 (Figure 4.22, Panel A). This share is 10 percentage points higher than in 2003 (European Comission, 2016[46]). The scale of these payments is one of the highest in the OECD. Most out-of-pocket spending is concentrated on pharmaceuticals and dental care (OECD, 2023[11]). For dental care in particular households typically cover over 80% of all expenditure (OECD, 2019[47])
Note: Catastrophic health spending is defined as out-of-pocket expenditure greater than 40% of household income.
Source: OECD Health at a Glance 2023; WHO Regional Office for Europe, 2023 (countries in Europe); European Observatory on Health Systems and Policies, 2021 (countries outside Europe).
As a consequence, Lithuania has the highest share of households affected by catastrophic health expenditures in the OECD, mostly driven by dental care and pharmaceutical spending (OECD, 2023[48]) (Figure 4.22, Panel B). Catastrophic expenditure is defined as household out-of-pocket spending exceeding 40% of total household spending net of subsistence needs (i.e. food, housing and utilities). The rate of catastrophic payments has doubled since 2007 (OECD/European Observatory on Health Systems and Policies, 2023[49]). This spending is heavily concentrated in the two poorest income quintiles. Reliance on out-of-pocket spending as a financing source hampers efforts to strengthen universal health coverage and creates risk for the future as with ageing a larger share of the population will be restricted to pension income at the same time as having a higher probability of increased medical expenses. The already high reliance on private expenditure reduces the scope to contain future ageing-related health spending through shifting more expenditure from the public sector to households. Furthermore, there is a risk that health outcomes deteriorate in the future as more and more people will not be able to afford the out-of-pocket spending and may forgo treatment. This can weigh on the labour market participation of older workers.
Bribery and corruption remain an entrenched problem in the health services sector and expose patients to an additional financial burden (Figure 4.23). Survey respondents consider the health service to be the most corrupt institution in the state, adding to the negative atmosphere for staff (Special Investigation Service, 2023[50]). Bribes are most often expected and given for surgery and nursing care. One avenue to reduce out-of-pocket payments and the incidence of very large financial burdens on households would be to strengthen efforts to tackle corruption in the health system, including by raising the probability of being caught and sufficient penalties. Future pay increases in the health service could be tied to anti-corruption initiatives.
Source: Transparency International Global Corruption Barometer 2021 database.
High expenditures on pharmaceuticals may also be related to competition challenges (Barrenho et al., 2023[51]). Recent reforms aim to reduce the cost of pharmaceuticals. Since 2023, the maximum patient co-payment for medicines costing below EUR 25 cannot exceed 25% of the base price. For medicines over EUR 25, regulated prices are based on external reference pricing (ERP), where the price of a medication is set by comparison with the price in a "basket" of other reference countries, and internal reference pricing (IRP) where pricing compares the prices of pharmaceutical products that are therapeutically similar and can be substituted. Both ERP and IRP rules have changed since 2023. ERP rules are now applied not only to pharmaceuticals from one supplier but to generics as well. For medicines from one supplier, reference is made to the average of the three cheapest prices in EU countries, and for generics - to the average of the five cheapest prices in EU countries. IRP rules are set with reference to the cheapest available medicine. The aim is to encourage a greater use of generics. Government support for these reforms is important given that previous efforts have had limited success in reducing high prices. Furthermore, price setting has recently been undermined by collusion by the Pharmacy Association, with a EUR 72 million fine levied in 2022 for infringement of the Law on Competition and the Treaty on the Functioning of the European Union (Competition Council, 2022[52]).
Reforms have aimed to reduce the burden of healthcare spending on households. Since 2020, patient co-payments for persons aged 75 and over and persons with low income have been covered by the health insurance fund. In mid-2023 co-payment coverage was expanded to all those who spend more than three times the average annual co-payment (around EUR 50 per year). This has so far supported 64,800 people and covered co-payments of EUR 1.95 million, less than 0.01% of GDP. Going forward, there is space to boost dental and pharmaceutical benefits to enhance financial protection and efficiency. It would also serve to narrow inequalities in access to health services. Targeting and policy could be improved by a higher quality of data collection. The state data agency currently does not cover all pharmaceutical expenses incurred by patients and therefore underestimates the financial burden on households. More precise data collection would allow more data-based decision making.
4.4.3. Promoting healthier lifestyles
Promoting healthier lifestyles would help contain spending pressures. Indeed, lifestyle factors play a significant role in weak health outcomes in Lithuania. Preventable death rates are relatively high, particularly for men (Figure 4.24). It is estimated that in 2019, approximately 44% of all deaths could be attributed to behavioural and environmental risk factors, including dietary risks, alcohol consumption, substance use and low physical activity (OECD/European Observatory on Health Systems and Policies, 2023[49]). Circulatory system diseases have the largest negative impact on population health and account for almost half of all deaths, with rates almost double the OECD average (Figure 4.25). Circulatory system disease are non-communicable diseases and include conditions such as heart diseases, hypertension and stroke. These are chronic, largely preventable, and place a substantial financial burden on healthcare services. Cancer contributes to around a fifth of all deaths, and the cancer mortality rate is around a third higher than the OECD average (OECD/European Observatory on Health Systems and Policies, 2023[49]).
Standardised death rates for preventable diseases/conditions, persons aged less than 75 years, by sex, 2020 (per 100 000 inhabitants)
Source: Eurostat.
Age-standardised rates by 100 000 population, 2021 or latest
Source: OECD Health Statistics 2023
Alcohol, smoking and lifestyle weigh heavily on public health and healthcare costs
Lithuania has one of the highest levels of alcohol consumption in the OECD (Figure 4.26). While consumption has declined from a peak in 2012, it remains among the highest in the OECD. Men are far higher consumers of alcohol than women, consuming 21.3 litres of pure alcohol per capita per year as opposed to 6.6 litres for women.
2011 and 2021 (or nearest year)
Source: OECD Health Statistics 2023.
Alcohol consumption results in the highest reduction in GDP and the largest long-term healthcare cost of any OECD country (Figure 4.27, Panel A). Over 4% of health spending is projected to be accounted for by alcohol-related diseases up to 2050 (Figure 4.27, Panel B).
Note: Panel A shows percentage difference in GDP due to diseases caused by alcohol consumption above 1 drink per day for women and 1.5 drinks per day for men, average 2020-50. Panel B shows annual health expenditure due to diseases caused by alcohol consumption above 1/1.5 drinks per day cap, in USD PPP per capita and as a percentage of total health expenditure, average 2020-50.
Source: OECD (2021), Preventing Harmful Alcohol Use, OECD Health Policy Studies, OECD Publishing, Paris.
High levels of alcohol misuse persist among younger people. Over half of all 15–19-year-olds engage in binge drinking, the third highest number of all countries surveyed by the World Health Organisation (WHO, 2018[53]). This level of youth alcohol consumption poses a number of problems. Firstly, there is the impact on long-term health. People who start drinking before the age of 15 are at a higher risk for developing alcohol use disorder (AUD) later in life and this impacts cognitive skill development (NIAAA, 2024[54]). Secondly, alcohol consumption by adolescents may have long-term consequences for educational outcomes (OECD, 2021[55]). Thirdly, it suggests that alcohol issues are not a cohort effect that will dissipate over time and will weigh on healthcare spending well into the future. This would defy the often-cited assertion that the generation most impacted by the collapse of the Soviet Union experienced a once-off surge in alcohol use is response to the economic and social dislocation (Leon and Walt, 2009[56]).
Alcohol is also a contributing factor to Lithuania having one of the highest homicide rates in the European Union and the second highest suicide rate in the OECD. In 2022 the rate of police-recorded intentional homicide was approximately double the average rate in the rest of the EU and the second highest behind Latvia. Data from almost 19,000 autopsies over 2017-2020 reveal that for deaths recoded as victims of violence, 72% had a high concentration alcohol (Miščikienė et al., 2024[57]).
Cigarette and e-cigarette use among young people is also high. Around 20% of 15-year-olds are regular smokers, compared to 17% in Europe and 12% in Estonia (Charrier et al., 2024[58]). Almost all e-cigarette products contain nicotine that can harm the parts of the developing adolescent brain that control attention, learning and mood (CDC, 2024[59]). Around 7% of 15-year-olds are regular cannabis users. Considerable evidence suggests that students who smoke marijuana have poorer educational outcomes than their nonsmoking peers with a decline in cognitive function and an increased risk of psychosis (Baral et al., 2024[60]).
More generally, a poor diet and a lack of physical exercise contributes to poor health outcomes. The prevalence of obesity in Lithuania is higher than in many OECD countries and is associated with an increased risk for heart disease (Harvard Medical School, 2022[61]). On average, fruit and vegetable consumption is low and below the OECD average (OECD/European Observatory on Health Systems and Policies, 2023[49]). In addition, physical activity rates are low for both adults and young people. Only 21% of adults reported that they undertook physical activity amounting to at least 150 minutes per week, almost half the OECD average (OECD, 2023[11]).
Increasing the price of harmful products to reduce their use
The multifaceted and corrosive influence of alcohol on public health has been met with a strong policy response. In order to reduce the availability and consumption of alcohol, the Law on Alcohol Control was enacted in January 2018. This introduced a set of measures as recommended by the WHO “best buys”, the most cost-effective actions to curtail alcohol use (WHO, 2022[62]). Restrictions are now applied to off-premise alcohol sales hours, and sales hours are curtailed in retail stores. This has been complemented by an increase of minimal legal age to purchase, consume and possess alcohol from 18 to 20 and total ban of alcohol advertisement, including in digital media (OECD, 2024[63]). With respect to marketing restrictions, Lithuania now stands out as having some of the strictest alcohol advertising laws in the EU (WHO, 2021[64]).
Going forward, alcohol policy should focus on maintaining price incentives, effective enforcement of rules, and avoiding an undermining of rules by vested interests. Although excise taxes on alcohol have been increasing over time, strong wage growth has improved affordability (Figure 4.28). This is problematic as OECD estimates highlight price-based policies as the most effective ones, even if it is important to put in place a package of policy measures. These price-based policies also have the largest positive impact on employee productivity in terms of employment rates and absenteeism (OECD, 2021[55]). Price-based incentives and the associated benefits could be further strengthened by the introduction of minimum unit pricing to curtail the high volume of problematic drinking. Minimum pricing is estimated as having benefits of a similar magnitude to tax measures (OECD, 2021[55]).
2000 = 100, 2022 or latest
Note: Alcohol affordability is measured as the ratio between the alcohol price index (HICP) and households’ disposable income. It is normalised to 100 in 2000. Data are for 2017 for Bulgaria, 2014 for Iceland and 2019 for the United Kingdom.
Source: Eurostat; OECD national accounts at a glance; and OECD calculations.
Increasing tobacco and nicotine product prices through higher taxes is an effective intervention to reduce tobacco and nicotine use, by discouraging youths from initiating tobacco and nicotine products use and encouraging tobacco and nicotine users to reduce their consumption or quit (OECD/WHO, 2022[65]).
Similarly, more could be done to raise the relative price of unhealthy foods to reduce consumption. The introduction of sugar-based taxation has been accompanied by a decrease in consumption in many countries (OECD/FAO, 2023[66]). However, in 2018, the Ministry of Health cancelled plans to introduce a sugar tax in favour of a voluntary agreement for major manufacturers to reduce the use of sugar (Michail, 2018[67]). More broadly, Hungary introduced in 2011 an excise levy on the salt, sugar, fat and caffeine content of pre-packaged foods for which there were healthy alternatives. Some studies have suggested that this had led to lower consumption of the targeted products, particularly by overweight and obese consumers (Giles et al., 2019[68]). Furthermore, increasing efforts to reduce the marketing of unhealthy foods to young people, especially in schools, can have a positive impact (WCRFI, 2023[69]).
Strengthening preventive actions
Higher prices for harmful products could be used to finance additional preventive actions. Prevention and awareness campaigns are important to limit the use of harmful substances and improve health outcomes. Lithuania plans to implement four national prevention projects by 2029. Firstly, a pilot on integrated substance use prevention focused on children and adolescents in cooperation with the European Commission and the OECD. Secondly, a pilot early intervention programme for school-age children experimenting with psychoactive substances. Thirdly, it is planned to adapt the STAD (Stockholm prevents alcohol and drug problems) programme used in Sweden. This will prepare STAD instructors in municipalities and train 2,000 employees of entertainment venues to raise awareness and knowledge of the risks associated with the use of substances. Finally, it is planned to create a mobile application version of the already implemented national smoking cessation Quitline.
Other prevention actions take place at school. As of 2023, the “Network of Health Promoting Schools” covered the majority of pre-school, general and vocational educational institutions in Lithuania. In these schools, health topics have been included in lessons and after-school activities. Health-promoting schools conduct long-term targeted and approved health promotion programmes that are integrated into the educational process and cover topics including physical education, healthy diet, tobacco, alcohol and other substance abuse prevention.
Nevertheless, overall resources allocated to preventive care are below the OECD average (Figure 4.29). Systemic reviews have found the median return on investment for public health prevention to be significant. In the UK for the example, the return on investment has been estimated to be GBP 14 for every GBP 1 invested in primary prevention through a reduced future disease burden (McAdams, 2023[70]). Across the OECD, returns to public health policies have been estimated to be over five times higher than their cost (OECD, 2019[71]).
Current prices, 2022 or latest, % of GDP
Note: Preventive care includes general outpatient curative care (e.g. routine visits to a GP or a nurse for acute or chronic treatment), dental outpatient curative care (including regular control visits as well as more complex oral treatment), home-based curative care (e.g. home visits by GPs or nurses), and preventive care services (e.g. immunisations and health check-ups).
Source: Global Health Expenditure Database, OECD calculations.
4.4.4. Further rationalising the hospital network to improve health outcomes and reduce costs
The healthcare system is characterised by hospital overcapacity, low spending efficiency and a low quality of outcomes that vary considerably across hospitals. This situation, if left unchanged, will only deteriorate with further decrease in population due to demographics. As in other Central and Eastern European countries, reform initiatives have been aimed at making a clear break with the Soviet model, which was characterised by central planning and universal access but suffered from inefficiency, hospital overcapacity, and poor quality healthcare (van Ginneken et al., 2012[72]). Reforms have led to a reduction in the number of hospitals from 197 in 1990 to 77 in 2021. From 1990, measures of quality have gradually improved with infant mortality rates converging to the Western European average (van Ginneken et al., 2012[72]). However, cross-country estimates of efficient spending in healthcare are among the lowest in Europe (Medeiros and Schwierz, 2015[73]). While healthcare spending as a share of GDP is low, the example of other countries shows that more efficient spending would allow a significant increase in life expectancy (Figure 4.30, Panel A). For example, although there is no consensus about the “optimal” occupancy rate for hospital acute care beds, 85% is considered a maximum safe rate and 65% is considered a low rate (OECD, 2023[11]; OECD, 2021[74]). At 56%, bed occupancy rate in Lithuania is well below the low rate and the OECD average, with substantial regional variation (Figure 4.30, Panel B).
Note: In Panel A, health spending efficiency is estimated using data envelopment analysis to explain the outcomes of healthcare, as proxied by life expectancy at birth, by inputs such as health expenditure and a composite indicator that captures effects of the socio-economic environment and life-style factors. The estimates refer to potential gains in output efficiency while keeping inputs constant.
Source: Dutu and Sicari (2020).
Indicators of service quality show among the highest levels of mortality in the 30 days following hospitalisation for heart attacks and stroke in Europe (Figure 4.31, Panel A). Outcome measures also point to a high variation in the quality of medical care across the country (Figure 4.31, Panel B). Lack of care integration and coordination, as well as wide variability in care quality across providers present challenges. Inspections by the State Healthcare Accreditation Agency revealed that some district hospitals were not complying with care quality standards for heart attack and stroke services, particularly in terms of round-the-clock availability of specialist physicians and rapid access to the necessary diagnostics (OECD/European Observatory on Health Systems and Policies, 2023[49]).
Note: For panel A, the data is from 2021 or latest.
Source: OECD Health at a Glance 2021; Ministry of Health Lithuania; 2023 Healthcare Quality and Outcomes (HCQO) indicators.
Continued restructuring of the healthcare system to improve the efficiency of spending and improve the quality of care is essential to enhance resilience to demographic challenges. In early 2022, the Ministry of Health initiated a major restructuring of healthcare services. This is the 5th such plan since 2004 (OECD/European Observatory on Health Systems and Policies, 2023[49]). Current reforms aim to merge a number of hospitals, reduce expensive inpatient services by removing them from facilities that are not able to provide an adequate quality of service, and replacing them with more cost-effective alternatives. Developing outpatient, day care, day surgery and general primary care services can be beneficial from both a cost and a quality perspective (OECD, 2023[11]). An increased focus on data collection and analysis by independent auditors will assist with tracking the improvement from the reorganisation of the hospital network.
Restructuring of the health service will imply a continued reduction in the number of hospitals in rural areas and an agglomeration of specialised functions to larger hospitals. While these moves should lead to improved outcomes in quality and cost efficiency of care, flexibility should be added to the system to ensure an adequate provision of health services in rural locations that will be particularly impacted by demographic change. Telemedicine was found to have a high potential to improve access, particularly for older patients, during the COVID-19 pandemic (OECD, 2023[75]; Chu et al., 2022[76]). Since 2020, the Procedure for the Provision of Emergency Telemedicine Services has been in effect with digital consultations between patients and doctors being carried out. Plans for a patient registration system to further facilitate doctor-patient communication would improve the system. A further step would be to expand on digital consultations which are currently only available in the fields of ophthalmology and dermatology. An expansion of plans for emergency telemedicine services, currently only available in Vilnius and Kaunas, would improve services in rural areas.
4.4.5. Addressing staff shortages in the health sector
Over the next decade the health sector is expected to face shortages of doctors and nurses exacerbated by demographic pressures which will reduce the supply of staff and increase demand. The Government Strategic Analysis Centre predicts that in 2032 there could be a shortage of 4,643 general care nurses, 2,355 nurse assistants, 1,328 advanced practice nurses, 269 family doctors, and 207 internal medicine doctors in the health service. Staff shortages already impact the speed and quality of healthcare delivery and contribute to staff burnout. This is despite the fact that training of doctors per capita is among the highest in the OECD. For nursing however, the number of graduates is low (Figure 4.32).
Per 100,000 population, 2022 or latest
Note: A large number of medical graduates are international students in some countries (e.g. Ireland, the Slovak Republic, Czechia and Hungary). 1. Data excludes international students, resulting in an under-estimation (about 15% of graduates in Israel and 5% in New Zealand were international students in 2021).
Source: OECD Health at a Glance 2023.
High wage differentials with healthcare jobs in Western Europe exacerbate shortages. These differences remain despite large wage increases for healthcare workers in recent years (Goštautaitė et al., 2018[77]). Average monthly salaries for general practitioners, for example, increased by 166% between 2010 and 2020. Nevertheless, medical staff are still among the lowest paid in Europe, contributing to a large-scale emigration of health professionals. On average over 2019-2022, 1,593 doctors and 856 nurses from Lithuania were registered for work in other countries, representing 12% and 4% of the domestic workforce, respectively. While outflows remove workers from the system, a second issue is that, contrary to other countries, the inflows of foreign healthcare professionals are very low.
While pay is an important factor explaining why health care staff leave to work in other countries, the working culture in the health sector is also contributing to staff issues. Survey results indicate that low prestige and the general working climate in hospitals are important predictors of emigration intentions and discourage people entering training in nursing, in particular. Autocratic leadership, or bullying and non-physical violence by patients are persistent issues within the healthcare system (Goštautaitė et al., 2018[77]; Malinauskiene and Einarsen, 2014[78]).
The Ministry of Health is planning to allocate EUR 42 million of EU funds over 2021-27 for measures to attract, empower and maintain health professionals. This programme has a focus on improvements in human resource management and the working environment as well as employee empowerment and career progression. Efforts at combating the burden of staff from a poor working environment over the long-term could improve by allocating funding to programmes from domestic sources rather than relying on EU funds as it would provide more stability. Strengthening the oversight of hospital management could further help to mitigate some of these issues. Additionally, enhanced training for the management of healthcare organisations as well as trainings for the students could reshape expectations of the work environment in healthcare. This could be better guided though more information gathered via participation in healthcare staff surveys (de Bienassis and Klazinga, 2024[79]). Re-designing primary care delivery models towards multidisciplinary teams and a more effective task sharing between doctors, nurses, and other providers to allow staff to work to their full scope of practice could alleviate shortages and elevate the prestige of nursing as a profession (Brownwood and Lafortune, 2024[80]).
Despite increasing labour shortages, domestic medical students emigrate in high numbers and do not repay the costs of their medical training. The diplomas granted in Lithuania make it easy for medical staff to emigrate. Under EU internal market automatic recognition, nurses, midwives, doctors, dentists and pharmacists are recognised through the EU (European Commission, 2024[81]). As of 2024, medical training in Lithuania is also recognised by the World Federation for Medical Education and so students are eligible for residency programmes in the U.S., Canada, Australia, New Zealand (LSMU, 2023[82]). Nevertheless, students at higher education institutions managed by the state do not have to pay any fees (European Commission, 2023[83]). By comparison, the estimated unit cost of providing a medical education is between 23,000 and 28,000 USD per student per year in Ireland (OECD, 2019[84]). More could be done to recover the cost of training of medical students. This could be achieved with an obligation to work for a period of time within the nation health services. In the United States for example, almost 40% of graduating medical students planned to participate in a programme to reduce medical education debt in exchange for service (AAMC, 2024[85]).
4.4.6. Long-term care demand is high and will increase even further
Resources allocated to long-term care are low and insufficient compared to current and expected future demand. Long-term care spending represents 1.1% of GDP in Lithuania, compared to 1.5% across OECD countries (OECD, 2022[86]). At the same time, there is a high share of people aged 65+ benefitting from some kind of long-term care (Figure 4.33, Panel A). This leaves the spending per person at low levels and does not allow addressing all the needs (Figure 4.33, Panel B). For example, Lithuania counts 20 long-term care beds per 1000 older people, a rate well-below the OECD average of 47 (OECD, 2022[86]). About 40% of older people with at least one daily limitation reported unmet LTC needs in Lithuania, 10 percentage point higher than the EU average (OECD, 2022[86]). While unmet needs are already substantial, spending needs will grow even further as the share of the population aged 65+ is expected to increase from 20% in 2019 to 32% in 2050.
The financing of long-term care is fragmented, characterised by a mixed system of both taxation and social insurance, with different financing sources depending on the type of service. Public funding covers a large share of total long-term care expenditure. Health-based long-term care services are financed entirely through the health insurance fund, while social-based long-term care services are subsidised through taxation and supported primarily through transfers from the national budget to complement locally collected taxes. Most social care services require out-of-pocket payments from care users, based on their income (and assets for residential care) up to a maximum of 80% of the care user’s income (OECD, 2022[86]). 34% of the budget for day social care and nursing home services relies on EU funds in 2022.
Note: For Panel B, long-term care expenditure is expressed in euros per person (PPP converted, current prices).
Source: OECD Health Statistics 2023, Vinkus and Buškutė (2023), Global Health Expenditure Database, and OECD calculations.
Establishing an integrated system with clear funding routes and a dedicated budget would improve transparency and facilitate the distribution of existing funds in an effective and efficient manner. In a pooled funding scheme, each body involved in service delivery contributes to a common fund to be spent on pooled functions or agreed services. It would help to reduce unnecessary activities, overuse of services, duplication of efforts, and cost shifting. Utilising EU funds for social care delivery risks future shortfalls when funding ends. Domestic rather than EU funds would provide more stability and transparency in budgeting and planning of future needs. A future step would be to implement LTC insurance as a means to broaden the sources of funding. In Lithuania as in Germany, the premiums could be levied on wages. An initially small premium could gradually increase over time, as in Germany (OECD, 2022[86]).
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