Lithuania’s Hidden Jobs Crisis: How Skills Gaps and Housing Barriers Keep Workers Unemployed

An IMF study reveals that Lithuania’s persistent 7% unemployment rate is driven by skills mismatches, regional mobility barriers and inadequate employment support despite growing job vacancies. Targeted reforms in training, housing, labour mobility and social benefits could reduce unemployment to 4.6% and potentially improve public finances by €750 million annually.

Lithuania's economy is growing, businesses are offering more jobs, and wages are increasing, yet unemployment remains stubbornly high. A new study by the International Monetary Fund (IMF), titled Structural Unemployment in Lithuania, prepared by researchers Lukas Boer and Thibault Cezanne from the IMF's European Department, reveals that the country's unemployment problem is driven more by structural weaknesses than by a lack of economic opportunities. Published in October 2026, the study finds that skills shortages, limited worker mobility, inadequate employment support and weaknesses in social benefit policies are preventing thousands of people from finding work. The researchers estimate that targeted reforms could reduce unemployment from around 7 percent to 4.6 percent, potentially improving government finances by approximately €750 million annually.

Why Are Jobs Increasing but Unemployment Refuses to Fall?

Lithuania's unemployment rate declined from approximately 18 percent in 2010 to around 6 percent in 2018. However, despite continued economic expansion, it has remained close to 7 percent since then. Registered unemployment has similarly stayed around 8.5 percent, even as employers report increasing difficulty finding suitable workers.

The IMF identifies a growing disconnect between available jobs and the people seeking employment. Vacancies increased significantly after 2022, reaching a peak in 2025, particularly in transportation, healthcare, public administration, and professional and technical services. However, higher recruitment demand has not translated into corresponding employment growth.

Young people, older workers, people with limited education and residents of economically weaker regions face the greatest difficulties. Long-term unemployment also remains significant, suggesting that many jobseekers struggle to re-enter employment even when economic conditions improve.

The study notes that migration, particularly arrivals from Ukraine during 2022 and 2023, increased Lithuania's workforce without significantly increasing unemployment because many migrants entered employment relatively quickly.

Skills Crisis: Why Employers Cannot Find the Workers They Need

One of Lithuania's biggest challenges is the mismatch between workers' qualifications and employers' requirements. As businesses expand into advanced manufacturing, information technology and specialised services, demand for technical, digital and managerial skills is increasing.

However, many unemployed workers lack these qualifications. Older workers often struggle to adapt to changing technologies, while younger people face difficulties moving from education into employment.

Although Lithuania has introduced vocational education reforms, apprenticeships and employment assistance programmes, their reach remains limited. The country spends approximately 0.2 percent of GDP on active labour market policies, less than half the OECD average of over 0.4 percent.

Participation in employment-related education and training is also relatively low, particularly among unemployed people and those outside the workforce. The IMF recommends expanding practical training, improving vocational education and introducing flexible reskilling programmes for workers throughout their careers.

Artificial intelligence could intensify these challenges. Lithuania has developed a strong digital economy and emerged as a European financial technology centre, but digital skills among its population remain comparatively weak. Without greater investment in training, AI adoption could widen inequalities between highly skilled workers and those unable to adapt.

Housing, Regional Inequality and Benefits Keep Workers Away

Geographic barriers represent another major reason why unemployment remains high. Lithuania's strongest employment opportunities are concentrated around major cities, while rural and economically weaker regions experience higher unemployment.

Nearly 90 percent of Lithuanian households own their homes, and the rental market remains relatively small. High housing costs in cities such as Vilnius make relocation difficult, particularly for lower-income workers. Poor transport connections further restrict access to employment.

The IMF recommends expanding affordable rental housing, improving public transport and strengthening regional job-matching services.

Social benefit arrangements also influence employment decisions. Although higher benefits have improved financial protection and reduced poverty risks, some households gain relatively little financially from employment after accounting for lost benefits, taxes, childcare and commuting expenses.

The researchers recommend gradually reducing benefits as earnings rise, expanding support for working households and strengthening job-search requirements. They also propose restricting unemployment benefits following voluntary resignations while maintaining adequate protection for vulnerable people.

Can Lithuania Cut Unemployment to 4.6% and Save €750 Million?

Using economic data from 22 European Union countries between 2001 and 2023, IMF researchers examined how employment policies, taxation, wages, benefits and skills mismatches influence unemployment.

Their analysis found that skills mismatches are strongly associated with higher unemployment, while greater investment in employment programmes is associated with lower joblessness.

Under a hypothetical reform scenario involving stronger training programmes, fewer skills mismatches and adjustments to unemployment benefits, Lithuania's unemployment rate could decline by approximately 2.3 percentage points to 4.6 percent.

Such an improvement could reduce registered unemployment by approximately 34,000 people. The IMF estimates that lower benefit expenditure and increased tax contributions could improve public finances by around €720 million annually. Changes addressing voluntary seasonal unemployment could generate another €30 million, bringing potential annual fiscal gains to approximately €750 million, equivalent to 0.9 percent of GDP.

These estimates depend on successful reforms and assumptions about how unemployed people move into jobs.

Lithuania cannot solve unemployment through economic growth alone. Policymakers must strengthen education, improve housing affordability, expand worker mobility and redesign employment support to connect jobseekers with available opportunities. Without coordinated action, Lithuania risks facing persistent unemployment alongside growing labour shortages, weakening productivity, economic competitiveness and long-term growth.