After entering the European Union (EU) Latvia faced new possibilities in international labor market. In 2004 several member states opened their labor markets to workers from Latvia. The largest amount of labor force went to Ireland, Great Britain and Sweden. In these countries salaries were substantially higher than in Latvia, which contributed to labor migration from Latvia. The migration process has a significant influence on the labor market in Latvia: on the one hand it reduced the amount of unemployed, but, on the other hand, it caused workforce deficit in certain professions, as well as substantially influenced the level of salaries in the whole economy. These processes will also influence the future development of Latvia; therefore the research of these issues is very topical for Latvia. It is also important internationally, because in other countries, especially in the new EU member states, similar processes take place, and it is possible to elaborate a common EU labor force migration model by consolidating migration data of particular member states. Common EU labor force migration model would also be suitable for developed EU member states, in order to estimate the incoming flow of labor force and its influence on the development of national economy. Aim of this paper is to investigate the influence of labor migration on the labor market in Latvia. In order to reach the aim, several tasks are set: to determine and to investigate the factors influencing labor market and labor migration; to consolidate influencing factors in a common system and to form labor market and labor migration system dynamic explanatory and forecasting model, based on it; to forecast the most important parameters of labor migration and labor market in Latvia. This paper shows system dynamic model of labor market and labor migration in Latvia. The hypothesis of the research is: labor migration is determined primarily by the payment level in the countries under consideration and the indicator derived from it – payment differences in the countries compared; as well as employment level, unemployment level, number of work places (market capacity) and number of vacant work places. Secondary factors influencing migration may be costs connected with labor migration, formal legal barriers to migration and personal propensity to migrate. Statistics on the labor market in Latvia are not complete; there is also no common view of experts on determinant processes. In such circumstances market forecasting with quantitative methods is problematic. One approach is to simulate indicators and to estimate their influence on national economy. The model has three parts: growth (expansion) of labor force, division and migration sub models. The sub model for growth of labor force is based on division of population in various categories during transition to a working age population. Division by level of education is further used in labor market analysis in which worker groups are formed according to the education level. The paper represents mutual interaction of groups of workers as well as labor migration. The results show sensitivity of the model factors to propensity of personnel for labor migration. The elaborated model and the results represented in this paper show that separate processes in national economy such as employment, unemployment and wages can be connected not with economic situation, but with the equalization processes in the EU. Under these circumstances it could be inefficient to fight with the increase of wages in Latvia, also to decrease wages, because in the long-term it can cause more severe problems in the development of national economy.
