The topicality of the study is related to the constant decrease of the economically active population in Latvia and other Baltic countries, as the labor force emigrates to the EU countries with a higher level of prosperity and greater opportunities to increase income. Therefore, the aim of the study is to evaluate the possibilities to reduce labor costs while increasing the wages of employees in various sectors of the economy in order to reduce the threat of labor emigration. To achieve the aim set, an appropriate methodology is applied, within which the necessary data are selected and as a result of their processing it is possible to identify opportunities to reduce labor costs, promoting the country’s competitiveness both in the EU economic area and worldwide. Within the framework of the study, labor costs in the Baltic States are examined in the context of the Scandinavian countries, Ireland and Poland. Thus, a methodological basis is created to discover and analytically evaluate the possibilities to reduce labor costs in Latvia and other Baltic countries. Wages make up the bulk of labor costs and there are significant differences among the Baltic States in this indicator. The lowest share of wages has been found in Estonia – 74%, but the highest – in Lithuania accounting to 96.7%. In this country, labor costs were restructured in 2018, but until then, wages made up 78 % of labor costs. As part of the restructuring process, the social tax in Lithuania was reduced more than 4 times – from 4.4 billion EUR to 760 million EUR. Thus, social tax payments to total labor costs decreased sharply – from less than 22% in 2018 to 3.4%, or more than 6 times, in 2019. In Estonia, in turn, social tax payments made up 26% of the total labor costs in 2020, in Latvia – 17.6%, and in Denmark – 8.2%, which was 2 times lower compared to Sweden and Finland. It means that the efforts of the Baltic States to reduce labor costs at the expense of social tax should be considered as a temporary but topical solution in the current situation. The results of the study show that in order to reduce labor costs per unit of production, it is necessary to increase production efficiency – to increase the number of goods and services produced per unit of time. It means that entrepreneurs working in the Baltic States should pay more attention to the modernization of Institute of Civil Engineering and Real Estate Economics 31 technologies and raising the qualifications of the workforce. Moreover, these measures need to be reconciled with existing threats of labor migration.