Labor Market Performance and Labor Market Performance and Job Creation Programs in Job Creation Programs in

SerbiaSerbia

Presented by Ivana AleksiPresented by Ivana Aleksićć and Mark and Marko Paunovićo Paunović

Deputy Prime Minister’s Office Deputy Prime Minister’s Office

of the Republic of Serbiaof the Republic of Serbia

Conference on Labor Markets, Growth Conference on Labor Markets, Growth

and Poverty Reduction Strategiesand Poverty Reduction Strategies

May 27-28, 2005May 27-28, 2005

PRESENTATION OUTLINEPRESENTATION OUTLINE

Labor Market Performance in Serbia since Labor Market Performance in Serbia since 20012001– Employment trendsEmployment trends– Unemployment trendsUnemployment trends– Wage developmentsWage developments

Labor market policy measures Labor market policy measures – Nationally created and performed programsNationally created and performed programs– Externally supported programsExternally supported programs

ContextContextEconomic reforms…Economic reforms…– Improved macroeconomic stability and GDP growthImproved macroeconomic stability and GDP growth– Privatization continued and increased private sector Privatization continued and increased private sector

participationparticipation– Creation of a favorable investment climateCreation of a favorable investment climate– Economy and public institutions restructuringEconomy and public institutions restructuring– Tax reform finalization and changes in budget proceduresTax reform finalization and changes in budget procedures– Infrastructure modernizationInfrastructure modernization– Control mechanisms development and fight against Control mechanisms development and fight against

corruptioncorruption

Feasibility Study just approved by the ECFeasibility Study just approved by the ECEU integration and PRS implementation processEU integration and PRS implementation process

Consensus onConsensus on labor market labor market data: data sourcesdata: data sources

Labor Force Survey (LFSLabor Force Survey (LFS))

Living Standards Measurement Survey Living Standards Measurement Survey (LSMS(LSMS) )

National Employment ServiceNational Employment Service

Republic Statistical Office Republic Statistical Office

Public misperception of the scope of the problem

Employment TrendsEmployment TrendsEmploymentEmployment

– Formal and Informal Employment Formal and Informal Employment – Employment by Age Employment by Age – Employment by Gender Employment by Gender – Educational Level of Adult Population (25-65 years) Educational Level of Adult Population (25-65 years)

UnemploymentUnemployment– Unemployment by AgeUnemployment by Age– Unemployment by Gender Unemployment by Gender – Unemployment by Education Unemployment by Education

Wage TrendsWage Trends– Wages by Education Attainment Wages by Education Attainment

Key labour market indicatorsKey labour market indicators Key labour market indicators for working-age population (15-64) in 2002

Population Census

LFS (without temporary

active)

LFS (with temporary

active)

LSMS NES

Participation rate 64.8 64.2 68.4 64.6 -

Employment rate 50.3 54.2 58.5 56.6 -

Unemployment rate

22.3 15.4 14.5 12.4 26.3

•The major problem - relatively high participation and employment rates have been maintained thanks to comparatively high level of informal economic activity. •Indicative of the poor quality of jobs in terms of security, pay and overall working conditions

Formal and Informal EmploymentFormal and Informal Employment

Major problem – high level of informal economic activity

Active in 2002 or 2003

Formally employed in 2002 and 2003

Informally employed in 2002 or 2003

Total 76.2 29.4 29.9

By gender

Men 84.3 33.2 34.5

Women 68.2 25.6 25.3

By educational attainment

Low-skilled 66.2 17.1 35.7

Medium-skilled 81.3 33.5 28.6

High-skilled 87.8 53.4 15.7

Labor MobilityLabor Mobility

Significant fSignificant flows between employment, unemployment and non-lows between employment, unemployment and non-activityactivity – – more than 40% of the people have changed statusmore than 40% of the people have changed status

Indicator of well functioning labor market or of insecure short-term Indicator of well functioning labor market or of insecure short-term jobs?jobs?

Activity in 2003

Ac

tivity in

200

2

Formally Employed

Informally Employed

Unemployed Inactive Total

Formally Employed

29.4 6.1 1.9 5.3 42.7

Informally Employed

5.0 7.0 1.0 3.1 16.1

Unemployed 1.7 2.6 1.7 2.0 8.0

Inactive 3.2 4.0 2.2 23.8 33.2

Total 39.3 19.7 6.8 34.2 100.0

Employment by AgeEmployment by AgeParticipation rates and employment rates by age (2003)

Age

Participation Rate Employment Rate

SerbiaCentral Serbia

Vojvodina SerbiaCentral Serbia

Vojvodina

TOTAL 67.84 70.25 61.49 57.91 61.96 47.25

15-24 26.64 24.21 32.94 14.70 14.13 16.17

25-34 65.31 67.63 59.06 49.69 53.09 41.51

35-44 76.02 77.79 71.53 65.50 69.19 56.18

45-54 81.76 81.63 82.08 74.17 76.14 68.90

55-64 55.43 59.54 44.53 51.71 57.20 37.14

low employment rates for young workers (compared to EU) high employment rates for category over 55 highest unemployment in the most developed area (Vojvodina)

Employment by GenderEmployment by Gender Participation and employment rates by gender (2003)

GenderParticipation

RateEmployment

Rate

Total 67.84 57.91

Women 56.78 47.81

Men 79.07 68.18

Source: Gos, based on LFS (2003) and RSO

Participation rate and employment rate of women is around the average level of transition countries

Educational Level of Adult Educational Level of Adult Population (25-65 years)Population (25-65 years)

Educational attainment rate of population aged 25-65, 2002

Low Medium High

Serbia Total 36% 49% 15%Men 30% 54% 15%Women 41% 45% 14%EU-15 35% 43% 22%New Member States 19% 66% 15%

Source: ETF 2005, based on Serbian Census 2002, ETF Key indicators data base, Eurostat

relative disadvantage with respect to the EU average

Unemployment by AgeUnemployment by AgeSerbia

2002 2003 2003/2002

Total 13.44 14.63 108.86

15-24 42.53 44.83 105.41

25-34 25.51 23.50 92.12

35-44 12.14 13.83 113.95

45-54 6.83 9.28 135.87

55-64 4.30 6.72 156.15

Source: LFS (2002-2003), RSO

Youngest members of labor force - most affected by unemploymentHowever, it seems that transition favors young people, leading to changes in the age structure of population, especially in Central SerbiaThe pace of the restructuring was the fastest in Vojvodina

Unemployment by GenderUnemployment by Gender

Gender Unemployment rate1995

1996 1997 1998 1999 2000 2001 2002 2003

Total 12.9 12.2 12.3

12.8

13.3

12.1

12.2

13.3

14.6

Women 15.5 14.5 14.2 14.7 15.6 14.6 14.5 15.2 15.8

Men 10.8 10.4 10.7 11.3 11.4 10.1 10.5 11.8 13.8 Gender unemployment gap has been reduced significantly, mainly because:

unemployment rate for man has increased Women have opted out from the labor force more than men

Unemployment by EducationUnemployment by Education

Level of Education Share in unemployed

Republic of Serbia

Central Serbia

Vojvodina

Without Education 1.5 0.8 2.5

1-3 years of primary school 0.5 0.7 0.3

4-7 years of primary school 2.7 1.5 4.6

Completed primary school 19.4 17.4 22.4

Completed secondary school 66.4 68.9 62.5

2 years college 5.3 5.7 4.6

Completed university education 4.3 5.2 3.0 highest unemployment rates recorded in 2002 for those with completed secondary and primary education reforms of secondary education should be a priority

Structure of unemployed by education (2003)

Wage Developments since 2000Wage Developments since 2000

Problem - Statistical Overestimation of Wage Growth

Wage DynamicsWage Dynamics

July 2001-August 2004 estimated wage July 2001-August 2004 estimated wage dynamics (Arsic et al. 2005)dynamics (Arsic et al. 2005)

Wb = 1.00p + 0.69pr + 0.009tWb = 1.00p + 0.69pr + 0.009t

Reasons for positive trend coefficient:Reasons for positive trend coefficient:Reduction in gray economyReduction in gray economyAbolition of the system of double payrollsAbolition of the system of double payrollsReduction of in kind paymentsReduction of in kind payments

Wages by Education AttainmentWages by Education Attainment Average wage in EUR by years of education

0

100

200

300

400

500

600

0 4 8 11 12 13 14 16

indication of strong wage premium for university degree

Labor Market Policy MeasuresLabor Market Policy MeasuresContextContext

Unemployment rates high and likely to rise STUnemployment rates high and likely to rise STEmployment rates not high enoughEmployment rates not high enough

Legacy: Legacy: – predominantly passive measurespredominantly passive measures

Challenges: Challenges: – More specific active measures/ employment promotion More specific active measures/ employment promotion

approachapproach– Capacity building for government institutions mandated to Capacity building for government institutions mandated to

address the problemaddress the problem

Labor Market Policy MeasuresLabor Market Policy Measures Law on Employment and InsuranceLaw on Employment and Insurance: a: allows private employment agenciesllows private employment agencies

Changes to the Law on Tax on Changes to the Law on Tax on IIncome of ncome of CCitizensitizens: : privilegesprivileges/ favorable tax / favorable tax breaksbreaks for for firms opening new work placesfirms opening new work places (Ministry of (Ministry of FinanceFinance))

Policy of active employmentPolicy of active employment (National Employment Service and Ministry of (National Employment Service and Ministry of Labor, Employment and Social Policy)Labor, Employment and Social Policy)

Government’s Development FundGovernment’s Development Fund: loans to…: loans to…– the unemployed, the least developed regions, the unemployed, the least developed regions, SMEsSMEs

Ministry of labor, employment and social affairsMinistry of labor, employment and social affairs

National Employment ServiceNational Employment Service

Unemployment benefits and other Unemployment benefits and other passivepassive measuresmeasures - - more than 90% of total NES more than 90% of total NES expenditures expenditures – Coverage: up to 10% of total registered Coverage: up to 10% of total registered

unemployedunemployed

Other services: jOther services: job search assistance, ob search assistance, information support to the unemployedinformation support to the unemployed – Active measuresActive measures to to becombecomee priority priority

National Employment Service National Employment Service pprogramme for 2005rogramme for 2005

TYPE OF ACTIVITY No. peopleAllocated Funds

(EUR)

А. ACTIVE JOB SEARCH 8.912 63.898

А.1 JOB CLUBS 1.586 24.644

А.2 TRAINING FOR ACTIVE JOB SEARCH 7.126 37.856

А.3 MOTIVATION PROGRAM FOR ACTIVE JOB SEARCH 200 1.397

B. EMPLOYMENT FAIRS 6.710 69.700

C. PROGRAMS OF ADDITIONAL EDUCATION AND TRAINING 8.260 4.540.812

C.1 APPRENTICESHIPS, TALENTS AND VOLUNTEERS 4.327 2.763.992

C.2 TRAINING IN COMPUTER SKILLS AND FOREIGN LANGUAGES 1.864 860.029

C.3 AND C.4 PROGRAMS OF RE-TRAINING 222 166.193

C.5 ON THE JOB TRAINING 1.475 737.427

C.6 ELEMENTARY EDUCATION OF ADULTS 151 13.168

D. DEVELOPMENT OF ENTREPRENEURSHIP AND PROGRAMS OF EMPLOYMENT 25.650 4.672.500

D.1 JOB SUBSIDIES 1.850 1.687.500

D.2 SUBSIDIES FOR SELF-EMPLOYMENT 23.800 2.985.000

E. CENTER FOR PROFESSIONAL INFORMATION AND COUNCELLING   28.081

TOTAL FUNDS FOR ACTIVE LABOR MARKET PROGRAMS 49.532 9.374.992

Natioanal Employment Strategy Natioanal Employment Strategy (NES) 2005-10 (MoLESP)(NES) 2005-10 (MoLESP)

Adopted by the Government in April 2005Adopted by the Government in April 2005

Inspired by European Employment StrategyInspired by European Employment Strategy process of nationalization in order to adjust process of nationalization in order to adjust

guidelines to local labor market conditionsguidelines to local labor market conditions To be followed by National Action Plan onlyTo be followed by National Action Plan only

Revision of the first overarching goal of Lisbon Revision of the first overarching goal of Lisbon Strategy – achieve sustainable employment Strategy – achieve sustainable employment growth and increasing participation rate growth and increasing participation rate

NES GuidelinesNES Guidelines

Goal 1: Toward sustainable employment Goal 1: Toward sustainable employment growthgrowth

Goal 2: Toward improved quality and Goal 2: Toward improved quality and productivity of workproductivity of work

Goal 3: Toward more cohesive labor Goal 3: Toward more cohesive labor marketmarket

Background Regional Study 1Background Regional Study 1

Main assumption – without intervention, wider Main assumption – without intervention, wider labor market and hence greater general labor market and hence greater general inequalities on a usual pattern – Belgrade front inequalities on a usual pattern – Belgrade front runner, Vojvodina second, Central Serbia, esp. runner, Vojvodina second, Central Serbia, esp. Southern and Eastern regions heavily lagging Southern and Eastern regions heavily lagging behingbehingAnalysis covers 25 counties (okruga), without Analysis covers 25 counties (okruga), without KosovoKosovoPurpose: to rank regions according to relative Purpose: to rank regions according to relative labor market riskslabor market risks

Background Regional Study 2Background Regional Study 2

Indicators usedIndicators used– Socioeconomic statusSocioeconomic status (1. unemployment rate, 2. (1. unemployment rate, 2.

wages per employed, 3. GNP per capita)wages per employed, 3. GNP per capita)– Speed or restructuringSpeed or restructuring (4. change of share of (4. change of share of

employed in social sector in total employment, 5. employed in social sector in total employment, 5. share of employed in social sector in total share of employed in social sector in total employment, 6. FDI pc)employment, 6. FDI pc)

– Diversification of economic structureDiversification of economic structure (7. share of 3 (7. share of 3 main branches in total regional GDP)main branches in total regional GDP)

– Labor force qualityLabor force quality (8. composite index - share of (8. composite index - share of persons with higher education and share of persons persons with higher education and share of persons with less than primary education in total labor force)with less than primary education in total labor force)

Development Fund: support to regional development

Easier procedures for regular credit pay back for Easier procedures for regular credit pay back for private firms in less developed regionsprivate firms in less developed regions

Participation of the Fund higher and interest rate Participation of the Fund higher and interest rate lower for less developed regionslower for less developed regions

Domestic product (% of average for RS)

Guarantee instrument

% of the project financed

Interest rate

<33% Mortgage and bank bill

Do 80% 1%

33%-50% Bank guarantee Do 60% 3%

50%-70% Bank guarantee Do 50% 4%

>70% Bank guarantee Do 40% 5%

Development Fund’s budget Development Fund’s budget for 2005for 2005

CSD EURO

TOTAL     5.350.000.000 66.875.000

Loans to SMEs 3.900.000.000 48.750.000

Loans to micro firms 220.000.000 2.750.000

Loans to the unemployed 600.000.000 7.500.000

Source: GoS, own calculation

Key problem: the lack knowledge and/ or reluctance in accessing the available funds.

Donor supported ALMPs, Donor supported ALMPs, employment and related programsemployment and related programs

Project title Funding Amount

Employment support programme. EAR €9 mil

Support for Human Resource Development Measures for Unemployed and redundant Employees in Serbia.

EAR €2 mil

Regional Socio-Economic Development Initiatives EAR €4 mil

Vocational Education and Training Reform Programme EAR €13 mil

SME policy/strategy assistance, and establishment of 7 regional enterprise development centres

EAR €3.6 mil

Municipal Support Programme EAR €15 mil

Capacity Building Fund – MoLESP UNDP

Beautiful Serbia UNDP US$2 mil

Employment Promotion ProjectWorld Bank, DFID US$2.75

mil

NES SIDA

Labour inspection project within MoLESP ILO&US Dpt. of Labor US$0.6 mil

Constraints to improving labor Constraints to improving labor market performance/ CLDSmarket performance/ CLDS

Slow economic developmentSlow economic development

Lack of labor market flexibilityLack of labor market flexibility

Limited reach of active employment Limited reach of active employment measuresmeasures

Local communities not engaged enoughLocal communities not engaged enough

Inadequate skills or lack of certain types of Inadequate skills or lack of certain types of skills among the unemployedskills among the unemployed

ConclusionsConclusions

Unemployment rates likely to go up until Unemployment rates likely to go up until completion of the privatization and restructuringcompletion of the privatization and restructuring– Employment promotion to remain high on the Employment promotion to remain high on the

government agendagovernment agenda

NES 2005-10 recommendations:NES 2005-10 recommendations:– Balanced regional development as a key to general Balanced regional development as a key to general

improvement of labor market performanceimprovement of labor market performance– Active labor market programs to be tailored at the Active labor market programs to be tailored at the

regional and local levelsregional and local levels