Unemployment And Its Causes In Selected Economy – Bosnia And Herzegovina

Mirna Babović

Unemployment

• Unemployment represents one of three major indicatiors of economic growth

• Types of Unemployment: Cyclical, Demand deficient unemployment, Structural, Regional, Classical, Seasonal, Frictional, Voluntary

Bosnia and Herzegovina

• independent from the former Yugoslavia on March, 3 1992

Bosnia and Herzegovina

• Current entity structure is:• Federation of Bosnia and Herzegovina is divided

to ten cantons. Cantons are divided to municipalities. FB&H has 79 municipalities.

• Republic of Srpska has 62 municipalities.• City of Brčko is a separate administrative unit –

District.

• Entity structure – high administration costs

Macroeconomic Instruments in Bosnia and Herzegovina

Fiscal Policy - 2004 state level of fiscal authority

Monetary Policy and Foreign Exchange Policy - CB prevented from actively influencing the money supply, except by setting mandatory reserves

-KM exchange rate is fixed and unchangingno room for using exchange rate policy

Unemployment in Bosnia and Herzegovina

• Average net wage = 826 KM (approximately 412 Euros)

• January 2013 550 000 unemployed persons

• newest unemployment rate = 45.99 %.

550 000 unemployed persons

Comparison

Labor Force Participation

• Female participation in labor force was 35,2 % in 2012, while male participation was 58,6%.

Youth Unemployment

57,5

Causes Of Unemployment In Bosnia And Herzegovina

Gray Economy (Informal Economy)

•post-war period

•generating income, savings on income taxes and social security contributions

•real estate, construction, commerce, tourism, tobacco and agriculture

•2009 unemploymnt rate including informal economy was 18%-22%

Causes Of Unemployment In Bosnia And Herzegovina

Recent War (1992-1995)

•process of recovering

•export performances failed to meet market needs

•gray economy

•major institutions and factories destroyed

•conflicts

Causes Of Unemployment In Bosnia And Herzegovina

Poor Education System

•former Yugoslavian socialism system

•ranked 98th country in the world by HDI

•not fully adjusted to meet market needs

Example:Statistical data from 2011 are familiar. Natural rate of unemployment is 42,5%. Potential output ia 1100 mil.

• Calculate the IS curve and actual rate of unemployment.• C=400 mil i=7.48% c=0.6• I=300 mil A=725 mil t=0.17• G=5 milb=30• IS: Y=α(A-bi) α=? α =1/1-c(1-t)= 1.96

• Y= 1.96 * (725 – 30*7.48)• Y= 938 mil• i=0 Y=1421• Y=0 i=24.16

• μ= μ* - φ * (Y/Y* * 100 – 100)• μ= 42.5 – 0.17 * (938/1100 * 100 – 100)• μ= 42.5 – 0.17 * (85.27 – 100)• μ= 42.5 – 0.17 * (-14.73)• μ= 42.5 + 2.5041

• μ= 45.0041

Today, actual unemployment is 45.0041%.

Later in 2011, in order to reduce unemployment, investments increased by 30

mil.

ΔI = 30 mil•A2= 725 + 30 = 755 mil•Y= 1.96 * (755 – 30*7.48)

•Y= 1040 mil•μ= 42.5 – 0.17 * (1040/1100 * 100 – 100)•μ= 42.5 – 0.17 * (-5.45)•μ= 42.5 + 0.927

•μ= 43.43 %

Graphical presentation