Labor Market Performance and Job Creation Programs in Serbia

1. Labor Market Performance and Job Creation Programs in Serbia Conference on Labor Markets, Growth and Poverty Reduction Strategies May 27-28, 2005 Presented by Ivana Aleksić and Marko Paunović Deputy Prime Minister’s Office of the Republic of Serbia

2. PRESENTATION OUTLINE • Labor Market Performance in Serbia since 2001 • Employment trends • Unemployment trends • Wage developments • Labor market policy measures • Nationally created and performed programs • Externally supported programs

3. Context • Economic reforms… • Improved macroeconomic stability and GDP growth • Privatization continued and increased private sector participation • Creation of a favorable investment climate • Economy and public institutions restructuring • Tax reform finalization and changes in budget procedures • Infrastructure modernization • Control mechanisms development and fight against corruption • Feasibility Study just approved by the EC • EU integration and PRS implementation process

4. Consensus on labor market data: data sources • Labor Force Survey (LFS) • Living Standards Measurement Survey (LSMS) • National Employment Service • Republic Statistical Office Public misperception of the scope of the problem

5. Employment Trends • Employment • Formal and Informal Employment • Employment by Age • Employment by Gender • Educational Level of Adult Population (25-65 years) • Unemployment • Unemployment by Age • Unemployment by Gender • Unemployment by Education • Wage Trends • Wages by Education Attainment

6. Key labour market indicators Key labour market indicators for working-age population (15-64) in 2002 • 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

7. Formal and Informal Employment Major problem – high level of informal economic activity

8. Significant flows between employment, unemployment and non-activity – more than 40% of the people have changed status Indicator of well functioning labor market or of insecure short-term jobs? Labor Mobility

9. Employment by Age Participation rates and employment rates by age (2003) • low employment rates for young workers (compared to EU) • high employment rates for category over 55 • highest unemployment in the most developed area (Vojvodina)

10. Employment by Gender Participation and employment rates by gender (2003) Source: Gos, based on LFS (2003) and RSO • Participation rate and employment rate of women is around theaverage level of transition countries

11. Educational Level of Adult Population (25-65 years) Educational attainment rate of population aged 25-65, 2002 Source: ETF 2005, based on Serbian Census 2002, ETF Key indicators data base, Eurostat • relative disadvantage with respect to the EU average

12. Unemployment by Age • Source: LFS (2002-2003), RSO • Youngest members of labor force - most affected by unemployment • However, it seems that transition favors young people, leading to changes in the age structure of population, especially in Central Serbia • The pace of the restructuring was the fastest in Vojvodina

13. Unemployment by Gender • 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

14. Unemployment by Education Structure of unemployed by education (2003) • highest unemployment rates recorded in 2002 for those with completed secondary and primary education • reforms of secondary education should be a priority

15. Wage Developments since 2000 • Problem - Statistical Overestimation of Wage Growth

16. Wage Dynamics July 2001-August 2004 estimated wage dynamics (Arsic et al. 2005) Wb = 1.00p + 0.69pr + 0.009t Reasons for positive trend coefficient: • Reduction in gray economy • Abolition of the system of double payrolls • Reduction of in kind payments

17. Wages by Education Attainment Average wage in EUR by years of education 600 500 400 300 200 100 0 0 4 8 11 12 13 14 16 • indication of strong wage premium for university degree

18. Labor Market Policy MeasuresContext • Unemployment rates high and likely to rise ST • Employment rates not high enough • Legacy: • predominantly passive measures • Challenges: • More specific active measures/ employment promotion approach • Capacity building for government institutions mandated to address the problem

19. Labor Market Policy Measures • Law on Employment and Insurance: allows private employment agencies • Changes to the Law on Tax on Income of Citizens: privileges/ favorable tax breaks for firms opening new work places(Ministry of Finance) • Policy of active employment (National Employment Service and Ministry of Labor, Employment and Social Policy) • Government’s Development Fund: loans to… • the unemployed, the least developed regions, SMEs • Ministry of labor, employment and social affairs

20. National Employment Service • Unemployment benefits and other passivemeasures - more than 90% of total NES expenditures • Coverage: up to 10% of total registered unemployed • Other services: job search assistance, information support to the unemployed • Active measures to become priority

21. National Employment Service programme for 2005

22. Natioanal Employment Strategy (NES) 2005-10 (MoLESP) • Adopted by the Government in April 2005 • Inspired by European Employment Strategy • process of nationalization in order to adjust guidelines to local labor market conditions • To be followed by National Action Plan only • Revision of the first overarching goal of Lisbon Strategy – achieve sustainable employment growth and increasing participation rate

23. NES Guidelines • Goal 1: Toward sustainable employment growth • Goal 2: Toward improved quality and productivity of work • Goal 3: Toward more cohesive labor market

24. Background Regional Study 1 • Main assumption – without intervention, wider labor market and hence greater general inequalities on a usual pattern – Belgrade front runner, Vojvodina second, Central Serbia, esp. Southern and Eastern regions heavily lagging behing • Analysis covers 25 counties (okruga), without Kosovo • Purpose: to rank regions according to relative labor market risks

25. Background Regional Study 2 • Indicators used • Socioeconomic status (1. unemployment rate, 2. wages per employed, 3. GNP per capita) • Speed or restructuring (4. change of share of employed in social sector in total employment, 5. share of employed in social sector in total employment, 6. FDI pc) • Diversification of economic structure (7. share of 3 main branches in total regional GDP) • Labor force quality (8. composite index - share of persons with higher education and share of persons with less than primary education in total labor force)

26. Development Fund: support to regional development • Easier procedures for regular credit pay back for private firms in less developed regions • Participation of the Fund higher and interest rate lower for less developed regions

27. Development Fund’s budget for 2005 Key problem: the lack knowledge and/ or reluctance in accessing the available funds. Source: GoS, own calculation

28. Donor supported ALMPs, employment and related programs

29. Constraints to improving labor market performance/ CLDS • Slow economic development • Lack of labor market flexibility • Limited reach of active employment measures • Local communities not engaged enough • Inadequate skills or lack of certain types of skills among the unemployed

30. Conclusions • Unemployment rates likely to go up until completion of the privatization and restructuring • Employment promotion to remain high on the government agenda • NES 2005-10 recommendations: • Balanced regional development as a key to general improvement of labor market performance • Active labor market programs to be tailored at the regional and local levels