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

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

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

Consensus on labor market data: data sources 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

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

Key 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) LSMSNES Participation rate Employment rate Unemployment rate 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 Employment Formal 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 By gender Men Women By educational attainment Low-skilled Medium-skilled High-skilled

Labor Mobility 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? Activity in 2003 Activity in 2002 Formally Employed Informally Employed UnemployedInactiveTotal Formally Employed Informally Employed Unemployed Inactive Total

Employment by Age Participation rates and employment rates by age (2003) Age Participation RateEmployment Rate Serbia Central Serbia VojvodinaSerbia Central Serbia Vojvodina TOTAL 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 Gender Participation and employment rates by gender (2003) Gender Participation Rate Employment Rate Total Women Men 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 Population (25-65 years) Educational attainment rate of population aged 25-65, 2002 LowMediumHigh 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 Age Serbia /2002 Total Source: LFS ( ), 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

Unemployment by Gender GenderUnemployment rate Total Women Men 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 Education Level of EducationShare in unemployed Republic of Serbia Central Serbia Vojvodina Without Education years of primary school years of primary school Completed primary school Completed secondary school years college Completed university education 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 2000 Problem - Statistical Overestimation of Wage Growth

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

Wages by Education Attainment Average wage in EUR by years of education indication of strong wage premium for university degree

Labor Market Policy Measures Context 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

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) Governments Development Fund : loans to… –the unemployed, the least developed regions, SMEs Ministry of labor, employment and social affairs

National Employment Service Unemployment benefits and other passive measures - 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

National Employment Service programme for 2005 TYPE OF ACTIVITYNo. people Allocated Funds (EUR) А. ACTIVE JOB SEARCH А.1 JOB CLUBS А.2 TRAINING FOR ACTIVE JOB SEARCH А.3 MOTIVATION PROGRAM FOR ACTIVE JOB SEARCH B. EMPLOYMENT FAIRS C. PROGRAMS OF ADDITIONAL EDUCATION AND TRAINING C.1 APPRENTICESHIPS, TALENTS AND VOLUNTEERS C.2 TRAINING IN COMPUTER SKILLS AND FOREIGN LANGUAGES C.3 AND C.4 PROGRAMS OF RE-TRAINING C.5 ON THE JOB TRAINING C.6 ELEMENTARY EDUCATION OF ADULTS D. DEVELOPMENT OF ENTREPRENEURSHIP AND PROGRAMS OF EMPLOYMENT D.1 JOB SUBSIDIES D.2 SUBSIDIES FOR SELF-EMPLOYMENT E. CENTER FOR PROFESSIONAL INFORMATION AND COUNCELLING TOTAL FUNDS FOR ACTIVE LABOR MARKET PROGRAMS

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

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

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

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)

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 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 guaranteeDo 60%3% 50%-70%Bank guaranteeDo 50%4% >70%Bank guaranteeDo 40%5%

Development Funds budget for 2005 CSDEURO TOTAL Loans to SMEs Loans to micro firms Loans to the unemployed Source: GoS, own calculation Key problem: the lack knowledge and/ or reluctance in accessing the available funds.

Donor supported ALMPs, employment and related programs Project title FundingAmount Employment support programme. EAR9 mil Support for Human Resource Development Measures for Unemployed and redundant Employees in Serbia. EAR2 mil Regional Socio-Economic Development Initiatives EAR4 mil Vocational Education and Training Reform Programme EAR13 mil SME policy/strategy assistance, and establishment of 7 regional enterprise development centres EAR3.6 mil Municipal Support Programme EAR15 mil Capacity Building Fund – MoLESP UNDP Beautiful Serbia UNDPUS$2 mil Employment Promotion Project World Bank, DFIDUS$2.75 mil NES SIDA Labour inspection project within MoLESP ILO&US Dpt. of LaborUS$0.6 mil

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

Conclusions Unemployment rates likely to go up until completion of the privatization and restructuring –Employment promotion to remain high on the government agenda NES 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