Young People in the Labour Market in South East Europe
Niall O’Higgins University of Salerno, Italy
[email protected]
Paper prepared for the ILO/ICFTU Seminar on Youth Employment in South East European Countries, Belgrade 10-12 November 2003.
1. Introduction It is often noted, with reason, that the labour market situation of young people depends to a large extent on economic and employment trends affecting the economy as a whole1. Thus, this paper starts within a review of general trends in South East Europe (hereafter SEE)2. This is followed by a more specific look at youth labour markets in these countries. Some of specific characteristics of the situation facing young people in SEE are then outlined. Implications both for general policy and for the activities of workers organisations in particular are then examined. Readers will, I hope, forgive the author if he travels over some rather familiar ground in setting the scene. 2. General Context The onset of transition in or around 1989 lead to heavy recessions in all the exsocialist countries of CEE (Central & Eastern Europe) and CIS (Commonwealth of Independent States). Figure 1 illustrates this as well as the (partial) recovery witnessed by most countries. Notable, and indeed well known, is the fact that, apart from Albania, none of the SEE countries have reached anything like their 1989 levels of GDP. In this regard they lag well behind the countries of Central Europe3. The majority of these countries have achieved roughly between 80-90% of the GDP of 1989. The reasons for these different performances amongst countries have been the subject of much debate but which I don’t wish to enter into here. Figure 2 presents similar information in a slightly different way. Here annual GDP growth rates are reported highlighting the direction of change in GDP for each year. This allows us to look a bit more carefully at differences amongst the countries of the region. From the figure, patterns of recession and recovery can perhaps been seen more clearly. Between 1989 and 1992 all countries experienced negative growth rates, however, by 1993, Albania and Romania had already begun to recover. The other countries followed so that by 1994, all save Macedonia and Moldova were showing signs of improvement. Macedonia began to show signs of improvement in 1996 whilst, for Moldova, there was no sign of sustained improvement until 2000. Figure 3 takes a broader look at developments. The figure reports the Human Development Index (HDI) for seven countries for the years for which it is available. The HDI developed by UNDP essentially gives an overview of the welfare of a country’s citizens combing indices of GDP, education and life expectancy. It gives See, inter alia, Korenman & Neumark (1997), O’Higgins (2001, 2003) & Ryan (2002), SEE is here taken to cover the following countries: Albania, Bulgaria, Bosnia & Herzogovina, Croatia, Macedonia, Moldova, Romania and Serbia & Montenegro (including where appropriate Kosovo). 3 Here defined as the Visegrad countries plus Slovenia. 1
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therefore a more general indication of trends in the countries considered here as well as non there current state of development. It also makes clear the very different implications of transition for different countries. Thus, for example, using the index, Croatia has overall shown a positive performance over the 1990s with growth in the index despite the falls in GDP and consequently youth and adult employment. In the 1990s, Moldova, on the other hand, reversed the upward trend in its index observable between 1980 and 1990 so that by 2001 the level of the HDI was well below its 1980 level. Bulgaria and Romania lie somewhere between these two extremes showing a relatively slight improvement or disimprovement respectively. In 2001, the countries listed here ranked between 47th (Croatia) and 108th (Moldova) out of 175 countries included in the HDI. Thus Croatia is listed in the ‘High’ Human development countries with a similar ranking to the new entrant EU countries, whilst the others lie in the group of medium human development. Figure 4 illustrates the effects of the varying fortunes of the countries in SEE on employment rates. In a general sense trends in employment rates reflect trends in GDP. However, again well-known, employment rates fell (and where appropriate recovered) more slowly than GDP. None of the countries have recovered anything like the albeit high employment rates witnessed upto 1989. Overall, save for Macedonia and Serbia & Montenegro, employment rates in SEE remain above or close to 60%. This is comparable to that observable in EU countries; a little below, but within reach of, the 67% target established in Lisbon for EU countries to be achieved by 2005. Another effect of transition worth mentioning in passing concerns income. Figures 5 & 6 report indices of real wages and income inequality respectively. Regarding figure 5, it will be observed that only Albania has shown any improvement in real wages as a whole since 19894 and, as regards inequality, the general trend has clearly been upward5. 3. Young People in the Labour Market Where does all this leave young people? One would expect that the pattern of recession and lagged labour shedding outlined above to have had serious detrimental consequences for young people entering the labour market for the first time. Indeed, as figure 7 shows, youth unemployment rates are on the whole high in the region. Here, the questions of data collection and above-all dissemination make themselves The other countries which end up above 100 have their base year after 1989 and are therefore not directly comparable. 5 The incompleteness of the information makes a more detailed analysis difficult; however, it would appear that to some extent at least Croatia and Bulgaria are going against this general upward trend in inequality. 4
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felt6. Youth unemployment is high in SEE, however, this reflects to a large extent adult unemployment rates and therefore overall economic conditions. Figure 8 reports the ratio of youth to adult unemployment rates over time for three countries. Although the data is limited, it can be observed that the ratio is relatively stable over time varying much less than the unemployment rate itself. It also does not seem to depend directly on the overall level of unemployment. For example, in 2001, the ratio was very similar in Croatia and Romania whilst Croatia had an adult unemployment rate (12.3%) which was around two-and-a-half times that of Romania (4.9%). Bulgaria, with the highest adult unemployment rate (17.1%) had the lowest youth-to-adult ratio. Also of note, the ratio is rather high when compared with EU and/or Central European countries. In the former the ratio tends to lie mostly between 1.5 and 27, in the latter between 2 and 3. In The EU, the relatively low ratio depends, at least in part, on substantial State intervention with Active Labour Market Policies (ALMP) aimed at young people. In recent times, ALMPs in favour of young people has also become more common in Central Europe. In SEE the youth unemployment rate is between 2 and 5 times as high as the adult rate. This indeed is cause for concern. Labour force participation rates have been falling through the 1990s in the region (figure 9). In general the labour force participation rate of young people is lowered by two things: increased educational participation and higher rates of discouraged workers leaving the labour market due to lack of employment opportunities. Without better information it is difficult to judge precisely the relative importance of these factors, however one may note that the falling participation rates reflect both a longer run trend from before transition. Figure 10 reports on the educational participation of 15-18 year olds. Observable here is that, for those countries where data is available, there was a fall in participation rates, in some cases a very substantial fall following the beginning of transition more or less mirroring the fall in GDP. On the other hand, following this there was, in most countries, a steady gradual growth in participation following the initial drop. In part, this may reflect problems with the data. Slump following initial transition lead to substantial emigration of young people (in some countries more than others) which would not necessarily be reflected in the figures reported here and would lead to an overestimate
Although these days most of these countries undertake a regular labour force survey, from which youth unemployment rates and the like can be drawn. However, such data is not always easily available from international sources. Moreover, data availability is all the more acute when one tries to get a picture over time. The data used here come principally from the ILO’s KILM 2003 edition (ILO, 2003). 7 With the notable exception of Germany which has traditionally maintained a youth to adult ratio of roughly one-to-one thanks to its strong dual apprenticeship system. 6
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of the population in the relevant age group and therefore an underestimate of educational participation rates. Whatever the true picture, it appears reasonable to suggest that, on the evidence, increasing educational participation is not sufficient to account for the falling labour force participation rates observable amongst young people. One is left then with discouraged workers. These are people who stop looking for work (thereby leaving the labour force using ILO concepts) because they are aware that there are no or very limited job opportunities. Numbers on this phenomenon are hard to come but work in specific countries suggests that the numbers of discouraged workers may be high amongst young people8. For fairly obvious reasons, an increase in discouraged workers is a rather less desirable cause of falling labour force participation rates than increased educational participation. A related issue regards the informal sector. Increasing concern in recent years has been expressed in various sources about the quality (and not just the quantity) of work available to young people (and indeed others). The quality of work has been central to ILO concerns since its inception, and in recent times it has been amongst the forerunners in drawing attention to the need to promote Decent Work as opposed to work per se. Informal sector employment is, by its nature, highly flexible and exploitative and so comprises an important element in discussions of decent Work. By its nature, informal sector employment is difficult to measure, how increasing efforts have been made in recent times9. Figure 11 reports estimates of the size of the informal sector recently produced by Freidriech Schneider (2002). I would argue that these should be taken as conservative estimates. Even so, they suggest the existence of a large informal sector in SEE. By this reckoning, in Moldova for example, the informal sector is almost as large as the formal sector. Employment figures broken down by age are not yet available at an international level, however casual observation, theoretical reasoning and such evidence as does exist10 on a case-by-case basis suggests that involvement of young people in the informal sector is disproportionately high.
Summary & Implications •
Youth Unemployment rates are high In SEE. Not only in absolute terms but also in relation to the unemployment rates of adults. Whilst, youth unemployment rates will tend to fall with increased economic activity and therefore a generalised fall in unemployment in the region, there is substantial scope for improvement independently of the overall fortunes of the economy.
See, for example, O’Higgins et al. (2001) on Bulgaria. See, for example, ILO (2002a, 2002b) and the new edition of KILM (ILO, 2003). 10 See, again, O’Higgins et al. (2001) on Bulgaria. 8 9
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•
Labour Force participation rates of young people are falling in SEE. A substantial part of this may be attributed to discouraged worker effects rather than a more positive increased educational participation.
•
The informal sector is large in SEE and such evidence as exists suggests that young people are involved to a disproportionate extent.
4. Towards a more Effective Youth Policy There are two main areas for intervention to improvement the labour market prospects of young people: education and Active Labour Market Policies. In practice, and indeed in principal, the two are not independent. However, whereas in practice, ALMPs are used in attempt to remedy failures of the educational system; that is, the one substitutes for the other. In principal, it would be hoped that the two could play more complementary roles to each other. The failure of educational systems to adapt adequately to the rapid industrial change which the transition to the market involved is well-known. Relatively speaking, institutions involved in the provision of employment services have reacted somewhat more quickly. To an extent this is natural. Employment Services feel the effects of the failure to reform training systems directly in terms of a greater draw on the resources devoted to passive labour market policies. Educational institutions are at one remove from this and so do not feel the pressure so acutely. Not surprisingly they have therefore been slower to react. In any event, the need to reform and improve educational systems to better fulfil the role of providing young people with skills which are useful once they leave school, and therefore, for the most part enter the labour market is well recognised. Not so simple is actually achieving this goal. Reform of Vocational Education and training (VET) is underway in many countries in the region. However, VET reform thusfar has tended to be undertaken within traditional models and there is a need for greater recognition for more fundamental reform. Systems need to be made more responsive to ongoing changes in the needs for skills, not just reformed in terms of the industry-specific skills provided in school. In this there is clearly a major role to be played by the Social Partners. Whilst, formally at least, the Social Partners are involved in Labour Market Policy formulation and implementation, their involvement in educational policy is more limited. In general, educational systems and in particular VET systems need to be more responsive to the labour market. This can and indeed should be achieved by action and many levels:
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1) At the central level, Social partnership can inform policy-making and help in achieving the much-needed reforms. This is well-recognised and indeed in place in most countries. 2) At local levels where the policies are implemented, the Social Partners, and workers organisations in particular, should be involved both in the implementation of policy but also in adapting policies to local needs. That is in providing an input for a more decentralised policy-making. Whilst the formal involvement of the Social Partners in overall policy-making in the sector is more or less the norm, there is much scope for improvement particularly at more decentralised levels. VET systems need to be made more responsive to local labour market needs. There are a number of channels through which this may be achieved. On the one hand, the involvement of workers organisations on local education boards is a step in the right direction. However there are also less formal (and possibly more effective) means to achieve improvements. I have argued elsewhere11 that links between school and the labour market need to be developed in a more general sense. Some ways in which this may be accomplished are as follows: •
Social partners need to develop direct links with schools. This can be done in both formal and informal ways; however, it is important that contacts are developed between actors in the local labour markets and young people in schools. For example, local trade union officials could be invited into schools to give talks on the local labour market situation and on benefits of union membership.
•
At a broader level such Social Partner involvement as exists needs to be made more effective. This in part depends on the ongoing reforms in the sector. However, here too, workers organisations can play an active role.
Underlying this discussion is also the need to make Workers organisations more attractive to young people. Times have changed and the future strength of such organisations will depend to a large extent on their ability to attract new younger members. There is a tendency, not just in SEE, for Workers Organisations to be exclusively interested in the interests of its existing members. In this regard they can even be hostile to policies promoting youth employment in as much as such policies, it is feared, may result in a substitution of younger workers for older workers. I have argued elsewhere12 11 12
O’Higgins et al. (2001). O’Higgins (2001).
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that the extent to which this can occur is limited however, the fears are real. Certainly there is a need to ensure that youth employment policies create new jobs rather than substitute existing ones. Here again there is a role to be played by workers organisations in monitoring the implementation of such policies. In any event, various initiatives may be undertaken by workers organisations to make themselves more attractive and more relevant to young people. Setting up employment information centres run by workers organisations, or the organising of cultural events of interest to young people are just two examples. 5. Summary & Conclusions •
Youth unemployment is a very serious problem in SEE. It is high in both absolute and relative terms
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The problem of young people’s entry into working life concerns not just the quantity but the quality of work. In this regard, the extent and expansion of the informal sector in SEE represents a serious problem
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The key to any effective response lies in the reform of the education system. VET systems need to be made more responsive to the labour market. One major way in which this may be achieved is through strengthening formal and informal links between schools and the major labour market actors, namely employment services, employers and workers organisations
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Workers organisations in particular need to devise ways in which they can become more useful and attractive to young people. Direct involvement in employment initiatives is one way to achieve this but more generally, much can be achieved by a more active role in providing useful services to young people more or less directly related to the labour market.
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References ILO – 2002a– Women and Men in the Informal Sector: A Statistical Picture, ILO, Geneva. www.ilo.org/public/english/employment/gems/download/women.pdf ILO – 2002b– Decent Work and the Informal Economy, Report VI, ILC 90th session, ILO, Geneva. www.ilo.org/public/english/standards/relm/ilc/ilc90/reports.htm ILO – 2003 – Key Indicators of the Labour Market, 3rd edition, ILO, Geneva. www.ilo.org Korenman, S. & Neumark, D. – 1997 – “Cohort Crowding and Youth Labor Markets: A cross-national analysis,” NBER Working paper no. 6031, Cambridge, MA. www.nber.org/papers/ O’Higgins, N. – 2001 – Youth Unemployment and Employment Policy: A Global Perspective, ILO, Geneva. www.ilo.org/public/english/employment/skills/youth/publ/ O’Higgins, N. – 2003 – ‘Trends in the Youth Labour Market in Developing and Transition Countries,’ Social Protection Paper Series, World Bank, Washington, D.C. www.worldbank.org O’Higgins, N., Pastore, F., Beleva, I. & Ivanov, A. – 2001 - “Targeting Youth Employment Policy in Bulgaria,” Economic and Business Review, Vol.3, no. 2, 2001, pp. 113-135. Ryan, P P. – 2001 – “The School-to-Work Transition: A Cross-National Perspective,” Journal of Economic Literature, Vol. 39, no. 1. www.econ.cam.ac.uk/faculty/ryan/ Schneider, F F. – 2002 – “Size and Measurement of the Informal Economy in 110 Countries around the World,” Paper presented at a Workshop of the Australian National Tax Centre, Canberra, Australia, July 17, 2002. rru.worldbank.org/documents/informal_economy.pdf UNDP – 2003 – Human Development Report 2003, Oxford University Press, Oxford. www.undp.org UNECE – 2003 – Economic Survey of Europe, 2003 no. 1, UNECE, Geneva.
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Figure 1: Real GDP 1980-2002 (1989=100) 120 110 100
Albania Bulgaria
90
Croatia Macedonia
80
Moldova 70
Romania Serbia & Montenegro
60
SEE-7 Central Europe
50 40 30 1980
1990
Source: UNECE (2003)
1991
1994
1995
1996
1997
1998
1999
2000
2001
2002
Figure 2: Real GDP growth rates 1980-2002 15 10 5 0 -5
1980-89 ave annual
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
-10 -15 -20 -25 -30 -35
Albania
Bulgaria
Croatia
Macedonia
Source: UNECE (2003)
10
Moldova
Romania
Serbia & Montenegro
2002
Figure 3: HDI Trends
0.850 0.800 0.750 0.700 0.650 1980
1985
1990
1995
Albania
Bosnia & Herzogovina
Bulgaria
Croatia
Macedonia
Moldova
Romania Source: UNDP (2003)
11
2001
Figure 4: Employment Rate (LFS based) 85
Employment as % of Population
80 75
Albania
70
Bulgaria Croatia
65
Macedonia
60
Moldova 55
Romania
50
Serbia & Montenegro
45 40 35 1989
1990
1991
1992
1993
1994
1995
1996
Source: Unicef Transmonee Database.
12
1997
1998
1999
2000
2001
Figure 5: Real Average Wage Index 160
140
120
Alba nia Bosnia-Herz eg ovina
10 0
Bulga ria 80
Cro a t ia M a c edonia
60
M o ldo va 40
Ro mania Serbia & M o nt eneg ro
20
0 19 89
19 90
199 1
19 9 2
19 9 3
19 94
199 5
19 9 6
19 97
Source: Unicef Transmonee Database.
13
199 8
19 9 9 20 0 0 20 01
Figure 6: Distribution of Income 0.50
0.45
Bulgaria Croatia
Gini Coefficient
0.40
Macedonia 0.35
Moldova Romania
0.30
Serbia & Montenegro
0.25
0.20 1989
1990
1991
1992
1993
1994
1995
1996
Source: Unicef Transmonee Database.
14
1997
1998
1999
2000
2001
Figure 7: youth unemployment rates (LFS based) latest year 70 60 50 40 30 20 10 0 Albania 1998
Bulgaria 2001
Croatia 2002
Macedonia 2000 Moldova 2000
Source: Unicef Transmonee Database & ILO (2003).
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Romania 2001
Serbia & Montenegro 2000
Figure 8: Ratio of Youth (15-24) Unemployment rates to Adult (25-54) Unemployment Rates 6 5 4 Bulgaria 3
Croatia Romania
2 1 0 1995
1996
1997
1998
2000
Source: ILO (2003).
16
2001
2002
Figure 9: Youth Labour Force Participation Rates (15-24) 65 60 Albania
55
Bosnia & Herzogovina
50
Bulgaria Croatia
45
Macedonia Moldova
40
Romania 35
Serbia & Montenegro
30
Source: ILO (2003).
17
20 01
20 00
19 99
19 98
19 97
19 96
19 95
19 94
19 91 /1 99 2
19 90
19 80
25
Figure 10: Educational Participation - Gross Enrollment rates in Secondary Education (15-18) 100
Albania
90
Bosnia & Herzogovina
80
Bulgaria
70
Croatia
60
Macedonia
50
Moldova
40
Romania
Source: Unicef Transmonee Database.
18
20 01
20 00
19 99
19 98
19 97
19 96
19 95
19 94
19 93
19 92
19 91
Serbia & Montenegro 19 90
19 89
30
Figure 11: Informal sector as a % of GNP, 1999/2000 50 45 40 35 30 25 20 15 10 5
Se rb ia
Bo sn ia
Source: Schneider (2002).
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Gr ee ce
I ta ly
W .E ur op e
M on te ne gr o
&
Ro m an ia
M ol do va
Cr oa t ia
Bu lg ar ia
H er zo go vi na
&
A lb an ia
0
