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UNEMPLOYMENT AS A SOCIAL COST OF TRANSITION IN CENTRAL AND EASTERN EUROPE: Applicability for the Republic of Macedonia


Suzana Saveska

Junior Teaching Assistant, Institute of Social Work and Social Policy, SS. Cyril & Methodious University, Faculty of Philosophy, Skopje, Macedonia

and

Ron Brown Alumni at the Global Affairs Institute, Department of Public Administration - Executive Education Maxwell School of Citizenship and Public Affairs Syracuse University, Syracuse, NY, USA

Abstract


Starting in the 1980s, and especially after the beginning of the 1990s when the socialist system collapsed, unemployment has been perceived as a growing economic and social problem, and has been a dominant theme on the policy agenda of many Central and Eastern Europeans countries. This paper discusses unemployment in those countries and elaborates policies undertaken to address the issue. First, it provides an overview of the transition countries, analyzing the main factors that affect the process of transition. Second, it addresses the issues of passive and active labor market policies. Next, the promotion of small and medium-sized businesses is discussed. Finally, the case of the Republic of Macedonia is elaborated and several recommendations are advanced as possible alternatives for future policy formulations in the country.

1. Unemployment in Central and Eastern European transition countries

1.1 General Overview of the unemployment situation

The end of the 1980s and the beginning of the 1990s witnessed the turning of a new page in world history. The majority of the communist regimes collapsed. The process of transition towards democracy and a free market economy promised an increase in living standards, more individual freedom and the protection of individual rights. However, it did not take long for the optimism and enthusiasm to diminish.


Countries in transition faced many obstacles, varying from country to country and often within each country as well. This is not surprising, because although all of these countries had had similar political regimes in the past, they did not start the transition at the same level of economic and social development. They inherited different human and capital resources, policy instruments, and experiences in market oriented reform (some of them had none). This had significant implications for the choice of policies implemented in the region (Zecchini, 1991, p. 28).

Despite differences in intensity, the social costs of transition in the region are similar in nature. All of the transition economies have experienced a decline in real wages and living standards, an increase in poverty, and struggles with inflation and related trends, including a sharp and rapid rise in unemployment (Deacon and associates, 1996, p. 2).

Before the transition, centrally planned economies pursued the “socialist” vision of full employment. However, compared to market economy standards, socialist “full employment” could hardly be considered to be true full employment. Due to extensive labor hoarding within state-owned enterprises, labor productivity and wages were generally low. In addition, not only was it impossible to select a particular job, but the decision to work at all was not a matter of free choice. Instead, everything was centrally planned and imposed by the state (World Employment 1996/97, p. 107).

Socialist employment strategy ended with the collapse of the communist regimes, as the labor market dynamic began to change. The pre-transition concentration of the work force within fairly large enterprises in heavy industry could not be sustained. The collapse of the Council for Mutual Economic Assistance (CMEA) meant the loss of the production market, and new markets had not yet been established. A successful transition towards world markets would have required technological upgrading and new production methods for quality assurance. At the same time, the end of the 1980s brought recession and a weakened market in several western market economies. Due to a parallel recession in Central and Eastern European countries, there was a significant contraction of demand, causing the collapse of domestic markets. This kind of situation meant a decline in employment, especially industrial employment, for economies in transition. For example, in the Russian Federation, employment in the engineering industry fell from 9.8 million in 1989 to 5.3 million 1994 – a decline from 51.5 percent to 41 percent of the total manufacturing industry. In Bulgaria, employment in engineering industries declined by 50 percent between 1989 and 1993 (Ibid., p. 120).


The collapse of regionally concentrated industry caused large regional differences in unemployment rates within the countries of Central and Eastern Europe. For example in Czechoslovakia, in December 1991, the unemployment rate in Prague was 1.6 percent, while in northern Moravia it was 6.17 percent. Unemployment in Bratislava was 6.53 percent, while in western Slovakia it was 13.31 percent (Porket, 1995, p. 99). In Poland, depending on the region (regardless of heavy industry), unemployment rates ranged from 5 to 30 percent. In Hungary in 1991 and the Russian Federation in 1992, unemployment rates were up to 10 times higher in regions that had housed heavy industry.


Table 1.1 Registered unemployment in selected transition economies, 1989-1995

(Percentage of labor force)


Country

1989

1990

1991

1992

1993

1994

1995

Albania




9.8

9.4

26.2

20.2

18.0

12.9

Armenia





-3.0

5.0

6.6

6.0

8.2

Azerbaijan







0.1

0.2

0.3

0.9

1.1

Belarus










0.5

1.7

2.1

2.8

Bulgaria

0.0*

1.8

11.5

15.6

16.4

12.8

11.8

Croatia




8.0a

14.1

17.8

16.6

17.3

16.8

Czech Republic

0.0*


0.7

4.1

2.6

3.5

3.2

3.0

Estonia







0.1

1.9

5.0

5.1

1.8

Georgia










1.0

2.0

3.8

3.1

Hungary

0.5*

1.7

7.4

12.3

12.1

10.4

11.4

Kazakhstan










0.5

0.6

1.0

2.1

Kyrgyzstan








0.1

0.2

0.8

2.9

Latvia










2.1b

5.8

6.5

6.6

Lithuania







0.3

1.0

3.4

4.5

6.1

Macedonia




17.1a

24.5

26.8

30.3

33.2

35.6

Moldova










0.7

0.7

1.0

1.4

Poland


0.3*

6.1

11.8

13.6

16.4

16

14.9

Romania




1.3

3.1

8.2

10.4

10.9

8.9

Russian Federation










0.8

1.1

2.1

2.2

Slovakia

0.0*

1.6

11.8

10.4

14.4

14.8

13.1

Slovenia

3.2**

5.3a

10.1

13.3

15.5

14.2

13.7

Tajikistan











0.3

1.1

1.8

2.0

Ukraine










0.3

0.4

0.3

0.3

Uzbekistan










0.1

0.2

0.3

0.3


Sources: UN/DESIPA, based on International Labor Office (ILO) and ECE data as presented in the Report on the World Social Situation 1997, p. 126. *OECD Economic Outlook, various issues; OECD, Short-Term Economic Indicators: Central and Eastern Europe, various issues; Eurostat, Unemployment, various issues; Statistika rocenka CSFR, 1992, p. 208; Statisticke prehledy CSFR, various issues; Biuletyn statystycczny, Warsaw, various issues; EIU, Country Reports, various issues, as presented by Porket, 1995, p. 99. **Europe, Budapest conference papers and ILO, 1995, as presented by Godfrey and Richards, 1997, p. 5.

aAnnual average; bPercentage of working age population.



Based on information in the UN Report on the World Social Situation (1997, p. 125), data from Table 1.1 should be viewed with caution, especially for the Commonwealth of Independent States (CIS), because of deficiencies in registered unemployment statistics. Although registered unemployment in those countries is very low, comparisons with data obtained through labor force surveys (LFS)1 in the UN Report, implementing International Labor Office (ILO) methodology, show that actual unemployment in the Russian Federation was 7.5 percent in 1995 – more than three times higher than the quoted 2.2 percent. Similar situations existed in other CIS countries, as the UN Report suggests, primarily because many unemployed people were not motivated to register. They did not expect the official labor offices to help them find jobs, and the unemployment benefits were so low as to be unattractive. Many were absorbed by the growing informal sector, especially a large number of redundant workers (Ibid.). According to the UNDP Human Development Report for Europe and the CIS, the informal economy as a portion of GDP in 1997 was judged as follows: Russia, one quarter; Moldova and Ukraine, over half; Hungary, 30 percent; and Macedonia (in 1996), just under 40 percent (1999, p. 9).

Even taken with caution, Table 1.1 shows that all countries experienced rising unemployment in the first years of transition. Although some countries experienced a decline in 1994-95, the rates remained high, usually in the double digits, in Albania, Bulgaria, Croatia, Poland, Slovakia and Slovenia. In Macedonia there was a constant increase, to 35.6 percent in 1995.

Data from Table 1.2 show other important features of unemployment in transition economies in 1995. In particular, it is clear that youth and women were most seriously affected, and that long-term unemployment was rising.

Table 1.2 Features of unemployment, selected transition economies, 1995



Category

Bulgaria

Czech Rep.

Hungary

Poland

Romania

Slovakia

Slovenia

Sex

Malea

18.6

3.7

12.5

13.6

7.5

14.3

7.6

Femaleb

19.8

4.8

8.8

16.1

8.6

14.5

7.0

Age

Youthc




Malea

42.6

8.2

26.0

31.7

18.8

29.2

18.3


Femaleb

41.8

8.7

15.8

35.9

23.1

24.8

19.6

Prime age




Malea

16.0

2.8

10.8

12.2

6.3

11.4

6.8

Femaleb

16.9

4.5

7.8

15.2

8.3

12.8

5.2

Older




Malea

13.1

1.9

7.2

8.8

3.4

9.3

3.7

Femaleb

13.5

2.5

4.7

7.7

2.4

8.9

2.9

Education

Higherd


6.7

1.2

2.9

4.2

2.2

3.4

2.1

Secondarye

17.1

3.4

10.2

16.2

11.4

13.1

7.6

Primaryf

30.4

10.7

16.7

16.4

5.2

30.0

9.5

Durationg

< 1 month

2.3

14.8

6.9

6.2

2.7

5.0

4.9

1-6 months

19.4

38.1

24.7

28.1

38.5

26.0

19.5

7-12 months

15.8

20.0

22.8

24.0

13.5

16.3

17.1


> 12 months

62.2

27.1

45.7

41.7

45.3

52.8

58.5

Long-term

Malea

61.7

26.2

46.0

38.2

46.2

49.8

59.0

Femaleb

62.8

28.0

46.0

45.1

47.9

53.4

48.4

Youthh

51.7

18.5

32.3

29.0

41.7

40.0

62.5

Olderi

31.1

28.6

42.2

44.8

48.4

62.7

100.0

Discouraged
workers


Malea

27.21


5.6

26.9

8.82

63.8

2.4

NA

Femaleb

22.81

5.8

19.2

9.12

37.4

3.0

NA


Sources: OECD-CCET: Labor market database, No. 2, 1995; Short-Term Economic Indicators, No. 1, 1996, as presented in table 4.2 in World Employment, 1996/97, p. 113.

11993; 21994; a % male labor force (LF); b % female LF; c under age 25; d % LF with higher education; e % LF with secondary education; f % LF with primary education;
g % total unemployment; h % youth unemployment; i % older unemployment; NA indicates data not available.


Middle-aged and older workers who are victims of the break-up of oversized companies and the decline in industrial production are particularly vulnerable to long-term unemployment (Ibid., p. 130). This explains the need for immediate economic measures to secure economic recovery of these countries, as well as to build new market institutions, and design and implement labor market policies appropriate to the specific situation of each Central and Eastern European country.



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