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Vol 3, No 5
5 February 2001
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Sam Vaknin Unemployment:
The case of
Macedonia

Part two of a six-part series
Sam Vaknin

Read Part I of Sam Vaknin's unemployment series of articles first

As privatization progressed in Macedonia (however flawed in concept and in implementation), unemployment rose. It was the result of redundancies, bankruptcies and restructuring of the new private enterprises. By 1998, more than 92,000 workers were involved in direct privatization compared to more than 210,000 workers involved in all enterprises privatized.

The unemployment rate shot up from 23.5 percent in 1990 to more than 41 percent today by foreign estimates (or between 34 and 37 percent according to national statistics).

While officially the labour-force stands at around 800,000 people, in reality it comprises only 600,000 (down from 680,000 in 1990). The number of central government employees has remained fairly stable at about 17,000. Approximately 2400 are employed in cooperatives, another 22,600 in the pure private sector and around 92,000 in firms with mixed ownership.

About 4000 are in government-subsidized retraining programs at any given moment. Others are retrained within the Labour Redeployment program run by the Agency of Privatization.

Unemployment benefit recipients rose from 5400 in 1990 to more than 50,000 in 1997.

The mandatory employer payroll tax contribution is 20 percent (and goes toward the employee's pension) and the employee pays eight percent to the Health Fund.

A myriad of laws

Numerous laws and legal instruments govern employment and unemployment in Macedonia. Among them:

  • The Law on Labour Relations
  • The Law on Employment
  • The Collective Bargaining Agreement
  • The Law on Pension and Disability Insurance
  • The Law on Health Protection at Work
  • The Law on Labour Inspection
  • The Law on Industrial Action
  • The July 1997 Law on Employment and Insurance in the Case of Unemployment (now largely defunct)

The most important law by far is the Law on Labour Relations. It regulates the terms and manner of entering employment, the rights of employees, job positions, salaries and other compensation. Unfortunately, it is an extremely general and vague law. The collective agreements, the second most important legal instruments, are as general and, in any case, they pertain mainly if not solely to their signatories.

The collective agreements usually provide for an "employment trial period." But the law itself equates the rights of the temporarily employed to those of the permanently employed.

The 1997 law allowed the hiring of workers without the assistance or approval of the Employment Bureau. It demanded that the unemployed should actively seek gainful employment to qualify to receive unemployment benefits. It reduced both the amount and the duration of unemployment benefits payable to certain groups of unemployed workers.

It also introduced payments of pension contributions and health care fund contributions of registered unemployed workers who are not covered elsewhere (for example, by their parents, or their spouse).

The law eliminated special one-time payments to the unemployed who could claim a right to a pension equal to 40 percent of the average monthly net wages.

It mandated the monthly registration of recipients of benefits and the bi-annual registration of all other unemployed.

Under this law, workers with 15 years of participation in the workforce and contributions to the fund will receive unemployment benefits for six months. Those with more than 25 years will receive unemployment benefits indefinitely.

Additionally, employers were allowed to use up to 18 months of unpaid payroll taxes to subsidize the wages of previously unemployed workers hired by them. This provision has been eliminated.

Analysis

There are a few statistical methods used to gauge employment-related data. The easiest, most immediate but least reliable way is to count the number of people registered with the Employment Bureau ("claimants"). A claimant count tends to underestimate unemployment by up to 50 percent because many people are so desperate that they do not bother to register with the unemployment bureau.

The second method which is more demanding, resource-consuming and has a time lag is also more rigorous and a much better gauge of reality. It is the household survey. Britain, for instance, estimates unemployment using both methods.

The Statistical Bureau in Macedonia defines the Employee as someone who is employed at least one hour in the week prior to being sampled, whether in a part-time job or in a permanent, full-time one. People attending an apprenticeship program or sentenced to correctional labour are excluded (unlike in Germany, Austria or Denmark).

It follows that the unemployed are people seeking employment. Anyone without a job, but previously employed and recorded in an employment office is defined as an "earlier employed person." Applicants who held no job before are "first-time applicants."

Self-employed workers are all people included in TRUD-15, a quarterly report filed with the Pension and Disability Fund. This report includes only those currently insured and it, too, does not cover vocational students and apprentices. It is, therefore, safe to assume that the number of self-employed workers in Macedonia is larger than reported.

If the index representing total employment in Macedonia in 1989 was 100.3, it was 62 in 1997. The figure for women was marginally higher.

Total employment

Total employment in the economic sector went down by more than 40 percent between 1989 and 1997. The strongest declines were in trade and in tourism and catering. But severe drops were also registered in mining and industry, agriculture and fisheries and forestry (which was already depressed in 1989). Only water treatment and management and crafts and trades actually increased, with construction, transport and communications, and, to a lesser extent, housing, utilities, landscaping, financial, technical and business services all declining.

Total employment in the non-economic sector was almost unaffected. Even in sectors such as education, science, culture and information and healthcare and social services, the effects were minimal. And in administration and politics there was actually an increase in employement.

The total employed declined from around 517,000 in 1989 to less than 320,000 in 1997. The total in the economic sectors declined from 430,000 to 270,000. The total in the non-economic sectors declined from approximately 90,000 to 84,000.

The female population reacted more strongly to the trend. Female employment declined from 133,000 in 1995 to less than 122,000 in 1997. Less than 73,000 women were employed in the economic sector in 1997, compared to more than 84,000 in 1995. In the non-economic sector, the figures are 49,000 and 49,000 respectively (in other words, employment in the non economic sector remained stable even as it declined strongly in the economic sector).

To summarize:

  • In 1997, all employed people numbered around 319,453 (of whom 121,666 were women).
  • In the economic sector: 235,206 (72,359)
  • In companies with social ownership: 185,522 (70,094), of which 121,663 were in the economic sector (30,835 women).
  • In privately owned firms the figure is—22, 593 (of whom 21,910 in the economic sector).
  • Women accounted for 10,492 (10,252 in the economic sector) of this number.
  • 2414 workers (629 women) worked in cooperatives (all part of the economic sector).
  • Firms with mixed ownership employed 91,988 (31,854 women).
  • Of these employees, 88,799 (30,548) were in the economic sector.
  • State owned firms, institutions and organs employed 16,936 workers (8,597 women).
  • Of these only 420 were engaged in economic activities (95 women).

The (monthly) demand for workers declined from 6619 in 1989 to 1907 in 1996. Concurrently, monthly layoffs doubled from 1408 to 2805. First time applicants for unemployment benefits peaked monthly at 3847 in 1992 and declined to 2073 in 1996. This is a bad sign, as it indicates growing desperation among the long-term unemployed (ie those out of work for more than 12 months).

New hiring virtually collapsed from 1506 monthly in 1989 to 972 in 1997. Yet, this grim picture has to be balanced by mentioning that many people are unofficially employed and not registered anywhere.

The total number of employment seekers (in parentheses—the number of women) has gone up from 150,400 (78,075) in 1989 to around 253,000 (115,000) in 1997. But this is misleading, because 200,000 people have dropped from the workforce and have given up seeking employment.

A decade of deterioration

First-time applicants went up from 116,000 to 186,000 in the same period. In 1989, only 75,000 unskilled workers were jobless. In 1997, the number almost doubled to 133,000. And while only 5800 received unemployment compensation in 1989, their numbers multiplied by a factor of ten and reached over 50,000 in 1997. Due to improvements in education on the one hand and to growing desperation on the other, almost no people younger than 18 years were looking for jobs in 1997 (only 1700) compared to 1989 (11,900). To a large extent, the same is true for the 18 to 25 age groups. 70,400 sought work in 1989, versus 60,100 in 1997.

But the pernicious and lasting effects of unemployment were more than evident in the next age groups. In the 25 to 40 age groups, the number of employment seekers increased from 55,200 to 135,000 in the same period. The number of people between the ages 40 and 50 seeking work quadrupled (!) from 10,500 to 39,500. The same goes for people over the age of 50 (from 5,500 to 21,500). By far the largest group of employment seekers was people with no previous work experience (128,400 in 1989 and 180,700 in 1997).

The situation was much better in all other groups of work experience:

Length of experience Number of unemployed
  1989 1997
none 128,400 180,700
less than one year 6300 7900
1-2 years 3500 5000
2-3 years 2500 3600
3-5 years 3400 5700
5-10 years 5300 13,200
10-20 years 3200 18,200
20-30 years 800 11,700
more than 30 years 100 3100

The time structure of unemployment has also worsened.

Period taken to
find employment
Number of unemployed
  1989 1997
Within 6 months 22,900 6100
6-9 months 8300 4100
9-12 months 8000 5000
1-3 years 51,300 71,600
3-5 years 28,500 49,500
5-8 years 20,700 49,900
more than 8 years 13,800 71,400

In other words, most of the employment seekers have to wait for years before they gain employment. About 30 percent of them wait for more than eight years. This is nothing short of disastrous.

Unemployment is concentrated, therefore, among the relatively young and those without work experience. Additionally, the skilled and highly skilled workers have lesser difficulties in finding a job. Only 46,000 of them were employment seekers in 1997 (compared to 26,000 in 1989). The semi-skilled and those with elementary school are the most vulnerable, with 132,800 employment seekers (versus 75,200 in 1989). Even those with secondary school training fared badly, with 74,200 employment seekers (versus 49,300 in 1989).

The workforce survey

Macedonia executed a workforce survey for the first time in 1996. In this survey the following definitions were used:

  • Economically active: the combined numbers of the employed and the unemployed
  • Employed: People aged 15 or more who worked for a wage (in cash or in kind) or had income during at least one hour during the reference week or were temporarily absent from work with a formal job assignment or were helping on the family property or enterprise without wages
  • Self Employed: Either
    • An employer who operates his or her own enterprise or engages independently in a profession or trade or owns a farm and employs other people
    • An employer who works for a private or public employer
    • Own account worker—a person who operates his or her own enterprise or engages independently in a profession or trade but does not employ other persons
    • An unpaid family worker—a person who works without pay in an enterprise, a trade or on a farm owned by another member of his or her household.
  • Unemployed: was without work during the reference week and was seeking work, ie has taken specific steps to find a job, and was prepared to accept a job in the reference week or in the following week
  • Changes in the Labour Force: the activity rate as the ratio of the labour force in the total population above the age of 15 years; the employment rate as the ratio of the number of workers employed to the total population above the age of 15 years; the unemployment rate as the ratio between the numbers of the unemployed to the total labour force.

As of April 1997:

The total activity rate was 53.7% (66.5% for men and 41.2% for women). But this number hides major disparities in age groups. For instance: the activity rate of the age groups 35 to 39 was as high as 80.5% while for adolescents between the ages of 15 and 19 it was only 22.7%, and for people between the ages 55 and 59 it was 36.5%.

The total employment rate was 34.4% (44.6% men and 24.4% women). Again, there were great disparities between age groups. The employment rate for ages 40 and 44 was 62.6%while for ages 15 to 19 it was only 4.4% and for ages 20 to 24 it was a meager 18.2%.

The total unemployment rate was 36% (33% for men and 40.8% for women). More than 80.4% of the population aged 15 to 19 was unemployed, but only 20.2% of 40- to 44-year-olds and only 12% of 55- to 59-year-olds.

The total population above the age of 15 at the time of the survey was 1,489,625 (736,977 men and 752,648 women).

The total labour force was 800,513 (490,122 men and 310,392 women).

The total number of unemployed was 288,213 (161,717 men and 126,496 women).

The total number of employed people was 512,301 (328,404 men and 183,896 women).

Outside the labour force there were 689,112 people (246,856 men and 442,256 women).

To summarize in terms of percentages:

Age    Percentage of
  the population the workforce the employed the unemployed those outside the workforce
15-19 11.0 4.6 1.4 10.3 18.3
20-24 10.3 12.4 5.5 24.8 7.9
25-29 9.7 13.8 10.0 20.7 5.0
30-34 9.5 13.8 13.4 14.3 4.5
35-39 9.8 14.7 16.8 11.8 4.1
40-44 9.7 14.1 17.6 7.9 4.5
45-49 9.0 12.0 15.4 6.0 5.5
50-54 6.9 7.3 9.8 2.8 6.4
55-59 6.2 4.2 5.8 1.4 8.5
60-64 6.7 1.8 2.6 0.4 12.4
65-69 5.1 0.5 0.8 0.0 10.4
70-80 0.4 0.3 0.3 0.2 0.6

Disastrous statistics

In the population above the age of 15 years as a whole, there were around 104,000 without education, 199,000 with incomplete education, 474,000 with primary education, 151,000 with three years or less of secondary education, about 369,000 with four years of secondary education and approximately 55,000 with a higher education. There were 81,100 bachelors, 2400 masters, 1200 doctorates and 53,400 under the category "other."

Yet, the numbers in the labour force were very different and reflected the absolute disadvantage of the uneducated, unskilled, semi-skilled and even those with only secondary education:

Status Number (in thousands)
  the workforce the employed the unemployed those outside the workforce
no education 20.0 12.0 8.0 84.0
incomplete
education
62.3 44.2 18.1 136.3
only primary
education
220.8 118.0 103.1 253.1
3 years of
secondary
education
106.1 64.8 41.2 45.1
4 years of
secondary
education
263.0 176.0 87.0 106.3
higher education 41.0 32.7 8.3 13.4
university
graduates
67.2 54.1 13.1 13.9
masters 0.001 0.630 1.560 0.070
doctorates 1.156 1.086 0.070 0.071

Note that people with only primary education actually appear to be significantly more employable than those with secondary education.

Status Percentage of
  Men Women
employed 76.3 82.6
employers 4.3 1.7
self-employed 4.9 2.5
in a family-owned business 3.4 7.5

In other words, men made up 62.3% of the employed, 82.2% of all employers, 78% of the self employed, 45% of those employed in family businesses and 77.5% of those employed in agriculture.

Breaking records

Economic underdevelopment, agrarian over-employment, external shocks and an unrestructured economy led to an increase in both structural and cyclical employment.

The supply side is still composed mainly of new entrants, women and unskilled or semi-skilled labour as well as educated workers. The demand structure is incompatible with the supply. It is made of replacement jobs, new jobs (mainly in labour-intensive industries) and jobs generated by foreign entities.

The number of unemployed broke yet another record in 1999 and reached 344,472 people. Of these, almost half—154,000—were unskilled. But the unemployed included five doctors, 34 holders of master's degrees and 11,400 with higher education. About 33,000 of these numbers were made "technologically redundant"—the euphemism for being laid off due to restructuring of enterprises or their closure.

By comparison, the number of employed people was only 316,000.

In the first eight months of 1999 alone there were 6000 new unemployed per month versus a monthly average of 3700 in 1998. This increase is attributed to the inclusion of people who did not bother to register with the Employment Bureau in the past.

The fiscal burden increased dramatically as contributions deteriorated to 25 percent of the Employment Bureau's financing while the state budget contributed the remaining 75 percent, or MKD (Macedonian dinars) three billion (equal to DEM 100 million or around 1.7% of GDP). The Employment Bureau also pays health insurance for about 200,000 unemployed workers.

The labour unions

The Association of Trade Unions in Macedonia (ATUM or CCM in the Macedonian acronym) is a voluntary organization, which encompasses 75% of all the employed workers in Macedonia as its members.

It is organized in the level of firms and institutions and has in excess of 2600 chapters. Additionally, it has about 150 chapters in the municipalities and in the various industrial sectors (all 15 of them).

The typical Macedonian trade union is not supported by the government and is entirely financed by its membership fees (self sufficient).

The first collective agreement was signed in 1990, at which time the idea of Economic Social Council was floated as well as the idea of a tripartite (government / employees / employers) dispute settlement mechanism.

The Labour Relations act was passed in 1994 and instituted national collective agreement for the economic sector between CCM and the Board of Employers of the Economic Chamber of Commerce of Macedonia. Another general collective agreement covered all public services, public companies, state organs, local authorities and legal persons performing non-economic activities. This latter general collective agreement was signed between CCM and the Government of the Republic of Macedonia. Yet a third set of more than 20 collective agreements between CCM and various organs of the Chamber of Commerce and ministries covered other sectors.

The future

Public enterprise restructuring, privatization and reform are likely to increase unemployment benefits by MKD 200 to 300 million annually (assuming only 2000 to 3000 workers are fired, a very conservative assumption as there are 18,000 workers in the 12 major loss-making state firms, whose closure was demanded by the IMF).

Unemployment is highly dependent on productivity and GDP growth. The World Bank predicts that with zero GDP growth, the total expenditures on unemployment benefits could equal 2.3 percent of GDP. Even if GDP were to grow by four percent annually, their projections show unemployment benefits equaling 1.6 percent of GDP.

Sam Vaknin, 5 February 2001

All statistics in this article come from Statistical Bureau of the Republic of Macedonia, unless otherwise stated.

Part three of this series of six articles will appear in next week's CER

The author:

The author is General Manager of Capital Markets Institute Ltd, a consultancy firm with operations in Macedonia and Russia. He is an Economic Advisor to the Government of Macedonia.

DISCLAIMER: The views presented in this article represent only the personal opinions and judgments of the author.

Moving on:

After the Rain cover


After the Rain:
How the West Lost the East

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