labour markets in the wb part - european training …...labour markets in the western balkans...

LABOUR MARKETS IN THE

WESTERN BALKANS

CHALLENGES FOR THE FUTURE

TA

-30-0

7-1

00-E

N-C

Publications Office

Publications.europa.eu

Copyright

photo

:P.

Sic

card

i/S

YN

C©

THE EUROPEAN TRAINING FOUNDATION (ETF)HELPS TRANSITION AND DEVELOPING COUNTRIESTO HARNESS THE POTENTIAL OF THEIR HUMANRESOURCES THROUGH THE REFORM OF EDUCATION,TRAINING AND LABOUR MARKET SYSTEMS IN THECONTEXT OF THE EU’S EXTERNAL RELATIONS POLICY

HOW TO CONTACT US

Further information on our activities, calls fortender and job opportunities can be found onour web site: www.etf.europa.eu

For any additional information please contact:

External Communication UnitEuropean Training FoundationVilla GualinoViale Settimio Severo 65I – 10133 TorinoT +39 011 630 2222F +39 011 630 2200E [email protected]

LABOUR MARKETS IN THEWESTERN BALKANSCHALLENGES FOR THE FUTURE

Anastasia Fetsi (editor)

With contributions from Arjen Deij, Henrik Huitfeldt, Meri Lorencic, Jean-Raymond Masson and

Ekaterina Selezneva (ETF), William Bartlett and Ray Phillips (external experts)

European Training Foundation

2007

A great deal of additional information on theEuropean Union is available on the Internet.It can be accessed through the Europa server(http://www.europa.eu).

Cataloguing data can be found at the end ofthis publication.

Luxembourg: Office for Official Publications ofthe European Communities, 2007.

ISBN: 978-92-9157-542-8

© European Communities, 2007.

Reproduction is authorised provided the sourceis acknowledged.

Printed in Italy

Europe Direct is a service to help youfind answers to your questions

about the European Union

Freephone number (*):

00 800 6 7 8 9 10 11

(*) Certain mobile telephone operators do not allowaccess to 00 800 numbers or these calls may be billed.

PREFACE

The Thessaloniki EU–Western Balkansummit of 2002 gave a new perspective tothe countries and territories of the WesternBalkans as it declared the willingness of theEU to incorporate these states intoEU structures. Since then Croatia hasstarted negotiations for accession, theformer Yugoslav Republic of Macedonia hasbeen given the status of candidate country,while the other countries and territories inthe region are already considered to bepotential future Member States by the newEU Instrument for Pre-Accession Assistance(IPA). The prospect of accession to the EUis both an opportunity and a challenge forthe Western Balkans. The Communicationfrom the European Commission on ‘TheWestern Balkans on the road to the EU:consolidating stability and raising prosperity’(2006d) highlights the fact that the Lisbonobjectives, without constitutingsupplementary criteria for accession, arenow becoming relevant for the countries andterritories of the region; and that theeconomic and social agendas are nowcoming to the forefront, in particular whenlow levels of employment and high levels ofunemployment persist.

In 2006 the ETF undertook a transnationalanalysis of the labour markets of theWestern Balkans with the aim of gaining abetter understanding of their nature,functioning and dynamics, and identifyingchallenges in respect of their futureaccession to the EU and policy areas forfurther work. Given that the countries andterritories of the Western Balkans are verydiverse in terms of economic developmentand performance, the aim of the analysis isnot to compare them with one another butrather to give an overview of the region. Thescope of the analysis was inspired by theEuropean Employment Strategy (EES) andcovers both demand and supply side of the

labour market, as well as employmentpolicies and labour market regulation.

The analysis is based on desk researchusing the ETF labour market reviews for theWestern Balkan countries and territoriesundertaken in 2004 and 2005 and other ETFwork on education and training in the region.However, it is also based on studies andreports prepared by internationalorganisations (such as the InternationalLabour Organisation (ILO), the Organisationfor Economic Cooperation andDevelopment (OECD) and the World Bank)and on national research. For the purposesof the analysis, updated information onlabour markets and education was collectedfrom the Statistical Offices, Ministries ofEducation, Ministries of Labour and PublicEmployment Offices of the countries andterritories of the region through specific datacollection and ad hoc requests. Foreconomic data, data on specific areas (suchas foreign direct investment (FDI) and smalland medium-sized enterprises (SMEs)) andlong time series, databases on the websitesof other international organisations wereused, as were the published results ofspecialised surveys. However, datalimitations in the countries and territoriesconcerned explain the absence of fullycompleted tables covering all countries andterritories, while cross-country comparabilityis occasionally limited.

Preliminary findings of the analysis werediscussed with an ad hoc expert group setup by the ETF for the purposes of thestudy. The expert group consisted ofnational experts and representatives of theEuropean Commission and internationalorganisations (ILO, OECD and theEuropean Stability Initiative (ESI)); it mettwice, once in June 2006 and once inNovember 2006.

3

The analysis was conducted by a team ofETF staff (Jean-Raymond Masson, HenrikHuitfeldt, Meri Lorencic, Carmela DorianaMonteleone and Ekaterina Selezneva) andexternal experts (William Bartlett and RayPhillips) under the leadership of AnastasiaFetsi.

This report presents the outcomes of theanalysis. It is a collection of papers thatfocus on different aspects of the labourmarkets in the countries and territories ofthe region. Chapter 1 explores theeconomic restructuring process since thebeginning of the 2000s and its impact onjob creation, job reallocation and thedemand for skills. It also looks at thepossible future economic developmentprospects and the potential role of skills.Chapter 2 examines recent trends in themain labour market indicators and presentsa more in-depth analysis of the nature ofthe labour markets in selected countries ofthe region, highlighting the main challengesfor the future. Chapter 3 explores humancapital issues, with special focus on thepreparation of young people through theeducation system. It also assessesprogress in education policies andsuggests areas for future work in the fieldof education and training. Chapter 4assesses employment policies in theWestern Balkans using as an analyticalframework the European EmploymentStrategy, and identifies policy areas forfuture work. Finally, Chapter 5 provides anoverview of the institutional arrangements

for the effective implementation ofemployment policies and identifies gaps,taking into account EU trends and lessonslearned in the new EU Member States.

The ETF wishes to thank the members ofthe expert group set up to discuss thepreliminary results of this study for theirvaluable comments and ideas: LinditaXhillari and Suzana Pani (Albania), SuadMuhibic (Bosnia and Herzegovina), VedranSosic and Sanja Crnkovic-Pozaic (Croatia),Budimir Raickovic and Ivan Mitrovic(Montenegro), Radmila Bukumiric-Katic(Serbia), Besnik Beslimi (Kosovo),Frederique Rychener (EuropeanCommission, Directorate-General forEmployment), Gregor Gradev (EuropeanTrade Union Confederation (ETUC)),Sandrine Cazes (ILO), Verena Knaus (ESI)and Anders Reuterswald (OECD).

We also wish to thank the Ministries ofEducation of Albania, Serbia andMontenegro; the Statistical Offices ofCroatia, the former Yugoslav Republic ofMacedonia, Kosovo, Montenegro andSerbia; the Ministry of Labour and SocialAffairs in Serbia; the State Agency forEmployment in Bosnia and Herzegovina;the Employers’ Association in Montenegro;and the Institute of Economics in Croatiafor the provision of all available informationrequested.

The ETF retains responsibility for anymistakes that have been made.

4

LABOUR MARKETS IN THE WESTERN BALKANS

CONTENTS

PREFACE 3

EXECUTIVE SUMMARY 7

1. ECONOMIC RESTRUCTURING, JOB CREATION AND THE CHANGING DEMAND FOR

SKILLS IN THE WESTERN BALKANS 19

William Bartlett

1.1 Introduction 19

1.2 Economic transition in the Western Balkans 20

1.3 Drivers of change: privatisation, SME entry and FDI 26

1.4 Structural change, employment and skills 35

1.5 Conclusion 47

2. LABOUR MARKET ATTACHMENT IN THE WESTERN BALKANS 51

Henrik Huitfeldt and Ekaterina Selezneva

2.1 Introduction 51

2.2 Transitional labour markets and the Western Balkans 52

2.3 Basic labour market indicators in the Western Balkans 53

2.4 Labour market and employment statuses in the Western Balkans 56

2.5 The Living Standards Measurement Study data in Albania, Bosnia andHerzegovina and Serbia 57

2.6 Labour market statuses and dynamics in the labour market in Albania,Bosnia and Herzegovina and Serbia 60

2.7 Attachment to the labour market in the Western Balkans: examples fromAlbania and Bosnia and Herzegovina 64

2.8 Challenges for strengthening attachment to the labour market 68

3. HUMAN CAPITAL AND EDUCATION REFORMS IN THE WESTERN BALKANS 71

Jean-Raymond Masson and Anastasia Fetsi

3.1 Introduction 71

3.2 Human capital in the Western Balkans 72

3.3 Education and VET reforms assessment 84

3.4 Conclusions and main challenges 106

5

4. AN ASSESSMENT OF EMPLOYMENT POLICIES IN THE WESTERN BALKANS 111

Ray Phillips

4.1 Introduction 111

4.2 Employment policies in the Western Balkans within a broadertransition context 112

4.3 Improving the adaptability of workers and enterprises 114

4.4 Attracting more people into work 121

4.5 Inclusiveness and employment policies for particular groups 130

4.6 Conclusions and policy areas for future work 133

5. INSTITUTIONAL ARRANGEMENTS FOR THE IMPLEMENTATION OF

EMPLOYMENT POLICIES IN THE WESTERN BALKANS 137

Arjen Deij and Meri Lorencic

5.1 Introduction 137

5.2 Institutional arrangements at central level and interministerial cooperation 138

5.3 Social partners and their role in employment policy 143

5.4 Decentralisation in terms of policy delivering and sharing responsibilities 157

5.5 Governance, institutional and administrative capacity building 163

5.6 Conclusions 166

ANNEXES 169

Annex 1: Correspondence of one-digit NACE manufacturing sectors and skills 169

Annex 2: Distribution of labour market status by sex, age group and educationalattainment 170

Annex 3: Labour market transitions in Albania, Bosnia and Herzegovinaand Serbia 174

Annex 4: Basic characteristics of labour market attachment groups 176

Annex 5: Educational attainment levels by age and gender 182

Annex 6: Annual changes in GDP and average gross wages 183

Annex 7: Public employment services in the Western Balkans 184

Annex 8: Responsibilities for employment policies 186

Annex 9: Institutions responsible for the implementation of the SerbianEmployment Strategy 2005–10 and their responsibilities 188

Annex 10: Statistics on demography 189

Annex 11: Statistics on employment 194

DEFINITIONS 211

ACRONYMS 213

BIBLIOGRAPHY 215

6


EXECUTIVE SUMMARY

The transitions of the Western Balkans(WBA) towards functioning marketeconomies are characterised by specificfeatures that differentiate them from thecountries of Central and Eastern Europe, atleast in their initial phases. Wars and ethnicconflicts during the 1990s destroyed muchof the economic infrastructure as well asjobs and work places in the countries andterritories of the region, while state-buildingprocesses following the break-up ofYugoslavia delayed the progress of therestructuring. In that sense the economicand social impact of transition has beenexacerbated. Nevertheless, politicalstability since the beginning of the 2000shas assisted some countries and territoriesof the region, primarily Croatia and to alesser extent the former Yugoslav Republicof Macedonia, to move closer to the path oftransition followed by Central Europeancountries, while Montenegro and Serbiaappear to be making progress in thatrespect. The complex political situation inBosnia and Herzegovina and theuncertainty regarding the political future ofKosovo (under UNSCR 1244) make theirtransition processes particularly difficult. InAlbania, the collapse of the obsoleteeconomic infrastructure has transformedthe country into a predominantly agrarianeconomy.

Despite the successful macroeconomicstabilisation policies and the recoverygrowth experienced during the second halfof the 1990s and the first half of the 2000s,most countries and territories have still notrecovered their 1989 levels of economicactivity, while gross domestic product(GDP) per capita in purchasing powerparity (PPP) remains among the lowest inEurope, ranging between USD 5,405 inAlbania and USD 12,325 in Croatia.Moreover, the economic growth has not led

to a significant positive increase in formalemployment, as demonstrated bystagnating employment levels during thefirst half of the 2000s. In particular, in theformer Yugoslav Republic of Macedonia asubstantial increase in GDP growth will benecessary in order to trigger a growth inemployment.

At the same time the informal economy(including petty trade, other subsistenceand door-to-door activities, andunregistered work) in the region is quitepronounced. Estimates reported by theWorld Bank’s ‘Doing Business’ databasesuggest that the informal economy mayaccount for between 25% and 35% of GDPin the Western Balkans. Although much ofthe informal economy has developed as anecessity for income generation inresponse to the lack of formal jobs (inparticular during the 1990s in Serbia andMontenegro because of UN sanctions, andin Bosnia and Herzegovina because of thecivil war) but also in response to labourmarket rigidities, its persistence todaypresents barriers for the economies andlabour markets of the countries andterritories in the region. It constitutes unfaircompetition for the formal economy, anddeprives governments of tax revenues andworkers of social protection, health andsafety and upskilling opportunities.

STRUCTURAL CHANGE, JOBCREATION ANDREALLOCATION, ANDIMPACT ON SKILLS

Structural change associated withtransition has significant implications for jobcreation and the changing demand forskills. Despite differences in the economicinfrastructure and the pace of transition

7

between Western Balkan countries andterritories, there have been two maintrends in relation to structural change sincethe beginning of the 2000s which are in linewith the experiences of other transitioncountries.

The first trend concerns a clear shift toservices and a deindustrialisation. This isreflected in an increasing share of services(including business services, healthservices, education services, trade andother services such as community, socialand personal services) in terms of bothGDP and employment in the vast majorityof countries and territories in the region. Onthe other hand, the share of manufacturingin GDP is decreasing in all countries andterritories of the region (with the exceptionof Serbia), and this is accompanied by fallsof various degrees in employment in thesector (with the exception of Albania andthe former Yugoslav Republic ofMacedonia). Agriculture’s share of GDP isalso falling, but its share of employment insome states remains significant (forexample Albania and the former YugoslavRepublic of Macedonia), as agriculture actsas a buffer for people who cannot findemployment elsewhere. This evidencesuggests that the service sector hasemerged as the field in which most new jobcreation is taking place, and based oninternational experience, the furtherdevelopment of services in the countriesand territories of the region is expected tocontinue with GDP growth. This implies ahigher demand for white-collar workerswith medium- and higher-level skills. Onthe other hand, evidence from states forwhich information is available alreadyindicates an oversupply of people withmedium-level vocational secondary andtechnical skills, reflecting the trend towardsdeindustrialisation.

A second trend concerns the increasingshare of the private sector in both GDP andemployment as an outcome of theprivatisation and the emergence of newprivate firms. Albania has the largestprivate sector (around 76% of totalemployment), mainly as a result of thecollapse of state-owned enterprises andthe distribution of agricultural land tosmall-scale farmers. In Croatia the private

sector’s share of GDP remained at 60%between 2000 and 2005 as a result ofdelays in the privatisation process, whilethe former Yugoslav Republic ofMacedonia has made greater progress withprivatisation and the creation of small firmsduring the same period, and hence theprivate sector’s share of GDP hasincreased to around 70%. Finally, inSerbia, Montenegro and Bosnia andHerzegovina the private sector’s share ofGDP is catching up rapidly, having stood atless than 40% in 2000. Despite the overallpositive trends in the contribution of theprivate sector to GDP and employment,countries and territories of the WesternBalkans (with the exception of Albania) stilllag behind the new Member States ofBulgaria and Romania. This impliespotential for further development of theprivate sector.

However, the further development of theprivate sector and the economy in general,the jobs it will be able to create and theskills it will require depend on a number offactors. First, the privatisation process isexpected to continue (except in Albaniaand the former Yugoslav Republic ofMacedonia, where it is practicallycomplete), though it must also ensureimproved market-oriented behaviour ofenterprises. The Western Balkans still havesome way to go in terms of strategicenterprise restructuring and corporategovernance. For the moment, only Croatiaseems to be moving towards a strategicapproach to enterprise restructuring underthe pressure of competition from importedgoods and the impact of increased foreigninvestment. In Serbia, where there is muchless reliance than in other countries andterritories on insider privatisation, adoptionof strategic restructuring is likely to bemore immediate. On the other hand thereare no clear signs that strategic enterpriserestructuring is taking off in Bosnia andHerzegovina or the former YugoslavRepublic of Macedonia. The low level ofeconomic restructuring within enterprisesmay be the reason that, compared withCentral European countries, a relativelysmall number of firms in the WesternBalkans reported (in the EBRD BusinessEnvironment and Enterprise PerformanceSurvey (BEEPS) 2005) that the skills and

8


education of available workers are a majorobstacle to business operation and growth.However, evidence from other transitioncountries suggests that further economicrestructuring of privatised firms and thosewhich are being privatised (introducing newtechnologies and work organisation) willcertainly make skill gaps apparent whileshifting upwards the skill requirements forblue-collar workers.

Second, the further development of theprivate sector and the economy will dependon the development of the SME sector.Efforts by WBA countries and territories tosupport the development of this sectorhave resulted in varying success rates.Although in some states, such as Albaniaand the former Yugoslav Republic ofMacedonia, the percentage of employmentin SMEs has reached levels that arecomparable to those of neighbouringcountries, the density of SMEs in allcountries and territories of the region islower than the EU average. Moreover, upto now SMEs have generally beenconcentrated in low-value-added, low-skillactivities, in particular in the trade sector.The further development of SMEs as jobcreators will depend on the improvement ofthe business environment and theiropportunities for growth. Some of them willdevelop into higher-skill sectors, whileothers will remain at the lower end ofadded value and skills. In any case theSMEs need a flexible labour force withtransferable skills, and a more intensiveentrepreneurial attitude will be necessaryfor the further development of the sector.

Third, development of the private sector willdepend on the capacity of the countriesand territories to attract FDI and facilitatetechnological progress. During recentdecades the region has regressed intechnological terms, a situation that mustbe overcome through a greater FDI andappropriate policies. FDI inflows in theregion have increased since 2000 followingthe political changes and greater stability,though they remain far below those in EastCentral Europe, Bulgaria and Romania.Moreover, FDI inflows are concentrated ina relatively narrow range of sectors(telecommunications, financialintermediaries and the banking sector, and

oil refining) and have been distributedunevenly over time. The vast majority ofthe FDI inflows have been strongly linkedto the privatisation of existing assets ratherthan greenfield investment. FDI is morelikely to increase with an improvement inthe political and business environment, andin countries and territories in which the EUintegration process continues. However, asevidence from international researchsuggests, the ability to attract FDI inhigher-skill sectors will also depend on thequality of the skills available in the labourforce.

Fourth, it will depend on the trade patternsof countries and territories. Exports fromthe region are currently concentrated inlow-skill sectors such as textiles, footwearand base metals, with limited exports ofmachinery and equipment, especially inCroatia. These sectors are expected tolose ground to more highly skilled sectorsover time, at least in some states, as EUintegration progresses.

Fifth, countries and territories must developthe capacity to ensure balanced growthacross geographical regions. Regionaldisparities in the Western Balkans currentlyappear to be increasing as capital citiesbecome more dynamic while rural areasbecome impoverished.

In conclusion, future job creation and theactual demand for skills will depend on thetransition path that countries and territoriesfollow and the availability of existing skills.Some states in the region appear to befollowing a path of transition based uponinnovation and improved labour force skillsand a shift towards a greater demand for amore highly educated labour force. Croatiaand possibly Serbia may follow this path ifthey continue to pursue reforms that leadto improvements in the investment climateand if they succeed in attracting additionalFDI inflows. In these countries,technological change is generating anincreased demand for workers withsecondary and university level education.Technological change is lagging behind inAlbania, Bosnia and Herzegovina, Kosovoand the former Yugoslav Republic ofMacedonia, which appear to be followingan alternative path of low-skill

9

EXECUTIVE SUMMARY

specialisation; this is not necessarily aninferior path per se if it attracts FDI andkeeps the economy going (as is the case inAlbania). Eventually, however, a shift to amore high-skill path of development couldfollow if the education system is improvedin anticipation of this change. The presentimpediment in Bosnia and Herzegovina,the former Yugoslav Republic ofMacedonia and Kosovo is that the low-skillpath appears to be associated withlow-level equilibrium of low growth, highunemployment, and informal working. Theroute to EU membership in these countriesand territories is likely to require asignificant upgrading of the skill levels ofthe labour force and a reorientationtowards the skill path of transition throughinnovation-led growth.

LABOUR MARKETS ANDLABOUR MARKETATTACHMENT

The main labour market indicators showweak performance of labour markets in thecountries and territories of the WesternBalkans as compared to those in the EU.Overall employment levels in all WesternBalkan countries and territories are wellbelow the EU average (63.8% for EU-25),ranging from 60% in Albania to 40.9% inBosnia and Herzegovina. Employmentrates for the young population aged 15–24years are very low, in particular in Bosniaand Herzegovina and Montenegro, andthere are gaps of 15–25 percentage pointsbetween the rates for men and women,with the rates for men being higher. Activityrates are lower than in the EU (71% forEU-25), ranging from 63% in Serbia to 45%in the former Yugoslav Republic ofMacedonia. Finally, unemployment rates(with the exception of Albania) are wellabove EU averages (8.7% for EU-25),ranging from 31.8% in Bosnia andHerzegovina and 37.3% in the formerYugoslav Republic of Macedonia, to 15%in Croatia.

However, standard labour marketindicators do not seem to be sufficientlyinformative in describing the functioningand performance of labour markets inWestern Balkan countries and territories,

particularly when measured usingstandardised instruments such as thelabour force surveys (LFSs), which refer tothe labour market status of an individual inthe week before the survey. There are twomain reasons for this.

First, the concept of employment hides anumber of different situations with respectto the quality of the jobs in terms of income,access to social protection, rights andworking conditions, and degree ofprecarity. The recent debates in the EUand ILO on decent work, and the WorldBank’s concept of ‘good jobs and bad jobs’,highlight exactly these aspects of differentemployment situations. For example, therelatively high level of employment inAlbania (in comparison with other WBAcountries and territories) hides a largepercentage of employment in subsistenceagriculture, informal wage employment andself-employment. In general the extent ofregular employment (in the form of goodand decent jobs) seems to be much lowerin the Western Balkans (although its shareof total employment differs amongcountries and territories). An in-depthanalysis of employment status in selectedWestern Balkan states using data from theLiving Standards Measurement Studysurveys (LSMS) demonstrates that formalemployment rates range from 14% inAlbania to 24% in Bosnia and Herzegovinaand 37% in Serbia.

Second, the labour market is characterisedby instability and a high degree of precarity.Many people have developed lifestyles(and/or survival strategies) with multipleemployment statuses, and readily switchbetween employment, unemployment andinactivity and between formal and informalactivities as opportunities becomeavailable. As a result, the times spent indifferent labour market statuses are oftenshort, making it difficult to assess thefunctioning of the labour market usingstandard labour market indicators based oncross-sectional LFSs. An in-depth analysisof transitions between an extended set oflabour market statuses of individuals inAlbania, Bosnia and Herzegovina andSerbia, using panel data from the LSMSsurveys in the respective countries,indicates a relatively high mobility in the

10


labour market. In Albania, 33% of theworking-age population changed labourmarket status between 2003 and 2004; inBosnia and Herzegovina 43% changedstatus between 2001 and 2002; and inSerbia 37% changed between 2002 and2003. The flows between formal andinformal employment (of approximatelyequal size) are fairly large in Serbia andBosnia and Herzegovina (more than 25%of all those in informal employment have aformal job a year later, and vice versa), butless so in Albania, where the formalnon-agricultural sector is small. There arethree particularly unstable labour marketstatuses: informal non-agriculturalemployment, unemployment, and ‘others’,which primarily consists of discouragedworkers (individuals not working, who donot fulfil the criteria for classification asunemployed, who do not study, who takecare of the household or are retired).These three groups represent around 40%of the working-age population in Bosniaand Herzegovina, 25% in Albania and 20%in Serbia. Thus, the high labour mobility isnot an indication of a functioning labourmarket. Rather, the main reason for thehigh labour market mobility is likely to bethe scale and pervasiveness of precariouslabour markets.

Given the above observations, the conceptof labour market attachment – whichcovers the degree of integration into theregular labour market, i.e. how often anindividual has a regular job and what thequality of the job is – has been introducedto improve the way individual labour marketperformance is accounted for. In Albaniaand Bosnia and Herzegovina (the twocountries for which data were available)only 20% and 26% respectively of theworking-age population had strong labourmarket attachment, being regularlyemployed in a good-quality job. Womenpredominate in the group who have noattachment, while men are in the majority inthe group who have strong attachment.

The focus of the analysis on the educationlevels of the working-age populationdemonstrates that education matters in thecurrent labour market context of theWestern Balkans. In all three countriespeople educated to higher levels are

typically more involved in formalnon-agricultural employment, whileagriculture and the various inactivitystatuses are more prevalent among thosewith lower levels of education. Moreover,the majority of people with higher levels ofeducation show strong labour marketattachment, compared with only a smallpercentage of those with lower levels ofeducation. On the other hand, one cannotassume that education is a guarantee ofgood employment, as the proportion ofinformal employment does not differ muchamong the different educational levels (low,medium and high).

In conclusion, the gradual – but increasingin pace – destruction of jobs in the oldindustrialised economy and the slow paceof creation of new stable jobs in the formalsector, together with the large scale of theinformal economy and the absorption of asubstantial proportion of the population intoagriculture for income-generation activities,have made the labour markets in theWestern Balkans more precarious andhave had an important impact on thelabour market attachment of individuals.Many workers with a weaker attachment tothe labour market are involved in differentforms of short-term employment activitiesto make ends meet while waiting for betteremployment opportunities. Although itseems that cross-country differences doexist depending on the rate of creation ofregular jobs, further research is necessaryin order to improve the way theseprecarious labour market statuses arecaptured, and to develop policies whichfacilitate transitions into better employment.

HUMAN CAPITAL ANDEDUCATION POLICIES

Human capital development is one of themajor challenges in the overall process ofsocioeconomic development in theWestern Balkans. Although in the past thelabour force of the former Yugoslavia wasconsidered to be of good quality and wellable to support the economy, the adversepolitical situation during the 1990s, warsand ethnic conflicts did not allow thecountries and territories of the region todevelop their human capital to the extent

11

EXECUTIVE SUMMARY

that other European countries did.Moreover, skills depletion of the labourforce has proved to be a major impedimentto successful transition, to entering aninnovation-led economic growth path andto becoming part of the knowledge-basedeconomy, together with EU MemberStates.

Although all countries and territories in theregion (except Albania) have managed todecrease the percentage of people withlow levels of education in the younger agegroups, this remains disproportionatelyhigh, in particular when compared to thecorresponding percentage in the newMember States, thus depriving animportant section of the population of thechance to support the economicdevelopment process. The lack ofopportunities for knowledge and skillenhancement in the field of adult learning,and the frequent involvement of this sectionof the population in low-value-added,low-productivity economic activities (insubsistence agriculture or the informaleconomy), present a challenge for thefurther development of socially inclusiveeconomies.

At the same time obsolete formalvocational education and training (VET)systems – designed to address the needsof a centrally planned economy, andpreparing individuals for lifelong wageemployment in industry or services – andlimited adult training opportunities have notallowed sufficient enhancement of theadaptability of the labour force to the newsocioeconomic challenges of a marketeconomy. In the short to medium term thismay delay successful labour reallocationduring the economic restructuring process,and in the long term it may cause skillbottlenecks for economic development.

Finally, in the countries and territories ofthe region there is an insufficientpercentage of highly educated peoplecapable of generating and supportinginnovation-led growth by absorbing andgenerating new technologies. In fact somestates in the region (for example Serbiaand the former Yugoslav Republic ofMacedonia) have even experienced areduction in the percentage of highly

educated people among the youngerprime-age workers. Emigration andsubsequent brain drain may be anexplanation for this, but issues relating tothe quality of the higher education systemare also relevant. Although there is a trendtowards higher levels of participation ofyoung people in higher education, thisdoes not seem to be as rapid as in the newMember States or other EU countries.Moreover, the higher education systemseems to be progressing slowly in terms ofthe diversification of educationprogrammes and the shift fromacademic/elitist higher education towardsmore professionally oriented studies.

The distribution of knowledge and skills isuneven across different population groups.People from ethnic minorities, in particularRoma people, are disproportionatelyrepresented in the section of the populationwith low educational attainment levels,while rural areas represent a concentrationof low skill levels. These situations createchallenges for the social cohesion of thecountries and territories of the region.

Behind this general picture the differencesbetween countries and territories aresignificant. At one extreme, Albania andKosovo have a huge challenge to face interms of human capital accumulation bysubstantially increasing participation ineducation across the board, and inparticular at primary and secondary levelsand in adult learning. At the other extreme,Croatia, Montenegro and Serbia – beingbest placed in terms of human capital inthe region and the more advanced in termsof economic restructuring – need to workmore on issues of adaptability of the labourforce and enhanced capacities for theabsorption of new technologies. This,however, should not undermine efforts toencourage greater participation ineducation and training among people fromethnic minorities and other disadvantagedpopulation groups. Bosnia andHerzegovina and the former YugoslavRepublic of Macedonia – beingsomewhere in between – face a doublechallenge in terms of both reducing thepercentage of people with low levels ofeducation and addressing issues ofadaptability.

12


Progress in education reforms to addressthe issues described above has up to nowbeen modest. Issues relating to humancapital and education and training have notyet been given sufficient priority. A broadconsensus on the future shape of theeducation system has not yet beenreached, as delays in the implementationof education reforms, as well as changes ofdirection, have occurred as a result ofgovernment changes. New governanceschemes that are less centralised andmore adapted to the needs of a marketeconomy have not yet been put in placeeffectively. Newly created professionalinstitutions that are able to promoteinnovation in education and facilitate themodernisation process are not yet strong.Pilot activities on the modernisation ofcurricula have not yet had a large-scaleimpact on the improvement of the overalleducation provision as they are notmainstreamed, and this creates a situationin which there exist good schools and badschools. The debate on education reformshas mainly focused on the initial educationsystem, while adult learning has been longneglected. Issues of excellence are givenhigher priority than those of equity andsocial inclusion.

The future challenge for the countries andterritories in the WBA is to raise theimportance of human capitalenhancement in the overall policy agendafor socioeconomic development andensure a well-functioning and well-steerededucation system that caters for the needsof both the young and the adultpopulation. Broad consensus on thedirection of education policies,government commitment to theirimplementation and the availability ofsufficient resources through themobilisation and better use of public andprivate funds are necessary. Educationreforms must address deficiencies of theeducation and training system across thewhole system, including:

1. improving the quality of basic educationin order to enhance access and ensurebetter learning outcomes for all children,but in particular for children fromdisadvantaged socioeconomicbackgrounds;

2. modernising the VET system byensuring a better balance betweengeneral and vocational education atsecondary level, introducing curriculathat develop the competences requiredby the current socioeconomic systemand leaving educational options open;

3. diversifying higher education with theintroduction or enhancement ofpost-secondary vocational educationand professionally oriented universityprogrammes and ensuring better linksbetween universities and enterprises;

4. ensuring an enabling environment forthe development of adult learning thatprovides opportunities and incentivesfor adults to enhance their skills andhence their adaptability andemployability.

EMPLOYMENT POLICIES

During recent years employment hasbecome a central issue in the policyagenda of the governments of the WesternBalkans, since there is a growingunderstanding that economic growth alonewill not necessarily generate employmentfor all without a set of policies aimed atachieving this end. All Western Balkancountries and territories have developed(or are developing) employment policiesand employment action plans, and there isa gradual shift from a total preoccupationwith job protection, retention andstimulation towards more variedresponses, including supply-side measuresand institutional performance.Nevertheless, Western Balkan countriesand territories have some way to go interms of both policy development andpolicy implementation so as to create‘flexicure’ and inclusive labour markets.

All countries and territories in the regionhave modernised their regulatoryframeworks (their employment and labourcodes) to approximate those of EU states,moving away from the characteristicoverregulation of ex-socialist regimestowards more relaxed regulation. However,this relaxed regulatory framework will notnecessarily lead to labour market flexibility(in the formal non-agricultural economy) if itdoes not result in a change in the

13

EXECUTIVE SUMMARY

behaviour of employers as regards theircore workforce, and become linked tomeasures for supply-side flexibility. Itappears that in the Western Balkansneither of these is happening. On the onehand, employers appear to be usingmodernised regulations in a selective way,favouring their core labour force andavoiding social conflict while ensuringnumerical flexibility through the use ofinformal workers. On the other hand,measures to improve skills, in particularamong those who have experienced adepletion of their human capital, have beenextremely modest. Human capital issues,lifelong learning and life-cycle approachesto employment have yet to be adequatelypushed forward. Moreover, inflexibilities inthe labour market are being introducedthrough arrangements in other spheres,namely economic restructuringprogrammes (through high-costredundancy payments or obligations tokeep existing staff in work for a number ofyears) and collective agreements that stillfocus on the protection of those who havea formal job at the expense of those whohave lost their job, or have not yet had one.Furthermore, labour market flexibility is notfacilitated by the high wage increases ofrecent years (which are not necessarilylinked to productivity growth), nor by highlabour taxes. Labour taxes appear high inthe Western Balkans, in common withmuch of Central Europe. However, it canbe assumed that the actual tax wage is notas high as it is declared by legislation aslong as there is underrecording of salariesand wages. Even so, the current situationgives rise to the burden of labour taxesbeing unevenly and inequitably shared,and increases the attractiveness of theinformal employment to both employersand employees.

Countries and territories in the region havealso some way to go in terms of achievinga better balance between those who havea formal job and those who do not, and infacilitating the transition of people intoformal employment through soundactivation policies. Those in formalemployment have considerable protectionthrough labour laws and collectiveagreements, but social welfarearrangements for those who are out of

work are limited in their coverage and level,and are often uncertain.

On the one hand, social protection throughunemployment benefit reaches relativelyfew people (usually around 1 in 15 of thoseregistered as unemployed), and althoughits coverage may increase with industrialrestructuring, its funding in the long termmay be endangered by the relatively smallcontributions base. Social assistance levelsare high in Albania and Croatia but patchyelsewhere. However, the availability ofsocial assistance is (and will remain for theforeseeable future) relevant to far morejobless people than the currentarrangements for unemployment benefit.The modification of social assistance forunemployed people of working age in theregion holds out a greater prospect ofproviding an affordable safety net thanadjustments to the unemployment benefitregime. But the link with unemployed statusneeds to be far more explicit andtransparent, and the behavioural conditions(active job search) enforced with the samerigor as should be the case forunemployment benefit.

On the other hand, active labour marketmeasures are volatile, underfunded (inparticular in comparison with generouslyfunded economic restructuringprogrammes in some countries andterritories), heavily concentrated onemployment subventions and poorlyevaluated. Although there has been a shiftin some countries and territories towardsactive labour market measures whichimprove the employability of unemployedpeople and support their activation (forexample in Croatia, Serbia, RepublikaSrpska in Bosnia and Herzegovina andmore recently the former YugoslavRepublic of Macedonia), these are still oflimited scale in relation to current needs.Moreover, policies and measures intendedto reduce informal employment are stillunderdeveloped, thus exposing a sectionof the labour force to precarious workingconditions.

Employment services have an importantrole to play in the design andimplementation of activation agendas,though there is scope for improvement of

14


their performance. There are a number ofareas in which their efficiency could beimproved and the quality of their servicesincreased. Counsellors’ workloads need tobe reassessed and their tasks shifted fromthe registration of large numbers ofunemployed people to actual assistance tothose who are unemployed. Thedecoupling of health insurance fromregistration in the unemployment registerwill assist the reduction of workload, as theexperience of Croatia demonstrates.Employment services also have animportant role to play in the reduction ofinformal employment, especially if theywork closely with labour inspectorates.

In practice, labour markets in the WesternBalkans are not inclusive, despitelegislation on equal opportunity inemployment. Young people face a groupdisadvantage in the labour market, notbecause they are less skilled but becausefew formal jobs become available. Womenhave low participation and employmentrates, often because of attitudes andculture (at least among certain ethnicgroups), but also because of labour marketinflexibility. Joblessness among certainethnic groups is widespread, partlybecause of lower educational attainmentlevels but also as a result of thediscriminatory practices of employers.Finally, older workers, although they oftenhave the advantage of already having aformal job, are gradually leaving the labourmarket either through early retirementschemes or by entering long-termunemployment. Policy responses to datehave been patchy, with some targetedrecruitment in active labour marketmeasures and the development of someprogrammes dedicated to particulargroups. However, public employmentservices (PESs) are not yet able to provideintegrated activation and preventativemeasures for those groups as long asactive ageing policies are not a priority forthe countries of the region.

Overall, the policies in the WBA countriesand territories fall well short of awell-balanced approach to ‘flexicurity’.While labour market regulation has beenlightened, most of the other elements offlexicurity are either absent or

underdeveloped, especially in relation tosocial welfare arrangements, supply-sidepolicies, the development of human capitaland diversity of working patterns. Too oftenthe protection of jobs is seen as the sameas social protection for people, andflexibility regarded as intrinsically harmful tosecurity. At the same time better security interms of social welfare and more effectiveinstitutional support for people who are outof work will help with labour reallocationand flexibility.

THE INSTITUTIONAL SETTINGFOR THE IMPLEMENTATIONOF EMPLOYMENT POLICIES

The successful implementation ofemployment policies depends on theinstitutional arrangements for theirdevelopment, implementation, monitoringand evaluation. The complex nature ofemployment policies requires mechanismsthat bring together key stakeholders atdifferent levels with specific tasks andresponsibilities and clear communicationlines, while the long-term impact ofemployment policies requires stronggovernment commitment and appropriateadministrative capacities.

Given that employment policies cover anumber of different policy areas (such aseconomic development, social policy, andeducation and training policies), a firstrequirement for their successfuldevelopment and implementation is toachieve strong interministerial cooperationin planning, implementing, monitoring andevaluating. During the development of theEmployment Strategies or Action Plans forEmployment (usually funded through theEU CARDS programmes), countries andterritories in the Western Balkans haverealised the importance of interministerialcooperation, and through those processessome cooperation has been achieved – atleast in the objective-setting and planningphases – through the establishment ofworking groups or other types ofconsultation processes. However, atimplementation level interministerialcooperation (in terms of pooling resourcesand sharing responsibilities) is still limited,while no clear arrangements exist with

15

EXECUTIVE SUMMARY

respect to the monitoring and evaluation ofthe policies and measures implemented.

The role of social partners in directly orindirectly shaping employment policies isstill in its infancy. This is a result of theweak capacities of both trade unions andemployers’ associations, but also becausegovernments do not yet see social partnersas equal partners and are reluctant toinclude them in meaningful social dialogue.Trade unions need to refocus theirattention from wage bargaining and jobprotection towards more structural issuesof economic development and the skillsupgrading of the labour force. Employers’associations need to become moreinvolved in strategic discussions on thesocioeconomic development of countriesand territories, and to take a moreproactive role in the increasing adaptabilityof workers and enterprises by increasinginvestment in human capital. Both tradeunions and employers’ associations needto enhance their capabilities and becomemore proactive in social dialogue, while thegovernment, as the main initiator ofemployment policies, must become moreproactive in ensuring a functioning socialpartnership.

With the exception of Bosnia andHerzegovina, all Western Balkan countriesand territories have highly centralisedinstitutional settings in terms of both policydevelopment and policy implementation.Given the important regional disparities inall states of the region and the link betweenemployment and cohesion policies, thecountries and territories of the WesternBalkans are becoming more and moreaware of the need to promote balancedregional socioeconomic development. Thisimplies a better adjustment of labourmarket policies to regional and local needs,and this remains one of the greatestchallenges for all countries and territoriesin the region. Local partnerships thatmobilise local actors and respond tolocal-level needs and particularities havebeen supported by a number of EU-funded(and other donor-funded) projects.However, these activities have not yetbecome part of a policy-development/policy-delivery mechanism. There is scopefor all Western Balkan countries and

territories to promote more inclusive andparticipatory policy-making/policy-deliverymechanisms.

Finally the administrative capacities oflabour ministries and other implementingbodies remain weak, despite the progressalready made, as the staff allocated tothem are either insufficient in number orill-prepared to undertake its tasks. TheEU-funded CARDS programmes in thefield of employment implemented to datehave raised the understanding of publicadministration of the breadth, scope andaspects of employment policy, but moreneeds to be done in order to empower thestaff in the different institutions to actuallyimplement and monitor the employmentpolicies. This issue is important not only fornational employment policies and the useof national funds but also when it comes tothe absorption capacity of structural fundsin respect of countries’ eventual accessionto the EU. The experience of the newMember States demonstrates that thedevelopment of good administrativecapacities takes time, and is a preconditionfor the absorption and sound use of funds.Hence, states must also work towards theenhancement of their administration withthe assistance of the new EU Instrumentfor Pre-Accession Assistance (IPA), whichsets administrative capacity as one of itsmain pillars for both future and potentialfuture Member States.

CONCLUSIONS AND AREASFOR FURTHER WORK

The countries and territories of the WesternBalkans differ in terms of their currenteconomic basis, the pace of the transitionprocess and the quality of their humancapital. However, all of them face acommon challenge: to increase (formal)employment, reduce unemployment andensure inclusive, secure and flexible labourmarkets. This is important for their ownsocial and economic development, but alsofor their approximation to the EU, given thatthe European Employment Strategy (aspart of the Lisbon agenda) has set fullemployment and social cohesion asprimary objectives for the EU, while labourmarket flexicurity is an underlying principle.

16


Addressing this challenge will requireconcerted action aimed at:

� creating more and better jobs bysupporting further the development of theprivate sector, enhancing the capacity ofeconomies to innovate and grow, andreducing the informal economy;

� improving human capital through awell-steered modernisation of educationand training systems – including adultlearning – thus ensuring an adaptablelabour force that is able to absorb andcreate technological innovation;

� increasing labour market flexicuritythrough the further modernisation oflabour market regulation andenforcement;

� broadening access to employmentpolicies (including both social protectionand employability measures), thusreducing labour market precarity andfacilitating the transition into formalemployment;

� improving the institutionalarrangements for the development,implementation and monitoring ofemployment policies.

17

EXECUTIVE SUMMARY

1. ECONOMICRESTRUCTURING, JOBCREATION AND THECHANGING DEMAND FORSKILLS IN THE WESTERNBALKANS

William Bartlett

1.1 INTRODUCTION

Relatively few studies have been carriedout on the evolution of skills in thetransition economies (Commander andKollo, 2004; Peter, 2003), and none on thechanging pattern of demand for skills in theWestern Balkans. This paper aims tocontribute to filling this gap by identifyingthe nature of structural change and jobreallocation and exploring the likelyconsequences for change in the demandfor skills. It focuses on the impact ofprivatisation, the entry and growth of newsmall firms, FDI, technology transfer andinnovation, the pattern of foreign trade andregional development. The paper takesstock of economic changes during recentyears, and also takes a forward look to givean impression of the potential medium-termdrivers of economic development and thedemand for skills.

Structural change associated withtransition has significant implications for jobcreation and the changing demand forskills in the Western Balkans. Firstly, thetransition process involves a reallocation ofresources between sectors, as lessproductive sectors decline and moreproductive sectors expand. This processhas required the exit of old firms and theentry of new small businesses created byprivate entrepreneurs. High barriers toentry and growth of SMEs have led to weakcapacity to absorb workers laid off fromdeclining sectors, leading to risingunemployment. Secondly, the transitionprocess involves restructuring withinenterprises, either before, during or afterthe privatisation process. The literature hasdrawn a distinction between ‘defensive’and ‘strategic’ restructuring. The former isfocused on cutting costs and investmentexpenditures. The latter involves

19

1

investment in new technologies with anassociated change in the demand for skillswithin the enterprise. Thirdly, structuralchange is associated with changes intechnology and the adoption of newproduction techniques. One of the maindrivers of new technology is FDI, which notonly transfers new technology andmanagement skills to the companiesbenefiting from the investment, but alsohas the potential to create spillovers intothe rest of the domestic economy. Suchspillovers affect domestic companies thattrade with the foreign company assuppliers of inputs, or as purchasers offinal products, and also directly affect thelabour market by providing employmentand training to domestic workers. Fourthly,the opening up of economies to foreigntrade is a further important driver ofstructural change, as new sources ofdemand stimulate the reallocation of labourand resources both within firms andbetween sectors. Finally, restructuring hasan important regional dimension whicharises from the different pace ofrestructuring in different locations. Typicallycapital cities and their environs have beenmore advanced in the restructuring processthan the peripheral areas, whereunemployment blackspots have emerged,and where there is often poor provision ofeducational and training opportunities toassist unemployed workers to find newjobs.

Based on this analytical framework, thepaper presents a comparative overview ofstructural changes in the Western Balkansand analyses the implications for thedemand for skills. The next section outlinesthe main features of economic growth andlabour market development in the region.Section 1.3 discusses the drivers ofstructural change, covering privatisation,the entry and growth of SMEs, FDI, andpatterns of foreign trade. Section 1.4outlines the main features of structuralchange in the region and the implicationsfor the skill mix, covering changes inemployment by occupational categoriesand educational attainment, the local-endregional dimensions of change, and theimpact of technological change andinnovation on the demand for skills. Theimplications of the analysis for the future

direction of demand for skills are presentedin the final section.

1.2 ECONOMIC TRANSITION INTHE WESTERN BALKANS

Transition in the WBA has specific featuresthat differentiate it from countrieselsewhere in Eastern Central Europe(Sanfey et al., 2004; CEB, 2005; UNECE,2005; European Commission, 2003;2004b; 2004a; 2005f). The violence of warsand civil conflicts literally destroyed jobsand work places, exacerbating ‘normal’restructuring. Even the standard features oftransition appear to have been moreextreme. Privatisation has been relativelylate and slow in some countries andterritories. Where it has been undertaken, ithas often led to inefficient managementand ‘crony capitalism’, which have delayedthe transition process. More recently, theregion has been drawn into the EUintegration process, which has had anoverlapping and more positive impact oneconomies and labour markets.

1.2.1 ECONOMICPERFORMANCE ANDGROWTH

During the 1990s there was a deeptransitional recession which wasexacerbated by wars and civil conflicts, andby the break-up of the former Yugoslavia.As a result of political uncertainty, inflowsof FDI were low. The development of theSME sector as an engine of growth and asource of new job creation was held backby impediments to entry and barriers togrowth (OECD and EBRD, 2003b; Bartlett,2003). Consequently, despite the recoveryin economic growth since 2000, most of thecountries and territories have still notrecovered their 1989 level of economicactivity.

Economic performance in the WesternBalkans since 2000 has been relativelystrong compared to that in the previousdecade, with an average GDP growth of4.3% per annum between 2000 and 2005(see Table 1.1). Albania has returned thehighest growth rate, averaging 5.8% per

20


annum, though from a low starting level.Growth in other countries and territories hasbeen below the average for transitioneconomies, and slightly below theperformance in neighbouring Bulgaria andRomania. The former Yugoslav Republic ofMacedonia has been the worst performingcountry as a result of the effects of the civilconflict of 2001, when GDP fell by 4.5%, buthas recently shown signs of improvement.Serbia and Montenegro recorded a highgrowth rate of 8.8% in 2004, but this fellback in 2005 to 6.0%. Bosnia andHerzegovina has consistentlyunderperformed with growth averaging5.3%, while Croatia experienced a dip ingrowth in 2004 following monetarytightening to correct growing externalindebtedness. Projections for 2006 and2007 indicate a potential for sustainedgrowth in all the WBA states, and forsignificant improvements in some countriesand territories such as the former YugoslavRepublic of Macedonia, which is expectedto achieve growth of 4.3% and 4.7%respectively.

The Western Balkans include some of thepoorest countries and territories in Europe.According to World Bank data, Bosnia andHerzegovina had a gross national income(GNI) per capita in 2006 of just USD 2,440.Per capita incomes in Albania, the former

Yugoslav Republic of Macedonia andSerbia were only marginally higher. Incontrast, average per capita income inCroatia was USD 8,060, more than threetimes the level achieved in Bosnia andHerzegovina, and higher than in some ofthe new Member States such as Slovakia,Poland, Lithuania and Latvia. However,income per head in Croatia is significantlylower than in the more established EUMember States. Per capita incomes inAustria, for example, are four and a halftimes greater than in Croatia, and fifteentimes greater than in Bosnia andHerzegovina.

As Table 1.2 shows, GDP per capita inBosnia and Herzegovina was justUSD 2,384 in 2005. Albania, with GDP percapita of USD 2,673, has caught up with itsneighbours as a result of the high growthrates achieved in recent years. Theaverage per capita GDP in most WBAstates is not far behind the EU accessionstates, Bulgaria and Romania. Croatia, atUSD 8,675, has a higher per capita GDP,at about the same level as Slovakia,although the war-affected areas are stilleconomically depressed. Levels of percapita GDP in Hungary and the CzechRepublic are 25% and 40% higher thanCroatia respectively, while Slovenia’s isalmost twice that of Croatia. Current

21

1. ECONOMIC RESTRUCTURING, JOB CREATION AND THECHANGING DEMAND FOR SKILLS IN THE WESTERN BALKANS

Table 1.1: GDP growth rate (%)

2000 2001 2002 2003 2004 2005Average

2000–05

Forecast*

2006 2007

Albania 7.3 7.2 2.9 5.7 5.9 5.5 5.8 5.0 6.0

Bosnia and Herzegovina 5.5 4.3 5.3 4.4 6.2 5.3 5.2 - -

Croatia 2.9 4.4 5.2 4.3 3.8 4.3 4.2 4.4 4.5

fYR Macedonia 4.5 -4.5 0.9 2.8 4.1 4.0 2.0 4.3 4.7

Serbia and Montenegro 5.0 5.5 4.3 2.4 8.8 6.0 5.3 5.0 5.5

Kosovo - 16.1 -2.9 -1.4 3.7 - 3.9 - -

WBA** 5.0 3.4 3.7 4.0 5.1 4.6 4.3 - -

Bulgaria 5.4 4.1 4.9 4.5 5.7 5.5 5.0 5.4 5.7

Romania 2.1 5.7 5.1 5.2 8.4 4.1 5.1 5.5 5.1

Slovenia 4.1 2.7 3.5 2.7 4.2 3.9 3.5 4.3 4.1

All transition countries 6.0 4.3 3.9 5.7 6.6 5.3 5.3 - -

Source: Albania, Bosnia and Herzegovina, Serbia and Montenegro: World Bank Online Database; Croatia,

fYR Macedonia, Bulgaria, Romania, Slovenia: European Commission (2006), European Economy No 2;

Kosovo: DGECFIN 2005.

Notes: * forecasts for Albania, and Serbia and Montenegro from Bank Austria CEE Report 2-2006; ** unweighted

average.

estimates of per capita GDP for Kosovoare even lower, at around half the level ofBosnia and Herzegovina.

With the exception of Serbia andMontenegro, the WBA countries andterritories have been following economicstabilisation policies with considerablesuccess, at least since the late 1990s. Themain pillar of the anti-inflation policies inmost states has been the priority given toexchange rate stability. Bosnia andHerzegovina has established a currencyboard which fixes the exchange rateagainst the euro, while Kosovo andMontenegro have gone even further andadopted the euro as their official currency.Consequently inflation in these countries issubdued. In contrast, Serbia has hadpersistent difficulties in controlling inflation.It has chosen not to adopt exchange ratetargeting and has allowed its currency todepreciate over time. High inflation inSerbia reduces the purchasing power ofGDP, so that in PPP terms Serbia has alower standard of living than Albania, whileBosnia and Herzegovina is moreprosperous than Albania on this measure.Croatia, owing to its relatively high pricelevels, falls significantly behind Slovakia.

A persistent feature of the WBA economiesis the chronic deficit in the balance of trade,which averages 26% of GDP, ranging fromdeficits of 45% in Kosovo and 35% in

Bosnia and Herzegovina to 17% in theformer Yugoslav Republic of Macedonia.Despite surpluses on invisibles arising fromtourism and emigrant remittances, thecurrent accounts are also all in deficit,leading to large external debt. The highestlevels of external debt to GDP are inCroatia (around 80%) and Serbia andMontenegro (around 60%). While this ratiohas diminished in Serbia and Montenegro,it has increased in recent years in Croatia,which also has a high debt–service ratioand low international reserves, making thecountry especially vulnerable to externalshocks (Vlahinic-Dizdarevic et al., 2006).High international indebtedness impliesreliance on inflows of capital from abroad inthe form of international assistance orforeign private investments. However, FDI,which also has the potential to act as adriver of economic growth, has been low inmost WBA countries and territories, withthe exception of Croatia. On average, FDIinflows reached 2.9% of GDP in the WBAin 2004, far below the levels needed tocover balance of payments deficits. Theratio of FDI to current account deficits was66.5% on average between 1997 and 2003(European Commission, 2004b). OnlyCroatia covered its deficit with FDI inflows.These economies are therefore vulnerableto constant pressures to reducegovernment budget deficits, and there islittle room to increase governmentexpenditure on much-needed education

22


Table 1.2: GNI and GDP per capita, 2005 (USD)

GNI per

capita*

GDP per

capita

GDP per

capita at

PPP**

Bosnia and Herzegovina 2,440 2,384 6,035

Albania 2,580 2,673 5,405

Former Yugoslav Republic of Macedonia 2,830 2,810 7,748

Serbia and Montenegro 3,280 2,880 5,348

Bulgaria 3,450 3,459 9,223

Romania 3,830 4,539 8,785

Croatia 8,060 8,675 12,325

Slovakia 7,590 8,775 16,041

Hungary 10,030 10,814 16,823

Czech Republic 10,710 12,152 18,341

Slovenia 17,350 16,986 21,808

Source: IMF online database. * Atlas method; ** Purchasing Power Parity

and training programmes to improve theskills and productivity of the labour force.

The informal economy

Data on levels of economic activity shouldbe considered in the context of awidespread ‘grey’ economy. This was givena strong boost in Serbia and Montenegro byUN sanctions in the early 1990s, whichcreated a market for smuggled goods. Thecivil war in Bosnia and Herzegovina hadsimilar effects. Estimates reported by theWorld Bank’s ‘Doing Business’ databasesuggest that the informal economy mayaccount for between 25% and 35% of GDPin the WBA. This is larger than the norm inEU Member States such as Austria,although not much greater than in Italy, andless than in Bulgaria and Romania. Theinformal economy is especially evident inBosnia and Herzegovina, where it isestimated to account for 37% of GDP in theFederation of Bosnia and Herzegovina and21% in Republika Srpska (ETF, 2006b). InAlbania a recent report estimatesnon-agricultural informal economic activity ataround one quarter of GDP (OECD, 2004).In Serbia it is estimated that almost 30% ofGDP is produced in the informal sector(ETF, 2006c). These data should be treatedcautiously however, since estimating theextent of the informal economy isnotoriously difficult and especially so intransition economies where the bases of theestimates are essentially unreliable(Hanousek and Palda, 2006). In Croatia,research carried out by the Institute ofPublic Finance indicates a significantlylower level of informal economy (less than10% of GDP in 2000) than suggested by theWorld Bank data (Ott, 2003). Whatever itsactual size, the informal economy imposescosts on an economy. It places a burden ofunfair competition upon firms which operatelegitimately, reducing their profitability anddemand for labour. It deprives thegovernment of tax revenue which could beused for social expenditure includingeducation and training. It imposes costs onworkers who are deprived of socialprotection and health and safety protection.Finally, workers in the informal sector mayhave less access to government trainingprogrammes than employees in the formalsector of the economy. Education services

have been particularly badly affected by thereduced capacity of government budgets tofinance the public sector. Deficiencies inpublic service provision have beenespecially severe in Albania, which has thelowest level of expenditure on education asa proportion of GDP in the region.

1.2.2 EMPLOYMENT

While economic activity declined sharply inthe early part of the 1990s, employment didnot fall as sharply as output, since manyjobs were protected through subsidies andother forms of state intervention. Workerswere also protected by employmentcontracts and employment rightsestablished under the communist regimes.Reductions in employment were achievedby encouraging early retirement, and bythe natural attrition of the workforce. Insome cases managers and skilled workersleft collapsing state firms to set up theirown businesses. In Serbia andMontenegro, layoffs in socially ownedindustries were prohibited following theimposition of sanctions. This led to thegrowth of ‘hidden’ unemployment in socialsector enterprises. Many supposedlyemployed workers were put on ‘paidvacation’ as there was no work to becarried out in their factories.

Despite a recent improvement in economicgrowth, employment levels have continuedto stagnate. Figure 1.1 presents the indexof employment relative to the levelachieved in each country in 1989. Bosniaand Herzegovina was the exception to thegradual trend of employment decline.There, the level of employment felldramatically in the first half of the 1990s asa result of the physical destruction offactories and offices, and mass migrationsfollowing ethnic cleansing. By 1994,employment had fallen to just 17% of itsinitial level, but by 1997 had recovered to59% as refugees began to return home.Other countries were in only a marginallybetter position. In Croatia employmentlevels reached 83%, and in Serbia andMontenegro 72%, of the initial level. By2002 the former Yugoslav Republic ofMacedonia was in the worst situation withan employment index of just 54%.

23


The relationship between employmentgrowth and GDP growth is demonstratedby a regression analysis performed onpooled cross-section time-series data fromthe UNECE database for the period1990–2004. The results presented inTable 1.3 indicate that there is a positiverelationship between the growth of GDPand the growth of employment in Albania,Croatia and the former Yugoslav Republic

of Macedonia for which a one percentagepoint increase in GDP growth gives rise toa 0.4 percentage point increase inemployment growth. In the case of Serbia(taken as the baseline) there is norelationship between GDP growth andemployment growth, reflecting the delayedtransition to a functioning market economy.Considering the intercepts, all pass throughthe origin except for the former Yugoslav

24


0

20

40

60

80

100

120

1989 1991 1993 1995 1997 1999 2001 2003

Albania Bosnia Croatia Serbia-Montenegro fYR Macedonia

Figure 1.1: Index of employment 1989–2004 (1989=100)

Source: UNECE Economic Survey of Europe, various years

Note: the increase in employment in Croatia between 1997 and 1998 was the result of change in the statistical

compilation of data to take account of police and armed forces

Table 1.3: The relationship between GDP growth and employment growth

Coefficients t Sig.

(Constant) -0.486 -0.448 .656

GDP growth (t-1) -0.111 -0.853 .398

Country intercepts

� Albania -1.735 -1.222 .227

� Croatia -0.908 -0.669 .506

� Former Yugoslav Republic of Macedonia -3.465 -2.449 .018**

Country slopes

� Albania 0.406 3.261 .002***

� Croatia 0.371 2.503 .016**

� Former Yugoslav Republic of Macedonia 0.437 1.928 .060*

GDP growth (t-1)2 -0.009 -1.700 .095*

Adjusted R Square 0.373 Durbin-Watson 1.914

Source: Data taken from the UNECE Economic Survey of Europe, various years

Note: dependent variable is employment growth (% p.a.); statistical significance at *** 1%, ** 5%, * 10%

Republic of Macedonia which has asignificant negative intercept, indicatingthat a substantial increase in GDP growthis needed to trigger a growth inemployment. The regression resultssuggest a point estimate of 8% in laggedGDP growth before employment growthwould be triggered in the case of thisparticular country, reflecting the continuingcollapse of the formal economy.

As employment in the formal sector hasdecreased, the lack of job creation haspushed people into informal activities, whileemployers have embraced informality inorder to avoid restrictive regulations in theformal sector. Informal employment iswidespread in Albania. A World Bank studyestimated that almost half of informalsector workers in Bosnia and Herzegovinawere in agriculture and 17% in constructionin 2001. In the former Yugoslav Republic ofMacedonia the informal sector accounts for60% of employment (World Bank,2003a: 55), thus 37% of total employment.In Serbia informal employment increasedto 35% in 2003 (World Bank, 2004a), andmoonlighting is common among blue-collarworkers (Reilly and Krstic, 2003). Theinformal labour market is highly flexible:less than two-thirds of employees in theinformal sector retain their job after oneyear, compared to over four-fifths in theformal sector. The share of undeclaredwork is estimated at 30% in Montenegro(World Bank, 2005d). In Croatia theinformal sector accounts for a lower shareof employees, but the labour markets arestill segmented into a protected formalsector and a far more flexible unprotectedinformal sector (Racic et al., 2004). Lack oftrust in formal institutions may have playedan important role in pushing people into theinformal economy. A recent surveycompared levels of institutional andinterpersonal trust among entrepreneurs inBosnia and Herzegovina, and Slovenia(Rus and Iglic, 2005). The survey foundthat both forms of trust were moreprevalent in Slovenia, but that whenBosnian entrepreneurs based theirbusiness dealings on trust it was moreoften on the basis of the ‘strong ties’ ofinterpersonal trust, which are more

prevalent in the informal economy, than the‘weak ties’ of institutional trust moreprevalent in the formal economy.

Net changes in employment can disguiselarger changes in gross job flows that resultfrom the turnover of jobs and workers. Jobsmay be created and destroyedsimultaneously in different sectors of aneconomy, or even within the same sectorby different firms. This structural change isan important factor in determining the skillneeds of an economy. Studies of thetransition countries of East Central Europehave concluded that the state sector andthe privatised sector are mainly responsiblefor high rates of job destruction, whereasthe de novo small private firms are mainlyresponsible for job creation (Bilsen andKonings, 1998). In Slovenia, De Loeckerand Konings (2003) found that job creationtook place mainly in the private sector, thatexporting firms had more stableemployment than non-exporting firms, andthat gross job flows were greater in smallerfirms, and varied across sectors. Anotherstudy carried out in Slovenia for 1997–99found that the rate of gross job reallocation(at 20%) was comparable to westerneconomies, that job flows were higher foryounger and smaller businesses anddiffered across sectors, and that workerturnover was higher for younger and lesseducated workers (Haltiwanger et al.,2003). Relatively few studies of gross jobflows have been carried out in the WBA.One such study carried out for Croatiabetween 1993 and 2001 (Sosic, 2004b)found that labour reallocation was greaterin the de novo and SME sector than in thestate-owned and privatised sector, in whichemployment protection legislation hinderedlabour market mobility. Sosic also foundthat job reallocation in Croatia was greaterwithin sectors than between sectors. So farthere has been relatively little attempt tocorrelate gross job flows with levels ofeducational attainment of workers or withskill levels. One exception is a study byHaltiwanger and Vodopivec, who hadaccess to high-quality data from severalinterrelated databases of both firm andworker characteristics (Haltiwanger andVodopivec, 2003).

25


1.3 DRIVERS OF CHANGE:PRIVATISATION, SME ENTRYAND FDI

Privatisation has been a central policydimension of the transition process. Thechange of ownership from state or ‘social’ownership to private ownership wasintended to trigger a process of restructuringwithin enterprises which would improveefficiency, productivity and competitiveness.Whether, and how, it has done so has beena matter of intense debate. One recentsurvey of the field that summarised theresults from more than 100 empirical studies(Djankov and Murrell, 2002) found thatprivatisation is indeed associated withenterprise restructuring, and typicallyimproves enterprise growth rates.Privatisation to outsiders is associated with50% more restructuring than privatisation toinsiders (managers and workers). It has agreater impact on productivity in morecompetitive markets than in monopolisedmarkets. Turnover of managers – replacingpoor managers – improves performance ofthe enterprise. Surprisingly, the studies havelittle to say about employee skills in relationto privatisation.

Changes to economic structure in transitioneconomies are also strongly influenced bythe entry of new private firms, which bydefinition tend initially to be smallenterprises, and which have beenresponsible for most job creation intransition economies. In contrast,state-owned and privatised firms haveaccounted for most job destruction (Boeri,2000). The entry of new firms is therefore afundamental mechanism of employmentgrowth and reallocation in transitioneconomies. New firms have entered gapsin the market in previously neglectedsectors such as trade and services(Rutkowski and Scarpetta, 2005). Typicallyonly a small proportion of such firms areresponsible for the bulk of job creation.These high-growth ‘gazelles’ form thedynamic core of the market economy.However, in many transition countriesSMEs face barriers to growth which inhibittheir contribution to job creation. Theremoval of these barriers to growth is animportant element of a successful policy ofeconomic transition.

The upgrading of technology through newinvestment, technology transfer andinnovation is an essential means toimprove economic performance in thecountries and territories of the WesternBalkans and to facilitate their catch-up tothe levels of the EU economies. Thisrequired technological upgrade depends toa large extent on inflows of FDI and theassociated technology transfer. However,FDI has been relatively low in the WBA asa result of conflicts and political instability(Brada et al., 2006).

Most studies of FDI inflows in transitioneconomies emphasise the importance oftransfers of technology and knowledge,and of productivity spillovers to local firms.FDI can increase the level of competitionwithin monopolised sectors. It may link tolocal supply chains, diffusing new skills andtechnologies to local SME suppliers andemployees, and improving managementskills and quality standards (EuropeanCommission, 2004b). Foreign investorsalso bring capital resources into a hosteconomy and to joint ventures with localcompanies. Spillover effects from foreignfirms may increase the productivity ofdomestic firms in less developed regions(Peri and Urban, 2006). Foreign investmentcan also have a significant impact on thelabour market by creating jobs andincreasing the skills of the local labourforce. The positive influence of FDI oneconomic growth seems to increase themore highly educated the labour force(Borensztein et al., 1998). Severalempirical studies have found that labourcosts are not significant drivers of FDI, andthat the level of labour skills is often moresignificant in attracting FDI (Noorbakhsh etal., 2001; Barry et al., 2004; Carstensenand Toubal, 2004). This implies a feedbackeffect in so far as FDI generatesimprovement in the skills of the labourforce, which may in turn attract further FDI.However, FDI may also have negativeeffects. It may destroy jobs throughcompany restructuring and byout-competing incumbent domestic firms(Mencinger, 2003). It may involve thecreation of a wage gap between foreignand domestically owned companies.

26


Evidence of the positive impact on FDIinflows of becoming an EU candidate hasbeen identified by some authors (Bevanand Estrin, 2004). FDI inflows to Bulgariaand Romania appear to have increasedstrongly in recent years as their EUaccession date approached. A similarpositive impact on FDI can be expected inthe WBA (Kekic, 2005). Countries whichare further advanced along the path ofEuropean integration have the greatestneed to improve the technological level ofthe business sector in order to becomecompetitive on the EU market. According tothe World Bank, ‘as Croatia prepares forEuropean integration, it has to take actionsthat stimulate the gradual shift toinnovation-based growth […which] meansthat employers have to restructure work;workers need different skills; andeducation, training and knowledgeproduction systems have to be restructuredto meet employer and employee needs’(World Bank, 2003b, p. 147).

1.3.1 PRIVATISATION

Privatisation and restructuring of firms islikely to have important implications for thedemand for skills, for several reasons.Firstly, privatised firms are likely to lay offworkers through restructuring programmesin response to the increased importance ofcommercial motives after privatisation. Asimilar effect can be expected in caseswhere the state has instituted restructuringprior to privatisation. Secondly, privatisedfirms may introduce new technology aspart of a restructuring programme, and thismay reduce the demand for labour forgiven levels of output. Thirdly, given thelevel of overall demand for labour,privatised firms are likely to change the skillmix of their labour force. Investment in newtechnology may increase the demand forskilled workers, and increased commercialorientation will lead to a greater demand foremployees with marketing and managerialskills than existed under the old regime.Fourthly, privatised firms differ in thestrategies they adopt to cope with thecompetitive pressures of the market.Analysts have distinguished between‘defensive’ and ‘strategic’ restructuring.The former involves cost-cutting measures,

whereas the latter is focused more on newinvestment, a better quality of production,finding new markets, improving workforceskills, and achieving greater productivitythrough innovation and the introduction ofnew technologies. Privatised firms alsodiffer in the subject of their privatisation,whether to insiders (employees andmanagers), or outsiders (domestic orforeign investors). The strength ofcommercial motives is likely to be greaterfollowing privatisation to outsiders who mayprefer to maintain employment levels, incomparison to privatisation to insiders.

Privatisation began in the formerYugoslavia with the so-called ‘MarkovicLaw’ on Enterprises of 1988, whichinvolved the sale of shares in sociallyowned enterprises to managers andemployees. Several hundred companieswere privatised in this way up until theonset of the armed conflicts. AfterYugoslavia broke up the successor statessuspended or replaced the federalprivatisation laws. New privatisationlegislation was introduced in Croatia in1991 and in the former Yugoslav Republicof Macedonia in 1993, and in bothcountries the predominant method wasinsider privatisation that involved transfersof ownership to politically favouredindividuals. This led to early labourshedding as a result of asset stripping andprofiteering, and unemployment built up tohigh levels. In contrast, privatisationlegislation was not passed in Bosnia andHerzegovina until 1999, and newprivatisation legislation was not introducedin Serbia until 2001 following the overthrowof the Milošević regime. The principalpoints of difference between thesesuccessive waves of privatisation were theimportant role of insider privatisation toemployees and managers in Croatia, theformer Yugoslav Republic of Macedoniaand Albania, the use of voucherprivatisation in Bosnia and Herzegovina,and the adoption of direct sales throughauctions and tenders in Serbia.

The EBRD Transition Indicators provide asummary picture of the outcome of theprivatisation process in the WesternBalkans. They show that the privatisationprocess has been most advanced in

27


Croatia and the former Yugoslav Republicof Macedonia, while the effects of thedelayed privatisation process in Bosnia andHerzegovina, Serbia and Montenegro arereflected in the relatively low indicators forlarge-scale privatisation. Croatia is furthestadvanced in enterprise restructuring, evenin comparison to Bulgaria and Romania,although restructuring is still not completeaccording to the EBRD measure. Albaniaand Bosnia and Herzegovina lag behind inthis field.

1.3.2 ENTRY OF NEW PRIVATEFIRMS

In comparison with the situation in the EUnew Member States, there are relativelyfew SMEs in the WBA. The numbers ofSMEs range from 36,000 in Albania to94,000 in Croatia, compared with 347,000in Romania and 855,000 in Hungary. Thedensity of SMEs per thousand population isnoticeably lower in the Western Balkansthan in other comparator countries. AmongWBA countries and territories, the lowestdensities are in Serbia andMontenegro (9.8) and Albania (11.3), andthe highest in the former YugoslavRepublic of Macedonia (27.2). Densitiesare far higher in neighbouring EU MemberStates such as Greece (72.2) andItaly (77.8). SME densities are thus farlower in the WBA than in comparable EU

states, and well below the EU average ofaround 50 SMEs per thousand population.The need to increase the density of SMEsin the WBA has implications for trainingand education in business andentrepreneurial skills.

The share of employment in SMEs variesamong the WBA countries and territories.The highest share is in the formerYugoslav Republic of Macedonia, at 80%of all employment, according to data fromthe EC-funded Macedonian SMEObservatory; this is close to the share inGreece and Italy. It reflects the collapse ofthe formerly state-owned large industries inthe former Yugoslav Republic ofMacedonia, and its traditional character asa ‘bazaar’ or trading country in the Balkans.The share of employment in SMEs inCroatia, at 67%, is similar to that in Austria.Albania and Serbia and Montenegro havean intermediate position, with SMEemployment shares of around 50%. Bosniaand Herzegovina has the lowest share ofemployment in SMEs, reflecting the slowpace of privatisation and the continuedemployment of large numbers of workers inlarge socially owned enterprises that havenot yet begun the restructuring process.

SMEs are concentrated in the trade sector(Sanfey et al., 2004), a mainly low-skill partof the services sector. In 2005 52% of SMEsin Albania were in trade, as were 35% of

28


0 10 20 30 40 50 60 70 80

Italy

Greece

Slovenia

Austria

Bulgaria

fYR Macedonia

Croatia

Bosnia and Herzegovina

Romania

Slovak Republic

Albania

Serbia and Montenegro

Figure 1.2: Density of SMEs per thousand population

Source: International Finance Corporation, latest update, July 2006

SMEs in Croatia, compared with a muchlower range in the new Member States,where the proportion of SMEs in the tradesector share ranged from 36% in Poland to26% in Hungary. This sector wasunderdeveloped in the communist era,especially in Albania; the low capitalrequirement has made entry to the sector anattractive option for providing minimumsubsistence and is an indicator of theprevalence of ‘necessity’ entrepreneurshiprather than ‘opportunity’ entrepreneurship.There are relatively few SMEs in other partsof the services sector. Croatia and Serbiaand Montenegro have very low servicesector shares, at 7% and 5% respectively,compared with 50% in Hungary and 26% inPoland. The proportions of SMEs in theconstruction and manufacturing sectors inthe former Yugoslav states of Bosnia andHerzegovina, Croatia and Serbia andMontenegro are similar to those for theCzech Republic and Poland, ranging from24% to 34%.

The craft sector plays an important role inthe former Yugoslav states, and operatesin all sectors of the economy includingmanufacturing and services. Craft firmswere highly regulated and were not allowedto employ more than five workers, a limitthat was raised to ten in the late 1980s.The cost of establishing a business as acraft firm is lower than that for a limitedliability company, and the sector hasproved to be more dynamic in terms ofemployment and growth. Although theytypically employ just a few workers, craftfirms have a tradition of skilled work. Theyare thus potentially important agents for thepreservation and development of skillsamong the workforce, as well as animportant source of demand for skilledlabour. In Croatia, for example, whileemployment in ‘legal entities’(predominantly limited liability companies)hardly changed over the ten-year period1995–2004, employment in crafts, tradesand freelance occupations increased by50%, and its share of total employmentincreased from 14% to 19%. In Bosnia andHerzegovina the number of craft firms isgreater than the number of legal entities(according to the Federation of Bosnia andHerzegovina statistical office there were43,000 craft firms compared to 33,000

legal entities), even in the manufacturingsector, and the number of craft firmsincreased more rapidly than the number oflegal entities between 2004 and 2005. Thefastest growth was in agriculture, transportand financial services.

Most countries and territories in theWestern Balkans still place significantbarriers in the way of business start-up(Falcetti et al., 2003; OECD and EBRD,2003a). Typically a relatively large numberof procedures are required to register acompany and the costs of registration arehigh (except in Montenegro, whereregistration costs have been reduced tojust �11 and the required time to registerhas been reduced to just four days).Following recent reforms to improve theinvestment climate, Serbia has become theleading reformer in the region, with animprovement in its rank order of ease ofdoing business from just under 100 to justover 60 (according to a large cross-countryWorld Bank survey of barriers to doingbusiness). Croatia lags behind in thisindex, being ranked lower than Albania.Bosnia and Herzegovina is far behind in141st place, despite the ‘BulldozerCommittee’ process to ease the barriers tonew business start-up. Albania is also in alow position at 100th place. The mainfactors behind this result are the cost andtime taken to start a business.

Skills of available workers are an importantbarrier to employment growth in SMEs inthe new Member States, but not in theWestern Balkans (Rutkowski andScarpetta, 2005). There, other factors suchas macroeconomic instability, hightaxation, the high cost and difficult accessto finance, and the incidence of corruptionremain the most critical barriers to growth.An earlier study of barriers to employmentgrowth in almost 800 SMEs in Bosnia andHerzegovina, the former YugoslavRepublic of Macedonia and Slovenia in2001 came to similar conclusions, findingthat financial barriers and tax-relatedbarriers were the most serious obstacles toSME growth (World Bank, 2002; Bartlettand Bukvic, 2002). Skills of the labour forcewere a less important barrier to growth,although a minority of firms facedsignificant problems. When asked whether

29


‘low skills of the labour force’ were a barrierto growth, 35% of firms in both Bosnia andHerzegovina and the former YugoslavRepublic of Macedonia reported that theywere an important or very important barrier.‘Lack of training opportunities’ wasidentified as an important or very importantbarrier to growth by 38% of SMEs inBosnia and Herzegovina and by 33% in theformer Yugoslav Republic of Macedonia.

The reduction of barriers to entry andgrowth of SMEs has been a major focus ofpolicy to improve competitiveness andcreate a more favourable investmentclimate. Business simplification task forceshave been established in Croatia and theformer Yugoslav Republic of Macedonia(OECD, 2004). In Bosnia and Herzegovinaa ‘Bulldozer Commission’ was set up in2003 to sweep away restrictive legislation,leading to a reduction in the number of daysneeded to register a company. In Serbiarecent reforms have led to a significant fallin the number of days needed to register acompany. Albania has adopted a detailedaction plan aimed at reducing theadministrative barriers to investment, whichfocuses on tax and customs administrationand the provision of licences, and there hasbeen a decrease in the number of daysneeded to register a business. According toa recent European Commission report,‘company registration time in the WesternBalkans is, on average, not altogetherworse than what one finds in some MemberStates and candidate countries’ (EuropeanCommission, 2004a, p. 11).

The SME sector is increasingly prominentin EU industrial policy and as a keyelement in the EU’s Lisbon agenda. TheEU has adopted a ‘European Charter forSmall Enterprises’, which sets out apackage of policy measures to promote thedevelopment of small businesses. Thecharter has been endorsed by the WesternBalkan states. It sets out ten key areas onwhich signatories are required to focus andharmonise their support for smallbusinesses, including education andtraining for entrepreneurship andavailability of skills. However, according tothe European Commission (2004),education and training for entrepreneurshipis low down on the list of short-term

priorities for all governments exceptAlbania. The Croatian government hasexplained that the reason for its lowprioritisation of education and trainingpolicies is that numerous SME trainingprogrammes already exist, and that therehas already been considerable progress inchanging formal education curricula insecondary schools and in vocationaltraining. Nevertheless, the EuropeanCommission has identifiedentrepreneurship training for specific targetgroups (consultants, vocational crafttraining, start-ups) as a priority short-termgoal for Croatia for 2005 (EuropeanCommission, 2005f).

1.3.3 FDI, TECHNOLOGYTRANSFER AND SKILL GAPS

FDI inflows to the Western Balkans haveincreased in recent years following thepolitical changes in 2000 and the return ofgreater political stability to the region, but inabsolute terms they remain far below thoseof East Central Europe, Bulgaria andRomania (Figure 1.3). The latter twocountries have seen a marked expansionin FDI in recent years. A similar expansionappeared to be underway in the WesternBalkans in 2003, but the rate of inflow fellback in the following year, indicating thatan upward trend is not yet firmlyestablished. The trend is more likely topersist in those countries in which recentimprovements in the business environmentbecome established, and in which progresstowards EU integration continues. FDIinflows to the Western Balkans have beenstrongly linked to privatisation, and inparticular to sectors such astelecommunications, banking and oilrefining. The pattern of inflows over timehas therefore been irregular and ‘lumpy’,following the vagaries of the privatisationprocess.

FDI inflows per capita are shown inFigure 1.4. It is clear that Croatia has beenthe main beneficiary of FDI in the region onthis measure, receiving on averageUSD 254 per capita between 1997 and2003. Other WBA countries have receivedless than USD 70 per capita over the sameperiod. In relation to GDP, the differences

30


look less dramatic: Croatia has receivedinflows amounting to 5.6% of GDP, whileother countries have received inflowsranging from 2.6% to 3.6% of GDP. OverallFDI inflows to the Western Balkans havebeen close to those of other transitioneconomies, reaching 4.1% over the period1997–2003 compared with 4.9% in the newMember States (European Commission,2004b). Since 2000, inflows to Serbia havebegun to catch up with those to Croatia. Asa proportion of GDP the inflow to Serbiawas especially high in 2002, but has fallenback since then.

FDI has been concentrated in a relativelynarrow range of sectors and unevenlydistributed over time. Comparative datacompiled by the EBRD show aconcentration of FDI in industry in allcountries, in transport andtelecommunications in Croatia and theformer Yugoslav Republic of Macedonia,and in financial intermediaries in Bosniaand Herzegovina, Croatia and the formerYugoslav Republic of Macedonia. InAlbania there has been a concentration ofFDI inflows in the trade sector, reflectinginvestment by the Albanian diaspora and

31


0

5,000

10,000

15,000

20,000

25,000

30,000

1997 1998 1999 2000 2001 2002 2003 2004

Western Balkans Central Europe Rom+Bulg

Figure 1.3: FDI inflows to Central and South East Europe (USD million)

Source: UNECE (2005)

0

100

200

300

400

500

2000 2001 2002 2003 2004

Albania Bosnia and HerzegovinaCroatia Former Yugoslav Republic of

MacedoniaSerbia and Montenegro

Figure 1.4: FDI inflows per capita (USD)

Source: UNCTAD online database

high flows of remittance incomes. Theextensive FDI in the banking sector isespecially notable. In Croatia, for example,around 90% of the banking sector is now inforeign ownership. The widespreadprivatisation of the banking sector is apositive feature that is integrating theWestern Balkans into global finance andcapital markets, reducing interest rates,increasing the availability of loans, andproviding a strong stimulus to economicgrowth. The most important determinantsof FDI are market size and proximity to thehost country. This explains why the largestinvestors in the Western Balkans arebased in neighbouring countries, especiallyAustria, Greece, Hungary and Italy. Thedegree of institutional reform and progresswith EU integration are also significantdeterminants of FDI, while openness totrade, the tax regime and infrastructureplay a less clear-cut role. Greenfield andnon-privatisation FDI has been far below itspotential level in the WBA. Demekas et al.(2005) demonstrate that actual FDI is 82%below its potential in Bosnia andHerzegovina, and at least 50% below inother countries.

Some insight into the skill gap facingforeign investors in the Western Balkans isgiven by a study carried out by the WorldBank’s Multilateral Investment GuaranteeAgency in early 2005 (MIGA, 2006). Thisassessed investment prospects for thefood and beverage processing sector andthe automotive components sector, sectorswith high potential for greenfield FDI, jobcreation and exports. The study foundgood prospects for foreign investment inthese sectors, especially in Serbia forautomotive components as a result of lowtax rates, low labour costs, and levels ofproductivity equal to those in WesternEurope, conditional on the provision ofappropriate training for the workforce.Bosnia and Herzegovina and Croatia havealso been recipients of automotivecomponents investment in recent years.The food and beverages sector is morefragmented, and has recently been thefocus of around four FDI projects per yearin the WBA. This type of investment isrelated to natural resource advantages inagricultural production (such as berries inSerbia, and herbs and spices in Albania); it

is more likely to be market-seeking thanFDI in the automotive components industry;and it is more likely to focus on mergersand take-overs than on new greenfieldinvestment. The MIGA survey questioned68 foreign investors in the two subsectors.Results from a question on the availabilityof skilled labour indicated a relativedifficulty that foreign companies have infinding sufficiently skilled workers inAlbania and to some extent Croatia, whilethe bottlenecks in Bosnia and Herzegovinaand in the former Yugoslav Republic ofMacedonia appear to be less significant.

1.3.4 FOREIGN TRADE

Economic structure is strongly affected bythe degree of trade openness and thepattern of comparative advantage ininternational trade, in addition to the effectsof purely domestic demand influences oneconomic structure. Comparativeadvantages and factor endowmentsdetermine the composition of trade and thefactor mix of traded goods production for agiven level of openness. Changes in tradepatterns are therefore likely to alter thestructural mix of production in traded goodssectors (Landesmann, 2000). One of thekey characteristics of the tradeperformance of the WBA countries andterritories has been the relatively low ratioof goods exports to GDP. Albania, Bosniaand Herzegovina, and Serbia andMontenegro have merchandise exportratios below 20% of GDP, while the ratiosof future Member States Croatia and theformer Yugoslav Republic of Macedoniaare above 20%. A similar pattern emergesfor exports of goods and services, whichare relatively low in Albania, Bosnia andHerzegovina, and Serbia and Montenegro,and high in Croatia and the formerYugoslav Republic of Macedonia – above40% in Croatia’s case because of the highlevel of receipts from tourism services.Between 2000 and 2005 trade in goodsand services increased in Albania, Bosniaand Herzegovina and Croatia, butdecreased in the former Yugoslav Republicof Macedonia and in Serbia andMontenegro. All the Western Balkan stateshad lower export ratios than neighbouringBulgaria and Slovenia, suggesting

32


significant scope for a catch-up to highershares of exports in GDP.

The skill content of traded goods differsbetween the WBA countries and territories.As Figure 1.5 shows, Croatia exports agreater proportion of high-technologygoods than other WBA states, a sharewhich increased quite rapidly between2000 and 2004. Albania and the formerYugoslav Republic of Macedonia on theother hand exported a very low share ofhigh-technology goods, and this shows nosigns of increasing.

1.3.5 TRADE WITH THE EU

The EU granted Autonomous TradePreferences (ATPs) to the Western Balkanstates in 2000, which provided for aunilateral dismantling of import tariffs andduties for almost all their exports. Tariffceilings on industrial products originating inAlbania, Bosnia and Herzegovina andCroatia were removed through the originalregulation in June 2000. Serbia andMontenegro were included in the measureafter the fall of Milošević. Hence, the WBAcountries and territories have broadly freeaccess to EU markets.

33


0

2

4

6

8

10

12

14

2000 2001 2002 2003 2004

Albania fYR Macedonia Croatia

Figure 1.5: High-technology exports (% of manufactured exports)

Source: World Bank Online Database

200 400 600 800 1,000 1,200

Textiles

Base metals

Machinery and electrical equipment

Footwear

Wood products

Foodstuffs; beverages, spirits; tobacco

Figure 1.6: Main commodity exports to EU-25 from WBA, 2003 (� million)

Source: Eurostat Statistics in Focus 1/2005 ‘External trade of the Western Balkan Countries’

Figure 1.6 shows data on the pattern ofexports from the WBA to the EU-25 by thesix major commodity groups. Textiles arethe main export commodity, with a totalvalue in 2003 of �1,153 million (or 18% oftotal exports). Base metals and machineryand electrical equipment are also importantexport products, accounting for 16% and13% respectively of total exports from theregion.

Exports from Albania are heavilyconcentrated in textiles and footwear, whichrespectively account for 30% and 33% of thetotal, but with a further 11% in base metals.The former Yugoslav Republic ofMacedonia’s exports are almost exclusivelyconcentrated in two sectors, textiles (38%)and machinery and electricalequipment (32%). Other countries have amore diversified mix of exports, but withnotable concentrations in Bosnia andHerzegovina in base metals (23%),textiles (14%), footwear (12%) and woodproducts (11%); in Croatia in machinery andelectrical equipment (18%) andtextiles (16%); and in Serbia and Montenegroin base metals (26%), vegetableproducts (14%) and textiles (10%).

Kosovo has an enormous trade deficit, withimports of �971 million in 2003 againstexports of just �37 million. Kosovarcompanies export wine, beer, malt, juices,mineral water, raw leather, grapes,

potatoes and forest fruits, but all in lowerquantities than previously. The capacity ofthe processing industry is low and there isinsufficient capital to set up new processingenterprises. Exports of food and scrapmetal have been growing rapidly. Otherimportant exports include wine, electricequipment, leather products and clothes. In2003 almost 30% of reported importsoriginated in Serbia (14%) and the formerYugoslav Republic of Macedonia (15%).Kosovo has relatively little trade withAlbania – only 2% of its total imports in2003 – although a Free Trade Agreementcame into force in October 2003.

The majority of exports from the WBA tothe EU-25 were low-skill or medium-skillgoods, which in 2003 together accountedfor 79% of total exports to the EU (for aclassification see Annex 1). Overall, 39% ofgoods exports from the WBA to the EU-25were low-skill goods and 41% weremedium-skill goods. Only 21% of exportswere high-skill goods. Of these high-skillexports, 72% originated in Croatia.

There are considerable variations betweencountries in the skill mix of exports(Figure 1.7). Albania and the formerYugoslav Republic of Macedoniapredominantly export goods with a low-skillcontent to the EU-25, which account for71% of Albania’s exports, and 50% of theformer Yugoslav Republic of Macedonia’s

34


0%

20%

40%

60%

80%

Low Medium High

Albania

Bosnia andHerzegovina

Croatia

fYR Macedonia

Serbia andMontenegro

Figure 1.7: Exports of WBA to EU-25 by skill level, 2003

Source: Eurostat Statistics in Focus 1/2005 ‘External trade of the Western Balkan Countries’ (Own calculations –

for details of classification scheme see Annex 1)

exports. Low-skill goods account for asubstantial share of exports from Bosniaand Herzegovina (43%). Serbia andMontenegro export the highest share ofmedium-skill goods (which account foraround 50% of exports), while Croatiaexports the highest share of high-skillgoods (which account for around 30% of itsexports). No other WBA state comes closeto Croatia in terms of the proportion ofexports classed as high-skill goods.

1.4 STRUCTURAL CHANGE,EMPLOYMENT AND SKILLS

It is well established that the sectoralstructure of a typical market economychanges with the level of economicdevelopment (Raiser et al., 2004). As incomeper capita increases from low levels, theshare of employment in agriculture typicallyfalls, while beyond intermediate levels ofincome the share of industrial production alsofalls and the share of employment in servicesincreases. The former communist regimeshad defied the normal laws of economicdevelopment and devoted excessiveresources to the industrial sector, neglectingthe development of services. Transitioneconomies often followed these patterns inan exaggerated way. Studies of structuralchange accompanying transition have shownthat the typical pattern has been a rapidreduction in the share of manufacturingactivities and an increase in the servicessector (Landesmann, 2000; Raiser et al.,2004). With the opening up to market forces,many unprofitable industrial enterprisesresponded by laying off workers or closingdown altogether. At the same time, thepreviously underdeveloped service sectorhas experienced a rapid growth to bring itsshare of GDP up to the levels associated inmarket economies with the ‘normal’ pattern ofdemand at given income levels. Mostcountries in Eastern and Central Europehave therefore experienced a fall inblue-collar manufacturing jobs and anincrease in white-collar service sector jobs(Rutkowski and Scarpetta, 2005).

Structural change has implications for thedemand for skills in several dimensions.Firstly, since the skill content of work differsacross sectors, a sectoral shift (say, from

manufacturing to services) will affect thedemand for skills. Secondly, skills demandwill be affected by restructuring withinenterprises and within sectors. Thirdly,technological change will influence thedemand for skills in a way that is unrelatedto sectoral shifts. Recent studies of theimpact of structural change on the demandfor skills in transition economies haveproduced some interesting findings. From asurvey of firms in Hungary, Romania andRussia carried out in 2000, Commanderand Kollo concluded that transition hasinvolved a bias against unskilled workers,who have lost employment to adisproportionate extent; that job creation innew firms is biased against workers withlow levels of educational attainment andskills; and that the skill content ofblue-collar work has shifted upwards(Commander and Kollo, 2004). A separatestudy of the Russian labour marketconcluded that skill upgrading hadoccurred, but that this was not because ofskill-biased technical progress. Rather itwas a result of adjustment to market forceswhich decompressed the wages of skilledworkers, and which increased the demandfor white-collar workers in marketing,finance, logistics and other market-orientedactivities (Peter, 2003).

1.4.1 STRUCTURAL CHANGEIN THE WBA: VALUE ADDED

Figures 1.8 to 1.11 show the changes ineconomic structure between 2000 and2005. The share of the agricultural sectordeclined in all the economies except theformer Yugoslav Republic of Macedonia,probably as a result of the effects of thecivil conflict of 2001, which broughteconomic growth temporarily to a halt. Theshare of GDP in agriculture is higher inAlbania than in other countries. Althoughfalling, it was 25% in 2005 compared to 8%in Croatia. Industry’s share of GDP fell ineach of the countries and territories forwhich data is available, except in Serbiaand Montenegro, which registered a slightincrease, probably reflecting post-warrecovery following the NATO bombing ofindustrial facilities in 1999. As expected, allcountries recorded an increase in theservices sector, linked to economic growth

35


and the reorientation from the neglect ofservices during the communist period. Theshare of services is highest in Croatia, at64% of GDP, and lowest in Serbia andMontenegro, at just 52% of GDP.

As a result of privatisation and the entry ofnew firms, private sector output hasincreased as a share of GDP. Albania hasthe highest private sector share, mainly asa result of the collapse of largestate-owned enterprises. In addition, landreforms abolished the universal stateownership of land in the early 1990s andmost agricultural land is now in the hands

of small-scale private farmers. In Croatia,the private sector’s share of GDP hasstabilised at around 60% as a result ofdelays in completing the privatisationprocess (European Commission, 2005f).In the former Yugoslav Republic ofMacedonia, privatisation has been moresuccessful, and together with the entry ofnumerous small businesses the privatesector now accounts for around 70% ofGDP. The private sector’s share of GDP inBosnia and Herzegovina, Montenegro, andSerbia are rapidly catching up, having beenless than 40% in each country as recentlyas 2000.

36


0 5 10 15 20 25 30 35

Albania


Croatia

fYR Macedonia


2000

2005

Figure 1.8: Agriculture value added (% GDP)


2000

2005

0 10 20 30 40


Croatia

fYR Macedonia


Figure 1.9: Industry value added (% GDP)


1.4.2 CHANGES IN THESTRUCTURE OFEMPLOYMENT

Establishment surveys do not provide anaccurate reflection of the employmentlevels in agriculture in the former Yugoslavcountries and territories, since they do nottake into account the category of‘own-account workers’ (i.e. self-employedpeople). In Croatia, for example, the 2001census counted almost 350,000own-account workers in agriculture andrelated services, forestry and fisheries,which accounted for 22% of the total

employed population, a far greater figurethan is shown in the establishment data.Figure 1.12 compares the structure ofnon-agricultural employment in the formalsector. It shows that the share ofemployment in services is relatively high inall countries. It is highest in Croatia andlowest in Serbia and Montenegro, reflectingthe higher level of GDP per capita in theformer, and the relatively delayed processof economic restructuring in the latter.Conversely, Serbia and Montenegro hadthe highest proportion of employment inindustrial activities. Employment in theconstruction sector is greater in relative

37


2000

2005


Croatia

fYR Macedonia


0 10 20 30 40 50 60 70

Figure 1.10: Services value added (% GDP)


2000

2005

0% 20% 40% 60% 80%

Albania


Croatia

fYR Macedonia


Bulgaria

Romania

Slovenia

Figure 1.11: Private sector’s share of GDP, 2000 and 2005

Source: EBRD, 2005

terms in Croatia than in the other countriesand territories. The construction sector inCroatia has been boosted in recent yearsby an extensive road-building programme.

In some countries the agricultural sector’sshare of total employment has increased,and has provided subsistence income formany people laid off from formal sector

employment. For example, according to LFSdata in the former Yugoslav Republic ofMacedonia, agriculture’s share ofemployment increased from 19% in 1996 to25% in 2001 before beginning to fallthereafter: by 2003 the share of agriculture inemployment had fallen to 23% (ETF, 2006d).In Bosnia and Herzegovina the share ofemployment in the agricultural sector

38


0% 20% 40% 60% 80% 100%

Albania

BiH

RS

Croatia

fYR Macedonia


Industry Construction

High-skill private services Low-skill private services

Communal services Other services

Figure 1.12: Non-agricultural sector employment (2004)

Source: National Establishment Surveys

Note: data for Serbia and Montenegro is for 2003; RS = Republika Srpska; FBiH = Federation of Bosnia and

Herzegovina

Table 1.4: Sectors in which employment has grown (various years)

Albania

2001–05

Federation

of Bosnia

and

Herzegovina

2003–05

Republika

Srpska

2003–05

Croatia

2002–05

Former

Yugoslav

Republic of

Macedonia

2004–05

Serbia and

Montenegro

1997–2003

Mining - - - + + -

Manufacturing + - - - + -

Utilities - + + - + -

Construction - - - + - -

Trade - + + + - +

Hotels and restaurants - + - - + -

Transport andcommunications

- - - - - -

Banking - + - + - -

Business services - + + + + +

Public administration - - - - - +

Education - + + + - +

Health - + + + + +

Other services + + + + + +

Source: National statistical offices, establishment surveys

Note: Other services include community, social and personal services

measured by the Household Panel Surveywas around 20% (16% in the Federation ofBosnia and Herzegovina and 34% inRepublika Srpska). In Montenegro, accordingto a recent World Bank report, ‘manyhouseholds have turned to subsistenceagriculture and petty trade, to stave offpoverty, while jobs in the formal sector havecontinued to disappear’ (World Bank, 2005d).

Table 1.4 shows the widespread growth ofemployment in business services, healthservices, education services, trade, and otherservices. In contrast, employment in transportand communications has fallen everywhere.Employment in construction and publicadministration has also fallen, with theexception of construction in Croatia (becauseof the state-funded highway constructionprogramme) and public administration inSerbia and Montenegro. Employment inmanufacturing has fallen quite sharply in theFederation of Bosnia and Herzegovina,Republika Srpska and Serbia andMontenegro, and more moderately inCroatia. Employment in manufacturing hasincreased only in Albania and the formerYugoslav Republic of Macedonia. Thisevidence suggests that service sectors haveemerged as the field in which most new jobcreation is taking place in the region.

The share of employment in the privatesector has increased throughout theregion, although data are not available forBosnia and Herzegovina. The high share of

private sector employment in Albania isnotable, and at 80% is higher than inBulgaria and Romania. Private sectoremployment had increased to 60% inCroatia by 2003, while the private sectorshare of employment in the formerYugoslav Republic of Macedonia was stillrelatively low at just 50% in 2003, a figurethat had increased to 55% by 2004. Serbiahas a relatively low share of employment inthe private sector. According to LFS datathe share of private non-agriculturalemployment was still just 29% of totalemployment in 2002 (World Bank, 2004a).In Serbia the proportion of employees inthe private sector increased from 18% in1999 to 33% in 2003 (ETF, 2006c).

1.4.3 EMPLOYMENT BYOCCUPATIONAL CATEGORIES

Data on occupational categories areavailable for several countries on the basisof the ISCO-88 standard classification. Theclassification provides ten broadoccupational categories. These can befurther aggregated into broad skillcategories. ISCO-88 uses four skill levelswhich are operationalised partly in terms ofthe International Standard Classification ofEducation (ISCED) and partly in terms ofjob-related formal training. According tothis classification, the highest skill level isassociated with professional occupations,the second highest with technicians, and

39


0

20

40

60

80

100

120

140

160

180

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Blue collar workers White collar workers

Th

ou

sa

nd

s

Figure 1.13: Albania: Employment by occupational category, 1984–2004

Source: INSTAT

the lowest with elementary occupations(unskilled workers), while the remainderform an intermediate third level of skills.Figures 1.13–1.15 show the evolution ofemployment by occupational categories,grouped into two categories of white-collarworkers and blue-collar workers.

Figure 1.13 shows how over the ten-yearperiod from 1994 to 2004, job destructionin Albania affected skilled and unskilledblue-collar workers disproportionately.Employment levels of blue-collar workersfell by 68% compared to falls of 30% for

managers, 26% for technicians, 9% forprofessionals and 6% for clerks. A similareffect is apparent in the former YugoslavRepublic of Macedonia, althoughapparently starting much later. In 2002there were still more blue-collar workersthan white-collar workers in employment.Data from the LFS indicate that the shareof employment in manufacturing in theformer Yugoslav Republic of Macedonia in2002 was 28%, almost identical to the 29%figure reported in 1996. Thus, despite theearly completion of the privatisationprocess in the country, almost no sectoral

40


200

220

240

260

280

300

320

340

2002 2003 2004

Blue collar White collar

Th

ou

sa

nd

s

Figure 1.14: The former Yugoslav Republic of Macedonia: Employment by

occupational category, 2002–04

Source: ILO Laborstat Database; ISCO-88 categories

Blue collar White collar

550

600

650

700

750

800

850

900

950

1996 1997 1998 1999 2000 2001 2002 2003 2004

Th

ou

sa

nd

s

Figure 1.15: Croatia: Employment by occupational category, 1996–2004

Source: ILO Laborstat Database; ISCO-88 categories

restructuring had taken place prior to 2002.However, the number of blue-collarworkers fell rapidly over the following twoyears and by 2004 there were fewerblue-collar workers than white-collarworkers (Figure 1.14). A different patterncan be observed in Croatia. In the first halfof the observed period (1996–2004) theproportion of blue-collar workers fell, as itdid in the other countries. However, after2000 the pattern reversed and the numberof blue-collar workers began to increase,while the number of white-collar workersremained broadly constant (Figure 1.15).

There are several reasons for the fallingproportions of blue-collar workers inAlbania and the former Yugoslav Republicof Macedonia. Firstly, restructuring reducesthe overstaffing of enterprises withblue-collar workers which was a feature ofthe old socially owned enterprises.Secondly, as noted above, transitioninvolves a shift from manufacturing toservices which were relatively undevelopedunder communism. Thirdly, as noted byMachin and Van Reenen (1998), globalskill-biased technical change has increasedthe demand for skilled workers and forwhite-collar workers in most industrialcountries.

The reversal in the pattern of decliningnumbers of blue-collar workers in Croatiaafter 2000 is of some interest as it appearsto go against the global trend towards anincreasing proportion of white-collarworkers. The explanation can not be foundin changes in the skill mix within theblue-collar category, as the number ofunskilled blue-collar workers increasedmore rapidly than the number of skilledblue-collar workers: between 2000 and2004 the number of skilled blue-collaremployees increased by 12%, compared toan increase in the number of unskilledblue-collar workers of 13%. Rather, theincrease in demand for blue-collar workersappears to be almost entirely as a result ofthe major road-building programmeinitiated under the Social Democratic Partygovernment after 2000. This led to anincrease in employment of 14% in miningand quarrying between 2000 and 2004,and an increase in construction sectoremployment of 28%. Employment in

manufacturing fell by 3%. Service sectoremployment was held back by cuts ingovernment budgets which led to an 18%decrease in employment in publicadministration.

1.4.4 EMPLOYMENTSTRUCTURE BY LEVEL OFEDUCATIONAL ATTAINMENT

The distribution of educational attainmentacross employment and unemploymentcan provide a rough indicator of the excesssupply of individuals with different levels ofeducation. This indicator is derived bysubtracting the proportion of people inemployment in each category from theproportion of those unemployed in thatcategory. In Croatia the share ofunemployed workers with vocationaleducation is 30% compared to a share ofemployed workers of 22%, indicating apositive excess supply in this educationalgroup. There is also an excess supply ofworkers with secondary technicaleducation, and with secondary generaleducation, although the magnitude is lessthan for the vocational group. This patternof excess supply in the middle range ofeducational attainment is repeated in theformer Yugoslav Republic of Macedoniaand Serbia and Montenegro. In the formerYugoslav Republic of Macedonia in 2005there was an excess supply of workers withprimary and three-year secondaryeducation, while in Serbia and Montenegrothere was an excess supply of those withsecondary education. This patternindicates that there is a relatively highdemand for the most unskilled workers, aswell as for the most highly skilled workerswith college or university education. Thereasons behind the apparent excesssupply of workers with an intermediaterange of education are not entirely clear. Itis most likely to be related to the style ofeducation in the transition economieswhich is a legacy of the communist period.Put simply, secondary vocational educationin particular may be providing pupils withskills that were specific to technologies andworking practices that are now outdated.This observation is backed up by studies ofreturns to education. In Bosnia andHerzegovina returns to education are lower

41


than in comparable market economies, butincrease with the level of education, beingrelatively high for university graduates(World Bank, 2005b). Returns to educationin Croatia were low in the early 1990s, anddid not begin to increase until after theDayton Agreement brought greater stabilityto the country (Sosic, 2004a).

A revealing survey of foreign investors inthree transition countries (Hungary,Romania and Russia) supports thisinterpretation by showing that the maindeficiency of skills reported by employerswas a lack of general flexibility andadaptability of workers in the face oftechnological change (EBRD, 2000). Afurther survey of domestic firms in Hungary,Romania and Russia found that acombination of inadequate skills and pooradaptability of workers was a major obstacleto the development and growth ofcompanies (EBRD, 2000). The surveyrevealed a need for training in managementskills, and a need to upgrade the technicalknowledge of skilled blue-collar workers.The survey also revealed that workers withlimited education had suffered adisproportionate loss of jobs, and that theskill content of blue-collar jobs had changed,leading to an increased demand for morehighly skilled blue-collar workers(Commander and Kollo, 2004).

1.4.5 THE LOCAL ANDREGIONAL DIMENSIONS

In most transition economies, structuralchange has had a strong regionaldimension. Opening up economies tomarket forces has typically encouraged anagglomeration of activities in capital citiesand other major urban areas, and led to arelative decline of less developed areas.Both initial differences and the transitionalchanges in regional economic structuresimply regional differences in the demandfor skills. Education levels also vary acrossregions. In the new Member Stateseducation levels are lowest in agriculturalregions and highest in capital cities andbusiness service regions, and the share oflow-skill manual workers with low levels ofeducational attainment is higher inagricultural and industrial regions than

elsewhere (Landesmann et al., 2004).Workers in these regions risk losing theirjobs as transition unfolds, and will needretraining in order to find jobs in the newhigh-skill industrial and service industries.

The local and regional dimensions arereflected in labour market outcomes andrates, and regional differences inunemployment rates tend to be larger intransition economies than in the West (Boeriand Scarpetta, 1996). Regionalunemployment imbalances also appear tobe very persistent over time, and would beeven greater if many unemployed peopledid not drop out of the labour force. In theirstudy of regional mismatch in several EastCentral European transition economies,Boeri and Scarpetta showed that regionswith a more diversified economy and moredeveloped infrastructure, including capitalcities and larger urban areas, had betterlabour market outcomes than other regions.Agricultural regions with poor infrastructuresuffered the most labour market slack. Partof the explanation of the persistence ofunemployment differentials appears to bethe lack of labour mobility between regionsbecause of the underdeveloped housingmarket and absence of institutions providinglabour market information (Bornhorst andCommander, 2006). Regional variations inunemployment are similarly large in theWBA. For example, unemployment is higherin the north of Albania than in the south as aresult of the collapse of heavy industry andthe relatively poor agriculture in themountainous northern region. Theunemployment rate in the northern town ofSkodra, for example, was 27.4% in 2004compared to the national average of 14%(ETF, 2006a). In Serbia in 2002 theunemployment rate was higher in theHungarian ethnic minority region ofVojvodina at 15.2%, compared with that inBelgrade, where the labour market is tighterand unemployment was just 6.4% (ETF,2006c).

The regional differences in labour marketoutcomes and in the demand for skills havemultiple causes that are specific to theregional characteristics of each countryand territory. Limitations of space prevent afull discussion in this paper, but a numberof general themes can be identified, linked

42


to the issues discussed in previoussections on privatisation, FDI andinnovation, SME development, and theimpact of foreign trade. Privatisation has aregional dimension that relates to theprevious regional location decisions of thecentral planners. In the successor states ofthe former Yugoslavia, many large firmswere located in underdeveloped regions onthe basis of subsidies for regionaldevelopment. When these subsidiesceased many of these firms collapsed. Thishappened, for example, in north-eastMontenegro, where many of thewood-processing and paper-makingfactories had completely ceased operationsby the early 2000s. The surviving firms,many of which continued to receivesubsidies, were unattractive to outsideinvestors. Privatisation in peripheralregions therefore tended to take the form ofinsider privatisation. This led to lower ratesof economic restructuring and, whererestructuring took place, to a focus ondefensive restructuring strategies.

SME development tends to beconcentrated in urban areas because ofagglomeration effects, in both capital citiesand secondary cities which have specificcomparative advantages. FDI also tends tobe concentrated in capital cities as a resultof better infrastructure and internationaltransport linkages, and a larger pool ofskilled workers. Since most of the inflow ofFDI has been related to privatisation it hastended to follow the same regional pattern.Foreign trade tends to vary on a regionalbasis because of location effects. Forexample, regions closer to the EU are likelyto have higher concentrations ofexport-intensive firms than regions furtheraway. Increased foreign demand forexports is therefore likely to have adifferential regional impact on labourmarket outcomes.

A further factor that is pertinent to theWestern Balkans is the role of ethnicity andethnic discrimination in the labour market.The wars and conflicts of the 1990s(including the 2001 conflict in the formerYugoslav Republic of Macedonia) have lefta legacy of ethnically divided states inwhich minority groups and refugees havenoticeably inferior labour market outcomes.

Despite some of the pre-war rhetoric,available evidence suggests that ethnicdiscrimination was not a serious feature ofthe pre-war labour market in the formerYugoslavia (Bartlett, 1990). Specialattention will need to be devoted to thissituation in the future, through active labourmarket policies and training programmes,in order to counteract this newphenomenon of ethnic discrimination in thelabour market.

Shift-share analysis

A comprehensive picture of the impact ofstructural change on variables such asemployment, unemployment and skills canbe obtained through the use of ‘shift-share’analysis, a method used by economicgeographers to analyse the components ofregional employment change. Shift-shareanalysis has been applied, inter alia, to thestudy of regional convergence in Europe(Esteban, 2000), of regional developmentof employment in eastern Germany (Blienand Wolf, 2002) and of the effect ofchanges in industrial structure in OECDcountries (Peneder, 2003). It breaks downchanges in sector of employment by region(Stilwell, 1969) into three components:

� a regional share component, whichmeasures the amount by whichemployment in the region would havegrown if it grew at the same rate as thenational rate of employment growth;

� a proportionality shift, which measuresthe extra amount that employment hasgrown as a result of changes in thesector mix in the region, with fastergrowth reflecting specialisation insectors that have experienced rapidgrowth at national level;

� a differential shift, which measures theextra amount of growth as a result ofsectors in the region growing faster thanthe same sectors elsewhere, becauseof comparative regional advantages.

A shift-share analysis for Croatia between1998 and 2003 shows that the favourablesector mix (proportional shift) isresponsible for positive employment shiftsin the counties of Lika-Senj, Zadar,Split-Dalmatia and the City of Zagreb.These counties are favourably endowed

43


with a mix of fast-growing industries whichexplains some of their above-averageemployment growth. Employment alsogrew in some counties by more than couldbe explained by either the national rate ofgrowth or the sector mix in the county.Such ‘excessive’ growth (differential shift)accounted for large increases inemployment in the County of Zagreb,Lika-Senj, Istria, Medjimurje and Varazdin.This differential shift could be explained bya number of factors including a higher levelof entrepreneurial activity in Istria,Medjimurje and Varazdin, or by localagglomeration effects in the County ofZagreb. Analysis of data on changes inregional employment between 1998 and2003 reveals that the differential shift inemployment in Lika-Senj is highlyconcentrated in the construction industry,reflecting the impact of building theZagreb–Split highway which wasconstructed in the first half of the 2000s.Other counties with positive employmentgrowth and notable differential shifts arethe County of Zagreb (as a result ofexceptional growth in public administration,construction and trade), Pozega(exceptional growth in agriculture),Varazdin and Medjimurje (growth inmanufacturing when elsewheremanufacturing was in decline) and Istria(exceptional growth in business services).The analysis also highlights theproportional shift in employment in the Cityof Zagreb as a result of its specialisation inthe fast-growth sectors of finance, businessservices, education, and community, socialand personal services, and exceptionalgrowth in transport and publicadministration.

1.4.6 TECHNOLOGICALCHANGE, INNOVATION ANDTHE DEMAND FOR SKILLS

Technological change affects the demandfor skills across all economic sectors duringtransition, in addition to changesassociated with sectoral restructuring. Inadvanced OECD economies technicalchange has brought about a general‘upskilling’ of the workforce (Machin andVan Reenen, 1998; Berman et al., 1994).The introduction of new technologies has

involved an upward shift in the demand forskilled labour, leading to a widening skillwage differential and an increased share ofskilled employees. This effect has becomeknown as ‘skill-biased technical change’. Ittends to occur within sectors, as opposedto the between-sector shifts that followstructural change in the economy. In thenew Member States, shift-share analysishas shown that most productivity growth inthe transition economies of Eastern Europebetween 1995 and 2000 also came aboutas a result of changes within sectors ratherthan shifts between sectors (Landesmannet al., 2004).

One major cause has been the advent ofglobalisation. Countries with comparativeadvantage in skilled labour havespecialised in goods with a high skillcontent, raising demand for labour andwages for skilled workers. At the same timecheap imports from less developedcountries have undermined the labourmarket position of low-skill workers.Clearly, in less developed countries anopposite effect must be taking place and aprocess of deskilling, or at least anincreased demand for unskilled labour, canbe seen as a counterbalance to theupskilling in the advanced economies.Some less developed countries havebegun to bridge this gap by investingintensively in human capital. The transitioncountries might fall into either group –those who are upskilling countries, or thosespecialising in low-skill sectors. Theoutcome is likely to depend on initialconditions (the level of development andthe extent to which a country had an initialcomparative advantage in skilled labour)and the path of transition itself (how fastrestructuring takes place so that new highskilled industries can be retooled andbecome competitive on the global market).

Former Yugoslavia began the transition inthe late 1980s in a favourable position asthe most advanced and most open of thecommunist states. It had a highly skilledworkforce in industries that tradedintensively with the EU. However, thisfavourable position disguised large internaldifferences between more and lessdeveloped regions. Slovenia and Croatia inthe north were far more advanced than

44


Macedonia and Kosovo in the south. Whenthe country broke up the more advancedregions were more easily able to integratethemselves into the global economy. Theexperience of Slovenia demonstrates howthis process can enable a country toprogress and develop on the basis ofupskilling its workforce, and to integrateinto the EU on the basis of high-skillindustry specialisations (such as in motorcar components manufacturing). Croatiawas in a position to follow the example setby Slovenia, but the war set the countryback, and many of its industries lost theirconnections with the internationaleconomy. The development andtechnology gap between Croatia andSlovenia has therefore widened. The gap iseven more pronounced in the othersuccessor states of former Yugoslaviawhich had weaker initial conditions. Albaniabegan the transition from a low level ofeconomic development and with a poorendowment of skills.

These considerations suggest that there isnothing automatic about the Western Balkancountries and territories becomingimmersed in the process of skill-biasedtechnical change. Transition countries mayfollow two feasible paths: a high-technologypath and a low-technology path. Along thefirst path, favourable initial conditionsfollowed by a speedy restructuringcombined with preservation and growth ofhuman capital may lead to a rapid recovery

and growth catch-up with the EU economicaverage. This can be seen in the case ofSlovenia. The second path is characterisedby unfavourable initial conditions andpolitical instability leading to a slow pace oftransition and restructuring. Along this path,transitional recession characterised bydeindustrialisation and mass unemploymentis prolonged, leading to deskilling and theloss of human capital. This latter effect isamplified by civil conflict, which haspromoted the emigration of skilled workersand a further loss of human capital throughbrain drain. Transition countries that followthis path can be expected to have weakdemand for skilled labour, and specialise inexport of low-skill goods. They are less likelyto attract FDI, partly because of theweakness of the skills base of the labourforce, and this in turn may undermine theprocess of skills upgrading.

Available evidence suggests that there aresubstantial differences in the technologicallevels of the WBA countries and territories.One frequently used index of technologicalchange is the number of internet users perthousand people (Figure 1.16). Albania iswell behind the other countries on thismeasure, with just over two users perthousand, while the former YugoslavRepublic of Macedonia has just eight.Croatia is ahead of the other WBA stateswith 32 users per thousand. In between areSerbia and Montenegro (19) and Bosniaand Herzegovina (21), along with other

45


0 10 20 30 40 50 60

Albania

fYR Macedonia

Greece

SerbiaBulgaria

Bosnia

RomaniaHungary

Croatia

SlovakiaItaly

Austria

Slovenia

Figure 1.16: Internet users per 1,000 inhabitants, 2005

Source: International Telecommunications Union; Internet host data: Network Wizards, RIPE

Balkan states: Bulgaria, Greece andRomania. These data do not distinguishbetween work-based usage and usage forprivate consumption. However, there islikely to be a close link between the twovariables, and the measure is one of thefew pieces of comparative information thatare available to gauge the relativetechnological levels of the WBA countries.The evidence suggests that Albania andthe former Yugoslav Republic ofMacedonia are well behind other Balkanstates in their levels of technologicaldevelopment.

Several WBA governments have indicatedtheir desire to facilitate the transfer oftechnology from their domestic sciencebase to the enterprise sector, rather thanrelying exclusively on technology transferfrom abroad. Technology parks have beenestablished to encourage the transfer ofknowledge from universities to privatebusiness. According to a recent EuropeanCommission report, Croatia has fourtechnology parks based in Rijeka, Zagreb,Split and Osijek. There are four technologycentres in the former Yugoslav Republic ofMacedonia. In Bosnia and Herzegovinatwo technology parks are planned inZenica and Banja Luka. Albania hascreated a Technology InformationPromotion Service which assists anestimated 20 businesses each year to

purchase technology and more than 100 toacquire information about technology(European Commission, 2006p). However,these policies are still in an embryonicstage and lag far behind thecomprehensive set of measures that havebeen used to promote technologicaldevelopment in Slovenia (Bartlett andCuckovic, 2006).

1.4.7 SKILLS DEFICITS FACINGBUSINESSES IN THE WBA

A major survey of more than 9,500 firms in26 transition countries was carried out bythe EBRD in 2005, following earlier surveyscarried out in 1999 and 2002. The surveyincluded a question on whether deficits inlabour force skills were an obstacle to afirm’s business operation and growth.

Figure 1.17 shows results for those firmsthat reported skills deficits among availableworkers to be a ‘major’ obstacle. It isstriking that firms in the new MemberStates, Poland, the Czech Republic andHungary, experienced the greatest skillsdeficiencies. In both Poland and the CzechRepublic more than 15% of firms viewedskills deficits as a major problem. On theother hand, in Slovenia, also a newMember State, less than 2% of firmsreported major problems with skills deficits.

46


Are skills and education of available workers a major obstacle tobusiness operation and growth?

0 5 10 15

PolandCzech R.Hungary

BiHSlovakiaRomania

fYR MacedoniaAlbaniaCroatia

BulgariaSerbia

Slovenia

Percent of firms

Figure 1.17: The business view: major skills and education deficits

Source: EBRD BEEPS Survey 2005 (own calculations)

Note: BiH = Bosnia and Herzegovina

This may indicate that Slovenia hasintroduced appropriate and successfulreforms to its education and trainingsystems, and has created successfuljob-matching institutions, while the threeother new Member States have been lesssuccessful. The WBA states are in anintermediate position. Almost 10% of firmsin Bosnia and Herzegovina and around 6%of firms in the former Yugoslav Republic ofMacedonia, Croatia and Albania reportedmajor obstacles in relation to skill deficitsamong available workers. In Serbia,however, only 2% of firms had majorproblems.

These findings suggest that while there aresignificant skills deficits in the WBAcountries, the deficits may not be as severeas in some other transition countries. Thereare two possible explanations for thisapparent difference. Firstly, it could be thatthe higher intensity of restructuring inPoland, Hungary and the Czech Republichas created a greater demand for workerswith new and more advanced skills thanhad previously been required. Thisexplanation suggests that skills deficits arelikely to increase in the WBA in the future ifrestructuring follows the patterns observedin East Central European transitioneconomies. Such restructuring is likely toinvolve the replacement of older, lesssophisticated technologies of productionwith newer technologies that require higherskill levels among the workforce. Secondly,an alternative supply-side explanationcould be the existence of a morefavourable supply of skilled workers in theWBA countries, linked to a more advancededucation and training system in the formerYugoslavia before the onset of transition,coupled with subsequent greater successin education and training reforms. Thisargument seems the least plausible,however, because of the length of timesince the onset of transition and the factthat education reform is not proceedingrapidly in the Western Balkan countries, asanalysed in Chapter 3.

Further evidence on the adequacy ofexisting skills is provided by one studycarried out in Bosnia and Herzegovina. Thestudy, by Birks Sinclair, asked over 100employers to rank the importance of

various skills. The World Bank (2005a)reported the results of the study as follows:‘Only about half [of surveyed firms]reported that technical skills gained fromformal education were essential or veryuseful, while over 70% identified asessential or very useful skills gained fromspecialized training outside the educationsystem. Even more revealing are the skillsthat employers found essential: goodcommunication skills (identified by 59% ofemployers as essential), business methods(marketing) (37%), word processing skills(35%), and foreign languages (29%). At thesame time, only just over 20% foundtechnical skills essential (whether gained inthe formal system or the private sector).’

The report criticised the current system ofvocational education in which up to 80% ofstudents in Bosnia and Herzegovina areenrolled, arguing that ‘individuals needbroader skills to adapt as their jobschange, not simply specific skills for theirfirst job’ (p. 120).

1.5 CONCLUSION

The Western Balkan countries andterritories have followed highlydifferentiated patterns of transition. Somewere early reformers (Albania, Croatia andthe former Yugoslav Republic ofMacedonia); others entered later into thereform process (Bosnia and Herzegovina,Serbia, Montenegro and Kosovo). Labourmarket developments in the earlyreformers have reflected transitionprocesses common to other East CentralEuropean states, including fallingparticipation rates and employment rates,an experience that has yet to affect someof the later reformers. Economic growthhas recovered substantially in mostcountries and territories in the WesternBalkans since 2000, and has been delayedonly in the former Yugoslav Republic ofMacedonia as a result of the civil conflict in2001. In all WBA countries, including theformer Yugoslav Republic of Macedonia,projections indicate that strong economicgrowth above the average of the EU-25 isnow likely to persist into the medium term.As yet, employment growth has not pickedup to the same extent.

47


The private sector will continue to increaseits share of both GDP and employment inall countries, except in Albania, where theprivate sector share is already high.Privatisation is expected to continue inBosnia and Herzegovina, Croatia,Montenegro and Serbia, while in Albaniaand the former Yugoslav Republic ofMacedonia it has been practicallycompleted. However, formal privatisationdoes not always correspond tomarket-oriented behaviour of enterprises.All the WBA countries and territories havesome way to go in terms of enterpriserestructuring and corporate governance,especially Albania. Insider privatisation inCroatia and the former Yugoslav Republicof Macedonia in the 1990s led to a relianceon defensive restructuring which involvedcost-cutting measures and a loss ofcompetitiveness. As Croatia has becomemore open to foreign investment, and ascompetition from imported goods hasbecome more intense, some companieshave begun to turn to more strategicapproaches to restructuring, investing innew technologies and becoming morecompetitive on international markets. So farthere is little evidence of this processtaking off in the former Yugoslav Republicof Macedonia, though this could beexpected to happen in the medium term assimilar forces come into play there, leadingto a greater demand for skilled workers.Similar effects are likely to occur in Serbia,where there has been much less relianceon insider privatisation, and hence theadoption of strategic restructuring is likelyto be more immediate. In Bosnia andHerzegovina and Montenegro the onset ofthese forces is likely to be some way off.Over the next five years the pace ofrestructuring is expected to speed up partlyin response to the pressures of the EUaccession process, the pressure of marketcompetition, and the effect of increasedinflows of FDI. This continued restructuringwill involve further layoffs of workers,especially of unskilled blue-collar workers.At the same time, investment in newtechnology will increase the demand forskilled workers. The government also has arole to play in enhancing the adoption ofstrategic restructuring and encouragingenterprises to adopt new technology. Thisis related to the role of science and

technology policy and measures taken toease the adoption and transfer of newtechnologies, both from foreign firms andfrom research institutions and institutions ofhigher education. Strictly speaking, thisdoes not need to wait for privatisation totake place. The Slovenian example showshow even with delayed privatisation thebeneficial effects of strategic restructuringcan be brought into play. This wasachieved in the Slovenian case by ensuringthat domestic firms were able to link in tointernational production networks andsupply chains, for example by integratingSlovenian supplier companies intoEuropean motor vehicle manufacturingnetworks in Germany and Austria.

The region has gone through a period oftechnological regress, and transfers oftechnology and knowledge are badlyneeded. There are signs that FDI inflowsare beginning to pick up, but they are stillwell below the levels in the new MemberStates at a similar stage of transition. FDIinflows have been largest in Croatia,though Serbia is catching up fast.Countries which attract a greater inflow ofFDI in the future will increase the rate oftechnology transfer, with correspondingimplications for the skill mix. Countrieswhich are able to capture the advantagesof these flows by maximising local spillovereffects will be in an even stronger position.Policies to promote domestic knowledgetransfer through university–industrypartnership to promote spin-offs shouldalso be encouraged. A furtherpolicy-relevant aspect is the role of aneducated workforce in increasing theattractiveness of individual countries toforeign investors, and in attractinghigh-technology FDI. Policies to capturespillovers will also be needed in order tomaximise the benefits of future FDI inflows.

Entry barriers are being loweredthroughout the region and improvements inthe business environment are reducingbarriers to SME growth. Thus, SMEdensities are likely to increase in the futuretowards EU levels, and this will beaccompanied by growth of the employmentshare. Some SMEs will prosper inhigh-growth, high-technology sectors whichwill have large demands for skilled labour;

48


other SMEs will be located in low-skillsectors such as retail trade and low-skillservices. Which of these patternspredominate will depend on whether acountry follows the path of high-skilled,innovation-intensive transition, with highlevels of FDI that forge backward linkagesto local SMEs with associated spillovereffects, or the alternative low-skill pathbased on labour-intensive exports, lowlevels of FDI spillovers, and a low level ofintegration into the EU economy. There areessentially two dimensions to the trainingand skill requirements for the SME sector.Firstly, SMEs are likely to need a moreflexible labour force in terms of skills andadaptability than the old industries,requiring education and training for generictransferable skills in place of the currentfocus on occupation-specific skills. Thesecond aspect concerns entrepreneurshipeducation. With the exception of Croatia,this is far less widespread in WBAcountries and territories than in the newMember States, partly because of a lack ofqualified teachers (Zahra, 2005).

Exports from the region are concentrated inlow-skill sectors such as textiles, footwearand base metals, with some limited exportsof machinery and equipment, especiallyfrom Croatia. Sectors such as textiles willlose ground to more high-skill-intensiveexports over time, at least in somecountries (e.g. Croatia, Serbia) and as EUintegration progresses. Trade integrationwithin the region will deepen oncecountries enter the Central European FreeTrade Agreement (CEFTA), replacing thepatchwork of bilateral free tradeagreements with a single unified free tradearea.

The WBA countries and territories havebeen affected to differing degrees by warand civil conflict. In war-affected regionscapital assets have been destroyed andnew investment has been deterred bypolitical uncertainty and risk. Other regionshave prospered, and so the regionalpattern of employment growth has beenhighly variable. Lessons can be learnt fromthose regions which have been able to usetheir innovative potential to boost their localeconomies, create jobs and stimulateeconomic growth. Further research into the

reasons for local comparative advantageswould provide useful insights into the sortsof policies that could be effective inpromoting local economic developmentthroughout the region. Such regionaldisparities in labour market outcomes arelikely to persist, and less developed anddeclining regions may be left out of thegrowth process. New business start-upsand FDI are likely to be drawn towards thecapital cities and larger urban areas andtowards localities with a greater density ofhighly skilled workers. Policymakers shouldnot rely on market mechanisms to ensurethe diffusion of prosperity to peripheralregions. But even in the more developedurban areas, significant skill shortages arelikely to arise in the absence ofimprovements in the provision ofeducational services, of reform of outdatededucation and training curricula, and ofgreater attention to adult education andlifelong learning opportunities for the largenumbers of workers whose skills havebecome obsolete as a consequence of adecade of armed conflict, the transitionprocess and economic restructuring in theregion.

Overall, several distinct trends in thedevelopment of the demand for skills canbe identified. The share of employment inboth the agricultural and industrial sectorshas fallen (with the limited exception ofindustrial employment in Serbia). This hasbeen as a result of the downsizing of oldindustries following restructuring andprivatisation, as well as deindustrialisationin regions affected by war and conflict.Correspondingly, the proportion ofemployment in service industries hasincreased, especially in health services,business services and community, socialand personal services, while changes inemployment in education services havebeen mixed. The overall drift to moreservice-oriented economies is likely tocontinue with economic growth; thedemand for white-collar workers is likely toincrease, and the demand for blue-collarworkers to fall. The analysis has shownthat there is a mismatch between thesupply and demand for labour, with excessdemand for labour with both low-level andhigh-level skills, and an excess supply oflabour with intermediate vocational and

49


secondary technical skills. This is in linewith the observation of deindustrialisationand the growth of the service economy.The implication is that secondaryvocational education in the region may beproviding pupils with skills that werespecific to technologies and workingpractices that are now outdated, pointingagain to the need for improvements ineducation and training for generictransferable skills.

Some countries in the region appear to befollowing a path of transition based uponinnovation and improved labour force skillsand a shift towards a greater demand for amore highly educated workforce. Croatiaand possibly Serbia may follow this path ifthey continue to pursue reforms that leadto improvements in the investment climateand if they succeed in attracting additionalFDI inflows. In these countries,technological change is generating anincreased demand for workers withsecondary and university-level education,indicating a continuing need for increasedpublic expenditure in the higher educationsector, and its deeper integration into theEuropean education and research

community. Technological change islagging behind in Albania, Bosnia andHerzegovina, Kosovo and the formerYugoslav Republic of Macedonia, whichappear to be following an alternative pathof low-skill specialisation. In the case ofAlbania, FDI has uniquely been attracted tothe retail and wholesale trade sector, andlow-skill specialisation has beenaccompanied by high rates of economicgrowth, suggesting that this path is notnecessarily inferior per se. Exports are lowskill and labour intensive. Eventually,however, a shift to a more high-skill path ofdevelopment will be required, andimprovements in education and trainingsystems will need to be introduced inanticipation of this change. In Bosnia andHerzegovina, the former YugoslavRepublic of Macedonia and Kosovo,however, the low-skill route appears to beassociated with a low-level equilibrium oflow growth, high unemployment, andinformal work. The route to EUmembership in these countries is likely torequire a significant upgrading of the skilllevels of the workforce and a reorientationtowards the high-skill path of transitionthrough innovation-led growth.

50


2. LABOUR MARKETATTACHMENT IN THEWESTERN BALKANS

Henrik Huitfeldt andEkaterina Selezneva

2.1 INTRODUCTION

Since the early 1990s the Western Balkanshave gone through a period of majortransformation. Major differences existbetween the countries and territories in theregion, but in general, the functioning of thelabour market has changed dramatically forthe majority of the people. Jobs in the oldindustrialised economy have beendestroyed at a slow but increasing rate,while job creation, in particular in the form ofregular jobs in the formal sector, has beensluggish. Employment policy responseshave so far been weak and non-inclusive.An increasing number of individuals arebeing left outside the regular labour market.

This paper takes an individual supply-sideperspective and argues that the labourmarket situation in the Western Balkans is

far more complex than the picturepresented by standard labour marketindicators on employment andunemployment. In doing this, labour marketattachment (of different levels) isintroduced as a concept to describe labourmarkets in the Western Balkans moreaccurately. Labour market attachment canbe interpreted as the degree of integrationinto the regular labour market; that is, howoften an individual has a regular job andwhat the quality of the jobs is.

This is related to on-going discussions andconcepts used by the World Bank, ‘goodjobs and bad jobs’ (Bourguignon, 2005), andthe ILO, ‘decent work’ (ILO, 1999)1. WhileBourguignon (2005) focuses the discussionon the quality of jobs on incomes and tosome extent access to social protection, andthe ILO also concentrates on rights and

51

2

1 The main reference on this topic in the EU is a recent Communication from the European Commission on‘Promoting decent work for all: The EU contribution for the implementation of the decent work agenda in theworld’ (European Commission, 2006e).

working conditions, this paper will stressirregular access to good (or decent)employment as an additional importantfactor in understanding the functioning of thelabour markets (and the quality ofemployment) in the Western Balkans.Detailed micro-level data from somecountries in the region is used to showlabour market performance for individualsalong three major dimensions:

1. distribution of individuals betweendifferent labour market statuses;

2. the stability of labour market statuses;3. sequences of labour market statuses.

The following section presents a discussionof the relevance for the Western Balkans ofan influential new concept in thedevelopment of employment policy,transitional labour markets. Section 2.3presents the basic labour market indicatorsfor Western Balkan countries and territories.Section 2.4 discusses the set of typicallabour market statuses present in theWestern Balkans, and Section 2.5 presentsthe data used for the analysis. In Section 2.6an extended set of labour market statuses isanalysed, and their respective stabilitydiscussed. Section 2.7 identifies a set oftypical labour market careers (or sequencesof labour market statuses for individuals)and discusses labour market attachment fordifferent groups of individuals. In theconcluding section employment policychallenges for the countries and territories inthe Western Balkans are discussed.

2.2 TRANSITIONAL LABOURMARKETS AND THE WESTERNBALKANS

The emerging literature on transitionallabour markets (note that this conceptshould not be confused with the transitionthat has taken place in Central and EasternEurope) is an illustrative starting point for adiscussion on the functioning of the labourmarket and the role of employment policy(see Schmid, 2002 and 2006; Schmid andSchömann, 2004; Schömann and Schmid,2003 for a more exhaustive discussion onthe concept of transitional labour markets).Schmid (2002) discusses the end of thestandard employment relationship and the

fact that jobs in the future ‘are likely toinvolve more self-determination andcompetition, to be more fluid in terms of thenature and the scope of the employmentrelationship and more project orteam-oriented, to be increasingly integratedinto networks and less into forms and toentail a variety of different tasks whose verydiversity over the course of the working lifewill encourage lifelong learning’.

This new employment model implies thepresence of a broader set of employmentand labour market statuses, such astemporary employment, part-timeemployment, periods of further educationand training during the working life, andperiods of non-participation in the labourforce for other reasons (in contrast to thetraditional labour market statuses of initialeducation, employment, unemploymentand permanent non-participation in thelabour force). Furthermore, transitionsbetween different labour market statusesare becoming more common. As a result,the interfaces between the labour market,education and training, private householdsand social security need to be reshaped.

The concept of transitional labour marketsprovides for an institutionalisation of‘employment bridges’ that are intended tofacilitate the transitions between (new)employment relationships and other labourmarket statuses as circumstances changethrough life. This may include policies tofacilitate the transition from temporary topermanent employment, from part-time tofull-time work, career breaks for familyreasons, and lifelong learning. Policies fortransitional labour markets can be seen as‘social risk-management institutions’ thatencourage individuals to risk transitionsbetween different labour market statuses orto combine labour market statuses. Themain conclusion from this literature is that ifemployment policies are adapted to themore flexible labour markets that areemerging (including addressing majorincome risks related to transitions), they canmake a significant contribution to fullemployment (in a new sense) with more andbetter jobs and a more secure working life.

Inside the EU, new coherent employmentpolicy approaches have been at the top of

52


the policy agenda since the introduction ofthe European Employment Strategy in1997 and the Lisbon Council in 2000. Anew start for the Lisbon strategy waslaunched in 2005, refocusing efforts toachieve broad objectives on growth andemployment. The Joint Employment Report2005/2006 highlights a set of coreprinciples for employment policy within theEU, such as a lifecycle approach to work,inclusive labour markets and labour marketflexibility combined with employmentsecurity (European Commission, 2006k).

These developments of new policyapproaches in the EU are of greatrelevance for countries and territories in theWestern Balkans. However, their economicand policy contexts differ from those in theEU in several key areas. In the EU, recentpolicy changes have been driven by weakeconomic growth, high and persistentunemployment levels, and a widening gapbetween workers with permanent, secureand good jobs and others (primarilylow-skilled) with a weak attachment to thelabour market leading to labour marketsegmentation. The public social welfaremodel is still strong in most EU countries.

For the current future Member States andpre-accession countries, future accessioninto the EU also includes integration into EUeconomic and social structures. However,until now the transition processes have to alarge extent been proceeding in a differentdirection. Old industrialised labour marketstructures have been dismantled, but havenot yet been replaced through the creationof new dynamic and inclusive labourmarkets. Few good and stable jobs havebeen created. Furthermore, it is likely thatthese unorganised labour markets might bethe standard labour market model for theforeseeable future. It could be said that inmany of these countries the labour marketshave become more ‘transitional’ in nature(following the concept of transitional labourmarkets) than labour markets in the EU.A large proportion of labour marketparticipants are moving between differentforms of employment, unemployment andnon-participation and a low number have asecure place in the labour market. It followsthat it is essential to discuss an employment

policy that is adjusted to the situationprevailing in the region today (seeChapter 4).

2.3 BASIC LABOUR MARKETINDICATORS IN THEWESTERN BALKANS

Most countries and territories in theWestern Balkans have regular labour forcesurveys (LFSs), with the exception ofAlbania. Based on results from these LFSs,basic labour market indicators such asactivity rates, employment rates andunemployment rates can be calculated. Forthis paper, detailed data from LFSs hasbeen collected by key demographicvariables (gender, age and educationalattainment). In this section basic trendsand comparisons between countries arediscussed, based on data from LFSs (moredetailed data can be found inAnnexes 2–4).

The strength of data from LFSs is that theyuse similar definitions across countries,and are comparable between countries.However, some caution in interpretingthese data is necessary. Firstly, there areparticular difficulties in defining what shouldbe considered as employment, since smallchanges in the definition (or how questionsare asked) can change results significantly.Secondly, in a volatile labour market withmany occasional jobs, information basedon a reference week (as used in the LFSs)fails to take into account the dynamics thatoccur outside the reference week. Thirdly,until now the LFSs in the Western Balkanshave in the best cases being carried out onan annual basis. However, the time of theyear at which the survey was carried outhas often varied between countries andfrom year to year in the same country. Thismakes the survey results sensitive toseasonal effects, particularly in countriesand territories with a large agriculturalsector.

In Figure 2.1, employment, unemploymentand inactivity are presented in terms oftheir share of the working-age population(15–64 years) for the countries andterritories of the region. With the exception

53

2. LABOUR MARKET ATTACHMENT IN THE WESTERN BALKANS

of Albania the results are similar, with lowshares of employment and high shares ofunemployment and inactivity. In Albania ahigher employment rate is recorded as aresult of the importance of agriculture foremployment. In the other countries andterritories, the employment rate is less than50% (except in Croatia), and is much lowerthan in all old and new EU Member States

(including Bulgaria and Romania). Theshare of unemployment, but also the shareof inactivity, is very high. Theunemployment rate exceeds 20%everywhere except Albania.

As Figure 2.2 shows, the employment ratefor men is approximately 15 to 25percentage points higher for men than for

54


0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

EMPLOYED UNEMPLOYED INACTIVE

Albania


Croatia

fYR Macedonia

Kosovo

Serbia

Montenegro

Figure 2.1: Distribution of basic labour market statuses in the Western Balkans

(% of the population aged 15–64)

Source: Labour force surveys from Bosnia and Herzegovina, the former Yugoslav Republic of Macedonia,

Montenegro, and Serbia, and own calculations from the Albanian Panel Survey for Albania

Note: 2005, except for Albania (2004) and Bosnia and Herzegovina (2006)

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

Albania Bosnia &Herzegovina

Croatia Kosovo Montenegro fYRMacedonia

Serbia EU

Male

Female

Figure 2.2: Employment rate by gender (% of the population aged 15–64)

Source: Labour force surveys from the former Yugoslav Republic of Macedonia, Montenegro and Serbia, and

own calculations from the Albanian Panel Survey for Albania and the Household Series Panel Survey for Bosnia

and Herzegovina

Note: 2005, except for Albania and Bosnia and Herzegovina (2004)

women across the countries and territories.This is similar to the difference in the EU.The difference is somewhat greater inAlbania, and is especially so in Bosnia andHerzegovina. The employment rate is verylow for the population aged 15–24 in mostcountries and territories (see Annex 11).However, the employment rate is also low

for older age groups, reflecting a difficultlabour market situation for all age groups.

As Figure 2.3 shows, the employment ratediffers significantly between differenteducational categories in all countries andterritories. Only in Albania does theemployment rate for individuals with

55


0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00


Croatia Kosovo fYRMacedonia

Montenegro Serbia EU

Primary

Secondary

Higher

Figure 2.3: Employment rate by educational attainment (% of the population

aged 15–64)



and Herzegovina


0.00

10.00

20.00

30.00

40.00

50.00

60.00


Croatia Kosovo fYRMacedonia

Montenegro Serbia EU

Primary

Secondary

Higher

Figure 2.4: Unemployment rate by educational attainment (% of the population

aged 15–64)



and Herzegovina


primary education equal that for individualswith secondary education, reflecting therole of agriculture in providing employmentfor people with lower levels of education.This indicates that education is animportant factor in the labour market.However, the differences are lesssignificant for the unemployment rate(Figure 2.4). In particular, unemployment isas frequent for individuals with primaryeducation as for individuals with secondaryeducation. As discussed above, (open)unemployment is not a good measure of(problematic) labour market performance inthe Western Balkans, because manypeople do not have any other option than toaccept low-quality employment, ofteninformal, to make ends meet. As a result,labour market performance as measuredby the unemployment rate for people withlower levels of education may significantlyunderestimate labour market distress forthese groups. The gap between theemployment rates for men and women ismuch higher for individuals with onlyprimary education (see Annex 11). Forindividuals with higher education thegender difference is small, and is in factnegative for the former Yugoslav Republicof Macedonia and Montenegro.

2.4 LABOUR MARKET ANDEMPLOYMENT STATUSES INTHE WESTERN BALKANS

The rapid changes over the past decade inthe Western Balkans have led to thecreation of a new and different set of‘typical’ employment or labour marketstatuses. LFSs and other householdsurveys indicate that only a smallproportion of the working-age population(perhaps less than 20–30%) has a stable,permanent and formal job in manycountries and territories. However, detailedand relevant information is missing in manycountries and territories on how theremainder of the population are managingtheir labour market careers in theseprecarious conditions.

This paper aims to identifying the typicallabour market behaviours present in theWestern Balkans. It will examine both labourmarket statuses recorded in labour force

and household surveys and sequences ofthese labour market statuses over timeusing panel data. Labour market statusesvary between countries and territories, butthe most frequent labour market statusesmay include permanent formal employment,permanent informal employment, occasionalemployment (formal or informal), openunemployment, various forms of inactivity,and commonly also multi-status. Manypeople have developed lifestyles (and/orsurvival strategies) with multipleemployment status, and readily switchbetween employment and unemploymentand between formal and informal activitiesas opportunities become available. As aresult, spells in different labour marketstatuses are often short, which makes itdifficult to assess the functioning of thelabour market using standard labour marketindicators such as employment andunemployment rates.

In the labour market contexts of WesternBalkans, unemployment, regardless ofwhether it is defined following the ILOusing LFSs or by using local definitions ofregistered unemployed, is not likely to be adistinct, well-defined labour market status(and it is not very relevant as a concept, atleast not for targeting labour market policymeasures). The public social safety net issimply too weak and incomplete (seeChapter 4), and few can afford not to carryout some kind of employment in order tosurvive. As a result the number of peopleunemployed according to the LFSs is likelyto include a large number of people thatwere unemployed in the week of thesurvey, but not necessarily in the weeks (ormonths) before or after the survey.Furthermore, in most countries andterritories of the region, many individualsnot formally employed have strongincentives to register as unemployed inorder to gain access to health insuranceand other benefits linked to registration(see Chapter 4). This heavily inflates thenumber of people registered asunemployed, and as a result, this groupmay be very heterogeneous and may notconsist primarily of jobless jobseekers.

In this paper, labour market attachment isintroduced as an alternative concept todescribe the situation in the labour markets

56


in Western Balkans. The main hypothesisand line of thinking is that broadly, there areat least three distinct groups of individuals(or different forms of attachment to thelabour market) in the Western Balkans:

1. strong attachment: individuals withstable, regular and formal employment;

2. no attachment: individuals permanentlyinactive (participating in education,retired, or taking care of a household);

3. weaker attachment: all other individualswho can be considered to have variousforms of weak(er) attachment to thelabour market.

This last group of individuals may typicallybe engaged in short-term employmentactivities (often informal), interrupted byperiods of unemployment or inactivity.

Little is known about the characteristicsand needs of the group of individuals withweaker attachment to the labour market.Some of these individuals are carrying outactivities that are irregular in nature, interms of the number of different activities,working hours and income. Some othersare involved in seasonal activities. Othershave regular long-term jobs in the informaleconomy, but the reasons that the jobs arenot formalised may differ. Many informaljobs may not be productive enough tobecome formalised. Many people arediscouraged from looking for regular andformal jobs, and remain for long periodswithout a job that has any future prospects.In addition, not all individuals withpermanent formal jobs have a secure jobwith prospects. Sometimes they cling on tojobs in old enterprises that will not last aseconomic reform moves forward.

2.5 THE LIVING STANDARDSMEASUREMENT STUDYDATA IN ALBANIA, BOSNIAAND HERZEGOVINA ANDSERBIA

The data used for empirical analysis in thisstudy are from the Living StandardMeasurement Study surveys (LSMS) forthree countries: Albania, Bosnia and

Herzegovina and Serbia. The LSMS dataare a unique source of information on thefunctioning of the labour market in specificWestern Balkan countries as they containdetailed longitudinal information onindividuals. The data collected allowwelfare measurement and analysiscovering such topics as demographicinformation, consumption, education,housing, migration, credit, socialassistance, health, non-agricultural andagricultural activities and a rather extensivelabour market module that helps to assessemployment status, multiple job holdingsand formality/informality of the job.

The Albanian Panel Survey was carried outannually from 2002 to 2005 (although only2002–04 is currently available for analysis).The Bosnia and Herzegovina HouseholdSurvey Panel Series (HSPS), ‘Living inBosnia and Herzegovina’, was carried outannually from 2001 to 2004. In Serbia anLSMS survey with some panel featureswas carried out in 2002 and 2003. Therefollows a description of some of the maindetails of these three surveys.

Albania2

The Albanian Panel Survey is undertakenby the Albanian Institute of Statistics(INSTAT), with technical assistance fromthe World Bank. The first survey wasbased on the World Bank Living StandardsMeasurement Study methodology andwas conducted in 2002. It consisted of arepresentative sample of Albanianhouseholds and individuals at national andregional level. The LSMS sample included3,600 households, and the data werecollected in April–July of 2002. Subsequentwaves of the Albanian Panel Survey werecreated by re-interviewing approximatelyhalf of the original households in 2003(wave 2) and 2004 (wave 3). Finally, thelongitudinal survey dataset available forinvestigation includes information onaround 1,780 interviewed households(around 7,500 individuals, around 5,500 ofwhom are aged 15 or older). Waves 2and 3 are representative at national leveland in terms of urban and rural areas,though not at regional level.

57


2 Data are public and can be downloaded from the LSMS site, after filling in the Data Agreement Form(http://www.worldbank.org/lsms).

Bosnia and Herzegovina3

The ‘Living in Bosnia and Herzegovina’HSPS is based on the LSMS that wascarried out in 2001 by the World Bank, theUnited Nations Development Programme(UNDP) and the various statistical institutesof Bosnia and Herzegovina. This first waveof the survey contained a sample of around5,400 households (2,400 in RepublikaSrpska and 3,000 in the Federation ofBosnia and Herzegovina). Interviews werecarried out in September–November of2001. In the second wave, around half ofthe LSMS respondents were re-interviewedin September–October 2002. The samehouseholds (individuals) were interviewedagain in September–October 2003 (wave 3)and November–December 2004 (wave 4).The longitudinal dataset contains slightlyless than 2,900 households (around 1,300for Republika Srpska and around 1,600 forthe Federation of Bosnia and Herzegovina),covering around 7,300 individuals aged 15or older. The sample created isrepresentative at country and entity level.

Serbia

The LSMS started in May–June 2002 withthe participation of the Serbian Ministry forSocial Affairs and a group of statistical andresearch institutions. The questionnairedesign combines basic principles of theWorld Bank’s LSMS and some elements ofstandard Household Budget Survey. Thesurvey covers a sample of permanentresidents of Serbia, without the populationof Kosovo. The first wave covers around6,500 households (plus 500 householdsparticipating in government socialprogrammes), around 20,000 individuals intotal. Slightly less than half the households

were re-interviewed in 2003, giving around7,600 individuals in the final panel dataset(around 6,000 of them older than 15). Thesurvey was designed to be representativefor six macro regions, and for urban andrural areas within each region.

Some additional variables necessary forthe analysis were constructed in thedatasets. Information on educationalattainment was aggregated into three maincategories to resemble ISCED 1997classification more closely: primaryeducation, secondary education and highereducation4. For most parts of the analysis,the highest educational level attained overthe different waves was used.

Following standard ILO recommendations,three broad labour market statuses aredefined: employment, unemployment andout of the labour force.

1. Individuals in the age range 15–64 yearsare defined as ‘employed’ if they answerthat they carried out some form of workduring the past seven days5, or if theyhave a job to go back to (even if they didnot work during the past seven days).

2. Individuals are considered to be‘unemployed’ if they are not classifiedas ‘employed’ and answer ‘yes’ to bothof the following questions: ‘During thepast four weeks, have you tried in anyway to find a job or start your ownbusiness?’ and ‘If you were offered ajob, are you ready to start workingwithin the next two weeks?’Unfortunately it is impossible to defineindividuals as unemployed in wave 3 ofBosnia and Herzegovina survey,because the answers for the necessaryquestions are missing.

58


3 The data can be downloaded from the websites of the respective statistics institutes. In Bosnia andHerzegovina: Agency of Statistics of Bosnia and Herzegovina (www.bhas.ba); Federal Office of Statistics ofthe Federation of Bosnia and Herzegovina (http://www.fzs.ba/download_eng.htm); Institute of Statistics ofRepublika Srpska (www.rzs.rs.ba).

4 (i) Primary education (Albania: ‘eight-year school’; Bosnia and Herzegovina: ‘primary’; Serbia: ‘no schooling’and ‘elementary school’); (ii) Secondary education (Albania: ‘secondary general’, ‘vocational two years’,‘vocational four/five years’; Bosnia and Herzegovina: ‘secondary general’, ‘secondary technical, four years’,‘secondary vocational, three years’; Serbia: ‘vocational, one–two years’, ‘secondary, three years’, ‘secondary,four years’, ‘secondary general, gymnasium’); (iii) Higher education (which pools together tertiary andpost-secondary levels: ‘university’, ‘post-graduate’, and for Albania: fifth year of vocational training ifrespondent is young; Bosnia and Herzegovina: ‘junior college’; Serbia: ‘post-secondary’).

5 The definition of employment may be sensitive to the way in which the question is asked, given that manyindividuals may be carrying out activities on the borderline of what could be considered work. This has beentreated differently in the three countries. In Albania in particular a series of detailed questions were asked tothe respondents to ensure that all forms of work were included.

3. All the other individuals are consideredto be ‘out of the labour force’.

In order to represent more accurately thevarious forms of labour market status thatexist in the Western Balkans, these threebroad labour market statuses have beendivided into nine more detailed employmentand labour market statuses:

1. informal non-agricultural wageemployment;

2. informal non-agriculturalself-employment;

3. agricultural employment (whether formalor informal);

4. formal non-agricultural employment;5. unemployment (following the standard

ILO definition);6. in education;7. in retirement;8. taking care of the household;9. others.

There are several types of activity that couldbe considered as being informal, and thefrontiers between formality and informalityare not rigidly fixed. An ILO resolutionconcerning statistics of informalemployment, adopted by the 15thInternational Conference of LabourStatisticians in January 1993, established awidely used ‘basic definition’ of jobinformality (ILO, 2000). Workers areconsidered to be informally employed ifeither (i) they are self-employed and unitsengaged in the production of goods orservices are not separated legally from thehouseholds or household members owningthem (productive activities are hardlydistinguished from other activities of theirowners), or (ii) the enterprises at which theywork are informal (non-registration of theenterprise or its employees). However, it isrecommended that this definition is modifiedaccording to national circumstances, such

as tax and social security laws, andprofessional groups’ regulatory acts (forexample, whether to take into considerationall or just non-registered own-accountenterprises; size of the productive unit, etc.).

For the purpose of this paper it is not an aimin itself to define the size of informalemployment. Rather, the intention is tocategorise individuals into groups that arebehaving in a similar way, which will promotea better understanding of the functioning ofthe labour markets in the Western Balkans.The basic definition that can be used todefine ‘informally’ employed individuals iswhether they are ‘working without beingentitled to health and/or pension insurance’(the access to these benefits for anemployee is also usually considered to be afeature of registered firms). However, thisdefinition might be sensitive tomisclassification, and to changes that are notrelated to the labour market situation. Forexample, an individual can be carrying outthe same job, but be defined as formallyemployed in one wave and informallyemployed in another wave. In recent studies,using similar sets of data, different extendeddefinitions of informal employment have beenused by the ETF (2006c and 2006b) and theWorld Bank (2002 and 2004c) usinginformation on where the job is carried out,whether the firm is registered, and whether aperson is self-employed or unpaid.

In this paper two different labour marketstatuses related to informal employmentare used: informal non-agricultural wageemployment and informal non-agriculturalself-employment6. The Serbian datasetdoes not allow for a distinction to be madebetween these two categories of informalemployment, and results are presented foroverall informal employment. Employmentin agriculture is defined using the economicactivity code (NACE) for agriculture7, and

59


6 Informal wage employment is defined as a lack of access to social security benefits in Albania, and no access tohealth or/and pension insurance in Bosnia and Herzegovina. Informal self-employment is defined as those witha major occupational group larger than four, and at the same time, as self-employed or unpaid workers inAlbania, or owner/co-owner of a ‘small business’, entrepreneur in a free profession, unpaid supporting familymember or activity related to the sale of agricultural products or providing services in Bosnia and Herzegovina.

7 As the economic activity codes are missing for the first wave of the Albanian Panel Survey, it was necessaryto use the occupational codes (ISCO-1988) for this wave. However, this should not make any differencegiven the very high level of overlap between the occupational and economic activity codes related toagriculture. The following occupational codes were considered as coding agriculture workers: 611 marketgardeners and crop growers; 612 market-oriented animal producers and related workers;613 market-oriented crop and animal producers; 621 subsistent agricultural and fishery workers; and921 agricultural, fishery and related labourers.

all other employed individuals are classifiedas formally non-agricultural employed.

Unemployment is defined as above. Thecategories ‘in education’, ‘retirement’ and‘household work’ are defined based on theself-reporting of inactive individuals on thereason for inactivity, and on the basis thatthe individual under consideration is notclassified as ‘unemployed’ or ‘employed’8.All other individuals not classified in any ofthese eight categories described above areclassified as ‘others’. This is an interestingand fairly large group (see below) thatcould to a large extent include discouragedworkers not fulfilling the job search criterionto be defined as unemployed (as well asinvalids, criminals and other marginalgroups).

2.6 LABOUR MARKETSTATUSES AND DYNAMICS INTHE LABOUR MARKET INALBANIA, BOSNIA ANDHERZEGOVINA AND SERBIA

Distribution of labour market statuses

The basic labour market statuses(employment, unemployment and inactivity)discussed above are important for aninternational comparison of labour marketperformance. However, they do not providea very clear picture of the labour marketsituation within the countries and territoriesof the Western Balkans and they aredifficult to use for policymaking. In order toenhance understanding of the functioningof the labour market in the region, the basiclabour market statuses have been dividedinto sub-categories. Employment has beendivided into four categories(non-agricultural formal employment,non-agricultural informal wageemployment, non-agricultural informalself-employment, and agriculturalemployment) and inactivity into fourdifferent categories (in education,retirement, household work, and others)(see Section 2.4 for the definitions of theselabour market statuses in the threecountries).

In Figure 2.5 the distribution of thisextended list of labour market statuses ispresented for Albania, Bosnia andHerzegovina and Serbia. In comparisonwith the basic labour market indicators (asin Figure 2.1), the difference between thethree countries is much greater. Formalemployment is more prevalent in Serbia,followed by Bosnia and Herzegovina. InAlbania, formal employment makes up only15% of the working-age population.Unemployment is higher in Bosnia andHerzegovina. Agriculture and informalemployment are more significant inAlbania. Household work is moresignificant in Bosnia and Herzegovina, and‘others’ is a substantial group in all threecountries, particularly Albania.

In Figures 1–8 in Annex 2, the share of thepopulation for each labour market status ispresented by sex, educational attainmentand age using data from the most recentwave available of the survey in Albania,Bosnia and Herzegovina and Serbia.These figures provide a more completepicture of the labour market situation at agiven point in time than specific indicatorssuch as unemployment and employmentrates. However, they do not contain anyinformation on the stability of the differentlabour market statuses, nor on mobilitybetween labour market statuses. This is anissue that will be examined in greater detaillater in this section.

In Albania there are substantial differencesbetween the labour market statuses of menand women. A smaller proportion ofwomen are formally and informallyemployed. Instead, women are to a largeextent occupied with work in agriculture orin the household, or are in the group‘others’. It is likely that these statuses arefairly similar and that the distinction isvague. Men, on the other hand, are to alarge extent working in the formal andinformal non-agricultural sectors (and alsoin agriculture). Informal employment (bothwage and self-employment) is morecommon for prime-aged men and womenand therefore does not seem to be a wayof entering the labour market.

60


8 Given that it is not possible to apply the standard ILO definition of unemployment in the third wave of theBosnia and Herzegovina survey, no distinction can be drawn between ‘unemployed’ and ‘others’, andtherefore only eight labour market statuses can be identified for inter-wave comparison.

Unemployment using the ILO definition islow, and declines with age. On the otherhand, the category ‘others’ is much largerand resembles what might be expected forunemployment, being very high for youngpeople and declining by age.

In Bosnia and Herzegovina a largeproportion of women are outside the labourmarket. Both formal and informalemployment are much more frequent formen. However, formal employment as ashare of total employment is similar, ataround 40%, for both men and women.Unemployment is high for both men andwomen, and declines with age. On theother hand, and in contrast to Albania, inBosnia and Herzegovina the share of thegroup ‘others’ is similar for men andwomen and for different age groups.Moreover, the share of informalemployment is fairly constant over all agegroups at around 15%. The two (major)entities in Bosnia and Herzegovina have afairly similar distribution of labour marketstatuses.

In Serbia formal non-agriculturalemployment is almost as important forwomen as for men. On the other hand,informal employment and agriculture aremore common for men, while some womenare involved in household work. Serbiadiffers from Albania and Bosnia andHerzegovina in that informal employment ishigher for young age groups and may be away of entering the labour market. It shouldbe noted that there are only eightcategories for Serbia, as the data did notallow a distinction to be drawn betweeninformal non-agricultural wage employmentand self-employment. ‘Unemployment’ and‘others’ follow similar patterns, and arehigher for young age groups.

The distribution of labour market statuses bythree broad educational categories follows asimilar pattern in Albania, Bosnia andHerzegovina and Serbia9. In particular, theshare of formal non-agricultural employmentis very different for the three educationalcategories, being very low for primaryeducation and also to some extent for

61


0

5

10

15

20

25

30

35

40

Albania

Bosnia

Serbia

IE-W IE-S AGR FE U ED RET HW OTH

Figure 2.5: Distribution of labour market statuses in Albania, Bosnia and

Herzegovina and Serbia (%)

Source: Own calculations from the Albanian Panel Survey, Bosnia and Herzegovina HSPS, and the Serbian

LSMS

Notes: Albania and Bosnia and Herzegovina 2004, Serbia 2003. The different labour market statuses are

abbreviated as IE-W (non-agricultural informal wage employment), IE-S (non-agricultural informal

self-employment), AGR (agricultural employment), FE (non-agricultural formal employment), U (unemployment),

ED (participation in education), RET (retirement), HW (household work), and OTH (others). For Serbia IE-W

refers to all informal employment

9 Note that educational attainment is changing over the different age groups and that the total size of thedifferent age groups can vary significantly. For example, the share of primary education is much lower foryoung age groups than for old age groups.

secondary education in all three countries.However, the share of informal employmentdoes not differ much between the differentcategories. Instead, agriculture and thevarious labour market statuses that areoutside the labour force are more significantfor people with lower levels of educationalattainment. Open unemployment does notexhibit a clear trend for the differenteducational categories (while beingsomewhat more prevalent for individuals withsecondary education). The large proportionof young people with less than tertiaryeducation in the category ‘others’ is striking,and is a strong indication that joblessness foryoung people goes far beyondunemployment as defined in the LFS.

Transitions between labour market

statuses

The panel data for Albania, Bosnia andHerzegovina and Serbia provide informationon the labour market status of individuals inseveral consecutive years. A comparison oflabour market activity for individuals on eachdifferent occasion creates a picture of the

stability of various labour market statusesand transitions between them10.

Figures 2.6–2.8 show the most significantlabour market flows between the ninedifferent labour market statuses for themost recent year available for the threecountries (tables with all labour marketflows are displayed in Annex 3).

The total number of recorded flows betweenlabour market statuses is similar in Albania,Bosnia and Herzegovina and Serbia. InAlbania, 33% of the working-age populationchanged labour market status between2003 and 2004. In Bosnia and Herzegovina43% changed status between 2001 and2002, and in Serbia the figure was 37%between 2002 and 2003. This indicatesrelatively high mobility in the labour marketin all three countries. However, the types offlow differ significantly in the three countries.In Albania most labour market flows takeplace between agriculture, ‘others’ andhousehold work. These recorded flows areunlikely to indicate a major change in labourmarket activity. Flows that are more

62


IE-W8.4%(56.0%)

IE-S7.6%(67.0%)

AGR29.3%(80.8%)

FE14.9%(81.1%)

U3.6%(35.7%)

RET6.6%(85.2%)

HW8.5%(49.1%)

OTH12.0%(49.6%)

ED8.9%(76.6%)

Figure 2.6: Labour market flows in Albania between 2003 and 2004

Source: Own calculations from the Albanian Panel Survey.

Notes: The number in each box indicates the proportion of the total working-age population aged 15–64 who

have a particular labour market status. The number in parentheses is the proportion of the individuals in a labour

market state in 2003 who stayed in that state in 2004. The different arrows indicate flows between the labour

market states. The large arrows indicate flows of more than 1.5% of the total working-age population, the

medium-sized arrows indicate flows of 1.0–1.5% of the working-age population, and the small arrows indicate

flows of 0.6–0.9 of the working-age population.

10 Note, however, that the information on labour market status that is recorded for individuals refers only to aspecific reference week in each year, and that no information is available on what the individual was doingoutside these reference weeks.

significant for the functioning of the labourmarket are small. In Bosnia andHerzegovina too, most of the large flowstake place outside employment, with theexception of flows between informal and

formal non-agricultural employment. InSerbia, on the other hand, most recordedlabour market flows take place betweendifferent forms of employment,unemployment and ‘others’.

63


IE-W12.1%(39.8%)

IE-S1.8%(24.3%)

AGR6.3%(47.7%)

FE20.7%(80.5%)

U7.8%(34.3%)

ED9.8%(71.0%)

RET8.4%(78.7%)

HW17.2%(70.1%)

OTH15.8%(27.9%)

Figure 2.7: Labour market flows in Bosnia and Herzegovina between 2001 and 2002

Source: Own calculations from the Bosnia and Herzegovina HSPS.







IE8.7%

(34.3 %)

AGR13.1%(61.1%)

FE37.4%(76.7%)

U5.1%(24.8%)

ED11.5%(70.6%)

HW6.6%(57.4%)

OTH7.6%(29.7%)

RET9.9%(68.2%)

Figure 2.8: Labour market flows in Serbia between 2002 and 2003

Source: Own calculations from the Serbian LSMS.







Using LFS data from 2004 and 2005 inSerbia, together with a much broaderdefinition of informal employment11, theWorld Bank (2006c) reports significantlysmaller flows between informal and formalemployment. They report that 65.7% ofthose employed informally in 2004 werestill employed informally in 2005, comparedwith the figure of 34.3% between 2002 and2003 reported in this study. This indicatesthat large differences may exist betweendifferent groups and individuals involved ininformal employment.

The most stable labour market statuses areretirement, formal non-agriculturalemployment and in Albania, agriculturalemployment. The categories ‘informalnon-agricultural employment’,‘unemployment’ and the ‘others’ are muchless stable (in Bosnia and Herzegovina thisalso includes agricultural employment).Around half of those employed informallychanged status between the differentyears, and ‘unemployment’ and ‘others’(except in Albania) are even more transientin nature. These unstable labour marketstatuses represent around 40% of theworking-age population in Bosnia andHerzegovina, 25% in Albania, and 20% inSerbia. Thus, the high level of labourmobility is not an indication of a functioninglabour market. Instead, the main reason forthe high level of labour mobility is likely tobe the scale and pervasiveness ofprecarious labour markets.

Fairly large flows (of approximately equalabsolute size in both directions) arerecorded between informal and formalemployment12. More than a quarter of allthose employed informally had a formal jobone year later in Bosnia and Herzegovinaand Serbia; this number is lower in Albania,where the formal labour market is smaller.The transition from education to workappears to be very difficult. Only around7% of school-leavers13 in both Albania andBosnia and Herzegovina had found aformal job in the first year after graduation.In Serbia the situation is significantly better,and almost 30% of school-leavers had ajob one year after graduation. However,

this is still a low number. The majority ofschool-leavers are either unemployed orare classed as ‘others’, or in Albania areworking in agriculture. In Serbia andBosnia and Herzegovina informalemployment also seems to be an importantlabour market status in the first year aftergraduation. As noted above, the categoriesof ‘unemployed’ and ‘others’ exhibitremarkably similar patterns in all threecountries.

2.7 ATTACHMENT TO THELABOUR MARKET IN THEWESTERN BALKANS:EXAMPLES FROM ALBANIAAND BOSNIA ANDHERZEGOVINA

In Section 2.6, labour marketdevelopments are analysed using adetailed set of labour market statuses. Inparticular, there is an examination of thedistribution of individuals between theselabour market statuses and the stability ofepisodes in the different labour marketstatuses. Given the high level of instabilityof several of the labour market statuses, ananalysis using sequences of labour marketstatuses as a proxy for labour marketcareers could help to describe the labourmarket performance of individuals.

Balanced panels of data have beenconstructed for Albania and Bosnia andHerzegovina in order to ensure that thereare no gaps in labour market statuses foreach individual under consideration. Thepanel for Bosnia and Herzegovina consistsof 4,824 individual four-year sequences oflabour market statuses and the Albanianone includes 4,323 three-year sequences.It should be noted, however, that the yearlynature of the data and the short timeperiods covered are only a proxy for labourmarket careers and do not allow adiscussion of the labour market behaviourof individuals in detail. Instead, it issuggested that a short sequence of labourmarket statuses may illustrate the level ofattachment that an individual has to thelabour market.

64


11 Including all workers in enterprises with less than ten employees and including agricultural employment.

12 This might indicate some problems with misclassification given the definition of informal employment.

13 Defined as persons in education in 2003, but not in education in 2004.

Based on the nine categories of labourstatus defined and discussed inSections 2.4 and 2.614, six groupsconsisting of different patterns ofsequences of labour status with differentdegrees of labour market attachment havebeen identified (see Table 2.1). This wasachieved using a technique called optimalmatching as the first step, before theapplication of standard techniques forcluster analysis.

The optimal matching technique iscommonly used as the first step of analysisin a situation in which the objective is toidentify patterns in the sequences (and asa second step in order to subdivide thesample into different groups of sequenceswith similar patterns). Optimal matchingconsiders a sequence of events as awhole, taking into consideration not onlythe specific events but also the order in

which the events happened. In this paper,optimal matching was applied bycalculating the ‘distance’ betweenindividual sequences using information onthe size of flows between the nine differentlabour market statuses (using the transitionmatrices in Annex 4)15.

The proportion of individuals who havestrong labour market attachment, that is,individuals with stable sequences ofnon-agricultural employment (formal orinformal), is small in both Albania andBosnia and Herzegovina, at 20.2% and26.1% respectively. In Albania, stablesequences of agriculture are significant,representing almost 30% of theworking-age population. The proportion ofindividuals with unstable sequences (withmany changes in labour market status),including primarily employment (someattachment) or no employment at all (weak

65


Table 2.1: Groups of labour market attachment for Albania and Bosnia and

Herzegovina

NDegree of

attachment

Definition of

the group

Bosnia and

HerzegovinaAlbania

Frequency % Frequency %

1 Strongattachment

Stable sequencesincluding primarilyemployment(formal or informal)

1,242 26.13 873 20.28

2 Someattachment

Unstable sequencesincluding primarilyemployment(formal or informal)

789 16.61 340 7.90

3 Weakattachment

Unstable sequencesnot including any oronly insignificantemployment

697 14.66 275 6.38

4 Education Mainly in education 369 7.77 284 6.59

5 AgricultureStable sequencesincluding primarilyagricultural work

182 3.82 1,226 28.46

6 No attachment

Stable sequencesnot including anyor only insignificantemployment

1,474 31.00 1,309 30.39

14 (i) Formal non-agricultural employment; (ii) Informal non-agricultural wage employment; (iii) Informalnon-agricultural self-employment; (iv) Agricultural employment (whether formal or informal); (v)Unemployment (following the standard ILO definition); (vi) In education; (vii) Retired; (viii) Taking care ofhousehold; and (ix) Others. Note that in the third wave of Bosnia and Herzegovina HSPS, the module of thequestions defining unemployment is missing and as a result it is not possible to distinguish between thecategories of ‘unemployed’ and ‘others’. In these cases, individuals have been classified as either‘unemployed’ or ‘others’ using information from neighbouring years.

15 See for example Abbott (1995), Anyadike-Danes and McVicar (2005), and Brzinsky-Fay et al. (2006) forfurther reading on application of the optimal matching technique.

attachment) is high. In Bosnia andHerzegovina more than 30% of theworking-age population is classified in oneof these two categories. The proportion ofindividuals with no attachment to the labourmarket is very large, reaching more than30% of the working-age population in bothcountries.

Figure 2.9 shows number of males in thedifferent labour market attachment groupsin Albania and Bosnia and Herzegovina.Men are in the majority in the groups withstrong attachment and some attachment,which indicates that women are prevalentin the group with no attachment.

There follows a description of the variouslabour market attachment groups. Moredetails of the different groups arepresented in Annex 4.

The group with strong attachment includesindividuals with stable sequences, primarilyemployment, both formal and informal(which can in turn be, wage orself-employment)16. This is assumed to bethe standard or desired labour marketsituation for individuals who want toparticipate in the labour market. However,in the countries and territories of theWestern Balkans it will also include a groupof individuals who have formal jobs in theold sector, but whose jobs do not have afuture prospect.

The group with some attachment consistsof individuals who have sequencesincluding employment (formal or informal)in some of the years, without having astable labour market position. They havesome attachment to the labour market, butthis is demonstrated only through eitherthrough short-term formal employment oremployment activities outside the formaleconomy, with mobility often into and out ofthe ‘unemployed’ or ‘others’ categories.The individuals in this group are youngerthan individuals with strong attachment,which indicates the difficulties of enteringthe labour market. Individuals in this groupare very mobile and have on average 2.4different labour market status episodes inAlbania (over the three yearlyobservations) and 2.8 in Bosnia andHerzegovina (over the four yearlyobservations). That is, a large proportion ofthis group are moving between differentlabour market statuses in every year.

The group with weak attachment consistsof individuals who may have some veryshort spells of formal or informalemployment, sometimes in agriculture, butwho mainly balance on the edge of thelabour market (recording transitionsbetween household work, unemploymentand ‘others’). This group also includesindividuals leaving the labour market forretirement. A large proportion of this groupare moving between different labour

66


0

10

20

30

40

50

60

70

80

strongattachment

someattachment

weakattachment

education agriculture no attachment

%male Albania

male BiH

Figure 2.9: Percentage of males in labour market attachment groups

16 The group is more homogenous in the case of Albania. In the case of Bosnia and Herzegovina, some veryshort and occasional spells of ‘non-employment’ options are also recorded.

market statuses in every year. In Bosniaand Herzegovina the individuals in thisgroup are young, indicating that for manythe entry into the labour market includeslittle employment.

The education group consists of individualswho have not yet, or have only recently, leftthe education system. In general, little ornothing is known about their individuallabour market outcomes.

The agriculture group consists mainly ofindividuals with stable sequences ofagricultural work. In the case of Albania, asshown in Section 2.5, the mobility betweenagricultural and household work is fairlyhigh and the distinction between these twocategories might not be so sharp. As onemight assume, this is the least educatedgroup. Inter-country differences in gendercomposition can be also observed (aprevalence of males in this group forBosnia and Herzegovina, and the oppositesituation for Albania).

The group with no attachment consists ofindividuals who are outside the labourmarket for the long term, being retired,performing household work or falling intothe ‘others’ group. Some of them onlyoccasionally perform some employment orare searching for a job. The individuals inthis group also have some mobility, with anaverage of 1.86 different episodes oflabour market status in Albania and 1.93 in

Bosnia and Herzegovina. However, this isto some extent mobility between similarlabour market statuses (from theperspective of the individual), such asunemployment, household work and‘others’.

A comparison with the individualsregistered at the PESs in Bosnia andHerzegovina, which is the group currentlyprimarily targeted for policy measures,indicates that they are spread over thedifferent labour market attachment groups.Some 37% of the individuals registered atthe employment services have weakattachment to the labour market, 24%some attachment and 23% no attachment,while there are even some (7%) who havestrong attachment to the labour market(primarily in the form of long-term informalemployment).

Effects of education on individual

labour market outcomes

In Figures 2.10 and 2.11 the distributionamong the groups of different educationlevels is presented. For both countries, theimportance of education for successfullabour market integration is clearly visible.However, higher educational attainment isnot a guarantee of strong labour marketattachment: 17.5% of individuals withhigher education in Albania and 22.2% inBosnia and Herzegovina have only someor weak attachment to the labour market.

67


0

10

20

30

40

50

60

70

Primary Secondary Tertiary

%

strong attachmentsome attachmentweak attachmenteducationagricultureno attachment

Figure 2.10: Distribution of labour market attachment groups for different

educational levels, Albania

On the other hand, a very small proportionof individuals with only primary educationhave strong attachment to the labourmarket in both countries (slightly more than10%). Individuals with secondary educationhave very diverse labour market outcomes.This indicates that policy interventionscould have a particularly significant impacton this group.

The results presented in this paper showthat education is an important factor forindividual labour market outcomes in theWestern Balkans, in particular for thechances of having a (good) job or a stronglabour market attachment. However, this isnot evident from data on unemployment aspresented in this study and elsewhere. Forexample, World Bank (2006c), usingindividual data from the LFSs in Serbia2005 and 2006, reports that the probabilityof leaving unemployment does not differsignificantly between groups of individualswith different levels of educationalattainment. This illustrates the importanceof a more detailed labour market analysis.

Preliminary findings from an econometricanalysis looking at the effects of differentcategories of educational attainment onindividual labour market outcomes supportthis conclusion (Huitfeldt and Selezneva,2007). Three different basic multinomialequations have been formulated to analysethe effect of main individual demographicvariables on labour market outcomes using:

1. employment, unemployment andinactivity;

2. the nine different labour market statusesdefined in Section 2.5;

3. the six labour market attachment groupsdefined above.

Two main findings arise from this analysis.Firstly, the positive role of education ismore accentuated when labour marketactivity is divided into nine labour marketstatuses and in particular when usinglabour market attachment groups. Thissupports the hypothesis that the degree oflabour market attachment may provide agood description of the labour marketperformance of individuals in the WesternBalkans (even if the causality is not entirelyclear). Secondly, participation in four-yearsecondary vocational education appears toimprove labour market outcomescompared with shorter secondaryvocational education and secondarygeneral education.

2.8 CHALLENGES FORSTRENGTHENINGATTACHMENT TO THELABOUR MARKET

The results discussed in this paper showthat basic indicators on employment andunemployment do not give a full picture ofthe labour market situation in the WesternBalkans. Recorded employment rates in

68


Primary Secondary Tertiary0

10

20

30

40

50

60%

strong attachmentsome attachmentweak attachmenteducationagricultureno attachment

Figure 2.11: Distribution of labour market attachment groups for different

educational levels, Bosnia and Herzegovina

the region are lower than those recorded inthe EU. Moreover, the extent of regularemployment (in the form of good or decentjobs) is much less in the Western Balkans.Formal employment rates as reported inthis paper range from 14% of theworking-age population in Albania to 24%in Bosnia and Herzegovina and 37% inSerbia. In addition, many formal jobs are ofa temporary nature and do not providegood working conditions (while someinformal jobs are of reasonable quality).

In order to account better for individuallabour market performance, labour marketattachment was introduced as a concept torepresent the degree of integration into theregular labour market. This reflects howoften an individual has a regular job, andwhat the quality of the job is. The startingpoint is that broadly speaking there arethree well-defined groups of individuals inthe labour markets in the Western Balkans:

1. individuals with stable, regular andformal employment, defined here ashaving strong attachment to the labourmarket;

2. individuals who are permanentlyinactive (participating in education,retired or taking care of a household),defined as having no attachment to thelabour market;

3. all other individuals, who can beconsidered to have various forms ofweaker attachment to the labourmarket.

On the basis of the definitions used in thispaper, in Albania and Bosnia andHerzegovina (for which data are available)only 20% and 26% respectively of theworking-age population have strong labourmarket attachment. This indicates majorlabour market distress in these twocountries, which is less evident fromstandard labour market analysis. Thegroups of individuals classified as havingsome or weak attachment to the labourmarket represent more than 30% of theworking-age population in Bosnia andHerzegovina and around 15% in Albania(excluding the large group of individualswho are permanently employed inagriculture). Little is known of the

characteristics and the different needs ofthe large group of individuals who haveweaker attachment to the labour market.

Furthermore, results presented in thispaper show some significant differencesbetween Serbia on the one hand andAlbania and Bosnia and Herzegovina onthe other. These results point in the samedirection as the conclusions drawn inChapter 1, that two different paths (oroutcomes) of the transition process can beobserved in the Western Balkans. One ismore organised, following the reform pathof earlier reformers in Central Europe(albeit slower), and one is less organised,with a stronger emphasis on low-productiveand low-skill jobs.

The fundamental challenge for thecountries and territories of the WesternBalkans is to revive economic growth thatwill be able to create more jobs of goodquality, in order to increase the proportionof the population who have a strong labourmarket attachment.

A second major challenge is to identify andtarget suitable (supply-side) policyinterventions for the large and diversesection of the population who are out ofregular employment. Currently the principaltarget group for policy measures areindividuals registered as unemployed atPESs. However, because of the incentivesto register that exist in Western Balkancountries and territories, those who areregistered as unemployed have verydiverse levels of labour market attachment,and may not be the most disadvantaged inthe labour market, nor the most suitable forpolicy interventions.

Policy measures for individuals who havestrong labour market attachment (but whoare in employment of a lower quality), forindividuals with some labour marketattachment (who are often performingsome kind of employment, though irregularin nature and often of low quality), and forindividuals with weak labour marketattachment (who rarely have anyemployment) need to be targeted to thespecific needs of the individuals, and mustinclude a broad range of measures.

69


In particular, a comprehensive employmentpolicy in the Western Balkans needs toinclude measures to facilitate the transitioninto better employment for the large groupof people who have weaker attachment tothe regular labour market. One majorobjective would be to increaseemployability for all. A crucial issue is tobroaden access to employment policymeasures and to revise policy measuresthat contribute to social exclusion. Thisalso includes a strengthening of social

safety nets for individuals with weakattachment to the labour market. Giventight public budgets, the financing ofemployment policy measures creates greatdifficulties. Prioritisation and innovation areimportant for finding effective and efficientways to support employment. Employmentpolicy measures such as income supportschemes and active labour marketmeasures need to be carefully targetedand monitored.

70


3. HUMAN CAPITAL17

ANDEDUCATION REFORMS INTHE WESTERN BALKANS

Jean-Raymond Masson andAnastasia Fetsi

3.1 INTRODUCTION

Human capital is recognised internationallyas a key factor for the economicdevelopment of countries and theimprovement of their relative position in theglobal knowledge-based economy. Thereis a great deal of research and evidencethat investment in human capital is linkedto GDP growth as it has a positive impacton the competitiveness of the economiesand on innovation. A highly educated andskilled labour force is more productive, itcan promote and absorb new technologiesand it is more adaptable to economicstructural change (European Commission,2006j). The discussion of the importance ofhuman capital for future economic andsocial prosperity is particularly vivid withinthe OECD countries, but it is alsorecognised in dynamic developing

economies such as China and India thathave made huge improvements duringrecent years in developing a well-skilled(and cheap) labour force.

Within the European context, the Lisbonstrategy gives primary importance to humancapital for economic development, and setsthe improvement of education and theenhancement of the skills of Europeanpopulations as primary objectives in theeffort to make Europe a competitive anddynamic economy. Together with the explicitconsiderations for internationalcompetitiveness and growth, an equaldistribution of knowledge and skills in thepopulation is also underlined in theEuropean context. This is closely linked tothe importance given to social cohesion (onan equal footing with economic growth) bythe Lisbon strategy and the underlying

71

3

17 Human capital as a concept covers both the education, knowledge and skills of the population and its healthand healthcare investment. Although we recognise that both are important, for the purposes of this chapter,the term ‘human capital’ is here used to cover only the education, knowledge and skills aspects.

European social model. Access for allpopulation groups to education and trainingand the creation of opportunities andincentives to permanently enhance theireducation and skills are integral parts of thelifelong learning concept which underpinsthe educational policies in the EU.

The human capital in Western Balkancountries and territories needs to bere-examined on the basis of the neweconomic realities imposed by a difficulttransition process, and the capacity ofhuman capital to be a leading factor insocioeconomic development. The quality ofthe labour force in terms of skills andattitudes to work in the former Yugoslaviawas traditionally considered to be a strongpoint for the positive economicperformance of the country, both within thesocialist block and in comparison with otherEuropean countries which are todaymembers of the EU. The country fed itsinternationally competitive industry withwell-skilled labour. Despite regionaldisparities (for example between Kosovoand Croatia or Slovenia), the overall levelof skills and education of the populationwas considered good by Europeanstandards (at least until the end of the1970s). Even after the break-up ofYugoslavia and the start of the economictransformation of the states that succeededYugoslavia, the general belief in thecountries was that the quality of the labourforce was a positive factor for the successof their economic redevelopment (evidencefor this opinion can be found in SWOTanalyses made under regional/localdevelopment EU-funded CARDSprogrammes). The question arises: is thisstill true, taking into account the presentand future economic and social challengesof the transition process in the countriesand territories of the region, as well theirfuture accession to the EU?

This overarching question can be dividedinto three areas of consideration.

� Is human capital in the Western Balkansadequate to facilitate innovation-ledgrowth (i.e. to create and absorb newtechnologies)?

� Is it adaptable enough to facilitatelabour reallocation from less productiveto more productive jobs?

� Are knowledge and skills equallydistributed among the population so asto promote socially inclusive economicdevelopment?

The purpose of this chapter is to try to givean answer to these questions, focusing onboth the adult and young populations. It willalso explore the degree to which educationand training reforms18 have actually workedtowards the further development of humancapital.

Section 3.2 below portrays the humancapital in the WBA countries and territoriesby focusing on educational attainmentlevels (as the best available proxy forknowledge and skills) of the adultpopulation and participation patterns ofeducation for the younger generations,while taking into consideration theimportance of emigration for possible braindrain. Section 3.3 provides an assessmentof recent reforms in the field of educationand training, identifying areas of progressand gaps, and Section 3.4 identifieschallenges for the future education andtraining systems in Western Balkans.

3.2 HUMAN CAPITAL IN THEWESTERN BALKANS

3.2.1 EDUCATIONALATTAINMENT LEVELS ANDSKILLS OF THE ADULTPOPULATION

The actual knowledge and skills of thepopulation are difficult to measure in theabsence of specialised surveys, and in theWestern Balkans such surveys do notexist. Educational attainment levels areused in the international literature as aproxy for the knowledge and skills of thepopulation, although it is known that theydo not take into consideration knowledgeand skills that have been developedinformally through work, training and otherexperience. Nor do they account for skills

72


18 Efforts made to enhance human capital within the framework of employment policies are examined in moredepth in Chapter 4.

depletion in cases of unemployment,inactivity or work experience that does notkeep up the knowledge and skills acquiredat school. The last point is extremelyimportant for the Western Balkans, as largesections of the population have faced longyears of underemployment, hidden or openunemployment, and involvement inlow-skill, low-value-added subsistenceactivities during the ethnic conflicts andsubsequent adverse economic situation.Nevertheless, an examination ofeducational attainment levels can providean impression of where the major gaps are.

An analysis of the educational attainmentlevels of the population (Table 3.1)produces the following observations.

Despite important differences acrosscountries and territories, the percentage ofthe population in the Western Balkanswith a low level of education is relativelyhigh, substantially exceeding thepercentages in the new Member States(EU-10) in all countries and territories ofthe region, and those of the old MemberStates (EU-15) in Albania, Bosnia andHerzegovina, Kosovo and the formerYugoslav Republic of Macedonia. Buteven in countries that have a relativelysmall percentage of people with a lowlevel of education, in-depth analyses of

the actual educational levels of thepopulation reveal a more serious situation.For example, according to the ETFpublication ‘Designing adult learningstrategies – the case of South EasternEurope’ (Gunny and Viertel, 2006), the2001 census in Croatia ‘revealed that ahigh proportion of its population had notcompleted basic schooling (eight years) orhave very low educational attainmentlevels: 2.86% had no formal education atall; 15.76% attended some years ofelementary schooling but did not completeit; and 21.75% completed only elementaryschool’. The fact that a high percentage ofthe population have low educationalattainment can become an importantchallenge for the further socioeconomicdevelopment of countries and territories.On the one hand it endangers socialinclusion, as people with low educationalattainment generally become involved inactivities in agriculture and otherprecarious subsistence activities in theinformal economy (see Chapter 2 above);such activities do not permit theseindividuals to upgrade their skills and findbetter opportunities in the labour market,and thus they enter a vicious circle ofpoverty, low education and skills. On theother hand it represents a weak point forthe further economic development of thecountries and territories, as a relatively

73

3. HUMAN CAPITAL AND EDUCATION REFORMS IN THE WESTERN BALKANS

Table 3.1: Educational attainment rate of the population aged 25–64

Country or territory Year Low Medium High

Western Balkan countries

Albania 2004 59 32 9

Bosnia and Herzegovina 2004 39 51 10

Croatia 2003 30 54 16

Kosovo 2003 62 37 1

Former Yugoslav Republic of Macedonia 2005 41 45 14

Serbia 2005 30 53 17

Montenegro 2005 22 61 17

European Union

EU-15 (old Member States) 2002 35 43 22

EU-10 (new Member States) 2002 19 66 15

Bulgaria 2005 28 51 21

Romania 2005 27 62 11

Source: Labour Market Reviews, ETF Key Indicators, Eurostat

Note on educational attainment levels: ‘low’ corresponds to completion of primary education at best; ‘medium’

corresponds to completion of secondary education (ISCED level 3); ‘high’ corresponds to completion of tertiary

education (ISCED levels 5 and 6).

high proportion of the population havelimited ability to become involved inhigher-productive economic activities.

With the exception of Albania and Kosovo,the majority of the population in theWestern Balkans has a medium level ofeducation that covers mainly (but not fully)graduates of vocational education (three-and four-year vocational programmes atsecondary level and one-yearpost-secondary vocational programmes19)designed to prepare them for jobs at levelof qualified worker or technician.(Graduates of general secondary educationare also included in this category, but theirrelative importance is small.) Evidencefrom unemployment registers and LFSsdemonstrates that people with mediumlevels of qualification have poor labourmarket outcomes, occasionally evenpoorer than those with low levels ofeducation; this is partly because peoplewith low levels of education are more likelyto work in agriculture or other subsistenceactivities (which are not desirable from aneconomic development point of view, butdo provide a living). The poor labourmarket outcomes of people with mediumlevels of qualification can be attributed to ageneral lack of demand (with the decline inemployment in industry, their main workdestination), but also to the fact that theyare unable to adapt to new economictrends. Under communism the types of skilldeveloped by the education system werenarrow, and were designed to equipworkers for specific tasks in the work place,as determined by central planners. Littleattention was paid to transferable skills asit was expected that workers would have ajob for life in their chosen industry. Fewpeople were educated in the skills neededfor a fast-changing market economy(Cazes and Nesporova, 2003). Lack ofadaptability implies a double-negativeeffect: (i) it has an individual cost in terms

of joblessness, and (ii) it risks delaying theeconomic restructuring process andhampering future economic development,as effective reallocation of resources willbecome more difficult and well-qualifiedlabour will become more scarce. Ad hocskill needs surveys of employers20

undertaken by EU-funded CARDSprogrammes have already demonstratedskill gaps in soft skills (communication,entrepreneurial attitude, team work andpositive attitudes to work) and ICT.Moreover, although technical oroccupation-specific skill gaps are not yetapparent because of the current state oftechnological and work organisationenvironment of firms which are generallynot modernised, these gaps are expectedto become more significant as economicrestructuring proceeds in all countries andterritories of the region (see also Chapter 1above). In fact, during the field visits for theETF labour market reviews in the countriesand territories of the region, discussionswith entrepreneurs in dynamic sectors(such as telecommunications,pharmaceuticals, construction andagro-foods) and in areas of rapid economicdevelopment brought up the issue of thelack of qualified workers and technicians.

The percentage of the population with ahigh level of education is particularly low inAlbania, Bosnia and Herzegovina, Kosovo,and to a lesser extent the former YugoslavRepublic of Macedonia, even compared tothe new EU Member States (which typicallyhave lower percentages than the oldMember States), while Croatia, Montenegroand Serbia are closer to the overall EUaverage. Does this mean that WBAcountries and territories should aspire toincrease the percentage of their populationwith higher education? The view is oftenexpressed that, even if people with highlevels of education have better labourmarket outcomes (they have lower

74


19 In the former Yugoslav countries and territories there were also two-year vocational programmes whichoffered very narrow and basic knowledge, and which for the purposes of this study have been allocated to thelow level of education. According to surveys and population censuses at the beginning of 2000 there was asmall proportion of the population who had this level of education.

20 It needs to be underlined that ad hoc skill needs surveys to employers can provide limited information on skilldemand or skill gaps as they generally reflect employers’ requirements at the moment of the survey. Incountries such as the Western Balkans, which are undergoing deep economic restructuring and where thereis a high degree of uncertainty, it is difficult for employers to foresee their longer-term skill needs. Rather,these surveys reflect the employers’ satisfaction with the skills available rather than the needs of theeconomy to grow and develop.

unemployment rates and higheremployment rates, and more often acquirebetter quality jobs in terms of stability andformal work contracts – see Chapter 2), asubstantial increase in the number of peoplewith high levels of education is not justifiedby the current shape of the labour market. Infact, some of these individuals already havedifficulty finding employment. The validity ofthis argument diminishes, however, if we putthings in perspective. Experience from othertransition countries demonstrates that highlyeducated people were the first to leave their‘secure’ jobs in declining industriesvoluntarily in search of opportunities in moreproductive activities, thus contributing tolabour reallocation. Moreover, they areoverrepresented among entrepreneurs(Dutz et al., 2001), thus contributing to theeconomic restructuring process. But also inthe long term, the further development of thecountries and territories of the region andtheir inclusion in the knowledge-basedeconomy will require highly educated peoplewho are able to promote innovation andapply new technologies. The debate withinthe EU on the importance of a highly skilledwork force (reflected by the percentage ofthe population with higher levels ofeducation) as a driving force for ‘a country’scapacity to innovate and its ability to catchup with the technology leaders’ (EuropeanCommission, 2006j) is intense; the WesternBalkans, as future and potential MemberStates, are also concerned with this debate.Certainly the current state of technologicaland economic development varies betweenthe countries and territories of the region(see Chapter 1 above), and the pace atwhich they enter innovation-led growth willalso differ, but they are all facing the samechallenge. The main question is to whatextent highly educated people are actuallyendowed with good knowledge and skills,and to what extent universities in the WBAcountries and territories can adequatelyprepare young people for the labour marketand for promoting innovation rather thanmerely providing a diploma. This question isdiscussed later in the chapter.

An intergenerational analysis comparingthe educational attainment levels ofdifferent age groups (see Annex 5)demonstrates that improvements in theeducational attainment of younger

generations have not been substantial,except in the case of Bosnia andHerzegovina and Montenegro. All thecountries and territories analysed (with theexception of Albania) have managed todecrease the percentage of theirpopulation with low levels of educationalattainment, but Albania, Serbia and theformer Yugoslav Republic of Macedoniahave also experienced a decline in thepercentage of the population with highlevels of education. Moreover,improvements in the educationalattainment levels of the younger agegroups are a result of the ever-improvingeducational attainment levels of womenrather than men. In fact, the educationalattainment levels of men have remainedfairly stagnant, and have even deterioratedin some cases as far as achievement inhigher education is concerned.

Distribution of educational attainment

levels in the population: the issue of

social cohesion

Research demonstrates that thedistribution of skills in the population canexplain a large part of the earningsinequalities shown in cross-countrycomparisons (Nickel, 2004). The greaterthe disparity of skill levels in the population,the higher the earnings inequalities. Thedistribution of educational attainment isimportant for explaining the disparities inearnings and poverty (Wössmann andSchütz, 2006). So, from a socialcohesion/social inclusion point of view, areeducational attainment levels equallydistributed through the population?Although no systematic evidence on thisissue can be provided at this stage for theWBA countries and territories, there areindications that the distribution ofeducational attainment across populationgroups and regions presents inequalities.

An analysis of urban/rural data from theLSMS for Albania and Bosnia andHerzegovina (2004) demonstrates thatpopulations in rural areas are lesseducated. This is probably because of themigration to urban centres of the besteducated people in search of betteremployment opportunities. Whatever thereason for the low educational attainment

75


levels of the people in rural areas, therelative lack of a well-educated populationcould become a further obstacle for theeconomic regeneration of rural areas, andcould create a further problem for socialcohesion.

Furthermore, a recent ETF study on theaccess to education and employment ofethnic minorities in the Western Balkans(ETF, 2005b) demonstrates that peoplefrom ethnic minorities generally (though notalways) have lower educational levels thanthe population as a whole. This isparticularly true for Roma populations allaround the region, which have extremelyhigh levels of very low educated people.Albanian populations in the formerYugoslav Republic of Macedonia,Montenegro and Albania are alsooverrepresented among those with lowlevels of education, and underrepresentedamong those with higher levels. The loweducational attainment levels of ethnicminority groups become an additional issuefor social cohesion, in particular whenethnic minorities are geographicallyconcentrated in economically deprivedregions.

Migration and brain drain21

Western Balkan countries and territorieshave experienced large population outflowsas a result of the adverse political andeconomic situation in the region and thelack of employment opportunities. Althoughthe positive aspect of emigration in terms ofremittances is recognised by receivinghouseholds and policymakers in theWestern Balkans, its negative aspect interms of the loss of human capacities isalso highlighted.

The phenomenon of emigration is not a newone in the region. In the first half of the1960s, 380,000 left Yugoslavia for economicreasons. In the mid 1970s, 1,400,000 left as‘temporary workers’ to satisfy the highlabour demand in Western Europe, and

around 400,000 returned. In the 1980s,180,000 again left for Europe, mostly fromBosnia and Herzegovina. The last migrationwave was caused by the war (1991–96) andeconomic difficulties, and around 3 millionpeople emigrated (Repe, 2002). Accordingto Barjaba (2004), there have been largeemigration waves from Albania: (i) before1944, to the USA and Latin Americabecause of economic factors; (ii) 1945–90,mostly for political reasons and;(iii) post-1990. Further, the same authordivides the most recent migration wave intothree sub-periods: (i) 1991–92, immediatelyafter the end of the socialist era, when300,000 left; (ii) 1992–96, when the samenumber of people left, mostly illegally and;(iii) 1996–97, when 70,000 Albanians left asa result of the difficult economic conditionsin the country.

However, systematic data on the numberof people emigrating is not collected by anycountry or territory in the region22, and it isdifficult to be accurate about the breadth ofthe phenomenon or to analyse the impactthat it has actually had on human capital.

The massive outflow of people is believedto have created a serious brain drain23.According to a survey of 1,295 individualsconducted by an NGO, the AlbanianCentre for Social and Economic Studies,during the period 1991–2005, more than50% of Albanian intellectuals went abroad,and as many as 60% of those who wentabroad no longer work in their original field(UNDP, 2006). A survey on potential braindrain was conducted at Zagreb Universityin 2000, with 536 graduate students andresearchers, and it concluded that youngscientists have the highest propensity tomigrate because of the lack of futurecareer prospects in Croatia (Meznaric andAdamović, 2002). A study (Janesca, 2003)on the migration from the former YugoslavRepublic of Macedonia of skilled personsconcluded that more than 15% of the totalnumber of Macedonians with universitydegrees have gone abroad (Janesca,

76


21 This part is based on the input of Natalia Popova, ETF.

22 In Albania, for example, data on migration have not been collected; only estimates have been carried out,based on census data. There is no information on migration at regional and local level. In Serbia, the Ministryof Labour has started to consider putting together a database of people who have gone abroad for work. InCroatia, the Institute for Migration and Ethnic Studies was founded in 1984 and has been doing research andcollecting data on internal and external migration.

23 Brain drain refers to the loss of intellectual and technical personnel as a result of migration abroad.

2003), though it does not specify whetherthis percentage is linked only to a specificyear or whether it refers to all universitygraduates (age group 25–64).

However, there are no consistent data tosupport the argument that higher-educatedpeople have been overrepresented amongthe total number of emigrants. Figure 3.1shows the levels of education of WesternBalkan migrants (age 15+) living in OECDcountries. The data are derived fromcensuses in the OECD countries for theperiod 1995–2003 and also coverindividuals who had migrated before thetransition period started in the WesternBalkans. If a rough comparison is drawnbetween Figure 3.1 and Table 3.1 (on theeducational attainment levels of the overallpopulation in the WBA countries andterritories), the percentages of those withhigh skill levels are very similar for those athome and those who have emigrated toOECD countries. This could simply be anindication that there is not adisproportionate tendency amonghigher-educated people to emigrate.

Apart from the short-term cost ofemigration in terms of the loss of humanresources, it can also have positive effectsin the medium and long terms if emigrants

who have acquired skills abroad return totheir countries of origin bringing with themnew knowledge and skills. In a survey onthe informal economy in Tirana, Albania, bythe ETF (2005c), a number of thoseinterviewed admitted that they haddeveloped their skills working in Greece orItaly. However, there are no signs thatrepatriation of emigrants is taking place (ona large scale at least) in any of the WBAcountries or territories, despite the effortsof some governments to attract backemigrants. Moreover, this is not expectedto happen until the economic situation inthe region becomes more favourable andemployment opportunities improve.

3.2.2 PARTICIPATIONPATTERNS IN EDUCATIONAND TRAINING: LOOKING TOTHE FUTURE

During the 1990s participation in basiceducation (ISCED levels 1 and 2) in theWestern Balkan countries exhibitedirregular patterns (see Figure 3.2) that didnot demonstrate any real improvement interms of achieving full participation. Thiscan be explained by the unstable politicalsituation in the countries and territories ofregion and the impact that this has had on

77


56

45

48

64

55

35

43

38

24

32

9

12

14

12

13

0 20 40 60 80 100

Albania


Croatia

fYR Macedonia


Low Medium High

Figure 3.1: Distribution of educational attainment levels of emigrants from the

Western Balkans in OECD countries (%)

Source: OECD

Note: The data on emigrants come from the censuses in the OECD countries, which were carried out over the

period 1995–2003. This Figure shows the educational level attained by the emigrants in the OECD countries.

both people’s lives and the educationsystem itself. But since the beginning of the2000s progress towards full participation inthe basic level of education has also beenmodest. At the beginning of the 1990sWestern Balkan countries had slightlylower participation rates than EU MemberStates (see data of TransMONEEdatabase), and the gap between the twogroups of countries continues to exist.

In 2005/06 enrolment rates for the agegroup 6–14 years (i.e. the typical agegroup that attends basic education)remained below the EU average (except inMontenegro), in particular in Albania andthe former Yugoslav Republic ofMacedonia (Table 3.2). Hidden drop-outrates, representing children who areenrolled in education but who havediscontinuities in their attendance or do notlearn, are also reported in Albania (ETF,2006a). The lack of a recent census inBosnia and Herzegovina does not allow thecalculation of enrolment rates for the agegroup 6–14 years, but estimates of variousinternational organisations put theenrolment rate in basic education between92.8 and 98.9% at the beginning of the2000s24.

Detailed studies by UNDP, UNICEF andother international organisationsdemonstrate that the gap in the participationrates in basic education can be explained bythe very low participation of children fromsocioeconomically disadvantagedbackgrounds, and are mostly concentratedin rural areas. Children of some ethnicminorities such as Roma are also includedamong those who participate least in basiceducation, or drop out of it.

Opinions on the quality of basic educationhave been expressed by key stakeholdersin the countries and territories of theWestern Balkans, and by internationalbodies. These are also confirmed by theoutcomes of qualitative assessments ofpupils’ knowledge (at the age of 15)through the PISA and TIMSS surveys:Serbia scored very low in the most recentPISA survey (2003); in the same year, theformer Yugoslav Republic of Macedoniaalso scored very low in PISA, as it did inTIMSS (1999 and 2003) and PIRLS (2001).Taking into account the fact thatpupil–teacher ratios in basic education arenot particularly high (except in theFederation of Bosnia and Herzegovina andKosovo) (Table 3.3) in comparison to the

78


75

80

85

90

95

100

105

110

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

AL BiH HR MK S&M

Figure 3.2: Enrolment in basic education (gross rates, % of relevant population)

Source: TransMONEE, 2005

Note: AL = Albania; BiH = Bosnia and Herzegovina; HR = Croatia; MK = the former Yugoslav Republic of

Macedonia; S&M = Serbia and Montenegro.

24 As reported in the ETF’s ‘Labour Market Review of Bosnia and Herzegovina’ (2006b), the ECSPE report of2002 ‘Bosnia and Herzegovina – From donor dependency to fiscal sustainability’ estimated participation ofchildren in primary education at 92.8%, the World Bank poverty assessment 2003 at 95%, the UNDP HumanResource Development report of 2002 at 97%, and ETF calculations on the basis of LSMS at 98.9%.

EU average of 15 in 2003 (EuropeanCommission, 2006m), issues of quality areinstead related to teachers’ competenceand the teaching and learning methods, aswell as to the lower educational standards.Deficiencies in infrastructure are alsonoted, with schools working in two shifts inthe major urban centres of the countriesand territories in the region andpoor-quality infrastructure in a number ofschools in the rural and peri-urban areas.

As good-quality basic education isfundamental for future educationalsuccess, countries of the Western Balkansmust improve their educational provision inorder to increase access, in particularamong children from disadvantagedsocioeconomic backgrounds, and achievefull participation. On top of that there is alsoscope for improvement of the quality of

education so as to achieve better learningoutcomes for all children.

With regard to secondary education, as inother transition countries there was a slightfall in participation rates for this level ofeducation at some point (or for someperiod) during the 1990s for almost allWestern Balkan countries and territories.This point (or period) in time is different foreach country and territory, depending ontheir particular socioeconomic conditions.Both internal factors within the educationsystem (such as the low quality, combinedwith the unattractiveness, of education, theclosure of schools, and poor schoolconditions) and external ones (such aswars, forced population movements, andpoverty) are the reasons behind them.Fortunately this negative trend seemsalready to have been reversed in most

79


Table 3.2: Enrolment rates for 6–14-year-olds

2001/02 2002/03 2003/04 2004/05 2005/06

Albania 95.4 95.0 94.9 94.3 93.6

Croatia na 90.6 95.9 96.0 96.3

fYR Macedonia 96.5 94.2 94.3 95.0 94.6

Montenegro 84.7 96.3 103.8 98.2 99.6

Serbia na 97.6 97.0 97.7 97.2

Kosovo na na na na na

Bulgaria 98.4 94.6 93.8 93.7 na

Romania 96.1 95.4 94.5 94.6 na

OECD average for 5–14 98.2 98.5 98.3 98.3 na

Source: ETF database, OECD database

Note: na = not available

Table 3.3: Pupil–teacher ratios in basic education

2001/02 2002/03 2003/04 2004/05 2005/06

Albania 9.2 17.2 16.1 15.7 15.2

Bosnia and Herzegovina 18.0 17.0 17.0 17.0 17.0

Croatia 12.3 11.3 13.2

fYR Macedonia 15.6 15.7 15.0 15.9 14.1

Montenegro 12.5 12.9 12.9 12.9

Serbia 13.7 13.2 12.8 12.5

Kosovo 19.1 19.0 19.0 19.2 19.0

Bulgaria 12.1 12.0 11.7 11.3

Romania 8.2 12.6 11.0

Source: ETF database

countries and territories. However,participation rates for 15–18-year-olds (thetypical age group participating in secondaryeducation) still lag behind those in the EU,and in particular behind those for the newEU Member States (EU-10), which havebetter participation rates for secondaryeducation than the old Member States(EU-15). In Albania, Bosnia andHerzegovina25, the former YugoslavRepublic of Macedonia, and to a lesserdegree Serbia, there is an important gap tobe filled, while Croatia is closer to the EUaverage.

Another aspect that must be emphasised isthe importance of vocational education atsecondary level within the educationsystem (Table 3.5). The share of enrolmentin vocational education at secondary levelis relatively high compared to the EUaverage, but is at the same level as that ofthe new Member States in Central Europe(see European Commission, 2006l). Onlyin Albania has this percentage reduceddramatically to 17% as a result of thecollapse of the secondary VET system atthe very beginning of the transitionprocess, the unfortunate consequencebeing a dramatic decrease in overallparticipation rates at secondary level. InKosovo and the former Yugoslav Republicof Macedonia the relative weight of generaleducation at secondary level has alsoincreased during recent years.

The high levels of enrolment in vocationaleducation at secondary level compared withthe EU average can be explained by theshaping of the education system to servethe needs of a traditional industrialeconomy, reflecting the importance ofsecondary level qualifications and skills inthat economy. The intake to secondaryeducation in the Western Balkans is eventoday based on strict selection processesand is determined by the number ofavailable places in the general andvocational programmes, with limitedopportunities for children to choose theirpreferred programme26. But is this pattern ofparticipation in education still relevant whenthe countries and territories need to moveinto more knowledge-based and innovativeeconomies? The international debate on the‘desirable’ level of vocational education inthe transition countries, as an instrument forskills formation among the youngergenerations in order to support economicdevelopment – but also to prepare youngpeople for employment – has been livelyduring the past ten years, though no definiteanswers or clear conclusions haveemerged. The shape of the educationsystem in general and at secondary level inparticular is ultimately linked to theeconomic structure of the country orterritory, and to tradition. What is important,however, is to provide young people withquality education and training opportunitiesthat prepare them for the labour market and

80


Table 3.4: Enrolment rates for 15–18-year-olds

2001/02 2002/03 2003/04 2004/05 2005/06

Albania 40.6 43.0 48.0 48.4 55.1

Croatia 81.1 82.3 83.1 83.5

fYR Macedonia 65.7 70.0 69.2 68.9 68.8

Montenegro 73.7 63.4 76.6 80.8

Serbia 78.0 77.6 78.1 78.9

Bulgaria 75.2 80.2 82.2 82.1

Romania 73.9 74.7 73.9 74.5

EU-25 89.5

EU-15 88.6

EU-10 93.3

Source: ETF database; Eurostat database.

25 Participation rates for secondary education were estimated between 56.8% (UNDP Human ResourceDevelopment report 2002) to 72.6% (ECSPE report) at the beginning of the 2000s.

26 Some efforts have been made, for example in Serbia, to adapt the selection process for the intake insecondary education and give more options to children.

keep their options open throughout theireducation careers and thereafter. There iswidespread agreement within the EU(Maastricht Communiqué, 2004) andinternationally on at least three elementsthat are necessary for vocational educationat secondary level. The first concerns therelevance of the knowledge that modernVET programmes should provide to youngpeople, and its link to the labour marketrequirements of the knowledge economy.The second concerns the parity of esteemand links with general education and highereducation, ensuring flexible educationsystems and avoiding dead-end roads forVET students. The third concerns qualityand innovation in vocational education. All

three elements are particularly important forWestern Balkan countries and territories.

A positive element in the current secondaryvocational education systems in thecountries and territories is that they providefour-year vocational programmes that offeropportunities for access to highereducation (together with three-yearprogrammes that are practically deadends), and there is an ever-increasingnumber of students who follow thoseprogrammes (see Table 3.6). The four-yearprogrammes (at least in some fields ofstudy, such as economics, paramedicalprofessions and engineering) seem to beheld in relatively high esteem and are

81


Table 3.5: Distribution of enrolment between general and vocational education at

upper secondary level (ISCED level 3) in 2005/06

General VET totalVET four

years

VET three

years

Albania 82.3 17.7 13.6* 4.1

Bosnia and Herzegovina 24.0 76.0 46.0 30.0

Croatia 27.0 73.0 47.0 26.0

fYR Macedonia** 39.2 60.9 51.6 9.3

Montenegro 31.4 68.6 55.2 13.3

Serbia 24.1 75.8 53.0 22.8

Kosovo 45.4 54.6 nr 54.6***

EU-25 64.0 36.0

Bulgaria 45.8 54.2 54.0 0.2

Romania 34.8 65.2 38.0 27.2


nr: not relevant

* Refers to five-year vocational programmes

** Data of the Ministry of Education

*** This covers two- and three-year programmes

Table 3.6: Percentage of secondary education students in four-year VET

programmes

2001/02 2002/03 2003/04 2004/05 2005/06

Albania 10.1 7.6 9.5 12.1 13.6

Bosnia and Herzegovina 41.2 44.2 45.4

Croatia 45.1 45.9 46.7 47.0

fYR Macedonia* 50.1 50.6 51.8 51.9 51.6

Montenegro 53.7 55.2

Serbia 49.3 49.8 49.9 51.7 53.0


* Data of the Ministry of Education

occasionally even preferred to generaleducation at secondary level (ETF, 2006c).But apart from these exceptions, vocationalsecondary education suffers in terms ofrelevance of knowledge as well as quality.Most curricula are still outdated; there hasbeen a great deal of deterioration in theinfrastructure of vocational schools(including school buildings, laboratoriesand workshops for practical training);practical training is extremely limited; andteachers are not adequately trained toinculcate new knowledge and attitudes toyoung people. As a consequence,vocational education at secondary level iscriticised by employers, and access toemployment following graduation from VETschools is extremely difficult. Moreover, thepathways between vocational educationand general education at secondary levelare almost non-existent, while the trackingof young people to different vocationalstreams happens at an early stage(normally at the age of 14 or 15). This

implies that young people must decide ontheir future careers at an early age withouthaving the opportunity to change later on.Data on the mobility of students betweenthe different tracks or between general andvocational education are not available.However, the curriculum structure, togetherwith anecdotal evidence on what ishappening in the secondary educationsystems of these countries and territories,does not support the hypothesis that suchmobility is taking place on a large scale. 27

The above details demonstrate that thereare a number of challenges for the WesternBalkans with regard to their educationsystem at secondary level. First, they needto increase participation levels insecondary education so as to enhancetheir future human capital and also closethe gap with the EU. Second, they need toreview the shape of their secondaryeducation system in view of the newsocioeconomic reality, including among

82


Table 3.7: Participation of 19–24-year-olds in higher education27

Country 1992 1997 2003

Western Balkans

Albania 11.0 12.0 17.0

Bosnia and Herzegovina 8.7 14.8 19.2

Croatia 20.1 24.2 32.7

fYR Macedonia 16.2 17.5 22.6

Serbia and Montenegro 18.7 23.6 23.9

Future Member States

Bulgaria 22.8 31.8 31.9

Romania 12.8 19.1 34.0

New EU Member States

Czech Republic 16.6 22.1 39.9

Hungary 13.0 25.5 56.8

Poland 18.6 34.8 53.9

Slovakia 14.6 22.8 32.1

Slovenia 27.5 45.9 72.6

Estonia 30.7 41.5 62.9

Latvia 19.1 38.9 64.8

Lithuania 23.4 33.8 62.3

Source: MONEE Database

27 The data should be interpreted with caution when cross-country comparisons are made, as statisticaldefinitions across countries are not always the same. For example, in Croatia the number of students(compiled by the state bureau of statistics) does not include those who no longer have to attend classes, butwho still have to take some exams and graduate (the so-called ‘apsolvents’). These students representaround 30% of the total, and their inclusion would therefore increase gross enrolment rates by around a third.The purpose of this table is to give an impression of trends rather than to make cross-country comparisons.

other things the uncertainty that thetransition process involves, and offer youngpeople educational options that leaveprogression routes to higher levels ofeducation open. Finally, they need toimprove their vocational educationprovision while ensuring better links withgeneral education.

Participation in higher education has beenincreasing during the past ten years in theWestern Balkans, though not as fast as inthe EU, and in particular in the new MemberStates (Table 3.7). During that period thenew Member States have doubled – if nottripled – their participation rates for highereducation, while in the Western Balkansonly Bosnia and Herzegovina has done so,the other countries having achieved amodest increase.

However, increasing participation in highereducation is not sufficient if it is notcombined with quality provision of highereducation institutions. Concerns about thequality of education in universities havebeen raised by parents and students inWBA countries and territories. Evidencefrom Serbia demonstrates that the averagelength of studies in higher education (firstdegree) is around eight years, while inCroatia it is estimated that around 55–60%of those enrolled at universities completetheir studies. On the other hand,universities already report reducedcapacity to accommodate even the modest(by EU standards) increase in participation.

Increasing participation in higher educationdoes not necessarily mean increasingparticipation in universities oracademic/elitist higher education. In fact inmany new Member States there have beendevelopments in post-secondary vocationaleducation that, although they cannotcompletely explain the increase inparticipation in higher education, certainlycontribute to it. These countries are alsoexperiencing an increase in professionalhigher education28. Western Balkancountries and territories are not yet

particularly advanced with regard to thesetypes of higher education, which canprovide high-level skills for their economicdevelopment, although there are somesigns of universities becoming involved inthe provision of more professionallyoriented programmes. Furthermore, thecooperation between universities andenterprises is not yet well developed.

The above observations lead to theconclusion that the education systems inthe Western Balkans need improvement atall levels in order to ensure higherparticipation from basic to highereducation, to prepare young peopleadequately to face labour marketchallenges, and to prepare a future labourforce able to support the economicdevelopment of the countries andterritories. The issue of lower participationrates for children from disadvantagedeconomic backgrounds also needs to beaddressed.

The problem is that public resources foreducation are very limited, and privatefunds (for example from businesses) havenot yet been mobilised. Bosnia andHerzegovina spends 6.4% (4.3% in 2005)of GDP for public expenses on education(World Bank, 2006b), but other countriesspend less: 4.3% in Croatia in 2003, asimilar amount in Montenegro, 4% in theformer Yugoslav Republic of Macedonia,2.8% in Albania and 3.4% in Serbia,compared with an EU-25 average of5.22%. Moreover, there is evidence ofdecreasing priority being given toeducation within government expenditure,since these figures have decreasedmarkedly in recent years, from 5.7% in1997 in Serbia, from 3.7% in 1996 inAlbania, and from 5.3% in 1996 in theformer Yugoslav Republic of Macedonia29.Finally, it could be said that these figuresoverestimate expenditure on education, asofficial GDP measurements do not takeinto account the informal economy, which,as mentioned in other chapters, can be ashigh as 30% of GDP.

83


28 For example, in Lithuania 29% of enrolment in higher education was in post-secondary vocational education;in Estonia 37% of total enrolment in higher education was in professional higher education; in the CzechRepublic professional higher education accounts for 11% of total enrolment in higher education; in Slovenia10% of total enrolment in higher education is in post-secondary vocational education and 41% is inprofessionally oriented higher education (Eurydice database: www.eurydice.org).

29 MONEE project data.

3.3 EDUCATION AND VETREFORMS ASSESSMENT

3.3.1 THE EDUCATION ANDTRAINING 2010 WORKPROGRAMME AS THEREFERENCE FOR POLICYASSESSMENT

This section gives an analysis and anassessment of the main reforms that aretaking place in education and training, witha particular focus on VET. The reference isthe Education and Training 2010 WorkProgramme30, and in particular theobjectives and priorities relating to therelevance of education and trainingsystems to the needs of the labour marketand the economy, as established by theLisbon strategy. This includes full referenceto the preparation of lifelong learningstrategies31, the priorities established in theCopenhagen declaration on enhancedEuropean cooperation in VET32, and somekey features of the Bologna process33. Itrelates closely to the EuropeanEmployment Guidelines to which theEducation and Training 2010 WorkProgramme makes a substantialcontribution, particularly through GuidelinesNo 23 ‘Expand and improve investment inhuman capital’ and No 24 ‘Adapt educationand training systems in response to newcompetence requirements’34, but alsothrough Guidelines No 18 ‘Promote alifecycle approach to work’, and No 20‘Improve matching of labour market needs’.

Since the Western Balkans are on the roadto accession, future Member States(Croatia and the former Yugoslav Republicof Macedonia) are already full members ofthe Education and Training 2010 WorkProgramme, and the other countries andterritories (Albania, Bosnia andHerzegovina, Kosovo, Montenegro andSerbia), as ‘potential candidate countries’,are concerned with the objectives andpriorities set up in these processes.Moreover, all have already joined the

Bologna process. However, theirinvolvement in these processes is recent,and they are only just emerging from aperiod of war and destruction that hasseverely affected education and training, inwhich they must also ensure a successfultransition to a market economy anddemocracy. It is therefore clear thaton-going reforms have not touched uponall the issues and priorities highlighted inthe EU processes identified above.

After a brief overview of the on-goingreforms, there will be a discussion of fieldsthat have attracted the attention of reformefforts to date, even if the results are not yetcompletely convincing. There will be anassessment of the results and the difficultiesfaced in each field in relation to the main EUmessages, principles, tools and referencesfrom the different processes that areon-going under the Education and Training2010 Work Programme. Good practice willalso be identified. These fields are:

� governance and partnership;� decentralisation;� labour market needs assessment;� curriculum development;� teacher training and retraining;� qualification frameworks and

certification systems;� higher education reforms and the

Bologna process.

There will then be a discussion of otherfields which have received less attention,particularly:

� global architecture and lifelong learningperspective;

� access to education and socialinclusion;

� transition from school to work andemployability;

� adult education and continuing training;� counselling and guidance;� quality assurance;� financing issues, efficiency and equity;� school autonomy;� management of the change process.

84


30 http://ec.europa.eu/education/policies/2010/et_2010_en.html

31 http://ec.europa.eu/education/policies/lll/lll_en.html

32 http://ec.europa.eu/education/policies/2010/vocational_en.html

33 http://ec.europa.eu/education/policies/educ/higher/higher_en.html

34 http://ec.europa.eu/employment_social/employment_strategy/prop_2005/adopted_guidelines_2005_en.htm

The main obstacles for the successfulimplementation of the reforms, and inparticular for the implementation of theEducation and Training 2010 WorkProgramme, will then be highlighted, as willthe main challenges for further policydevelopments.

3.3.2 ON-GOING REFORMS: ABRIEF OVERVIEW

Since 2000 reforms of education systemshave started to be discussed andintroduced in all countries and territories,through different processes and particularlythrough laws covering the whole educationsystem or some parts of it, but without acomprehensive lifelong learningperspective. In general this has occurredfollowing a great deal of preparation, thepublication of white and green papers, andconsultation processes, sometimesinvolving teachers (Bosnia andHerzegovina, Montenegro), or a morelimited number of stakeholders (18 for thegreen paper in Serbia in 2001). This issupported by a range of donors,particularly the EU CARDS programme,but also the World Bank, the ILO, theUNDP, the SOROS Foundation, and manybilateral donors, among whom Germany,

Austria, Switzerland, Finland, Denmark,Canada and the USA play a substantialrole. Reform projects are ambitious onpaper, and include setting up nationalcouncils, professional institutions andnational certification systems, drafting newcurricula, developing teacher training,introducing decentralisation mechanisms,promoting quality assurance, developingaccreditation, considering new financingsystems, and promoting better governance,including social partnership.

As part of this process, specific VETreforms have been designed, andimplementation has started in all countries,supported by EU CARDS programmes.This has involved establishing links withthe labour market, building labour marketintelligence, promoting the involvement ofsocial partners, developing new curriculaand teacher training, and introducingoccupation-based curricula andlearning-outcomes-based approaches. Thetable below gives an overview of some keymilestones in each country.

Although several reforms are on-going in allcountries and territories, as discussed below,they often lack appropriate consideration ofimplementation issues, particularly in termsof institution and capacity building.

85


Box 3.1: Legislative and institutional development milestones in the

Western Balkans

Albania

� Law on Pre-University System of Education (1995)� Decision of the Council of Ministers (1999) creating the legal basis for promoting employment

through ‘institutional training’ and ‘on the job training’� Law on VET (2002)� Establishment of a National VET Council (2003)� Adoption of the Strategy for Employment and Vocational Training (2003)� Law on Education (2004)� National VET Strategy Guide 2006–09� Implementation of the Bologna process started� HE Law in preparation


� Series of Laws on Education by canton and entity (end of the 1990s)� Framework Law on Primary and Secondary Education (2003), including introduction of nine-year

primary education in schools� VET Development Strategy 2007–13 agreed by all entities (2006), still to be officially ratified� HE Law, Law on the Education Agency, framework Law on VET and Framework Law on

Pre-school education still pending

86


Croatia

� Introduction of apprenticeship system for crafts sector on an experimental basis (1996), nowgeneralised in the ‘unique model for education’ since 2003

� National Action Plan for Employment 2005–08 adopted (2005)� Education Sector Development Paper (2005)� VET Agency established (2005)� Law on secondary education adopted (2006)� VET white paper and VET Law drafted (2006)� Joint Assessment Paper (JAP) process started (2006)� Agency for Adult Education established (2006)� 13 Sector Councils established (2006)� Concept paper on a Croatian Qualification Framework in preparation� Adult Education Act in preparation

The former Yugoslav Republic of Macedonia

� First Laws on Elementary and Secondary Education (1995)� Law on Higher Education (2000)� National Strategy for Development of Education 2005–15 adopted (2005)� Strategy 2006–15 for Adult Education endorsed (spring 2006)� VET Law (June 2006)� National Employment Strategy and National Action Plan for Employment finalised (September 2006)� Law on the Inspectorate (2006)

Kosovo (under UNSCR 1244)

� Responsibility for education given to the territory (2002)� Law on Primary and Secondary Education (2003), including decentralisation to municipalities� Adult Education and Training Law in preparation� Law on Higher Education in the pipeline� VET Law in the pipeline

Montenegro

� General Law on Education (2002) (with amendments in 2005)� Law on Secondary Vocational Education (2002)� Law on Adult Education (2002)� Law on Labour and Law on Employment (2003) (with amendments in 2005 and 2006)� VET centre established (2003)� VET Council and Adult Education Council established (2003)� Adoption of two strategies for Education Reform for 2002–04 and 2005–09� Introduction of a dual form of VET (2004/05)� Law on Education Inspection (2004)� Law on Higher Education (2005)� Adult Education Strategy for 2005–15 and Adult Education Action Plan for 2006–10 adopted (2005)� National Qualifications Commission set up (2006)� Draft National Qualification Framework prepared (2006)

Serbia

� Law on Education (2003)� National Council for Education set up (2005)� Policy and Strategy papers for VET (2005) with the decision to create a National VET Council,

but not implemented after political changes� National Employment Strategy (2005) and National Action Plan for Employment (2006)� Green Paper for VET and Paper for the development of adult education under discussion� HE Law for implementation of the Bologna process (2006)� New Proposal of Law on Changes of the Basic Law on Foundations of Education System under

scrutiny (autumn 2006)� Three-year action plan for VET to be presented to parliament

Moreover, reforms have often sufferedfrom a slow pace and a lack of continuityas a result of political changes andhesitancy toward education reforms.However, they are in general in line withmacro-economic objectives of developinga few key sectors (catering, woodprocessing, tourism, construction), asdescribed in the draft NationalEmployment Strategies in Serbia and inMontenegro, as well as with the PovertyReduction Strategy Papers (PRSP) inBosnia and Herzegovina, Montenegroand Serbia. The number of VET profileshas been substantially reduced in mostcountries and territories, and theseprofiles are being organised in clusters.Adult learning strategies have also beenunder more recent consideration oractive preparation by Ministries ofEducation, as in the former YugoslavRepublic of Macedonia, or have alreadybeen officially adopted by thegovernment, as in Montenegro. Highereducation reforms are also on-going, withTempus support, and are being givenhigh priority in most countries andterritories, in relation to the Bolognaprocess in which all Western Balkanstates are now involved.

3.3.3 SUBJECTS COVERED BYON-GOING REFORMS

Governance and partnership

As indicated in the Communication fromthe European Commission on ‘Making aEuropean Area of Lifelong Learning aReality’ (2001), a partnership approach isstipulated as the first building block of acoherent and comprehensive lifelonglearning strategy: ‘All relevant actors, inand outside the formal systems, mustcollaborate for strategies to work “on theground”. As well as promotingpartnerships at all levels, national,regional and local, Governments shouldlead by example by ensuring effectivecoordination and coherence in policybetween ministries.’

The first action taken to establishcoordination between the mainstakeholders at central level has been theestablishment of Economic and SocialCommittees (often tripartite) and NationalEducation (or VET) Councils. However,their functioning is still weak in mostcountries and territories as they lack bothsufficient resources and the actualcommitment of the institutions thatparticipate in them. Given that they areoften dominated by representatives of theeducation side, their capacity to increasethe responsiveness of the educationsystem to the labour market and economicdevelopment is rather weak. Moreover,their focus is on higher education, whileVET issues are rarely dealt with. In Serbiathe project to create a National VETCouncil has been withdrawn, and themembers of the National Education Councilwho are concerned with labour market andVET issues are too few, and are not in aposition to put forward their ideas. InCroatia an Agency for Adult Education isnow being established without any socialpartner representation on its governingboard (Gunny and Viertel, 2006). Inconclusion, the functioning of those bodiesat central level has not yet been successfulin ensuring strong cooperation amongMinistries of Education, Ministries ofLabour, Ministries of the Economy and thesocial partners in most countries andterritories. On the other hand it has to besaid that cooperation among stakeholdersat central level improves when theyparticipate in projects or actions that havea specific aim. The development of nationalqualification frameworks in a number ofcountries and territories, and draft laws onlifelong learning, are examples of this. Therecent Law on VET in Albania is also seenas a positive result of close cooperationbetween the Ministries of Education andLabour (Xhumari, 2005).

The development of social dialogue andpartnership on education and training issuesis particularly low35. This is because ofdifficulties in economic restructuring36, andalso cultural factors, since the partnership

87


35 For a more detailed analysis of the whole issue relating to social partnership, see Chapter 5.

36 As analysed by Darko Marinkovic, ‘one of the biggest obstacles to the development of social dialogue is theslow pace and insufficient efficacy of economic reforms and the unexpected high social costs of transition’(Marinkovic, 2002).

culture breaks old traditions of ‘vertical’working relationships in planned economiesand societies such as the former Yugoslaviaand Albania during the socialist period.Trade unions are not very interested in, norprepared for, negotiations on humanresource development (HRD) issues.Employers’ associations are very new anddeveloping, and the representation ofemployers is most often undertaken bychambers of commerce and/or of crafts (seealso Chapter 5 below). Although it is difficultto establish a substantial partnership atnational level, recent discussions onqualifications have promoted partnershipbetween the main stakeholders.

Cooperation with employers is often moreeffective when it takes place throughconcrete projects, particularly at local level.Hence, effective cooperation hasdeveloped through the promotion of a ‘dual’system between VET schools and thechambers of crafts in Croatia and inMontenegro. In Croatia, Serbia and theformer Yugoslav Republic of Macedonia,the chamber of commerce is also asignificant partner at national level for theVET Centre (or Agency) and VET schools.Overall, the situation is mixed, withevidence of goodwill and commitment fromemployers to retrain unemployed people,as seen in some EU-funded CARDSprojects, but also strong reluctance tocooperate with schools for the practicaltraining of VET students in other regions37.

New governance schemes have also beenintroduced with the establishment ofprofessional centres or agencies on

specific educational elements. Hence, aswell as the VET National Centres alreadyset up or in the process of being set up inalmost all countries, there is an Agency forAdult Education in Croatia, a specificCentre (Zavod) for Quality Assurance inSerbia, and specific offices or bureaux foreducation that are concerned with generaleducation and teacher training. Again,these bodies are very new and it is not yetpossible to assess their work. However,there is anecdotal evidence thatcoordination between centres and/orbetween ministries and centres is notoptimal, that the definition and the sharingof responsibilities is not always sufficientlyclear38, and that the establishment of suchcentres has not been systematicallyassociated with the necessary training ofthe staff involved. There is still a great needfor capacity building.

Decentralisation

Decentralisation has often been promotedby donors as the key to better efficiency ineducation and VET in the WesternBalkans. It was also introduced in Bosniaand Herzegovina after the DaytonAgreements in 199539 and in the formerYugoslav Republic of Macedonia in July2005 as a political issue linked to the OhridAgreement40. Through peer reviewexercises organised by the ETF in2002/03, decentralisation of the VETsystem has been analysed and advocatedin Serbia and in the former YugoslavRepublic of Macedonia through a series ofrecommendations (ETF, 2003a and 2004a).Particularly important was the focus on the

88


37 An interesting example is the partnership established under an EU CARDS project in Kragujevac in Serbia,where the aim was to help people back to employment or self-employment through training partnerships andjoint action between institutions. The stakeholders were municipalities, regional authorities, trade unions,employment offices, employers, chambers of commerce, employers’ associations, accredited adult learninginstitutions, the national employment agency and the ministries of education and labour. Other interestinginitiatives are those on local/regional partnership in education and training undertaken in Croatia and Serbiawith EU CARDS support, in which regional/local stakeholders work together on the preparation of HRDstrategies. But success is not guaranteed. The first regional partnerships set up under the first EU CARDSprogramme were not sustained, though on-going new, similar approaches seem to be more promising.

38 In Serbia there are problems in the National Centre (Zavod) for Education, in which the VET Centre has beenembedded as a department after having been created as an independent body. Problems relate in particularto different approaches to curriculum development for vocational and for general matters.

39 Full responsibility was given to cantons, including the nomination of ministries for education and for labour ineach canton, while the Republika Srpska remained highly centralised. This has produced fragmentededucation systems.

40 This was signed in August 2001 between the leaders of the political parties of the former Yugoslav Republicof Macedonia. The decentralisation process is proceeding in two steps: first, the transfer of ownership andmaintenance of the ‘school objects’, and second, the transfer of responsibilities for employee salaries.

necessity to ‘strengthen institutionalcapacity in the Ministry of Education, todevelop stronger systemic schoolgovernance tools (in the context of greaterschool autonomy), to implement a newfunding model based upon “per student”and “lump sum” principles combined with anational “equalisation” fund for weakregions and schools, to increase theself-financing of schools, to balancecreativity and control by developing newquality assurance systems, and to developthe educational and advisory role of thestate inspectorate’ (ETF, 2003a and 2004a).

Some years later, it seems thatimplementation of decentralisedarrangements has been far from optimal.Delegation of responsibilities towards lowerlevels of government has been introducedin many countries and territories, butthrough different schemes and at varyingpaces41. Overall, it has been carried outwithout sufficient considerations of theconditions for successful implementationunderlined in the above mentionedrecommendations. In particular, littleattention has been given to schoolautonomy and to the role of inspectorates.Although the situation is different in each ofthe countries and territories, severalresponsibilities have generally been given,or are planned to be given, toself-governing bodies, municipalities orcantons (counties). They have usuallybeen given responsibility for fundinginfrastructures, technical equipment,utilities and staff development (includingteacher training), as well as the right toappoint the headteacher and to adaptsome of the curricula to local needs. Butthis has not been accompanied bysufficient subsidies from nationalbudgets42. Moreover, responsibilities fordecisions on the opening or closing ofschools, classes and training specialities

remain highly centralised, as they do onthe payment of staff salaries. Thus,self-governing bodies are givenconsiderable duties but with few rights andlittle compensation funding, and legislativeand political clarity are missing.Consequently, there have been a numberof complaints and some reluctance frommunicipalities towards implementing suchschemes (Parkes, 2006), although someexpress a strong interest in education.

It also may be argued that givingresponsibility for VET schools andsecondary schools in general tomunicipalities and cantons will bringfragmentation and inefficiency. Theregional level should be more appropriatefor such responsibilities, including planningthe school network and ensuring goodlinkages with the labour market. But wherethey exist, regions are merelyadministrative divisions, and mostcountries and territories are probably toosmall to consider such an approachseriously. Furthermore, decentralisationschemes have not always been clearenough, and some countries haveexperienced situations in which twoheadteachers have been appointed for thesame school, one nominated by the stateand the other selected by the municipality!In other countries and territories there havebeen instances of ‘bad’ practice in theallocation of technical equipment as aresult of lobbying. Thus, introduced inhighly politicised and non-transparentcontexts such as those that prevail in theeducation systems of most countries andterritories, decentralisation has sometimeshad adverse or perverse effects. Inparticular, since it has not beenaccompanied by compensatory measuresaimed at addressing equity43, it hasincreased disparities between schools andregions.

89


41 In Albania, for instance, state VET schools remain under central government while other VET schools and allprimary and secondary schools are under local governments, but salary determination and payment are stillcentralised. In the former Yugoslav Republic of Macedonia, responsibility for salaries will be given tomunicipalities in 2007. In Montenegro, where some steps have been taken, legislation is in preparation anddiscussion is on-going with municipalities. In Croatia counties already have some, though few, responsibilitiesand there is no sign of further decentralisation. Serbia has a significant project supported by the World Bankthrough which regional entities are involved in the planning of education and the decision-making process.

42 Some have even complained that they receive less from central government than the amounts it wasproviding directly to schools for the same purpose before decentralisation.

43 A ‘Compensatory Fund’ exists in Croatia, but because of poor mechanisms and procedures its impact seemsextremely limited, and is not even known about by some possible beneficiaries (fact-finding mission, July2006).

Moreover, institutional capacity in theMinistries of Education remains limited, theircapacity to monitor and assess the reformsand more generally the functioning of thewhole system is weak, a quality assurancesystem is missing in most countries andterritories44, the inspectorate needs to becomprehensively reformed, and an effectiveinformation system needs urgently to bedeveloped. Some attempts in this directionare on-going in some countries andterritories with the support of the WorldBank, for example in Serbia. The situation iseven more complicated in Bosnia andHerzegovina, where a complex educationsystem (or systems) was introduced, withcantonal ministries in the Federation ofBosnia and Herzegovina, and the RepublikaSrpska still heavily centralised45.

Labour market needs analysis and

forecasting

The Employment Guideline No 20 on‘Improve matching of labour marketneeds’ makes clear the necessity for‘modernisation and strengthening oflabour market institutions, notablyemployment services, also with a view toensuring greater transparency ofemployment and training opportunities atnational and European level’, and for‘better anticipation of skill needs, labourmarket shortages and bottlenecks’.Moreover, the Copenhagen Declaration46

insists that ‘Developing aknowledge-based Europe and ensuringthat the European labour market is opento all is a major challenge to thevocational education and training systemsin Europe and to all actors involved. Thesame is true for the need for thesesystems to continuously adapt to newdevelopments and changing demands ofsociety’. More recently the MaastrichtCommuniqué emphasised the necessity‘of linking VET with the labour marketrequirements of the knowledge economyfor a highly skilled workforce’ (MaastrichtCommuniqué, 2004).

As analysed in Bosnia and Herzegovina, theformer Yugoslav Republic of Macedonia andSerbia, ‘the links between VET and thelabour market suffer from weak local labourmarket conditions, undeveloped socialpartner infrastructures at local and nationallevels, lack of occupational sectorclassification and priorities, lack of labourmarket information and skill needs analysis,poor collaboration between Ministries ofEducation and Labour, and lack ofintegration among provision for initial andcontinuing VET and for the unemployed’(Parkes and Nielsen, 2006).

Thus, WBA countries and territories havedifficulties in developing medium- andlong-term skill needs analyses. As in theformer candidate countries, during thetransition process the links betweeneducation and the economy weredisrupted. However, as already discussedin other parts of this report, economies andlabour markets are changing, and newmechanisms of communication betweeneducation and the economy need to beestablished in order to respond to andanticipate those changes.

There is an urgent need in the WesternBalkans to strengthen the analysis andforecasting of labour market needs atnational, regional and sectoral level, inclose cooperation with the social partners,and taking into account EU prospects andinternational trends on qualifications andskills. There is a particular need to improvedata collection and to increase the capacityto carry out analyses in a consistent wayamong ministries and statistical offices,and in accordance with EU standards.Fortunately, most countries and territorieshave recently been covered by theEurostat LFS, while others such as Albaniawill start in 2007, and this constitutes a firststep in that direction.

EU-funded CARDS programmes andbilateral cooperation projects haveintroduced methodologies for improving the

90


44 Some steps have been taken in Montenegro in general education and self-assessment tools are used bysome VET schools; the inspectorate has also been reformed and a database on education developed.

45 However, in this extremely difficult context, with one Education Minister in each canton, it was possible insummer 2006 to set up a unified core group of stakeholders aimed at coordinating the ETF project onCopenhagen dissemination, as well as reaching an agreement on the green paper on VET reforms.

46 http://ec.europa.eu/education/policies/2010/vocational_en.html

communication between economic actors(such as employers, public employmentoffices and regional developmentagencies) and education through pilotingactivities. For example, in a number ofcountries (such as Albania, Bosnia andHerzegovina, the former YugoslavRepublic of Macedonia and Serbia) trainingneeds analyses have been conductedthrough ad hoc employers’ surveys. TheSwedish methodology, based uponregular47 surveys of employers on theiremployment forecasts for 6 and 12 months,has been piloted in Croatia, Serbia and theformer Yugoslav Republic of Macedonia,with very positive results. The introductionof Change Agent Teams (CATs) in VETschools, with the identification of teachersas ‘external’ change agents48 who coulddevelop systematic links with businessesand municipalities in the school’ssurrounding area (as seen in a SerbianVET school), also seems promising,though it also demonstrates how difficultsuch a process is. Working groups for thedefinition of occupational standards for newcurricula have been established with theparticipation of employers, and in particularof trend-setting companies, and morerecently, sectoral committees have beenset up in Serbia. WBA countries andterritories also have access to approachesdeveloped in other transition countriessuch as Romania, where VET schools,labour offices, regional inspectorates,municipality and canton representatives,employers’ associations and trade unions,both at canton and region level, areinvolved in the design and the regularmonitoring of Regional and LocalEducation Action Plans49.

However, these pilot schemes have not yethave an impact at system level. Even at

local level, where one might expect moreconcrete work and better identification ofskill needs, since stakeholders can easilymeet and exchange, little seems to behappening. Except in Croatia, where a kindof ‘dual’ system is functioning50, VETschoolmasters have little information onlabour market needs. This can beexplained by a number of factors:

1. the fact that VET schools have littleautonomy, and that the planningprocess concerning the network ofschools and specialities is stillcentralised in most countries;

2. the lack of interest on the part ofemployers in training issues, particularlyin situations of very high unemployment;

3. the importance of the grey economy,which hampers the functioning of thelabour market as well as the process oftransition from school to work;

4. the legacy of the socialist system, inwhich relationships were established ineach ‘sphere’ in a vertical way.

Thus, VET schools show little interest in andlittle capacity to understand the labourmarket, to act with labour offices and withcompanies in effective partnership and todevelop appropriate activities. Meanwhile,labour offices are very much understaffed,poorly equipped and overloaded with themanagement of unemployment registers.They have little time and insufficient skills toanalyse labour market needs in-depth.Furthermore, legal obstacles such as thevery limited autonomy given to VET schoolsin many countries still prevent them fromworking efficiently with businesses andlabour offices51. In that context, activitiesundertaken through EU CARDS concerninglabour market needs analysis can play asubstantial role. These activities all need to

91


47 Twice a year.

48 There are also ‘internal’ change agents who are intended to promote new learning methods and newteacher-training schemes in the school.

49 In Kosovo a Centre for Training Needs Analysis has been set up in the Chamber of Commerce, with supportfrom key ministries, the Employment and Skills Observatory of Kosovo and the European Agency forReconstruction. Moreover, the Adult Learning Strategy foresees the creation of a sustainable data,information, analysis and research base, possibly in the planned tripartite Workforce Development ResearchCentre for labour market trends and skills forecasting, and under the new National Economic and HumanResources Development Council.

50 A dual system is also being developed in Montenegro, but with little support from employers.

51 It was also surprising to hear from the local employment office in one Serbian region that it would not be ableto set up cooperation with the VET school for continuing training without having been explicitly asked to do soby the National Employment Office in Belgrade.

be based on strong partnerships betweenthe main stakeholders.

Curriculum development

The lifelong learning approach calls for a newlearning paradigm, emphasising the centralityof the learner, with particular focus on basicskills, on the changing role of trainingfacilitators and on the understanding oflearners’ interests. In addition, thepreparation for the knowledge-basedeconomy and society requires a betterunderstanding of the needs of learners andlabour markets, and in particular theintroduction of new basic skills such asentrepreneurship, science and technology.The European Commission has recentlyissued a Recommendation on KeyCompetences for Lifelong Learning52 inwhich competences are defined as ‘acombination of knowledge, skills andattitudes which all individuals need forpersonal fulfilment and development, activecitizenship, social inclusion and employment’.

This gives a framework for the on-goingreforms of the curricula in all Europeancountries. This message is particularlyrelevant for the VET curricula in theWestern Balkans, as these curricula wereset up in the context of a centrally plannedeconomy, mainly driven by traditionalindustries already in severe decline, andhad not changed since the 1980s. This iswhy curriculum development has been oneof the cornerstones of a range of donorassistance programmes, including theEU-funded CARDS programmes on VET.This has produced a series of newcurricula in priority fields, in line with theeconomic priorities described above.

In Croatia the dual system has now beenimplemented for all three-year VET pathwaysin the context of the so-called ‘unique modelof education’, with substantial support fromthe Chamber of Crafts. The same approachhas been in the process of beingimplemented since 2004 in Montenegro insome fields. In general, after the initial design

of a few pilot curricula within the framework ofthe first generation of EU-funded CARDSVET programmes, a second generation isnow under scrutiny, while implementation ofthe first ones is being extended to a widergroup of schools. Curriculum profiles arebeing broadened; growing numbers of thenew profiles are competence based, and arealso modular, the aim being to facilitateflexible routes and adult learning. The newlyestablished VET centres, although they areoften understaffed and poorly prepared forsuch work, play a role, particularly inMontenegro, Serbia and Croatia, as does theVET Agency in Croatia. Chambers ofcommerce and crafts are closely associatedwith these developments.

However, most of this work is stillexperimental, many outdated curricula arestill in operation, and most countries andterritories still do not have an agreedcurriculum concept at national level.Moreover, according to a recent ETF report(Parkes and Nielsen, 2006), up to now thework has been done without reference to afully fledged qualification and certificationsystem, which is now on the agenda of theMinisters of Education, and which couldnow bring a need to revise the curriculaaccordingly. In Serbia, the former YugoslavRepublic of Macedonia and Bosnia andHerzegovina, although this has been donewith the aim of promoting a modularapproach and allowing for the developmentof adult training, very few schools haveimplemented such an approach.

It also appears that the work in the WesternBalkans is now suffering from a lack ofcoordination and consistency, with newcurricula for general education being set upat the same time as different methodologies,mainly with the support of the World Bank.It is also suffering as a result of beingunderpinned by different concepts andphilosophies, those of the various EUexperts involved in the design of the VETcurricula and those of the national actorsinvolved, some being considered‘traditionalists’ and others ‘modernists’53.

92


52 http://ec.europa.eu/education/policies/2010/news_en.html

53 In the 2005 CARDS Social Sector Study on Serbia the authors, Marikja Kolin and Will Bartlett, state that a‘huge public debate is still going on around education reform and is it not yet clear to what extent the presentauthorities will change the main strategic goals of the education reform in Serbia’ and adopt ‘the innovativesolutions from developed European countries’.

Transferring experimental work from pilotsto the system as a whole has beenhindered by the lack of a disseminationstrategy involving the search for adequateresources for teacher training and forequipment for practical training, and fornew financing mechanisms. In mostcountries and territories, practical traininghas been neglected, except in the pilotschools that have benefited fromsubstantial grants for technical equipmentthrough donor projects. There is the threatof a growing gap between innovativeislands that are well equipped and thetraditional mainstream. Furthermore, thereis a huge difference between Croatia –where reforms started much earlier, wherepublic expenses for education aremarkedly higher, and where the privatesector is substantially involved through thedual system54 – and other countries, whereresources are scarce and the economyless dynamic.

Teacher training and retraining

In line with the building blocks for lifelonglearning strategies of responding to thedemand for learning, working in partnershipand striving for excellence, there is theneed to promote innovative pedagogies,involving a shift from teaching to learning,placing the learner at the centre. Inaddition, the Maastricht Communiquéunderlined the priority to be given to theexamination of the specific learning needsand changing role of vocational teachersand trainers, and of the possibilities ofmaking their profession more attractive,including continuous updating of theirprofessional skills. All this challenges thetraditional roles and responsibilities ofteachers, trainers and other trainingfacilitators, particularly in the WesternBalkan countries and territories, where theapproach to learning is still very muchbased on subjects in the faculties forteacher training. The new role of teachersis also wider since they will have to be

active promoters on the ground of thelifelong learning strategies55.

The design and implementation of newcurricula has been accompanied byteacher-training programmes set up in thecontext of the EU-funded CARDSprogrammes on VET, mainly through thepilot schools approach. The process is nowbeing expanded with the support of theVET centres and education offices set upfor the support of education reform as awhole, with wide disparities betweencountries and territories, as there are forcurriculum development. For example, inCroatia both initial and in-service teachertraining for VET teachers are welldeveloped56, while in Albania there is noformal pre-service teacher training, andonly sporadic and isolated interventions onthe part of several actors in in-serviceteacher training for VET teachers57 (ETF,2006e).

Although there are often complaints aboutthe passive role of teachers towardschange, there is also evidence that manyteachers have been very active inparticipating in pilot projects on developingand implementing new curricula, anddisseminating the outcomes of pilotapproaches. In Croatia teachers haveplayed a positive role in promoting VETreform. Overall, where they have beenimplemented, the introduction of ChangeAgent Teams (CATs) in VET schools hasproved efficient, and has promoted newopen and flexible learning approaches.Teachers have also demonstrated a highlevel of motivation when participating inweekend training courses (Montenegro andBosnia and Herzegovina) and in summerwork (Kosovo). In the context of extremelyhigh unemployment, the teachingprofession may have been seen asattractive, since a large number of thestudents preparing for teaching professionswere given a job (more than 50% in Bosniaand Herzegovina, where the number of

93


54 Even if it concerns only 25% of the schools.

55 With reference to the discussions of the Education and Training 2010 Working Group in Brussels on5–6 October 2006 on the development of coherent and comprehensive national lifelong learning strategiesbefore the end of 2006.

56 In Croatia continuing teacher training is compulsory and provided free of charge by the Ministry through theVET Agency and the Education Centre; however, there is still no quality monitoring system.

57 Although an adequate system is to be decided under EC CARDS VET 2.

applications for pre-service teacher trainingexceeds capacity by up to 50%).

However, results are mixed, since mostinitiatives linked to in-service teachertraining have been fragmented58, havesuffered because of the limited availabilityof modern teaching equipment, althoughthey are supported by a range of differentdonors (the former Yugoslav Republic ofMacedonia59), have lacked a nationalstrategy (Albania, Bosnia andHerzegovina) and have had limitedimpact60. With the shift of responsibility forin-service teacher training to localgovernments, it could be expected thatincreasing importance would be given tothe subject provided that localgovernments are able to make fundsavailable61. Another limitation is the lowstatus of teaching and the low salaries62,which leads a number of teachers to take asecond job in the grey economy.

Furthermore, pre-service teacher training inmost countries and territories still suffersfrom a lack of relevance for VET teachers(Montenegro), and is hampered moregenerally by the very traditional andacademic approach taken by the Facultiesof Pedagogy in universities, even whenpractical training is provided. Most expertsin the countries and territories considerthese faculties to be useless. Manydonor-funded projects have tackled theseissues and promote active methods oflearning and efficient management ofclassrooms63, and activities such as theETF TT network set up in 2002 plays apositive role. However, most countries and

territories are still without an overallstrategy and system for in-service teachertraining, including training for schoolmanagers.

Croatia is probably more advanced64.However, the report mentions thepersistence of weaknesses in therelationship between universities, VETschools and companies, which will reducethe relevance of the teacher-trainingsystems. The ‘National Strategy forDevelopment of Education in the Republicof Macedonia 2005–15’ and the ‘Policy andStrategy Development for VET in Serbia’adopted in 2005 could also have a positiveimpact.

Qualification frameworks and

certification systems

When reviewing progress in theimplementation of the Copenhagenpriorities, the Maastricht Communiquéstated that priority at national level shouldfirst be given to the use of commoninstruments, references and principles tosupport the reforms and development ofVET systems and practices, for exampleregarding transparency (Europass),guidance throughout life, quality assuranceand the identification and validation ofnon-formal and informal learning. Thisshould include the strengthening of mutuallinks between these instruments and theraising of stakeholders’ awareness atnational, regional and local levels toenhance visibility and mutualunderstanding.

94


58 The problem is particularly acute in Bosnia and Herzegovina where, as a result of its very complex andfragmented organisation, around 70 institutions deliver pre-service teacher training.

59 VET school teachers are involved in in-service teacher training through different projects organised andsponsored by the World Bank, CARDS, USAID, the Bureau for Development of Education and others.

60 However, in 2006 Serbia is devoting a substantially increased amount of money to teacher training.

61 In the former Yugoslav Republic of Macedonia the initiative of creating a free market of accreditedteacher-training providers is heavily supported by the Education Modernisation Project.

62 In Montenegro there has been an interesting initiative in which teachers are not replaced when they retire,with the remaining teachers receiving higher salaries that correspond to the money saved. In contrast, VETteachers and instructors in Albania have very low salaries starting from around €180 per month andprogressing to a maximum of €240 per month.

63 As in the former Yugoslav Republic of Macedonia at the Faculty of Philosophy, with the support of WorldBank projects.

64 Croatia has a plan for the development of the system of education 2005–10, which anticipates the creation ofa coherent national strategy for the education of teachers, coaches and instructors in companies, andteachers in adult education, as well as a system of continuing professional development, developing a workprogramme with new technologies and the introduction of contemporary teaching methods, in accordancewith the Bologna process.

Beyond the future Member States who arealready involved in the Copenhagenprocess65, all the Western Balkans havebenefited from ETF projects on thedissemination of the main Copenhagenmessages and on the preparation for anational qualification framework (NQF). Inthat context – and although little has yetbeen implemented – a great deal ofinterest has been expressed intransparency and quality assurance.Furthermore, the introduction of NQFs hasnow been recognised in all countries as acrucial reform that is aimed at contributingto the modernisation of VET systems,preparing for a better functioning of thelabour market and for the development ofadult learning within a lifelong learningperspective, and setting up links andbridges with on-going reforms under theBologna process on higher education. Thedissemination of information on theEuropean Qualifications Framework hasbeen successful. Among the interestedstakeholders, the medium-ranking actorsinvolved in these processes have showngreat enthusiasm, and several partnershipnetworks have been established. In thiscontext, two particular aspects have shownmore concrete outcomes: the qualificationframeworks and certification systems.

National qualification frameworks

These first concrete experiences havealready provided interesting outcomes. Theproject on developing NQFs was successful,since, according to Vincent McBride (2005),‘measures addressing the main aspects of anational qualification framework haveremained sufficiently broad to promotestrategic directions without constraining localinitiatives […] Thus it provides guidance andsupport allowing countries to position amonga range of strategies without imposing asingle or unique approach. In this regard, thematerial from Copenhagen (references,principles and tools on Quality Assurance,Transparency, Recognition ofnon-formal/informal learning, Credit Transfersystem) may be used to guide reforms,thereby accelerating their reform process by

shortening the amount of time taken in policysearch for models or approaches that reflectmainstream trends in EU Member States’.

However, there are questions linked to thecomplexity of the process of setting up areal NQF. In Romania66, the work started in1996 and the current objective is to have acomplete instrument by 2008. Suchcomplexity is the result of the need toinvolve several partners in the approach,and to create a consensus among them ona number of interrelated decisions, in acontext in which coordination betweenMinistries of Education, Labour and theEconomy is very difficult, and in whichsocial partnership in VET is in its infancy.Until now, developments in the preparationphase have been very much driven by theMinistries of Education. There is a risk thatthe qualification levels adopted areconfined to the exit levels and VET routesprovided by the education system, withouttaking into account the medium-term needsof the labour market, as well as the hugeneed for requalification of the workforce.

Of course the process will be facilitated bythe development of the EuropeanQualification Framework (EQF). However,as well as questions on the ability ofexperts and medium-ranking managers inthe administration to work together and tofind appropriate agreements, there is thequestion of the willingness of employers toendorse the outcomes, and of politicians toput forward such reforms. An assumptionbased on on-going work in Kosovo,Montenegro and Albania suggests that itcould be easier to reach such an ambitiousobjective in the smallest countries67. Incontrast, the lack of cooperation betweenthe main ministries involved in Serbia andCroatia, as well as the fragmentation ofresponsibilities in Bosnia and Herzegovina,may seriously hamper the process.However, a dedicated ETF conference inZagreb in October 2006 demonstrated thatawareness is already solid and discussionis on-going among stakeholders in allcountries and territories. Moreover, somecountries and territories have taken steps

95


65 Since 2002 for Turkey and 2004 for Croatia. The former Yugoslav Republic of Macedonia’s participation isstill to be concretised.

66 Romania has become a kind of ‘benchmark’ for the Western Balkans.

67 Montenegro set up a National Qualifications Commission in 2006.

forward. In the former Yugoslav Republic ofMacedonia a proposal for setting up anNQF is now under development.

National certification systems

Setting up a national certification systemthrough national exams at the end of basiceducation and secondary schools has alsobeen seen as a priority in all countries andterritories, since graduates’ examinationswere (and still are in most cases) carriedout at school level. It has been seen as apolicy tool aimed at introducing nationalstandards that can be used in the contextof quality assurance policies, providingnational indicators to be compared with EUbenchmarks, facilitating the transition fromsecondary education to higher education,and fighting corruption in the delivery ofexams. As suggested by the Europeanmessages on ‘making the best use ofresources’68, national certification schemesshould be accompanied by greaterautonomy for schools, in order to ensureboth efficiency and equity.

In most countries and territories there areon-going reforms to introduce such nationalexams, starting with the four-year pathwaysin general and technical education. Anational ‘matura’ already exists in Croatia,as well as a state exam for the four-yeartechnical routes, with full implementationplanned for 2009 for the first and 2010 forthe second. Serbia and the former YugoslavRepublic of Macedonia are following thesame approaches with on-goingexperimentation with a vocational matura inpilot schools in Serbia, and a new externalstate exam for secondary education thatshould be in place in 2007/08 in the formerYugoslav Republic of Macedonia. The workon preparing new certification systemsbenefited from the work done on preparingan NQF. This was also the case in Albanian,where two technical working groups wereset up in the context of NQF, one on qualityassurance and the second on certification,as well as in Montenegro where a national

certification system is covered by the draftLaw on National Vocational Qualifications69.

Higher education reforms and the

Bologna process

The higher education sector and institutionsare fully involved in the area of lifelonglearning. In a recent Communication fromthe Commission on ‘Mobilising thebrainpower of Europe’ (2005), uniformity,insularity, overregulation and underfundingare highlighted as major bottlenecks for thecontribution of universities to the Lisbonstrategy. The core modernisation agendafocuses on attractiveness, governance andfunding. The Bologna process is drivingreforms in higher education structures,particularly in relation to the introduction ofthe three-cycle structures of degrees andenhancing quality assurance. Moreover, theEducation and Training 2010 WorkProgramme recognises the extremeimportance of modernisation in highereducation, over and above the reformscalled for in the Bologna process which arealso important for achieving the Lisbonobjectives.

As in the former candidate countries inCentral Europe, higher education have beengiven the highest priority by Ministries ofEducation. Laws on higher education havebeen passed or are under discussion in allcountries and territories. Croatia signed theBologna Declaration in 2001; Albania,Bosnia and Herzegovina, the formerYugoslav Republic of Macedonia,Montenegro and Serbia signed in 2003; andKosovo has been attending the BolognaMinisterial meetings on an observer basis.Since then significant progress has beenmade on the implementation of the Bolognaprocess across the region, throughharmonising curricula, introducing credits,innovating methodologies, reflecting onquality assurance, and strengtheninguniversity–enterprise cooperation. TheTempus programme is supporting theseinitiatives70.

96


68 http://ec.europa.eu/education/policies/2010/objectives_en.html#making

69 The external matura exam will be implemented in 2010 for gymnasia.

70 In the former Yugoslav Republic of Macedonia the Ministry of Education and Science has established theNational Team of Bologna Promoters, in which teachers, professors, students and ministerial staff areparticipating, with the aim of increasing the interest in implementing the process and preparing theappropriate legislation.

However, as a legacy of the Yugoslavsystem, higher education remains ratherelitist, very academic in nature and stronglybased on faculties. Its elitist nature isdemonstrated by the limited enrolment inuniversities71 and the long duration ofstudies (around eight years in Serbia for adegree), which dissuades students,particularly those from low-income families.As discussed above in relation to teachertraining, the introduction of activepedagogies has not yet been completed,and the involvement of faculties in adultlearning is very limited. There is also aresistance on the part of faculty staff toaddress professional education, since theview is that this is better addressed bypost-graduates studies.

Thus, the system is still very muchsegregated between faculties andvocational colleges (Vise Skole). Althoughoften very successful, vocational collegeshave low enrolment rates, since studentsprefer to enter prestigious faculties. Theyalso have separate status72: vocationalcolleges now prepare students for the‘applied’ bachelor degree, while thefaculties prepare them for the academicbachelor degree and for higher degrees;there are no pathways between vocationalcolleges and faculties, and colleges do notbenefit from Tempus (in Serbia). TheSerbian Law on HE was set up in 2005 inline with Bologna, but only after a longdebate in which faculties expressed theirreluctance towards full integration, andsucceeded in limiting the universities to acoordination function without anysubstantial role. Recent evidence fromTempus projects suggests thatcoordination between faculties is very weakin the region as a whole.

Moreover, cooperation betweenuniversities and enterprises is weak.

According to a recent report (EuropeanCommission, 2007), ‘no obvious link withuniversity–enterprise cooperation ismentioned […] in the discussionsunderway on the implications of theBologna process on national legislation […]and local partnership involving universitiesappears very weak and there seems to belittle interest in pursuing the commoninterests of universities and enterprises’73.

Thus, the development of vocationalpost-secondary and short vocational highereducation is limited across the wholeregion. There appears to be a demand forpost-secondary and short higher VET, butthere is very little evidence from the labourmarket or employers to support a clearstrategy74. But some countries, such asMontenegro, have taken steps forward bycreating the legal pre-conditions for theintroduction of post-secondary VET invocational schools. Private initiatives havealso been introduced in a number ofcountries, such as the establishment of25 private vocational colleges75 in Serbia in2006.

As already reported, higher education hasbeen given high priority, but in the contextof limited funding. Therefore, an importantinnovation in most countries is theintroduction of tuition fees aimed atcompensating for low levels of statefunding. However, tuition fees have rarelybeen accompanied by adequate loans orgrants for students from low incomefamilies76. This is probably why enrolmentin higher education has not increasedquickly as it did in the former candidatecountries. Another factor is the hugeimportance of the grey economy, whichoffers immediate substantial earnings tostudents, at levels which would haveotherwise have taken them many years ofstudying to achieve.

97


71 Particularly in comparison with the trends observed in Central Europe.

72 And different premises in Serbia.

73 Evidence comes in particular from the Serbian Law on Higher Education, which set high minimum thresholdsfor the number of permanent teachers as a proportion of the total number of teachers, as well as for theproportion of PhD teachers, for both colleges and faculties, thus seriously hampering both the functioning ofthe colleges and the opening of faculties relating to business and the labour market.

74 This was the main message from an ETF conference on post-secondary vocational education in Skopje,12–13 December 2005.

75 These must still pass the accreditation procedure.

76 In Croatia, veterans’ children are exempted from paying fees.

3.3.4 SUBJECTS NOT, OR NOTFULLY, ADDRESSED BYON-GOING REFORMS

Architecture of the system and lifelong

learning

Although a number of reforms areunderway, a global vision of the systemand a lifelong learning perspective aremissing in all countries and territories,despite rhetorical references to theconcept. Most countries have preparedspecialised education sector laws, whichare often rather detailed, but reforms havebeen discussed rather in isolation, whichleads to a weak alignment betweendifferent reform processes, and the risk ofinconsistencies. Mainly as a result of thelack of interministerial coordination andtripartite dialogue and of difficulties inimplementing new governance schemes,little account is taken of existing rigidities,nor of links and communication betweencomponents or sub-systems of theeducation and training system.

So far, the global architecture of the primaryand secondary education systems has notchanged, being based on eight years ofbasic education and two to four years ofupper secondary education (according tothe different general, technical andvocational routes)77. However, Kosovo andBosnia and Herzegovina introduced a ninthgrade for basic education in 2000 and2004/05 respectively 78. The formerYugoslav Republic of Macedonia hasplanned the same changes starting in 2007,and Montenegro is experimenting in someschools with a new elementary school thatleads to nine years of basic education. Atupper secondary level, too much rigidity andthe continued existence of dead-endcourses still prevent the conception andimplementation of a lifelong learningstrategy. VET curricula are developed inisolation from the development of curriculafor general education. In VET schools thereis little communication between the three-

and four-year programmes, and thethree-year graduates have very limitedopportunities to join higher education. Asdiscussed above, there are no pathwaysbetween vocational colleges anduniversities. Moreover, little consideration isgiven to continuity between initial educationand adult learning, and VET schools mostoften work in isolation from the RegionalTraining Centres (RTCs) set up under theumbrella of the Ministries of Labour79.

The education systems have not changeda great deal, since the network of schools,and particularly of VET schools, has not yetbeen restructured. The, exception isAlbania, where the number of VET schoolshas decreased from 308 in 1990 to 40 in2005 creating a serious gap in VETprovision. Some other changes have comefrom the development of private provisionfor VET and higher education, particularlyin the fields of ICT, foreign languages,business and tourism. Thesedevelopments often originate throughdonor initiatives and are significant inKosovo, Serbia and Albania, whereobservers have noted that there is atraining market, although the structure inwhich it operates is not very transparent.This is also the reason that ministries havebegun to set up licensing procedures andaccreditation agencies.

Finally, improving access to education forchildren and young people from lowersocioeconomic backgrounds has not beenaddressed. However, facilitating access tolearning opportunities is one of the buildingblocks for developing and implementinglifelong learning strategies. ‘This meansmaking what is already on offer morevisible, flexible, integrated and effective,while also developing new learningprocesses, products and environments.Strategies must also address issues ofequality of opportunity and of the targetingspecific groups, in order to ensure thatlifelong opportunities are genuinely availableto all, especially those at particular risk of

98


77 The system is different in Albania, with two VET routes reaching a first level in three years and a second levelin five years.

78 This means that compulsory education is from age 6 to 15.

79 However, Montenegro has three Regional Training Centres set up in close cooperation with VET schools, byagreement between the ministries of both education and labour.

exclusion80.’ This calls for ambitious adultlearning strategies (see Section 3.4 below),but also for serious consideration of therole of the education system as a whole.

Adult education and continuing training

Although adult learning has a key role toplay in lifelong learning, this sector wasseen as the weak link of the lifelong learningchain in the Maastricht Study81 in 2004; the2006 joint progress report on the Educationand Training 2010 Work Programmeunderlined the fact that ‘across Europe,insufficient priority and funding was beingdedicated to increasing access to adultlearning opportunities, especially for olderworkers and for those with low skill levels’82.

The situation in the Western Balkans iseven more difficult. Overall, theparticipation of adults in lifelong learningprogrammes is very limited. Following aproject on supporting the drafting of anadult learning strategy in some countriesand territories83, the ETF prepared asynthesis report which highlights theproblems and challenges faced (Gunnyand Viertel, 2006): in general, althoughmost countries have prepared, and somehave adopted, national strategies on adultlearning, developments are extremelymodest. According to the report, ‘to date,adult learning responses in the countriesand territories have been uncoordinated,scattered and often driven by donors’objectives, with the result that there aremany learning needs that are not beingmet’. In fact, ‘adult learning is oftenequated with adult education and seen asthe main responsibility of ministries ofeducation […] Much of current provision issupply driven’. In the context of developingan adequate strategy, ‘the starting point isnot a vacuum, because a strong adultlearning tradition existed in Yugoslavia in

the past. But adult learning declined as theeconomic and social situation deterioratedand war dislocated normal life’. A recentreport suggests that in Serbia only 1% ofthe population has received any from oftraining during recent years (Kolin andBartlett, 2005).

Adult learning is, however, a key issue inall countries and territories where war andindustrial restructuring have left behind alarge proportion of the active population,particularly in Croatia, Serbia, Bosnia andHerzegovina, the former YugoslavRepublic of Macedonia and Montenegro,where demographic developments arenegative. But in most countries, labourmarket training receives very limitedamounts of funding84, and the funds areused in a selective way that mainly benefitthose who are most qualified. The samesituation prevails in companies, where theinterest in training among businesses isvery low as a result of the highunemployment level. The picture is notcompletely negative, as illustrated in thedescription above of pilot projects thatdemonstrate the strong commitment ofemployers to contribute to labour markettraining. Another positive sign is that inSerbia in 2007 there will be a strongincrease of funds for active labour marketmeasures, including training. However, inthe same year, the National EducationCouncil has rejected a law on adultlearning as a non-priority.

Adult learning could be developed usingexisting institutions such as the VETschools, but appropriate measures must betaken, since until recently in most countriesand territories VET schools were notpermitted to do this. Where it has becomepossible85, it has been done within acomplex and rigid financial frameworkwhich does not provide sufficient incentives

99


80 http://ec.europa.eu/education/policies/lll/lll_en.html

81 http://ec.europa.eu/education/policies/2010/study_en.html

82 http://ec.europa.eu/education/policies/2010/nationalreport_en.html

83 Croatia, Kosovo, the former Yugoslav Republic of Macedonia, Montenegro and Serbia.

84 In Croatia during the period March 2002 to August 2005, a total of 80,371 unemployed people benefited fromthe various measures of the Government’s Employment Promotion programme. This figure has to be seen inrelation to the total number of 390,000 people unemployed in 2002 and around 308,000 in 2005 (ETF). InKosovo, where the training provision increased in 2004 by 40% and in 2005 by 26%, the ratio of trainingplaces to the number of unemployed people was little more than 1.3% (ETF).

85 Kosovo is an exception, in that its VET and Adult Education Laws allow public secondary schools to offerfee-based extension programmes for adults.

(Bosnia and Herzegovina). Some countriesand territories have now made someschools RTCs, with a view to themproviding adult training (Serbia), but ingeneral RTCs operate in a parallel systemto the VET schools, and there is nocoordination between them. Thus, unclearstatus and the lack of incentives couldblock initiatives and make RTCsunsuccessful. Anecdotal evidencesuggests that Serbian RTCs havedifficulties establishing effective links withthe regional employment services, andeven more so with employers, despite theintensive work of some teachers asexternal Change Agents (see above).However, no conclusions can yet bedrawn, since developments have only justbegun.

As stated in the ETF report ‘Designingadult learning strategies’, ‘there is a needfor a major shift to the demand side toensure that provision meets the needs ofenterprises and individuals, and that it ismarket-oriented. There is also a need forcapacity-building to change attitudes andways of working’. There is also a greatneed for incentives and awarenesscampaigns aimed at employers to increasetraining and HRD in general. Thepreparation of National Action Plans forEmployment on the basis of the EuropeanEmployment Guidelines, particularly in thefuture Member States, should allow for amore focused approach to the needs of thelabour market and society, and for bettertargeting, as long as appropriate fundingcan be secured.

Counselling and guidance

Counselling and guidance services have akey role to play in making a European areaof lifelong learning a reality. As expressedin the Copenhagen declaration, there is aneed for ‘strengthening policies, systemsand practices that support information,guidance and counselling at all levels ofeducation, training and employment,particularly on issues concerning VET, inorder to support occupational andgeographical mobility of citizens in Europe’.Following the Resolution on ‘Guidancethroughout life’ (Council of the EuropeanUnion, 2004), in 2004 the ETF undertook

country reviews of existing policies,systems and practices in career guidancein all countries and territories (Sweet,2006).

As stated in the report, ‘career guidance, inparticular for adults, has so far been aforgotten element in education and labourmarket reform in most countries andterritories of South East Europe. Whereactions have been undertaken, mainlythrough EU-funded CARDS or other donorprogrammes, they were limited to pilotprojects or isolated aspects of guidance.A comprehensive and systematic policyapproach to guidance covering the wholeeducation and labour market system andoutlined in a national strategy has not yetemerged’.

However, in all countries except Albania andKosovo some services are available inschools and/or for school students, providedby psychologists and pedagogues, and thisprovides a basis for future developments. Inaddition, the PESs play a role, particularly inCroatia, Serbia and Montenegro, but also inKosovo and in the former Yugoslav Republicof Macedonia, where they are the singlesource of career guidance for adults; in allcases, the demands upon the employmentservice exceed its capacity to assist all thosewho need help.

There are a number of examples of goodpractice to be found in pilot projects. Inparticular there is the provision of job fairswith the support of chambers of commerceand/or craft in some countries andterritories; the Info-Points and CASCAIDProgramme in Croatia, through whichusers can obtain a description and specificanalysis of individual aspects of work forevery occupation; the RTCs for adults andjob clubs in Serbia; the ‘How to seek a jobactively’ guide in Bosnia and Herzegovina;the PARSH project in Albania, where aprinted directory of training provision inTirana has been published; the careerguidance components as part of theEU-funded CARDS KOSVET programmein Kosovo, through which policyrecommendations for career education andguidance have been developed andsubmitted to stakeholders; the centres foremployment in the former Yugoslav

100


Republic of Macedonia, where 50 VETschools have also opened career guidancecentres; and the Centre for Information andProfessional Counselling, which was set upin 2005 in the Employment Agency inMontenegro.

Quality assurance

Although discussions have begun in allcountries and territories on quality assurancethrough the ETF project on dissemination ofthe Copenhagen messages, little has beendone so far. Quality assurance (QA) is mainlypromoted through the establishment ofaccreditation procedures and institutions (theformer Yugoslav Republic of Macedonia)aimed at monitoring the development ofprivate training providers in adult educationand higher education. A specific agency is tobe established in Serbia. However, inMontenegro, a QA model for generaleducation, comprising external evaluationand self-assessment against standards andindicators, was developed in 2001. This workhas been further developed and adjusted tothe VET system with the EU-funded CARDS2004 project, which developed and trialledself-evaluation methodology in VET schools.

Moreover, the role of inspectorates is beingrevised to enable them to contribute to QAand a better functioning of the educationsystems (the Law on Inspectorate wasadopted in 2006 in the former YugoslavRepublic of Macedonia, and theinspectorate was also reformed inMontenegro). Once established, the VETcentres and agencies will start to developmonitoring tools in relation to exam resultsand scientific tests like the ones used byinternational institutions. The developmentsin initial and continuing teacher training andthe implementation of nationalexaminations also play a crucial role inimproving quality. However, a key obstaclefor further developments is the lack of aproper information system and theinconsistency of data between theministries and the statistical offices in mostcountries and territories. Hence, all theseendeavours are very much in their infancy.

Financing issues, efficiency and equity

More funds and more efficient and equitablefunding have been repeatedly emphasisedby the EU as key conditions for the successof reforms in education and training,particularly in VET86. As stated in theCommunication, ‘in fact, equity andefficiency are mutually reinforcing […]Policies which reduce such costs (incometax losses, increased demand forhealth-care and public assistance, and thecosts of higher rates of crime anddelinquency) can deliver both equity andefficiency benefits. Member States canmaximise the real and long-term returnsfrom their education and training systems byconsidering equity alongside efficiencywhen taking decisions about systemreforms’. Previous sections of the documenthave already showed how little fundingeducation and training has been receivingfrom public and private sources (well belowEU averages), with wide variations betweencountries and territories, and that publicexpenses have also been declining in mostcountries and territories.

As stated in the ETF report on curricularreform (Parkes and Nielsen, 2006), ‘VETand curricular reform took place without acomprehensive review of the financing ofthe systems, with a lack of analysis offinancial means and mechanisms, andEU-funded VET projects are characterisedby relatively small sums of money forrelatively short periods, and there is toolittle awareness of the prospectiveexponential growth in costs for systemicimplementation’. To this list could be addedthe lack of consideration for practicaltraining in VET schools in the context ofwide discrepancies between schools, andeven more important, the very low salariesof teachers and their poor career prospectsin most countries and territories. Except inschools that benefit from EU or otherdonor assistance, or from goodconnections with particular politicians,technical equipment is outdated, and poorrelationships with employers87 make thequality of the practical training extremelyquestionable.

101


86 http://ec.europa.eu/education/policies/2010/objectives_en.html#making, andhttp://ec.europa.eu/education/policies/2010/nationalreport_en.html

87 VET schools that have set up close cooperation arrangements with chambers of crafts in Croatia are anexception.

Lack of funding, efficiency and equity arealso topics in the delivery of labourmarket training which, as demonstratedabove, do not address those sections ofthe population who are most in need. Asnoted in Kosovo, the very clear and goodintentions of the government foreducation remain only intentions becauseof the lack of public funds88

. In manycountries and territories some expenseshave to be paid by students and families,such as the cost of textbooks89, andscholarships are often restricted to aminority of students.

Beyond the lack of funding, the financingsystem needs to be reviewed, and in mostcountries and territories this process hasbegun, and has been linked to thedecentralisation process. Since stateresources are scarce, there is a tendencyto call on additional resources fromdecentralised bodies, or from the school’sown resources, particularly in the case ofVET schools. Thus, municipalities andcounties as self-governments already havesome responsibilities in Croatia, the formerYugoslav Republic of Macedonia, Kosovo,Albania and Serbia, where they financeschool maintenance, utilities, teacherretraining, equipment and infrastructure,while teachers’ salaries remain centralised.Following the Ohrid agreements, theformer Yugoslav Republic of Macedoniahas also planned to decentralise thepayment of teachers to municipalities in2007. In these countries and territories,anecdotal evidence suggests a positiveattitude on the part of numerousmunicipalities towards this new role. This isalso the case in Albania, while inMontenegro there is a different situation inwhich decentralisation is rejected bymunicipalities90.

However, as analysed above in the sectionon decentralisation, procedures arecomplex. The centralised part of thebudget, which mainly covers staff salaries,and the state contribution to thedecentralised part, which goes throughlocal governing bodies, are granted toschools through rigid procedures that areusually based on the number of students.But the amount granted is always verydifferent from the amount requested byschools when they submit their budget tostate bodies91. Some countries andterritories differentiate between the types ofstudents92, while others use the sameratios. Some countries have introducedcompetition funds for innovation, thoughsome experiences through EU-fundedCARDS were unsuccessful, and werediscontinued. Thus, there is no incentive topromote better efficiency at school level.

Moreover, there is a major issue in terms ofequity, since allocation of resources fromthe state to local governing bodies, includingresources from privatisation in somecountries and territories, is not carried outequally, and suffers from a lack oftransparency and from the strong influenceof politicians. This is exacerbated by the roleplayed by donors working through selectedpilot schools. As a result, some schools areovercrowded and function with two shifts93,when others in the same country or territoryhave very few students. Some VET schoolsare very well equipped with up-to-datemachines, while others are still working withobsolete equipment. This was the mainreason for establishing compensationmechanisms, though the evidence is not yetconvincing in Croatia, where aCompensation Fund was set up some yearsago at region level, but with inadequatemechanisms which do not provide equity94.

102


88 Main findings of an ETF mission on ‘Facilitating peer learning on VET finance in Albania, Kosovo andMontenegro’, 2006.

89 In Albania these expenses include those for accommodation and food for students using dormitories.

90 Main findings of an ETF mission on ‘Facilitating peer learning on VET finance in Albania, Kosovo andMontenegro’, 2006.

91 Moreover, in some countries, particularly Montenegro and Serbia, budget issues at national level haverecently led to a system of monthly payment to schools which creates serious problems for headteachers.

92 In Albania unit costs are roughly twice as high as those in VET schools.

93 One in the morning, the second in the afternoon.

94 During a mission to Croatia in July 2006, the regional institutions seemed to ignore totally the existence ofsuch a fund.

School autonomy

School autonomy has been discussed, andpartially introduced, in most countries andterritories, though without a clear conceptand often with rigid regulations that preventheadteachers from working efficiently. Ingeneral, school autonomy allows someflexibility in developing curricula in liaisonwith local governments, and in introducingpedagogies, but much less in terms ofappointing teachers95 and developing newactivities. School boards have beenintroduced in most countries and territories,but their functioning is very formal andprocedures are complex. In some countriesand territories, giving greater autonomy toschools is seen as a means ofcounteracting the politicisation that resultsfrom the heavy dependence ofheadteachers on politicians at national andat local level – headteachers in mostcountries and territories usually changewhen governments change. However, thenew dependence on local powers thatcomes from decentralisation could also beproblematic, as anecdotal evidence hasrecently demonstrated in some countriessuch as the former Yugoslav Republic ofMacedonia96. It would certainly be better toensure the permanence of the schoolmanagement by depoliticising itsnomination.

The possibility of VET schools developingadult learning and undertakingcommercial activities has been openedup very recently in most countries andterritories, though often withoutappropriate incentives97. In contrast, inthe former Yugoslav Republic ofMacedonia, where school autonomy wasintroduced following the Ohridagreement, some headteachers are

developing commercial activities that gobeyond sound consideration of theirpedagogical responsibilities98.

Management of the change process

With regard to the management of thechange processes, as stated in the ETFreport on curricular reform, ‘it is not certainthat countries have established thecapacity to formulate the right interventionstrategies to achieve it’. Strategies havebeen set up and laws promulgated withoutan adequate implementation plan thattakes into account targets, deadlines andsteps, and more importantly, the budgetaryimplications99. Dissemination has beenneglected. The reform process has alsosuffered a lack of continuity because ofgovernment changes and heavypoliticisation in most countries.

There are also questions on the ability ofVET institutions to respond to change, andon whether teachers are prepared toincorporate the complex reform measuresinto their daily work. Moreover, thefunctioning of the ministries in charge ofeducation and labour is questionable. Inparticular, departments for VET and foremployment policies are understaffed andheavily affected by political changes,since most countries and territories, evensome of the smaller ones, practise asystematic ‘spoil system’ that extendsdown to school heads. There is a greatneed for capacity building, particularly forall new institutions that have recently beenset up, as well as for the social partners atnational, regional and local level. Asdescribed above, teachers have not beenconsidered as change agents, except insome EU-funded CARDS projects in pilotschools.

103


95 In Montenegro, schools appoint teachers.

96 A school in Ohrid now has two headmasters, one appointed by the government and the other by themunicipality. The first was dismissed by the municipality but refused to leave since the correct procedure wasnot followed (because there was no state representative present during the session where the dismissal wasannounced).

97 This is because they have to give back the resources to the state before receiving a small portion of them; inKosovo, it is not even possible.

98 It is difficult to set up clear borders, but consideration should be given to the consequences that commercialactivities may have on pedagogical ones. This is particularly relevant when commercial activities develop withno direct benefits for students, or when they develop using managers’ and teachers’ energy and time whenthese would be better used for looking at labour market needs and developing tracer studies, for instance.

99 There are exceptions, such as in Montenegro, where the Education Reform Implementation Strategy definesall these issues.

However, through the dissemination of theEU tools, references and principles fromthe Education and Training 2010 WorkProgramme, and thanks to peer reviewsand peer-learning activities organised bythe ETF on curricular reform,decentralisation and VET financing, it canbe said that a real learning process hasstarted in the region. This has alsobenefited from the active support ofneighbouring countries that are moreadvanced in the involvement in EU policies,such as Slovenia, Hungary, Romania andBulgaria. This has provided a powerfullearning environment for individuals, inwhich their awareness and understandingof critical policy issues can be increased(Vos, 2006). Although it has mainlyinvolved medium-ranking policymakers andsocial partners, this policy-learning processis now underway, and should now bereinforced and made more visible.

3.3.5 POLITICAL ANDINSTITUTIONAL CONTEXT,CONSTRAINTS ANDOBSTACLES

Main achievements

The situation varies greatly in the differentcountries and territories. The differencesare huge between Croatia (which is now afuture Member State in which economicdevelopment has been higher than in otherformer Yugoslav republics, and where thelevel of public spending on education is notvery far from EU standards), and Albania(where the prospect of accession is muchmore distant, and the resources availablefor education are scarce and decreasing).Nevertheless there are similarities in theways in which reforms have beenapproached and conducted so far as aresult of the EU accession context, as wellas the way that donor programmes for theregion have been designed andimplemented.

With regard to the lifelong learningperspective and framework, clear prioritiesand good intentions can been identified inmany policy documents, as well as in thelaws already approved. Moreover, there

have already been some achievements inthe fields of governance, decentralisation,curriculum development, teacher trainingand retraining, qualification frameworks,certification systems and highereducation. With the more recentdevelopments linked to the Copenhagenprocess and the active disseminationprocess of its messages (thanks to theETF but also to the Education ReformInitiative for South East Europe (ERISEE)and the EU CARDS programme), somecountries, such as Montenegro, Kosovoand the former Yugoslav Republic ofMacedonia, seem to have achieved agood consensus among the mainstakeholders and taken further stepsforward in the reform process.

However, the analysis has identified asmajor weaknesses: the lack of public andprivate resources and of consideration forefficiency and equity issues in funding; thelimitations in access to education andtraining in general and the poordevelopment of adult learning; the absenceof an overall strategy for lifelong learningand the lack of consideration for flexiblelinks between the components of theeducation and training system andbetween these components andemployment; particular lack of counsellingand guidance systems; the focus onindividual needs and on innovativepedagogies; the lack of culture ofevaluation and quality assurance; and thedifficulties in developing decentralisationand school autonomy.

In general, donor funded pilot activities toaddress the above issues are not followedup by proper dissemination strategies andmainstreaming actions; nor is donors’activity set against a global strategy andcoherent management of reform. However,thanks to these programmes manynational, regional and local actors havedemonstrated goodwill and commitment forthe projects and for further reforms.Positioned as they are at medium-rankinglevels in the administration, in localgovernments, trade unions, chambers ofcraft and commerce and employers’associations, they represent a good basisfor further developments.

104


Main obstacles for further reforms

Low priority given to education by

governments

Although there are many signs that reformsare in progress, initiatives are developingand many strategic papers and laws areunder scrutiny, it is clear from the previoussections that education and training ingeneral and VET in particular are notcurrently a strong priority for governments.There is as yet no clear vision on the partof politicians and employers100 that humancapital development is a key requirementfor the future. It goes without saying thatpolitical issues are predominate in allcountries and territories101. Public andprivate investments in education are verylow, and the lack of continuity inapproaches to education, particularly VET,has damaging effects for the wholepopulation, in particular for young peoplebut also for some ethnic/national groups,especially the Roma people.

Inappropriate and outdated governance

schemes

Governance issues have been identifiedabove at various stages. It is aboutinterministerial coordination, coordinationand cooperation between administrativelayers, decentralisation, and partnership atall levels, with particular reference to socialpartnership. It is about the dominant roletaken by Ministries of Education inon-going reforms, often in isolation andwithout proper consideration for otherpartners. It is also about the internalfunctioning of the administration, with thelack of sufficient well-qualified staff, the‘spoil system’ at all hierarchical levels,including headteachers, in relation to anypolitical change in the government, thepersistence of bureaucratic approaches,

and the lack of an information system andof transparent procedures, a situation thatallows for arbitrary decisions andgenerates inefficiency. Here it seemsequally important to address the ‘external’issue of relevance of the education andtraining system to the needs of the labourmarket and society, and to address the‘internal’ issue of having a well-functioningsystem with qualified staff, transparentprocedures and fair regulations. TheCopenhagen criteria concerning both therule of law and the adaptation to the marketmust be considered equally whenaddressing the reforms in education andtraining.

Sustainability issues in the context of

fragmented donor assistance

As discussed above, almost all on-goingreforms are supported by EU programmesand other multilateral or bilateral donors. Incomparison with the donor assistancegiven to education and training in CentralEurope to the former candidate countries, itseems that a substantially higher numberof donors are involved, working withweaker and smaller administrations.Beyond the capacity of countries andterritories to absorb these programmes,there is the question of the sustainability ofthe reforms following donor interventions.It is a question of funding for activities thathave been developed through pilotapproaches, and which need now to beexpanded to the whole country. It is aquestion of real appropriation of thecontents in order to avoid the risk of emptyrhetoric. It is also a question of motivationand empowerment of actors towardsreforms that might go against routines andlocal interests. Finally, it is a question ofcontinuity, consistency andcapitalisation102. The development ofprofessional networks and partnerships

105


100 As reported by Bartlett in Chapter 1 on economic restructuring, the skills and education of available workersare not seen as a major obstacle to business operation and growth in the former Yugoslav Republic ofMacedonia, Albania, Croatia and Serbia, in contrast to the situation in Poland and the Czech Republic (EBRDSurvey, 2005).

101 These are linked to the anniversary of the Dayton agreements in Bosnia and Herzegovina, to the status ofKosovo, to the recent independence of Montenegro, to the future of the former Yugoslav Republic ofMacedonia and to the negotiations between Serbia and the EU.

102 In some countries and territories, initiatives aimed at the identification of labour market needs have beenlaunched, thanks to the VET CARDS 1 programme in 2001/02, and were completely interrupted before thestart of the VET CARDS 2 programme in 2004. In the meantime, most of the experts trained had moved on,and it was impossible to capitalise on previous experiences.

and of appropriate institutions such as VETcentres or agencies should allow forimproved sustainability, though only if thisis accompanied by a huge effort in terms ofcapacity building.

Lack of cooperation between countries

It is clear that many similar approachesdevelop in some (or even all) countries andterritories at the same time, without anycooperation and little exchange betweenthem. This is a particularly important issuesince some reforms need to involve anumber of representatives from publicand/or private bodies, and some countriesand territories have difficulty findingsufficient appropriate human resources.Another problem is the risk that theseisolated approaches create barriersbetween countries and territories when thedevelopment of economies and labourmarkets already requires that workers begeographically mobile across the wholeregion. Hence, it is problematic forcountries and territories to set up newcurricula or their national qualificationframework in isolation from theirneighbours.

3.4 CONCLUSIONS AND MAINCHALLENGES

Human capital development is one of themajor challenges in the overall process ofsocioeconomic development of theWestern Balkan countries and territories.The adverse political situation during the1990s, the wars and the ethnic conflicts didnot permit them to develop their humancapital as other European countries did,while skills depletion of the labour forcecould prove to be a major impediment forsucceeding in the transition process,entering an innovation-led economicgrowth path and becoming part of theknowledge-based economy with EUMember States.

Although the countries and territories of theWestern Balkans have managed todecrease the percentage of people whohave low levels of education for theyounger generations, this remainsdisproportionately high (in particular when

compared to the corresponding percentagein the new Member States), thuspreventing an important section of thepopulation from supporting the economicdevelopment process. The lack ofopportunities for knowledge and skillenhancement in the field of adult learning,and the frequent involvement of this sectionof the population in low-added-value,low-productive economic activities (inagriculture or the informal economy)creates a challenge for the furtherdevelopment of socially inclusiveeconomies.

At the same time obsolete formal VETsystems – designed to address the needsof a centrally planned economy andpreparing individuals for lifelong wageemployment – and limited trainingopportunities outside these systems havenot brought about sufficient enhancementof the adaptability of the labour force to thenew socioeconomic challenges of a marketeconomy. In the short to medium term thismay delay successful labour reallocationduring the economic restructuring process,and in the long term it may cause skillbottlenecks for economic development.

Finally, there is a gap in the countries andterritories of the region in terms of thepercentage of highly educated people ableto generate and support innovation-ledgrowth by absorbing and generating newtechnologies. In fact, some countries andterritories in the region (for example theformer Yugoslav Republic of Macedoniaand Serbia) have even experienced areduction in the percentage of highlyeducated people among the youngerprime-age generations. Emigration andsubsequent brain drain may be anexplanation for this, but issues of thequality of the higher education system arealso relevant. It is true that there is a trendfor higher levels of participation amongyoung people in higher education, but thisdoes not appear to be as steep as in thenew Member States or other EU countries.Moreover, the higher education systemseems to be progressing slowly in terms ofdiversification of education programmesand the shift from academic/elitist highereducation towards more professionallyoriented studies.

106


Behind this general picture, cross-countrydifferences are significant. At one extreme,Albania and Kosovo are facing a hugechallenge in terms of human capitalaccumulation in that they must substantiallyincrease participation to education acrossthe board, but in particular at primary andsecondary level and in adult learning. Atthe other extreme, Croatia, Montenegroand Serbia – being the best placed interms of human capital in the region, andthe more advanced in terms of economicrestructuring – need to work more onissues of adaptability of the labour forceand enhanced capacities for absorbingnew technologies. This, however, shouldnot undermine efforts towards increasedparticipation in education and trainingamong people from ethnic minorities andother disadvantaged population groups.Bosnia and Herzegovina and the formerYugoslav Republic of Macedonia – beingsomewhere in between the two extremes –have a dual challenge to face in terms ofboth reducing the percentage of peoplewith low levels of education and working onissues of adaptability.

Progress on education reforms to addressthe above issues has so far been modest.Human capital and education and trainingissues have not yet been given sufficientpriority. A broad consensus on the futureshape of the education system has not yetbeen achieved, as governmental changeshave brought about delays in theimplementation of education reforms andthe change of direction. New governanceschemes that are less centralised and moreadapted to the needs of a market economyhave yet to be effectively established. Newlycreated professional institutions which canpromote innovation in education andfacilitate the modernisation process are notyet strong. Pilot activities on themodernisation of curricula have not yet hada large-scale impact on the improvement ofthe overall educational provision, as theyare not mainstreamed, and this creates asituation of ‘good schools’ and ‘badschools’. The debate about the educationreforms has mainly focused on the initialeducation system, while adult learning hasbeen long neglected. Issues of excellenceare given higher priority than those of socialinclusion.

Taking into account these observations,Western Balkan countries and territoriesneed to continue to address thedeficiencies of their education and trainingsystems at all educational levels and in thefield of adult learning, and even intensifytheir efforts. The following specificchallenges can be identified.

1. Including human capital

development, education and training

high in the overall agenda for

socioeconomic development

On-going reforms can not be successfulwithout a clear priority on education,training and human capital developmentat the highest level. This entails:

� ensuring broader commitment for theimplementation of education policiesso that they are not disrupted ordelayed by government changes;

� ensuring that piloting activities havean impact on the system as a whole,through pragmatic and well-designeddissemination strategies;

� devoting more public resources toeducation and training, in particularin those countries and territories thathave suffered most from adowngrading of their educationsystem;

� working closely with social partnersand designing appropriate incentivesfor employers and individuals inorder to increase private funding foreducation and training.

2. Ensuring a well-functioning and

well-steered education system

There is a need to ensure a transparentand well-functioning education systemwith sound governance, fair regulations,democratic rules, and close partnershipswith all the main stakeholders, includingsocial partners and self-governancebodies. In particular, there is a need to:

� reconsider the initial attempts to setup decentralised procedures in orderto ensure better efficiency and equity;

� develop a national capacity to studyand anticipate medium- andlong-term labour market andeconomic needs;

� develop quality assuranceprocedures at all levels.

107


3. Providing a well-performing basic

education for all

Western Balkan countries and territoriesneed to address the main deficiencies intheir basic education systems (sincethese are the foundation for futurelearning), particularly the low enrolmentrates among disadvantaged populationgroups. This entails enhancing accessand focusing on the improvement of theeducational outcomes of all children by:

� providing a sound level of corecompetences;

� fighting dropping out and earlyschool leaving;

� targeting specific at-risk populations,particularly ethnic minorities;

� improving quality;� insisting on teacher training based

on new active pedagogies.

4. Modernising VET and higher

education systems

Participation in secondary and highereducation still needs to be enhanced aseconomic development proceeds andas requirements for medium andhigher-level qualifications are expectedto increase (though at different paces indifferent countries and territories).However, this needs to go hand in handwith improvements in the quality of theeducation and training provision.

In the field of VET this concerns anumber of different issues. First, VET isoverrepresented at secondary level,while its presence at post-secondarylevel is very small. Given that theeconomic restructuring process will askfor higher-level skills, a better balanceshould be created between (i) generaland vocational education at secondarylevel and (ii) secondary andpost-secondary VET through areinforcement of the latter. Second, thequality of VET provision, particularly ofthe three-year vocational programmes,is generally poor, and theseprogrammes are dead-end routes forthose who attend them.

An improvement of the curricula toreflect changing competences andensuring opportunities for furtherstudies, adequate practical training,better equipment and infrastructure,better teacher training and enhancedcooperation with businesses arenecessary. Third, the impact of(donor-funded) piloting activities ofmodern vocational programmes mustbe ensured through carefully designeddissemination strategies from thewell-equipped pilot schools to theothers.

Overall, the secondary VET systemshould improve its quality and flexibilityby promoting horizontal and verticalpermeability, developing pathways,linking better with businesses and thelabour market, and in particularadapting and integrating its network ofschools and training centres.References to the Copenhagenmessages should be systematised.Furthermore, colleges and universitiesshould work together intensively withclose reference to the requirements ofthe Bologna process and the EUbenchmarks, and post-secondary VETshould develop substantially. Prioritymust be given to mathematics, scienceand technology in higher education inorder to prepare for higher-levelqualifications.

5. Promoting adult learning

Issues of adaptability of the labourforce must be urgently addressed.Adult learning needs to be given ahigher place in the education agendaof all countries and territories: allcountries and territories need topromote opportunities and incentivesfor adults to enhance their skills andhence their adaptability andemployability. This implies thedevelopment and implementation ofsound adult learning strategies thatensure quality provision of training,sufficient funding and incentives forparticipation103.

108


103 For a detailed examination of the issues involved in the promotion of adult learning see Gunny and Viertel,2006.

6. Policy learning and cross-country

cooperation

Western Balkan countries and territoriesare relatively small, and all are involvedin education reforms. The processes ofeducation reform are not the same in allcountries and territories, andachievements vary between them. In thatrespect WBA countries and territoriescan benefit from a much greater focus oncooperation and exchange in order toincrease policy learning and benefit fromlessons coming from neighbours, and tocontribute to a better functioning of thelabour markets.

Also, the involvement of the WesternBalkans in the EU processes for theimplementation of the Education andTraining Programme 2010 is essentialas a policy-learning opportunity. For themoment only Croatia and the formerYugoslav Republic of Macedonia, asfuture Member States, are involved, butmechanisms for ensuring theinvolvement of the other countries andterritories are also necessary104.

109


104 The ETF has already started work in this direction through the launch of a project for the dissemination of theresults of the Education and Training 2010 Work Programme in the Western Balkans.

4. AN ASSESSMENT OFEMPLOYMENT POLICIES INTHE WESTERN BALKANS

Ray Phillips

4.1 INTRODUCTION

The purpose of this chapter is to assessthe employment policies of the countriesand territories of the Western Balkansusing the European Employment Strategy(EES) as a framework for the analysis, andto identify policy areas for future work.

In 2005 the European Council of Ministersadopted integrated guidelines for growthand jobs (2005–08) that recognise theinterdependence of wider economicobjectives, labour market policies andemployment issues, and seek to bring themtogether in a mutually reinforcing way. Thethree main objectives of the employmentguidelines are full employment, improvedquality and productivity at work, andstrengthened social and territorial cohesion.The main priority actions of the guidelineson employment are:

1. to attract and retain more people inemployment and modernise socialprotection systems by:

� promoting a lifecycle approach towork;

� developing inclusive labour marketsfor jobseekers and disadvantagedpeople;

� improving matching to labour marketneeds;

2. to improve the adaptability of workersand enterprises and the flexibility oflabour markets by promoting:� flexibility and employment security,

and a reduction in labour marketsegmentation;

� employment-friendly wage settingand labour costs;

� the role of social partners;3. to increase investment in human capital

through better education and skills byadapting education and trainingsystems in response to newcompetence requirements by:� expanding and improving investment

in human capital;� adapting ET systems to new

competence requirements.

111

4

The guidelines underline the importanceof increasing the demand for, and supplyof, labour and raising employment levelsas pre-conditions for growth, socialinclusiveness and effective socialprotection. They call for improvedemployability and greater access andattachment to the labour market, byrewarding participation in the world ofwork, by training and other activemeasures, and by strengthening labourmarket institutions. A lifecycle approach towork with greater movement and varietyshould be promoted, as fewer peopleremain in the same jobs for a working lifeof fixed duration. The EES emphasisesthe need for effective implementation andestablishes new partnership andgovernance arrangements between theEU and Member States that define broadroles and include EU targets, benchmarksand follow-up arrangements. MemberStates are encouraged to set targets andare required to develop national reformprogrammes for the period 2005–08, withupdates in 2006/07.

The components of the EES are not allrelevant in equal measure to all the labourmarkets of the EU. The strategy providesstructure for the examination of relevantissues from which different policyresponses may emerge. As such it is asuitable analytical tool for assessingemployment policies in the WBA. Theobjectives of the EES are also relevant tothe Western Balkans even though thecontext is dissimilar: labour marketsegmentation is deeper, the size of theinformal economy is far greater and thesocial protection arrangements are muchweaker. The interpretation of the guidelinesmay therefore stretch further, and policyresponses may need a different emphasisand, on some issues, even a differentdirection.

Section 4.2 gives an overview of theemployment policies in the Western Balkancountries and territories within the broadertransition context. Section 4.3 focuses onpolicy areas that have an impact on theincreased adaptability of workers andenterprises, and in particular on:

� labour legislation and labour marketflexibility;

� wage determination systems;� social contributions and taxes.

Section 4.4 focuses on policy areas aimedat attracting more people into (formal)work, and in particular passive and activelabour market measures, the restructuringprogrammes and the functioning of thePESs. Section 4.5 focuses on aspects oflabour market inclusiveness. Finally, thechapter identifies a number of areas forfuture work.

4.2 EMPLOYMENT POLICIESIN THE WESTERN BALKANSWITHIN A BROADERTRANSITION CONTEXT

Throughout much of the WBA the collapseof socialist regimes and wars causedsocioeconomic dislocation. Early rebuildingconcentrated on societal and economicstabilisation, structural change and povertyalleviation. Employment was addressed inthe context of wider economic orpoverty-reduction strategies, and focusedmainly on:

1. protecting jobs through state subsidiesand generous arrangements forredundant workers from stateenterprises;

2. introducing greater flexibility into labourmarket regulation;

3. enforcing compliance with labour lawsand especially health and safetyregulations through the labourinspectorates;

4. introducing or redesigningunemployment benefit arrangementsand modernising the regulation of PESs;

5. supporting the development ofentrepreneurship and a modest range ofactive labour market measures, mainlyjob subsidies of one kind or another.

The legal framework was changed byintroducing or revising the two centralpillars that regulate employer/employeerelationships, social protection andinstitutional responsibilities: labour law105

112


105 The labour law is frequently referred to as the labour code; it regulates the contractual relationship betweenemployers and employees, including minimum conditions of employment.

and employment law106. The labour lawswere difficult to negotiate with socialpartners; trade unions feared adeterioration in workers’ conditions, andemployers were poorly organised. Even so,throughout the region the regulatoryframework has been modernised so as toapproximate the frameworks of EU states.Apart from the new legal framework andthe development of labour inspectorates,the progress of employment policies hasbeen patchy across the region. Labourministries have taken responsibility forpolicy, but have lacked the capacity todesign effective measures. Almost all ofthem have been slow to modernise theirPESs and to give them clear focus.Measures appear to have been ad hocreactions to emerging problems. Nowherehas there been an overarching view of thelabour market; nor in much of the regionhas there been sufficient information toallow meaningful analysis.

As a result of rising unemployment, joblessGDP growth and the EU accession processa number of countries have moved beyondaddressing employment issues only withina wider strategic context. Albania produceda strategy for Employment and VocationalTraining in 2003. In the former YugoslavRepublic of Macedonia a National ActionPlan for Employment (NEAP) 2004–05linked employment and wider economicobjectives, while an Employment Strategy2010 and National Employment Action Plan2006–08 have also been developed. InCroatia a NEAP with performancemeasures and objectives was agreed byparliament in 2004. Serbia has alsodeveloped a national employment strategyfor 2005–10 and a NEAP for 2005–08.

The wider acknowledgement of theimportance of employment issues does notmean they are yet being successfullyaddressed. Unemployment is seen only asthe outcome of economic difficulties, somost employment policy still focuses on job

protection and job stimulation. Legislationwhich has been put in place enablesfurther policy development for supply-sideissues, and a wave of development isunderway to modernise PESs and expandlabour inspectorates. The coverage ofunemployment benefit has remainedextremely low, funding has become aproblem in a number of countries andterritories, and the modernisation of thelabour laws appears to have had littleimpact107 on patterns of work or onemployers’ behaviour, apart from themarked change in the levels of temporaryand civil contracts.

Assessment

Total preoccupation with job protection,retention and stimulation is giving way tomore varied policy responses, includingsupply-side measures and improvement ininstitutional performance. Most of theregion has reached the position where:

1. there is greater realisation thateconomic growth does not alwaysreduce unemployment and that thegrowth of employment requires a set ofpolicies towards that end;

2. countries and territories are becomingmore aware of the need for labourmarket analysis and appropriateemployment policy responses ratherthan seeing employment issues as anappendage to poverty-reductionstrategies or economic development;

3. there is growing understanding thatsupporting employment goes beyondlabour market legislation andactive/passive measures, but alsorequires action in other areas such asSME development and privatisationarrangements;

4. there is a low but growingunderstanding of the importance of thesupply side of the labour market and ofthe development of appropriatemeasures;

113

4. AN ASSESSMENT OF EMPLOYMENT POLICIES IN THE WESTERN BALKANS

106 ‘Employment law’ is shorthand for the laws often entitled ‘Law on Employment and Compensation in the Caseof Unemployment’. It normally covers the rights of workers to unemployment benefit, the details of eligibilityand levels and duration of benefit payments, the funding of unemployment benefit, and the competences andgovernance of the public employment service.

107 The OECD ‘Enterprise and Policy Performance Assessment’ interviews conducted in the former YugoslavRepublic of Macedonia indicated firmly that labour regulation did not feature highly on the list of concerns ofbusiness people. This situation is also supported by the ETF Labour Market Reviews of Serbia and Bosniaand Herzegovina.

5. there are clear signs that this ishappening with revised institutionalarrangements to address key issuesthat were previously neglected, andgreater awareness that policy needs tobe evolved further in order to addressesspecific problems.

Nevertheless, the construction ofsupply-side measures has not yet reachedthe point at which the competitiveness ofthe workforce, especially in term of skills,effectiveness and motivation, is seen as akey issue in the success of enterprises andin the creation of more jobs.

4.3 IMPROVING THEADAPTABILITY OF WORKERSAND ENTERPRISES

4.3.1 EMPLOYMENTLEGISLATION AND LABOURMARKET FLEXIBILITY

Various studies have noted the relaxationin labour regulation in the WBA (Micevska,2004; Cazes and Nesporova, 2006). TheOECD index of employment protectionlegislation108 (see Table 4.1) reveals onlysmall differences in the levels of protection,

114


Table 4.1: Employment protection legislation (EPL) strictness indices*

Country Year

Contracts

with no

time limit

Temporary

contracts

Collective

dismissals

EPL

index

Albania 1995 2.1 3.0 2.8 2.6

Bosnia and Herzegovina 2003 1.8 3.1 3.3 2.6

Croatia 2003 2.7 2.8 2.5 2.7

fYR Macedonia 2003 2.0 3.1 4.0 2.8

Serbia/Montenegro 2001 2.2 3.1 3.8 2.9

Bulgaria 2003 2.1 0.9 4.1 2.0

Romania 2003 1.7 3.0 4.8 2.8

WBA See above 2.2 3.0 3.3 2.7

OECD Late 1990s 2.0 1.8 2.5 2.0

* All the indices range from 0, indicating very liberal regulation, to 6, meaning very restrictive regulation.

Sources: Cazes, S. and Nesporova, A., ‘Combining Flexibility and Security for Employment and Decent Work in

the Western Balkans’, 2006. Calculations based on national Labour Codes for Albania, Bosnia and Herzegovina,

the former Yugoslav Republic of Macedonia and Serbia and Montenegro made by Micevska (2004), and for all

other countries see Cazes and Nesporova (2006).

Table 4.2: Rigidity of employment index, January 2005

CountryDifficulty of

hiring index

Rigidity of

hours index

Rigidity of

firing index

Rigidity of

employment

index

Hiring cost#

index

Firing cost+

index

Albania 44 80 20 48 31 64

Bosnia and Herzegovina 56 40 30 42 42 33

Croatia 61 60 50 57 17 38

fYR Macedonia 61 60 40 54 33 41

Serbia/Montenegro 44 0 40 28 25 21

OECD 27 45 27 33 21 31

Czech Republic 33 20 20 24 37 22

Hungary 11 80 20 37 34 34

Source: World Bank Report, ‘Doing Business 2006; # % of salary; + weeks of salary.

108 This index was produced by the OECD to provide a guide to the overall strictness of employment regulation.It covers all major aspects of the relationship between employers and employees, including contractsseverance and collective dismissals.

but confirms heavier regulation in respectof temporary contracts.

The World Bank’s rigidity of employmentindex109 (see Table 4.2) suggests ratherstricter regulation. The region scores anunweighted average of 46, compared withan OECD average of 33110. The cost offiring workers and the rigidity in workinghours appear high relative to OECDcountries as a whole, apart from in Serbia,where 2004 legislation made working hoursfar more flexible.

Some areas of overintrusive regulation arenot picked up by employment protectionlegislation indices111, and the reshaping ofthe legislative landscape is not the full storyon regulation. Collective agreements,employers’ behaviour, levels of complianceand enforcement, and institutionaleffectiveness, all affect the realities of thelabour market. Collective agreementsaffect flexibility. Laws set first-levelrequirements that are then elaboratedthrough collective agreements. The WorldBank (2005f) noted that the new generalcollective agreement in Montenegropreserved some rigidities that hadpreviously been removed from labour laws.Non-compliance with regulation ismultifaceted.

As well as not registering all workers andnot declaring full wages, employers ignoreunaffordable and aspirational regulationsconcerning wages, maternity payments112

and waiting lists113. Moreover, some of thebenefits set out in detail in collectiveagreements are not paid (World Bank,2005b). The effectiveness of institutions(labour inspectorates and the judiciary)influences levels of compliance andredress.

Labour market flexibility has many moredimensions114 – other than those coveredby regulation of employer/employeerelationships – which have little or nobearing on wider supply-side issues,especially in terms of the quality, mobilityand adaptability of the workforce. In theirstudy of flexibility in the Croatian labourmarket, Matkovic and Sosic concluded thatinternal numerical flexibility, in particularpart-time work, flexibility in skillsacquisitions, and mobility of both jobs andlabour force, are dimensions of labourmarket flexibility on which Croatia scoredparticularly badly. There had been anumber of recent improvements in wageflexibility, and numerical flexibility115 wasstrongly influenced by the increased shareof temporary workers as a result of easierregulations governing temporary contracts.

115


109 The rigidity of employment index measures the difficulty of hiring and firing redundant workers and rigidity ofworking hours regulations. See 2005/06 ‘Doing Business’ Survey for Bosnia and Herzegovina. 0 is totalfreedom and 100 is severe rigidity.

110 High scores relating to the difficulty of hiring are caused mainly by limits on fixed-term contracts. In Bosniaand Herzegovina their use is limited to 60 days per calendar year, and collective agreements have noprovision for temporary and part-time work.

111 The World Bank Economic Memorandum (2005f) on Serbia and Montenegro noted that the labour law inMontenegro ‘reaches into the direct relationship between the employer and employee – even prescribing thescope and nature of the disciplinary action an employer may take when an employee transgresses’.

112 In Serbia and Montenegro the generous duration and level of maternity pay is widely disregarded for financialreasons.

113 In Bosnia and Herzegovina persons employed on 31 December 1991 who reported back to their employerafter the war were put on the waiting list if there was no work for them. Those who did not report to theiremployer were entitled to write to the employer to request that they be allowed to return to work, as long asthey had not started a job elsewhere. If the employer could not employ them they were put on the waiting list.The relevant regulation (Article 124) required that all waiting lists be finished within six months by offering theemployee work or through severance payment. The Article is not applied in practice because manycompanies can barely survive, let alone pay severance compensation to people on waiting lists.

114 Adjustability of labour inputs already employed by the firm (working hours, working time, leave and holidays),external numerical flexibility (adjustment by exchange with the external labour market, inflows of workers aswell as their outflows), internal functional flexibility (ability to improve efficiency by reorganising the methodsof production and labour content), and finally external functional flexibility (ability to externalise or diversifyparts of production through sub-contracting) (Matkovic and Sosic, 2004).

115 Numerical flexibility refers to the ease with which the number of employees can be changed.

Assessment

Former socialist countries and those withcodified civil laws are generally moreheavily regulated116. This used to be thecase in the WBA, but is now true to a muchlesser extent. Higher levels of employmentprotection are usually, though not always,associated with lower levels of labourmarket participation and employment, butnot unemployment. These relationships arenot clear-cut (Cazes and Nesporova, 2006)and ELP indices are an inadequate proxyfor labour market flexibility because (i) lawsmay be ineffective, and (ii) flexibility is a farwider concept.

The effectiveness of labour regulation inthe WBA is dubious. The scope withinregulations appears underused forindustrial relations, cultural, social solidarityand other reasons, including poormanagement, so that the modernisation ofthe regulations leads to weak outcomes.

� Anecdotal evidence indicates low levelsof compliance, making regulationirrelevant for many117.

� The modernised labour laws do not yetappear to have resulted in employerschanging their behaviour as regardstheir core workforce118. The (limited)use of relaxed regulations appears to beclosely linked to the desire of employersfor greater numerical flexibility which isotherwise achieved through the use ofunofficial workers, hence the extensiveuse of temporary and civil contracts butlittle or no demand for part-timeworkers.

� The non-use of part-timers may haveinstitutional as well as cultural causes:pension regulations make it very difficultfor part-time employees to qualify foreven the minimum pension.

� Employers appear to be adoptingstrategies for greater operationalfreedom and lower institutional costs by‘cherry picking’ from the modernisedregulations in ways that avoid socialconflict and by the use of informalworkers. For the most part the coreformal employed workforce isunaffected except in so far as normalattrition reduces their numbers.

Flexibility in the labour market hassupply-side dimensions that are untouchedby regulation, even where they are strictlyobserved. In the WBA the flexibility of theworkforce (employed and unemployed) toadapt to new requirements is heavilyconstrained by market segmentation, theeroded skills base, inadequate trainingsystems and institutional effectiveness. Inparticular the human capital issues, lifelonglearning and lifecycle approaches toemployment have yet to be adequatelyrecognised. Although there is greatnumerical and cost flexibility in the greylabour market, the scale of informality in theWBA damages investment in human capital.High levels of unemployment in the regionhave so far drawn attention away from thelack of supply-side flexibility that providesimproved prospects of employment andprotection against long-term joblessness.

4.3.2 INCREASING THEADAPTABILITY OF WORKERSAND OF ENTERPRISES –WAGES AND TAXES

Wage and wage determination

In the early part of the 2000s increases inwages generally ran well ahead of GDPgrowth throughout the WBA (see Annex 6)and unit labour costs increased, significantlyaffecting relative competitiveness. Croatia,

116


116 The degree of regulation in the labour market is closely associated with the origins of laws. Most lightlyregulated are countries with common law and reliance upon markets and contracts (Botero et al., 2004).

117 Regulations have greatest consequences where they are most enforced – in richer countries. The WesternBalkans do not fall into this category, and there is considerable anecdotal evidence that compliance is weakin the growing private sector but stronger in the public/state sector, where the relaxation in regulation isnegated by collective agreements that consolidate earlier rigidities.

118 It is unclear as to why this is the case. Anecdotal evidence suggests a reluctance to test the legislation forfear of provoking industrial unrest. Some local commentators associate it with culture and social solidarity.One notable exception, where employers are using the more liberal regulation, is the widespread, increasingand recent use of temporary employment and service/civil contracts. It appears that employers, includingstate agencies, are using the new laws to avoid some of the legal constraints and costs of recruitingpermanent employees. There is little hard evidence to indicate that workers are unwilling partners in this.

where the government tightly controlledpublic sector wages, stood out as anexception. At the other end of the scale therewere large increases in wages in Serbia,especially in 2002, mainly as a result of theincorporation of fringe benefits into netwages. In Montenegro, unit labour costsincreased by two-thirds between 2000 and2004. By 2004 and 2005 there was closeralignment between wages and economicgrowth throughout the region asmacroeconomic stability measures, mostnotably in Serbia, took effect, with reducedscope and pressure for inflationary wageincreases. Albania is a low-wage,low-productive economy even by thestandards of the region (in 2004 net wageswere less than three-quarters of the regionalaverage), despite a strong growth in wagesin recent years. Comparatively high wagelevels in public administration have been anissue in a number of countries and territories.

Social dialogue within much of the region isuneasy in the context of large-scalerestructuring, job losses and the shift frompublic to private ownership. Collectivebargaining is not well-developed, and theemployer side is generally poorly organisedand weakly represented. The trade unionsare usually better placed, and the trendsover recent years in wage increasesindicate strong trade union pressure wheremembership is relatively high (World Bank,2005f). More generally the trade unions arelearning about the ‘give and take’ nature ofdialogue and negotiation. In Croatiaconsiderable effort has been put intotraining social partners in skills for, andappreciation of the processes andobjectives of, negotiation in order to avoidunnecessary antagonism and breakdown.

General Collective Agreements (GCA) atnational (and entity), sector/branch andenterprise levels are common in the region.They specify in detail wage and otherprovisions. In Bosnia and Herzegovinabranch agreements set minimum wages forup to eight groups of workers based onskills and education. The level ofcompliance with collective agreements isuncertain, especially in the private sector;anecdotal evidence indicates wage and

non-wage benefits are not universally paid(World Bank, 2005b). In Republika Srpskathere is regulatory relief for organisationswith insufficient funds to meet theprovisions of collective agreements. Thecurrent wage determination systems inmuch of the WBA are still institutionalised,with insufficient connection betweenreward, productivity and affordability, asituation that has helped to fuel wageinflation and rises in unit labour costs. Thiswill change as social partners grow instrength and confidence, and especially asprivate sector employers and their workerrepresentatives seek to formulatearrangements that are more relevant totheir particular circumstances.

Social contributions and taxes

Minimum wage

Arrangements for, and levels of, minimumwages vary. Croatia does not have aminimum wage, though collectiveagreements must include approximateminimum wages as a floor for calculatingsocial contributions; the Croatiangovernment can determine this level ifthere is no agreement. Minimum wages areusually expressed as a percentage ofgross wages: in Albania the minimum wageis set at 55% of the average gross wage,the highest proportion in the WBA. Theminimum wage in Albania, set by theCouncil of Ministers, is not used for thecalculation of social contributions.

In most cases the minimum wage is setthrough social dialogue via the Social andEconomic Council, as in Serbia, or throughGCAs, as in Bosnia and Herzegovina andMontenegro. Unusually, the minimum wageis set twice a year in Serbia. Elsewhere119

uprating is done on an annual basis in thecontext of the GCA, or on a somewhat adhoc basis when outside an institutionalframework. In the Federation of Bosnia andHerzegovina the entity minimum wage isfor the simplest kind of activities, and formost workers is overtaken by branchagreements that establish sectoralminimum wages. In Montenegro theminimum wage for university graduates is

117


119 In the former Yugoslav Republic of Macedonia the public sector minimum wage is not linked to inflation but isagreed through negotiations with social partners in the GCA and renegotiated annually.

54% of the average gross wage, comparedwith 17% for all other workers. In Kosovothere are separate minima for the privateand public sectors. 120121122123

Minimum wages have fallen as apercentage of average earnings (seeTable 4.3), indicating they are not drivingwage inflation. Republika Srpska is anexception in having substantially raisedthe minimum wage in 2006, albeit from avery low level. Minimum wages have thegreatest effect where they impact most onwage levels, i.e. on low-paid workers. Thelow level of minima in WBA and theavailability of unregulated work make anemployment-disincentive effect unlikely.However, they probably contribute to thescale of tax evasion and the greyeconomy.

Social contributions and personal

income tax

Throughout the WBA policies are directedtowards reducing the institutional costs ofemploying people (see Table 4.4).

However, the position is complicated.Gross wages outside the public sector areoften calculated by applying coefficients tothe net wage for social contributions,income tax and surcharges, and theseparation of costs falling on workers andemployers is notional in some instances:employers pay net wages and takeresponsibility for all deductions and costs,including personal income tax andemployee contributions.

Social contributions were loweredsignificantly in some countries andterritories in the early part of the decade,though not since. The reduction inRepublika Srspka was an economic andjob-stimulation measure. In the formerYugoslav Republic of Macedonia ‘civil lawcontracts’ that avoid employer liability forsocial contributions are becomingwidespread; the government itself nowuses this type of contract. Only in Bosniaand Herzegovina (Republika Srpska) andMontenegro has there been a fall in socialcontributions plus personal income tax as aproportion of net wages. Elsewhere the

118


Table 4.3: Annual gross wage (GW) and minimum wage (MW)

Currency2004 2005

GW MW % GW MW %

Albania ALL 19,145 10,800 56.4 21,448 11,800 55.0

Croatia120 HRK 5,985 - 33.0 6,248 - 33.0

Federation of BiH BAM 784.58 293.44 37.4 819.93 302.44 36.9

Republika Srpska121 BAM 643 82 12.75 707 82 11.6

fYR Macedonia122 MKD 20,779 na 65.0 21,300 na 65.0

Montenegro EUR 302.81 50.00 16.5 326.48 50.00 15.3

Serbia RSD 20,555 6,440 31.3 25,514 7,216 28.3

Kosovo123 EUR na na na na na na

Sources: Monstat; INSTAT, Ministry of Labour, Social Affairs and Equal Opportunity; State Statistical Office of the

former Yugoslav Republic of Macedonia; Statistical Offices of the Federation of Bosnia and Herzegovia and

Republika Srpska; Serbian RSO (From RAD-1).


120 In Croatia no minimum wage is defined by law (only by the collective agreements); the lowest base forcalculation of contributions to the Pension and Disability Fund and Heath and Unemployment Fund isdetermined as 35% of the average gross wage within the first eight months of the previous year (which isaround 33% of the gross wage in the current year).

121 In Republika Srpska in 2006 the minimum wage was determined for the first time by the GCA at BAM 205(27.6% of the average gross wage in the first quarter of 2006). This represents a doubling of the amount inthe previous year.

122 Minimum wage: minimum reference wage for payment of social contributions (65% of the average net wagein the previous month).

123 In Kosovo, from 2004 the minimum wage is set at €150 for the private sector (the average wage in privatesector was €211) and €130 for the public sector (the average wage in public sector was €130). Source:Statistical Office of Kosovo, ‘Kosovo in figures 2005’.

falls in social contributions appear to havebeen offset by increases in personaltaxation, which for some workers are paidby the employer and are tantamount to apayroll tax. 124125126127128129130

In Montenegro and Croatia a surcharge orsurtax was introduced from 2002/03.Towns and municipalities add a chargeonto personal income tax on a scale from0% to 30% based on the number ofresidents. In practice the surtax rates varyfrom 1% to 18%.

119


Table 4.4: Contributions as a percentage of gross wages

2001 2003 2005

Total Total Employee Employer Total

Albania124 45.9 41.9 11.2 30.7 41.9

Federation of BiH 43.5 43.5 32.0 11.5 43.5

Republika Srpska 53.0 27.6 0.0 27.6 27.6125

Croatia126 37.2 37.2 20.0 17.2 37.2

Kosovo 10.0 10.0 5.0 5.0 10.0

fYR Macedonia 37.0 37.0 0.0 37.0 37.0

Montenegro127 na 40.0 20.0 16.1 36.1

Serbia 32.6 (2002) 33.6 17.9 17.9 35.8

Sources: MONSTAT; INSTAT, Ministry of Labour, Social Affairs and Equal Opportunity; State Statistical Office of

the former Yugoslav Republic of Macedonia; Statistical Offices of the Federation of Bosnia and Herzegovina and



Table 4.5: Taxes and contributions as a percentage of net wage

2000 2001 2002 2003 2004 2005 2006

Albania 53.5 50.1 48.4 48.8 49.5 na

Federation of BiH 69.7 69.0 69.0 69.0 69.0 69.0 68.8

Republika Srpska 84.6 86.2 52.0 52.0 52.0 52.0 52.0

Croatia128 79.6 68.2 67.3 67.3 68.1 67.3 68.5

Kosovo na na na na na na na

fYR Macedonia129 na na na 67.1 67.2 67.1 67.2

Montenegro130 na na na 91.4 81.1 78.4 79.0

Serbia na na 72.2 73.8 73.4 72.84 72.8

Sources: MONSTAT; INSTAT, Ministry of Labour, Social Affairs and Equal Opportunity; State Statistical Office of

the former Yugoslav Republic of Macedonia; Statistical Offices of the Federation of Bosnia and Herzegovina and


Note: na = not available.

124 From September 2006 contributions were significantly reduced to 32.9% of the gross wage.

125 From 2002 in Republika Srpska, social contributions are defined as a percentage of the net wage (here theyare recalculated into percentage of gross wage).

126 Without surcharge i.e. a charge onto personal income tax added by towns and municipalities.

127 Surcharge included; if fees to the Chamber of Commerce, trade unions and the housing fund are added thetotal in the first quarter of 2006 is 81% of net wage.

128 Croatia: without surcharge and reliefs.

129 See Annex 4.

130 The surcharge rate is included for Montenegro; if the fees which need to be paid to the Chamber ofCommerce, trade unions and the housing fund are included in the calculation, the total amount of taxes andcontributions as a percentage of net wage is higher (in the first quarter 2006 it amounted to 81%).

The tax wedge131132

As shown in Table 4.6, the tax wedge133 isgenerally (except in Albania and RepublikaSrpska) higher in WBA countries than theaverage of around 36% for low earners inthe EU. This is mainly the consequence ofthe relatively small formal economy taxbase and widespread evasion. The use ofearly retirement schemes in response toindustrial restructuring and the rise in socialexpenditures accompanying highunemployment have made greaterdemands on that small base which, in turn,have reduced the scope for cutting socialcontributions and personal taxation.

The tax wedge is the lowest in Kosovo(around 13%), Albania and RepublikaSrpska, mainly as a result of low socialcontributions. In Croatia a consistent policyof cutting non-wage labour costs reducedthe labour tax wedge to around 40% in2003, excluding local income tax. Thehighest tax wedge appears to be inMontenegro at almost 44%, excluding thesurcharge on earnings by localgovernment. From the beginning of 2003the government of Montenegro has beentrying to reduce total labour costs and tomotivate entrepreneurs to register workers

and to employ more people. However, thetotal cost of labour is still seen byemployers as excessive, and there iswidespread avoidance.

The tax wedge has a different impactaccording to the level of earnings, thoughwidespread underrecording of wagesmakes the value of further analysisdoubtful. Moreover, a high tax wedge doesnot always sit alongside highunemployment. Scandinavian countrieshave high tax wedges but lowunemployment. They have a well-orderedsociety with a small grey economy, theyuse taxes productively, and in recent timeshave taken rigorous measures to activatethose who are unemployed. None of theseoffsetting factors are present in WBAcountries and territories.

Assessment

The increases in nominal labour costs andgross wages have been well above thegrowth in GDP throughout much of theregion (see Annex 6). Countries (Albaniaand Serbia) where wages and labour costshave increased most have also recordedthe largest increases in GDP, but little orno employment growth. The level of

120


Table 4.6: Net pay as a percentage of total labour costs

2000 2001 2002 2003 2004 2005 2006*

Albania 34.4 34.7 33.2 32.5 32.7 33.0 na

Federation of BiH 42.3 42.1 42.1 42.1 42.1 42.1 42.1

Republika Srpska 47.5 47.3 34.2 34.2 34.2 34.2 34.2

Croatia (excluding localsurcharge) 44.3 40.5 40.2 40.2 40.5 40.2 40.7

fYR Macedonia na na na 40.2 40.2 40.1 40.2

Montenegro131 na na na 48.1 43.0132 43.4 44.2

Serbia na na 41.8 42.5 42.3 42.2 42.0

EU-25 38.1 37.2 37.1 37.4 36.4

Sources: MONSTAT, Montenegro’s Ministry of Finance, INSTAT, Albanian Ministry of Finance, Ministry of

Labour, Social Affairs and Equal Opportunity, State Statistical Office of the former Yugoslav Republic of

Macedonia; Statistical Offices of the Federation of Bosnia and Herzegovina and Republika Srpska; Serbian RSO

(From RAD-1). EU figures from Eurostat OECD Commission Service.


131 In Montenegro the surcharge is included, but not the other fees that are levied on employer (fees forChamber of Commerce, trade unions and housing fund). If these items are calculated then the tax wedge for2005 amounted to 43.99%.

132 From December 2004 no other fees that need to be paid by employers are included.

133 The tax wedge is the difference between total labour costs (the amount which employers pay out in wagesand social security and other charges) and how much employees take home after tax, social security andother deductions.

minimum wages has fallen behindincreases in average wages, and is unlikelyto be driving wage inflation. Even at lowerlevels of earnings the evidence fromAlbania indicates that the minimum wage istoo low to be relevant for almost all wageemployees (World Bank, 2006a). Fewformal workers have wages close to theminimum wage level. In other countrieswhere a significant proportion of formalworkers are paid around the minima thismay reflect underrecording of wages ratherthan the impact of minimum wageobligations. It is not possible to concludethat there is no employment effect fromminimum wage requirements throughoutthe region. But where the minimum wage isthe greatest in relation to average earnings(Albania, at 55%), there is no evidence thatthis is the case.

Although the scale of the practice may bediminishing, some employers outside thepublic sector still only declare net pay totheir employees. Apart from representing alack of transparency, this arrangementprovides a great incentive for employers tounderrecord wages and employment.Labour taxes appear generally high in theWBA, in common with much of Central andEastern Europe (Vroman and Brusentsev,2005). However, the underrecording ofwages paid to declared/official workers hasthe effect of decreasing the recorded taxwedge by as much as 5%134. Given that thetax wedge for unrecorded andgrey-economy workers is zero, and theofficial tax wedge is significantlyoverstated, taxes actually collected onlabour are not high. Even so, the currentsituation gives rise to the burden of labourtaxes being unevenly and inequitablyshared, and increases the attractiveness ofthe informal economy to both employersand workers.

Balanced and constructive social dialogueis not yet widely established. The fosteringof businesslike discussions between socialpartners, and improvements inunderstanding the nature of negotiations

and the approach and skills involved, hasnot yet been given the emphasis itdeserves. Currently, wage formation andcollective agreements appear to be overlydetailed, with insufficient room for variationbetween companies, although in practicetheir impact is weaker than might beexpected135 and points to somedetachment between collective agreementsand the reality at enterprise level. Thisseparation – and the wider development ofsocial partnership – will give impetus to ashift away from central bargaining towardsarrangements more relevant to particularcompanies.

4.4 ATTRACTING MOREPEOPLE INTO WORK

Most local people in the WBA perceive thatthere is a lack of jobs rather than a need toattract more people into work. However,the issue is rather more subtle and wideranging. It implies lower dependency ratios,higher participation rates, greater labourmarket flexibility and greater equality interms of economic well-being. At the heartof the issue is the shift away from the ideaof the same people remaining in the samejobs for a working life of fixed duration, andtowards the promotion of a lifecycleapproach to work with greater movementand variety. In the WBA the most pressingconcern is to attract people into the formallabour market. This will only be achievedover many years through the accumulation,interaction and enforcement ofwell-designed policies, including passiveand active labour market measures.

4.4.1 PASSIVE POLICIES

Passive policies include unemploymentbenefit, health insurance and socialassistance. The coverage rate forunemployment benefit is highest in Croatiaat about 17%; elsewhere it is below 10%(see Table 4.7). The benefit replacementrates vary from around 30% in Albania to

121


134 This is probably largely confined to the private sector. The scale of the underrecording of actual wages isuncertain, though the BEEPS 2005 survey indicated an overall figure of around 15% for South East Europe.On this basis the tax wedge is 5% or so lower than the official figures indicate. Albanian respondents to theWorld Bank survey indicated the greatest underreporting of payrolls.

135 For example in Bosnia and Herzegovina there do not appear to be higher wages for people with long jobtenure, though according to collective agreements there should be.

around 60% in Serbia136. All countries inthe WBA limit the duration ofunemployment benefit and relate it to ageand the length of work experience.

Employment disincentive is mostassociated with benefit durations that arenot unusually long in most of the WBA.However in Serbia workers over 55 with 25years of contributions can receive benefitfor two years, and in the former YugoslavRepublic of Macedonia people over age 55with 15 years of contributions receiveunemployment benefit at 40% of theirprevious net wages until they retire. Some60% of unemployment benefit recipients inthe former Yugoslav Republic ofMacedonia are over the age of 55, and theunemployment benefit arrangements forqualifying people (over 55 years) aretantamount to early retirement.Nevertheless, unemployment benefitcurrently reaches such a small proportionof those registered as unemployed that it islargely irrelevant to the labour market.

The numbers claiming unemploymentcompensation can be volatile137, but ingeneral the number of benefit recipientshas been increasing. This has put a strainon budgets: in Serbia and the formerYugoslav Republic of Macedonia the

payment of benefit has been delayed and,more generally, the funds available foractive measures have been squeezed.Most people registering as unemployedreceive basic health insurance and thisseems to be the main or only reason thatmany people register, regardless of theiremployment status. As a result,unemployment registers have beeninflated. Only in Croatia has the issue beenaddressed by removing the requirementthat people of working age without formalwork must register as unemployed toreceive basic health insurance.

Many unemployed people also receive socialassistance, mainly through the Centres forSocial Welfare. In Albania, although only 7%of people on the register receivedunemployment benefit in 2004, while afurther 76% received social assistance. Thislevel of transparency is unusual: elsewhere inthe region the number of unemployedregistrants who are in receipt of socialwelfare payments is not easily available. InSerbia, for example, some 48,000 familieswith 113,000 members received socialassistance, but it is not clear how manyregistered unemployed people werereceiving social assistance. Centres forSocial Welfare (CSWs) provide help for themost vulnerable. The centres are financed

122


Table 4.7: Unemployment benefit

Replacement

rate %

Maximum duration

(months)

Coverage

%

Albania 30 13 7

Federation of BiH 30–40 6–12 3

Republika Srpska 30 6–2 3

Serbia 50 24 10

Montenegro 60 12 6

fYR Macedonia 50 3–19 16

Croatia 100 24 19

SEE average 56 10 22

Source: National Public Employment Services

Note: the duration for which unemployment benefit can be paid is complicated, and often depends on the number

of years of employment. For example, in the former Yugoslav Republic of Macedonia people over the age of 55

have the possibility of receiving benefit at 40% of their previous earning until they reach the age of 65. Many

unemployed people also receive health insurance and welfare payments: 76% of those registered as unemployed

in Albania receive means-tested cash benefits from municipalities.

136 In Croatia the permissible replacement rate is 100%, but this is budget limited and never paid in practice.

137 In the Republika Srpska, for example, the number fell from 3,701 in December 2004 to 2,760 in July 2005 aspeople exhausted their entitlement.

mainly from municipal income, and thecoverage of benefit varies widely dependingon the wealth of individual municipalities. Inthe Federation of Bosnia and Herzegovina,for example, only municipalities in Sarajevocanton pay full social assistance. The linksbetween the PESs and the CSWs are weakthroughout the region. So too is theenforcement of the conditions for beingregistered as unemployed, and therefore alsothe administration of benefits for unemployedpeople.

Assessment

The availability of institutional socialprotection does more than help relievepoverty. It also helps social and labourmarket mobility. Where social risks areeffectively insured against by the state,individuals are somewhat less disposed toresist change. On the other hand, people informal employment who have notaccumulated many years of contributionsare likely to cling more tenaciously to theirjobs, and those who become unemployedare increasingly likely to participate in thegrey economy. Of course where change iseffectively forced upon individuals by lack offormal employment opportunities and poorsocial welfare arrangements, many respondwith energy and enterprise, as is welldemonstrated by migration and greyeconomy activities. This is what appears tohave happened in much of the WBA, thoughdislocation and personal costs are heavy.

Social protection through unemploymentbenefit reaches relatively few people in theWBA. This is a direct consequence of thestate of the labour market and thecomposition of the unemployment registers,on which the vast majority are labour marketentrants and others who have not had theopportunity of building up the necessarycontributions. Nowhere is the coverageabove one in five; more usually it is aroundone in 15. Coverage will increase in parallelwith industrial restructuring and privatisation.Funding unemployment benefit from thecurrent relatively small contributions basewill become a still greater problem. Thiscould be mitigated by the proper applicationof the rules for receiving benefit – which isnot the case at the moment – and in someplaces by the terms of redundancy, as in

Serbia’s social programme. Furthersustained action will be needed in order toreduce the underrecording of formal workersand their earnings and to bring greyeconomy activities into the formal economy.

The coverage of unemployed peoplethrough social assistance is unclear. Itappears high in Albania and Croatia but ispatchy elsewhere. However, the availabilityof social assistance is relevant to far morejobless people than the currentunemployment benefit systems. Themodification of social assistance forunemployed people may offer greaterprospects of an affordable safety net thanadjustments to the unemployment benefitregime. But the link with unemployed statusneeds to be far more explicit andtransparent, and the behavioural conditions(active job search) strictly enforced.

Many people who want basic healthinsurance register as unemployed regardlessof their employment status. They are allowedto do so because the administration ofpassive measures is weak. The requirementthat jobless people (of working age) shouldregister for work with the PESs as a conditionfor health insurance carries the implicationsthat (a) they should meet the normalconditions for being registered asunemployed (available for and activelyseeking work), and (b) people who do notfulfil these conditions should be denied healthinsurance. In practice neither happens, andlittle or nothing would be lost and muchgained by removing this requirement.

4.4.2 ACTIVE LABOURMARKET MEASURES

As shown in Table 4.8, active labour marketmeasures are generally modest and volatilebecause they depend on funding from thePES budgets, which are under pressurefrom the falls in the labour tax base andincreases in unemployment. This leads tolarge swings from year to year in the scaleof the measures, leading to difficulties forthe management of the programme.

Active measures tend to be piecemeal andad hoc without any evaluation, piloting ortracking. They start from the premise that

123


there are not enough jobs. This leads toprogrammes of different kinds of jobsubsidies in the form of both grants andloans; studies elsewhere have indicatedthat such measures are highly ineffective.Issues of efficiency and effectiveness arenot addressed. At best, when they are on asmall scale and well targeted, they helppeople who are at a disadvantage incompeting for jobs.

As well as job subsidies, the range ofmeasures used includes some occupationaltraining, generic skills training (incomputers), enterprise start-up grants,recruitment and training packages, somesocial work projects (job creation) and jobclubs. There is some valuable innovation ona small scale in relation to job searchawareness. In Croatia information seminarshave been used for newly unemployedpeople for some years, and these have alsobeen recently introduced in Serbia. Serbiaand Republika Srpska have also used jobfairs regularly and successfully. But there isa very heavy emphasis on demand-sidemeasures, and very little available forimproving the operation of the supply side.It is perhaps surprising that there has beenlittle community work and that only Albaniahas attempted a form of workfarearrangement at local government level.

There is growing acceptance of the need totarget measures. In the past many of themeasures led to ‘creaming’, in which it wasmainly the best candidates among thosewho were unemployed who benefited first.

This is still happening, though to a lesserextent as awareness grows of the need totarget measures at groups where the netgain is greatest. Even the much-used,expensive and long-defended programmefor talented young people from highereducation is being re-examined and scaleddown. (This job-subsidy programme is stillwidespread throughout the region andmainly helps – at very high unit cost –graduates in medicine and the law toundertake required work experience.) Earlyexperience suggests that the defined targetgroups are sometimes so numerous or largethat the purpose of targeting is lost. Recentevaluation of the training and job creationprogramme ‘Beautiful Serbia’ is mildlyencouraging in relation to the benefits ofparticipation in either the training or thecommunity work, but not both.

Little within the range of active measureshelps unemployed people to improve theiremployability or their job-search skills.High-volume (low-unit-cost) job-search andemployability measures and well-targetedpublic works programmes in the areas ofhighest unemployment would be highlyrelevant, especially in the context of awider policy of activation.

Assessment

The programmes of active measures inmost WBA countries and territories arevolatile and heavily concentrated onemployment subsidies of one kind oranother. Their design appears to be driven

124


Table 4.8: Percentage of expenditure on PES administration and active and

passive measures

Active measures Passive measures Administration

2003 2004 2005 2003 2004 2005 2003 2004 2005

Albania 13.8 18.0 10.7 69.4 67.1 72.5 16.7 14.9 16.8

Federation of BiH 43.2 45.3 41.1 38.2 33.7 41.9 18.6 21.0 17.1

Republika Srpska 35.8 18.7 16.8 28.1 50.2 49.5 36.1 31.1 33.7

Kosovo na na na na na na na na na

fYR Macedonia 3.6 9.3 9.7 93.1 87.7 87.1 3.4 3.0 3.3

Montenegro 58.4 38.9 45.0 9.1 15.0 23.8 32.4 46.1 31.2

Serbia 9.1 2.8 na 81.3 86.5 na 9.7 10.6 na

Source: Public Employment Services of the WBA countries and territories.


primarily by the view that the measures canhelp to create additional jobs without muchregard for overwhelming internationalevidence about very high levels of‘deadweight’ in these types of measure.There is no real evaluation of theprogrammes, and monitoring is inadequatein many places, so that it is not possible toreach a view on the efficacy of the variousprogrammes in a WBA transitional context.

There are signs that things are changing.Serbia has been developing innovativemeasures, and for some time Croatia hasbeen providing low-cost, high-volumemeasures (information seminars) to helpunemployed people when they firstbecome unemployed. Republika Srpskahas produced high-quality self-helpproducts for all unemployed people. Whiletargeting needs to be further improved,there are examples throughout the regionof women, people with a disability andthose who are long-term unemployed beinggiven priority access to active measures.Furthermore, there is a growing awarenessof the need for labour market institutions toenhance their understanding of activemeasures and how to design them in thewider context of activation.

The funding of active measures isuncertain and volatile, making theprogramme particularly difficult to manageefficiently. Moreover, because activemeasures are mainly funded from thesame source as unemployment benefit(Labour Fund), the resources available forthem move in the opposition direction tothe trend in unemployment. Less money isavailable for active measures when morepeople are unemployed, and vice versa.The situation is often eased by injecting‘budget’ money from the finance ministries,but a more satisfactory long-termarrangement is needed.

4.4.3 EMPLOYMENTPROGRAMMES INRESTRUCTURINGSITUATIONS

Large-scale restructuring is difficult, andinvolves heavy job losses and strongresistance from social partners. In order to

ease the process, special compensationarrangements have been made for workersaffected, and for some privatisations,guarantees have been given that workerswill not lose their jobs for a minimumperiod, usually three years. The costs aresometimes very heavy. In Serbia,expectations of wide-ranging socialprogrammes, in particular significantseverance payments, in the restructuringand privatisation of old enterprises, havediscouraged workers from looking for newemployment opportunities in the formaleconomy. According to preliminary resultsfrom a tracer survey of displaced workersin four regions, within the framework of theWorld Bank-funded Employment PromotionProject, the average severance paymentwas equal to nine average monthlysalaries. It appears that severancepayments are being used as an element ofsocial policy. The primary survival strategyfor many workers has been to maintaintheir old employment and to supplementtheir income through a wide array ofsmall-scale activities outside formalemployment.

In order to maintain pre-privatisation levelsof employment, rules in the Federation ofBosnia and Herzegovina impose minimumemployee numbers on companies for threeyears following privatisation, regardless ofaffordability. But there is no system ofrestructuring enterprises prior toprivatisation, so the effect of the policy is todelay necessary restructuring,improvements in productivity and thecreation of new jobs. In Croatia generousarrangements exist for assisting theredeployment of workers affected by therestructuring of large enterprises, includinglarge subsidies for self-employment.Special ‘mobility’ centres have also beenset up to assist with the redeployment ofworkers. The effectiveness of thesecentres has been compromised by thereluctance of both employers and workersto part company, so that few redundantworkers have actually materialised.Unemployment benefit arrangements forpeople over the age of 55 who have longservice have been driven principally by thesocial partners in the context ofrestructuring. In the former YugoslavRepublic of Macedonia the most common

125


method of privatisation was bymanagement and employee buyouts. Lateron, as a result of a lack of new capital,technology and management style, thisbrought about poor performance of theprivatised (surviving) enterprises in termsof declining profits and employment, anddespite the labour shedding, resulted in adecrease in labour productivity.

It is common for EU states and othercountries in the region, regardless of theircommitments to the rigors of marketeconomics, to create special programmesfor industries in structural decline. Howeverthis is usually done alongside well-fundedactivities to assist unemployed people in areasonably balanced way. In much of theWBA the social programmes and othermeasures associated with restructuring arein contrast to the extremely modest helpgiven to unemployed people generally.

Assessment

The costs associated with subsidies forailing state business and restructuring areheavy, and in some places exceed thosefor all other employment measures.However, some of the proceeds ofprivatisation have frequently been used toenhance the scale of active labourmeasures for wider benefit. Whilerestructuring and reallocation of workersmust be facilitated, it has to be balanced byother measures for those who areunemployed. Generous packages forredundant employees with long service138

sit alongside six-month delays in thepayment of unemployment benefits forother unemployed people. Moreover,severance payments often appear to beused as social policy, on which they have adistorting effect. It is a further manifestationof the contrast between the protectionafforded to those with jobs in stateindustries (often called ‘insiders’) and thecomparative lack of opportunities for thosewho are without work (‘outsiders’).

The management of restructuring has alsoled to situations in which workers have atbest delayed their re-entry into the formallabour market, while many have gone into

premature retirement and – anecdotalevidence suggests – into the grey economy(or both). The challenge is to find the rightbalance by supporting workers affected bythe restructuring process, without impedingthe operation of the labour market ordisadvantaging others (i.e. young people orthose who are long-term unemployed).

4.4.4 PUBLIC EMPLOYMENTSERVICE (PES)

PESs exist in all countries and territories ofthe WBA. All are faced with large numbersof registrants, many of whom are notgenuinely seeking work: estimates of thenumber of people in this category vary from25% to 40%. Many register for healthinsurance and access to social support,and many are active in the informaleconomy. There is widespreadacknowledgement of the issue, though ithas yet to be addressed in most countriesand territories. The ratio of staff to clients isextremely variable, from 1:750 in theformer Yugoslav Republic of Macedonia to1:113 in Montenegro. The ratio ofunemployed people to counsellors(caseloads) is of course much higher.Overall the employment services in theregion are in need of a radical overhaul tobring them up to modern standards with awell-defined purpose and role. Too oftenthere is a sense of hopelessness in theface of the very large number ofregistrants.

There is dissatisfaction with theperformance of most employment servicesin the West Balkans. At the political levelthere is frustration that the PESs appear tobe ineffective in reducing unemployment.Among employers there is frequentcriticism of the quality of jobseekers putforward by the PES, and many registrantsare unhappy with the quality of service theyreceive. The staff and management ofmany of the PESs in the region arestretched to breaking point and largelypassive in relation to the situation theyface. The quality of the leadership andmanagement of the PESs is at bestinconsistent. Most PESs in the region tend

126


138 In Croatia favourable adjustments to unemployment benefit arrangements were made for redundantemployees.

to lack direction in the absence ofintegrated employment policies and clearobjectives. (Annex 7 sets out observationsand information about the PESs in theWBA.)

The difficulties in which some PESs findthemselves are partly of their own making,through bureaucratic management stylesand an inability to make a coherent andconvincing case for their core activities.Almost everywhere the employmentservice has been deflected from its primarytask of helping to ensure that the supplyside of the labour market is workingsatisfactorily through the activation ofunemployed people. Instead, it has beendrawn into dubious job-creation activities,including enterprise/business centres andemployment subsidies and loans. Thereare high ratios of registrants to staff,though this is partly due to theineffectiveness of the PES in ensuring thatpeople who register are genuinelyunemployed and actively seeking work.Between 30% and 40% of unemployedpeople are believed to register fornon-labour-market reasons, particularlybasic health insurance. The PESs do verylittle for most unemployed people,especially those who are unskilled andlong-term unemployed, and play little or nopart in reducing the scale of the greyeconomy.

Progress in implementing activationmeasures for unemployed people isextremely variable across the region, withonly Croatia being well advanced. In2005/06 Serbia introduced jobseekercontracts that set out the requirements foractive jobseeking. In Republika Srpska toothere are clear indications that the PES istaking a much more energetic approachtowards the activation of unemployedpeople and reductions in the grey economy.

The funding arrangements for the PESs(and for passive and active measures) aremuch the same across the region and giverise to the same sorts of issues. In most ofthe countries and territories139 the fundingof unemployment benefit comes from thelabour tax/insurance, which ranges from1% to 2% of the gross wage in mostplaces. This funds unemployment benefit,the administrative expenditure of the PESand active labour market measures. Inpractice the PESs also receive subventionsfrom the public purse to help cover theircosts. Even so, and despite the lowcoverage of unemployment benefit,budgets in some countries are under suchstrain that unemployment benefit paymentsare not paid promptly (Serbia) or regularly(Montenegro). Moreover, because the vastmajority of people who are registered asunemployed do not get unemploymentbenefit, staff of the PESs are generally

127


Table 4.9: PES staff numbers and unemployed people (2006)

Country Staff Unemployed

Staff :

Unemployed

Ratio

Albania 431 157,000 1:364

Bosnia and Herzegovina 750 524,839 1:700

Serbia 2,075 916,484 1:442

Kosovo* na 320,000 na

Montenegro 342 38,869 1:113

fYR Macedonia 506 380,000 1:750

Croatia 1,189 291,616 1:245

Sources: Information was provided by national authorities or obtained from their websites; Albania ETF ‘Labour

Market Review’.

Note: *In Kosovo there are 199 officers in the regional and municipal employment offices. This gives a ratio of

staff to unemployed people of more than 1:160. However, this is not comparable with the other countries, since

the other people employed (staff for driving, cleaning and security as well as officers in the central administration

of the Department for Labour and Employment) are not included in this number.

139 There are no labour taxes in Croatia.

unconcerned about them meeting theconditions for being registered asunemployed, even though they becomeentitled to basic health insurance. Thisaffects the efficiency of the supply side ofthe labour market.

Assessment

Greater clarity is needed in the design ofemployment policies and programmes.Many people lack even the basic skills tosucceed in a competitive labour market.Only in exception cases are the PESsaddressing this issue. Activation agendasare being developed (Croatia, Bosnia andHerzegovina, Serbia), including‘employment contracts’, but nowhere doesactivation embrace the use of active labourmarket programmes, administrativeroutines and the use of well-trainedcounselling staff. Activation measures needto be given greater traction. Strategies andpolicies to address these issuessuccessfully need to take account ofBalkan social and cultural attitudes towardswork, wages and values. Policies andmeasures need to be evaluated, not leastthose carried out by the PESs.

Except in Bosnia and Herzegovina, theposition of the PESs and their relationshipwith governments are clear, but the overallinstitutional setting is not well designed.There is great scope for improvement intheir performance; this is more likely tooccur about when non-labour-marketincentives for registering as unemployedare removed, as they have been in Croatia.There are a number of areas in whichefficiency can be improved and the qualityof service raised. Information technologyneeds to be modernised and to supportprocess improvements. Inadequacies inmanagement, business and labour marketstatistics need to be addressed. Of coursenot all employment services are at thesame level, and these observations do notapply to all with equal force. PESs havelittle or no impact on the scale of the greyeconomy at the moment, but they couldhave an effect, especially if they worked inconcert with other parts of government,particularly the labour inspectorate.

The workloads of counsellors should bereassessed on the basis of the frequencyand nature of policy interventions fordifferent client groups, for example, peopleunder the age of 25 years who are indanger of entering long-termunemployment. The same considerationsapply to active labour market programmes.The EES calls for early profiling of peoplewho become unemployed, as well as theprovision of opportunities for those on thethreshold of long-term joblessness. MostPESs in the WBA would be overwhelmedby such an approach, and instead need tobe more selective about the groups theytarget for special assistance.

4.4.5 THE INFORMALECONOMY AND ATTRACTINGPEOPLE TO THE FORMALSECTOR

A large informal economy is endemicacross the WBA. It appears to range fromaround 10–15% of GDP in Croatia to 30%and beyond in most of the other countriesand territories. Businesses and individualsparticipate in the informal economybecause they judge there to be a clearbalance of advantage in doing so, i.e. thecosts in the formal/legal economy aregreater than the negative aspects of theinformal sector. These judgements dependon levels of taxes and red tape and theopportunities available in the formal sector,including the access to social protection.Participation in the informal economy isseen by many as the only way of coping.

The balance of advantage in most of theWBA is strongly in favour of the informaleconomy. Labour tax rates are stillrelatively high, and business registrationrequirements are still slow and relativelyexpensive140. Labour inspectorates arepoorly resourced in most places; they tendto concentrate on employers in the formalsector and pay little attention to illegalbusinesses that do not have licences orpermits. Where action is instigated, most ofit peters out in the mire of poorlyperforming legal systems, or attractsderisory sanctions. Workers often see the

128


140 Montenegro, though, has streamlined its arrangements to considerable effect. However, even here licensingand inspection problems remain and regulation is inconsistently applied (World Bank, 2005f).

balance of advantage in the same way.They can register as unemployed andreceive health insurance, and even receivehigher take-home pay from informal work.In practice they face no institutionalsanctions. In the absence of adequatesocial welfare protection for people ofworking age, the informal economyprovides an alternative source of income.Ambivalent attitudes to the informaleconomy exist amongst institutions (andordinary people), ranging from benignindifference and sympatheticunderstanding to genuine concern about itsimpact on the tax base, public services andlegitimate businesses141.

The slow pace and weak management ofthe privatisation process has contributed tothe informal economy. In Bosnia andHerzegovina a number of large ex-statecompanies are not actually functioning, butare not officially closed or bankrupt.Workers in these companies are still on a‘waiting list’. Data from pension funds inboth entities indicate that around 100,000workers in Bosnia and Herzegovina are‘waiting listed’. Many workers cling to theseenterprises for fear of losing theirentitlement to pensions and other socialbenefits. In order to gain income they workin the informal economy and are reluctantto accept a new formal job in case theylose their acquired rights.

Although there is little evidence ofwell-thought-out and firmly pursuedstrategies142 and integrated measures toattract people into the formal economy,most countries and territories are nowtaking some kind of action (through theintroduction of VAT, governmentprocurement arrangements, enhancedlabour inspection and support for people toconvert their unofficial activities into

legitimate businesses). Moreover, althoughthe merits of the informal economy during adifficult transition were previously assertedconfidently, attitudes are beginning to shift.It is becoming more widely understood thatthe informal economy extends well beyondthe occasional casual job performed forcash by unemployed and unsupportedworkers.

Assessment

The informal economy in the WBA affectslabour market outcomes by inflating thenumber of those registered as unemployedand diminishing training and flexibility in theformal sector. It acts as a barrier to fastereconomic growth by reducing access tocapital and property rights protection.Evasion of taxes and other costs threatenthe well-being of legal businesses. Theseare heavy costs that are only partly offset bythe flexibility of the informal sector. Manysuccessful legal businesses may havebecome established at the outset throughthe informal activities of their founders. Butthe timing and rate of transfer to the formaleconomy is probably delayed, and occurs toa lesser extent, where the balance ofadvantage is decisively in favour of theinformal economy, as is still the case inmost of the WBA. The OECD studies on theInformal Economy and on the EnterprisePolicy Performance Assessment and theWorld Bank study ‘Doing Business’ point toa situation in which public policy effectivelycaps the size to which firms are willing togrow, and causes firms to devote a largeportion of their executive resources tomanaging their exposure to arbitrarythresholds in the tax system.

Current attitudes towards the informaleconomy vary from willing participation tobenign tolerance. This has begun to

129


141 In Albania the tax system distinguishes between small firms and larger firms. Below a turnover threshold ofALL 8 million, businesses are excluded from VAT and pay a small business tax at a rate of 4% of declaredturnover. Above the threshold, companies must charge VAT at 20% on all goods and services, and paycorporate tax at a rate of 25% of reported profits. In practice, most small firms in Albania declare noemployees. Workers collude because they ‘prefer immediate direct cash payments to future social benefits’.Larger firms cannot avoid declaring any employees, but an estimated 30% of their actual workers areunregistered and pay no contributions. The wages of declared workers are underreported so that personalincome tax (PIT) is paid mainly by public sector employees. Non-recording and underrecording ofemployment and wages is common elsewhere in the region, with the same kinds of underlying attitudes.

142 The most progress in tackling the grey economy is claimed by Montenegro, though it is rather early to formclear and firm views about the efficacy of its measures. The ‘Legalisation of Existing Jobs and Job Creation’programme aimed to legalise 20,000 jobs by April 2004 and is thought to have increased revenues by around€10 million.

change; more countries appear to betaking effective action by strengtheninglabour inspectorates and imposing effectivesanctions. Only in Montenegro does thereseem to have been a clearly developedstrategy for bringing informal activitieswithin the formal economy. The large greyeconomy may have been anunderstandable response to severedislocation, corruption in public life,ill-judged tax arrangements, features ofprivatisation, and the lack of adequatesocial protection and opportunities in theformal market. But most of the WBA is nowfaced with a relative small formal economythat bears relatively high taxes but isunable to generate sufficient revenues toimprove public services. This leads towidespread disillusionment withgovernment, evasion of regulation and aneven larger informal economy.

If the problem is to be much reduced manywider issues need to be addressed,including governance, the quality of theinstitutions and the widening of the tax base.In the context of the labour market thelabour inspectorates can be furtherreinforced and focused, the PESs can bemade far more effective by inconveniencingpeople who are working in the greyeconomy, and non-wage labour costs canbe further reduced. All WBA governmentsneed coherent strategies for attractingbusinesses and individuals away from thegrey economy and into formal employment.

4.5 INCLUSIVENESS ANDEMPLOYMENT POLICIES FORPARTICULAR GROUPS

The EU Integrated Guidelines for Growthand Jobs (2005–08) call for inclusivelabour markets for jobseekers anddisadvantaged people. Employmentregulations (and equal opportunitieslegislation) are designed to protect workersfrom arbitrary, unfair and discriminatoryactions by employers. However, theexistence of such statutory requirements,especially where compliance is low and themarket is deeply segmented, does notensure equal access to employment, nordoes it ensure that the labour market isinclusive. As in other regions, in the WBA

there are groups of people with differentexperiences.

Young people are at a disadvantagebecause they start their labour marketcareers as members of a group of whom(almost) all are unemployed at the outset.But analyses of unemployment flows inCroatia show that the chances of youngpeople leaving the unemployed register aremuch greater than those of any othergroup. Most young people face anintergenerational group disadvantage; asindividuals they are not (on the evidence ofCroatia) less employable or competitivethan older unemployed workers. They arecaught by the aggregate deficiency of jobsbecause of their circumstances, notbecause of their characteristics or anyattitudinal bias against them.

Their participation in the labour market ishaphazard. Many appear to changeseamlessly between inactivity, differentkinds of activity and status depending onopportunity and relative reward; many workinformally in the service sector, especiallyin tourism and leisure industries. Thosewho go into higher education spend manyyears (five years and upwards) acquiringtheir qualifications, so that although thepercentage of young people going intohigher education is modest, the numbersactually undergoing higher education isproportionately large. This reduces theactivity and employment rates for youngpeople up to the age of 25/26. Many ofthem are thought to be active around themargins of the workforce.

There are some policies intended to assistyoung people in the WBA, most notably themeasures targeting able college anduniversity graduates. But the numbers arelimited and the unit costs large. It is almostinevitable that unemployment will be highamong young people who have just lefteducation; the problem is the market failureto assimilate these young people into theemployed workforce within a reasonabletime. There are no large-scale programmesfor young people, despite the fact that theyare easily targeted. Funding is problematic,but the generosity of restructuringpackages for older workers sits in starkcontrast.

130


Female participation rates are low and thegender gap substantial, particularly amongcertain ethnic groups for cultural reasons.Childcare arrangements have become farmore costly and the number of places muchreduced so that females face greaterbarriers – both practical and financial – toparticipation in the workforce. Labourmarket participation is lowest for women inBosnia and Herzegovina and the formerYugoslav Republic of Macedonia, withAlbania around the middle of the WBArange. The position in Albania (World Bank,2006a) is markedly different in the urbanand rural areas143. In the former YugoslavRepublic of Macedonia the participation rateis particularly low among females fromethnic minorities. In Bosnia andHerzegovina labour market segmentationand localisation is regarded as a seriousissue affecting female employment.

Employment opportunities for females arediminished by lack of flexibility in the formallabour market. Furthermore, althoughlabour laws seek to protect women’sinterests, and in some countries andterritories offer generous levels of maternitybenefits, there are real questions over theactual levels of compliance. Theimportance of flexibility in the labour marketfor women was confirmed by research in2004 (Micevska, 2004), which found thatthe employment protection legislation hada significant effect on female employmentand that relaxing the regulations ontemporary employment stimulated femaleemployment. On the other hand, thegender employment gap in Croatia issmaller than the EU average, despite lowlevels of part-time work. There are activeemployment programmes for females (inAlbania the Employment Promotion forunemployed women aims to integratemarginalised women such as Roma andold and disabled women), though they aregenerally small scale and their outcomesare uncertain.

Older workers find it more difficult (thanyounger people) to find jobs when theybecome unemployed, and activeprogrammes to help them back into workare rare. The main policy responses torising unemployment have includedmeasures to reduce the supply of labour byencouraging older workers into prematureretirement. This has been carried outthrough the special employment measureswithin large redundancy and restructuringprogrammes and through adjustments tothe duration that unemployment benefit isavailable to older workers. The proportionof older workers on the unemploymentregister is growing throughout the region.In some places active labour measureshave been directed at the over-45s, but thisis unusual. Older workers who arereceiving some form of social securitypayment are believed to be particularlyactive in the grey economy.

Ethnic and other minority groups areaffected by segmentation anddiscrimination along ethnic lines,notwithstanding laws which forbid it. This isacknowledged off the record more than onit, and places minority groups at aparticular disadvantage. An assessment ofthe vulnerability of minority groups in theWBA (ETF, 2005b) identified many of thefeatures and signs of disadvantage. Theassessment concluded that policies are along way from achieving satisfactoryoutcomes. The former Yugoslav Republicof Macedonia, with the highestunemployment rate in Europe, has anemployment rate of 53.5% forMacedonians but only 29.3% for Albanians.The gap in female employment rates iseven greater. Similar gaps exist betweenethnic groups in other Western Balkancountries and territories. The skill levelamong Roma people is especially low. InSerbia almost 90% of the Roma populationis unskilled or low-skilled, andunemployment is twice the average.

131


143 The rural labour market is dominated by agriculture. Participation rates (over 60%) are far higher, andunemployment (2%) far lower among women in rural areas than those in urban areas. Most contribute tosmall-scale farms. Such is the weight of female rural employment in agriculture that it accounts for 67% of allfemale employment in Albania. The employment rates are not much different between women with childrenand women without children, and many more women (44%) work part-time than in the urban areas (15%).Females in urban labour markets have lower employment rates (13%) and are employed mainly in the publicsector. Employment rates for educated women are more than 50% higher than for women without primaryschooling. The poorer outcomes for urban women than those for men cannot be explained by objectivedifferences indicating the existence of social barriers.

Policies have been developed in the WBAto help minority communities, someembedded in wider policies and othersspecific to the individual and/or the group(the Roma Decade). The Minority RightsGroup has argued that ‘strategies to helpRoma in SEE are failing due to factors thatinclude institutional racism, discriminationand exclusion experienced by Roma overgenerations’. Labour market indicatorspoint to poor labour market outcomes forminority groups that have changed littledespite anti-discrimination laws and policymeasures.

Assessment

Labour markets in the WBA are notinclusive in practice, regardless ofemployment and equal opportunitylegislation. This is as a result of:

� the tiered nature of the labour market, inwhich formal jobs do not often becomevacant;

� the circumstances of young people andother labour market entrants;

� discriminatory tendencies on thegrounds of gender and ethnicity;

� differences in educational achievement;� institutional influences;� the absence of a lifecycle approach to

work.

Young people carry most of the burden ofunemployment. Such inequity betweengenerations has harmful economic andsocial consequences. Access to work foryoung people will improve when there aremore new jobs and vacancies createdthrough greater turnover of existing jobs.Females are less likely to find a job fromunemployment than their malecounterparts. Given their overall broadequivalence of human capital this is asignificant loss to the economy. The labourlaws make generous provision for women;it should not be assumed that this works totheir advantage.

Older workers generally have theadvantage that they are more likely to be injobs or in receipt of some kind of socialbenefit. However, the number who areunemployed is increasing, with higherproportions entering long-term

unemployment. They are less likely toleave unemployment than younger people.People from minority groups are at asignificant disadvantage in the labourmarket. This stems in part from relativelypoor educational attainment. However, itwould be naive not to recognise thatdiscrimination and negative perceptionsalong ethnic lines play a significant part.They are in the most difficult position interms of labour market competition.

The policy responses intended to improveinclusiveness have been patchy, with sometargeting of recruitment to active measuresand the development of some programmesdedicated to particular groups. Althoughlegislation is in place for activationmeasures, they are in practice at theearliest stages of development, except inCroatia, where they are more established.The PESs are not yet able to provideintegrated activation and preventativemeasures to support the groups that needmost help more effectively nor to ensurecompliance with the conditionality ofbenefits. Moreover, social welfarearrangements are not yet sufficient tosupport the adequate labour marketinclusion of disadvantaged people.

Policies for older workers have facilitatedtheir quiet (and expensive) departure fromthe labour market with heavy publicexpenditure commitment. Sinceactive-ageing policies are not a priority inthe current labour market conditions,early-retirement schemes should beavoided. This is particularly relevant inthose countries with high emigration levelsof young people (Albania) and wheredemographic changes are leading tosignificant falls in the young peopleentering the workforce (Croatia). Overalllabour market inclusiveness in the WBAremains a great challenge that is mitigatedto some extent by participation in the greyeconomy. The development of universalactivation measures needs to beaccelerated and other active labour marketmeasures expanded to help disadvantagedgroups. In particular, large-scaleprogrammes for young people(apprenticeships and traineeships) arerequired to offset their generationaldisadvantage. Rebalancing wider labour

132


market policy away from costlyinterventions to protect jobs, generousseverance arrangements duringrestructuring and overprotection of peoplein formal employment would also lead togreater labour market inclusiveness.

4.6 CONCLUSIONS ANDPOLICY AREAS FOR FUTUREWORK

Employment policies in the WBA havegone through a number of overlappingphases of development. The preoccupationwith job protection, retention andstimulation is being replaced by moremature and balanced policies, includingimprovement in institutional performance.

However, none of the countries orterritories is yet close to a ‘flexisecurity’portfolio of measures that balancessecurity for workers with flexibility foremployers. Those in formal employmenthave considerable protection throughlabour laws and collective agreements, butsocial welfare arrangements for those outof work are modest in both coverage andlevels, and are often uncertain.

Moreover, security for working-age peoplegoes beyond labour laws for those withformal work and income support for thosewithout. They are, of course, importantcountermeasures against risks ofunfairness and poverty. But greatersecurity also comes through reducing therisk of extended joblessness through theacquisition of skills, maintainingemployability and being part of a motivatedand competitive workforce. These factorsreduce risk at collective and individuallevels and at the same time increaselabour market flexibility. Similarly, diversityof employment contracts and patterns ofemployment provide opportunities for morepeople to participate in formal employmentand facilitate a lifecycle approach toworking careers. Greater flexibility of thistype in the official labour market diminishessome of the attractions of the informaleconomy – where there are no safeguards– and thus contributes to greater aggregatesecurity. In many instances labour marketflexibility, especially on the supply side,

offers the greatest prospects of earnedincome, though not a job for life.

Overall the policies of countries andterritories of the WBA fall well short of awell-balanced approach to flexisecurity.Although labour regulation has beenlightened, most of the other elements offlexisecurity are either absent orunderdeveloped, especially in relation tosocial welfare arrangements, supply-sidepolicies, the development of human capitaland diversity of working patterns. Too oftenthe protection of jobs is seen as being thesame as social protection for people, andflexibility is regarded as intrinsically harmfulto security. At the same time better securityin terms of social welfare and moreeffective institutional support for peoplewho are out of work will help labourreallocation and flexibility.

Countries and territories are more alert tothe need for better labour market analysisand appropriate employment policyresponses, rather than seeing employmentissues as an appendage topoverty-reduction strategies or economicdevelopment. However, in most placesthere is still no evaluation of policies.Awareness is growing that while economicgrowth is necessary it is not sufficient toguarantee more jobs and reductions inunemployment.

This is leading to an appreciation thatsupporting employment goes beyondlabour market legislation andactive/passive measures and that itreaches into other areas such as SMEdevelopment and privatisation, and alsothat employment-friendly policies areneeded to encourage growth inemployment and recruitment. Recognitionof the importance of the supply side of thelabour market has not been much inevidence. On the contrary, the underlyingpresumption that if only there were morejobs, unemployment and other labourmarket problems would disappear hasbeen a central tenet of employment policy.This is reflected in the heavy concentrationon job subsidies and inattention to theefficiency of the supply side and thedevelopment and adoption of appropriatemeasures. However, institutional

133


arrangements – the modernisation of PESsand the expansion of labour inspectorates– are being revised in a number ofcountries and territories in order to addresskey labour market issues that have notpreviously been dealt with.

The growth in joblessness is the mirrorimage of the failure of unemployment torise in the early 1990s when GDPcollapsed. Older companies generally havea large overhang of underemployment, withmany workers having little or nothing to do.Additional demand will provide realemployment for some of these workers, butsuch is the scale of underemployment thatolder companies could simultaneously cutemployment and increase output. In fact, anumber of countries and territories haveexperienced a job-loss increase. Rises inlabour productivity in older companies willcontinue for some time to offset theemployment growth in newly establishedprivate enterprises. Foreign investors needto see good reasons for going to theWestern Balkans rather than elsewhere: astable political and macro environment isan essential pre-condition; so too is asupply of skilled, employable and motivatedpeople from amongst whom indigenousentrepreneurs and ‘intrapreneurs’ canemerge.

The main labour market challenges in theWBA go beyond the aggregate deficiencyof jobs. Nominal wage rate increases arelarge and outstripping GDP growth. Toofew people are in jobs in formalemployment, unemployment is high andlong, and social protection is mostlyinadequate. Job creation in the formalsector is too slow, and the large informalsector adversely affects the labour marketand the growth of enterprises. The taxbase is too narrow, and labour taxes fallunevenly and inequitably on employers andemployees in the relatively small formalsector, with the result that public revenuesare small and the grey economy large. Theskills base of the workforce has beendamaged and is increasingly irrelevant.Labour market institutions are weak. Andflexicurity will remain unattainable/unaffordable and unsustainable while theinformal economy is so large, the

institutions operationally ineffective andmistrusted, and corruption endemic.

Increasing formal employment requiresaction across a broad front.

� The growth of private sector businessesneeds to be further encouraged andfostered through the privatisationprocess, contract enforcement andproperty rights and the reduction orremoval of barriers and bottlenecks.

� Rapid wage growth in some WBAcountries and territories needs to bemoderated through restraint in thepublic sector and linked with productivityagreements.

� Social contributions and taxes on formalemployment need to be reduced furtherin a number of countries, and the taxbase widened to include property taxes(which are more difficult to evade) aswell as investment income.

� The informal economy needs to bereduced, especially by providingincentives to informal businesses toregister, further increasing theresources available to labourinspectorates and ensuring thatsanctions are proportionate andpromptly enforced.

Labour market inclusiveness and social

protection arrangements are weak, andattention should be given to reinforcingthem by:

� modernising the PESs to provideeffective and professional services topeople who are genuinely seeking work;

� removing the requirement that peoplewithout formal jobs register asunemployed with the employmentservice in order to received basic healthinsurance, and implementing activationmeasures for unemployed people,including personal counselling;

� re-designing active labour marketmeasures so that they are rebalancedaway from job subsidies and benefitmore disadvantaged people; inparticular, higher-volumeemployer-based programmes for youngpeople should be introduced in order tofacilitate the school-to-work transition;

134


� making active labour market measuresless volatile by switching their fundingfrom labour funds to the state budgets;

� re-examining the social protection forjobless people in the light of theextremely low coverage ofunemployment benefit and weak socialassistance arrangements;

� reducing the generosity of severancepayments (which should not beregarded as part of the social welfaresystem) and other benefits and earlyretirement provisions in the context oflarge-scale restructuring, in favour ofgreater support for unemployed people;

� easing the requirements placed onemployers as part of privatisation tomaintain unaffordable and unnecessaryemployment levels.

Flexisecurity will be assisted by many ofthe above measures and by:

� further modernising labour marketregulation that unduly restricts the use oftemporary contracts and hours of workand adds to the cost of hiring and firing;

� reforming VET systems, and inparticular promoting adult learning inorder to open up employment pathwaysby increasing individuals’ adaptabilityand employability;

� improving the effectiveness of labourmarket institutions, especially PESs, inmaking the labour market moretransparent and less segmented and indealing with the passivity ofdiscouraged unemployed people;

� addressing and reforming pension andsocial contribution arrangements wherethey act as a disincentive to the creationand acceptance of part-timeemployment.

Partnership and governance needs to

be strengthened (see also Chapter 5) tocreate and promote effective labour marketpolicy across the WBA by:

� effective direction and strategic controlof implementing agencies throughframework agreements andperformance contracts that set out aimsand objectives, performance indicatorsand planned levels of performance;

� improvements in labour market dataand management information systemsand in the arrangements for monitoringand evaluating policy measures;

� using trials that are controlled andproperly evaluated to test the cost andeffectiveness of policy beforeintroducing it more widely;

� promoting effective social dialogue andinclusiveness in the policymakingprocess;

� integrating policy implementation withthe state budgeting arrangements;

� introducing modern managementtechniques, especially ‘business cases’to justify public sector investment in themodernisation of the PESs.

The above list is not exhaustive, andgovernments are faced with many dilemmasconcerning priorities, competition for publicexpenditure and ensuring good value formoney. It is possible to apply ‘ranking’techniques to the list by devising a set ofcriteria against which each item might bejudged. That would require a separateexercise involving the WBA countries andterritories to establish each criterion and theweight that should be given to it. In theabsence of such an exercise, the mainattention should be focused on areas thatincrease formal employment and improvegovernment finances and socialinclusiveness, and that can be quicklyimplemented without controversy. Thispoints to actions that reduce the greyeconomy, restrain public sector wages,improve the performance of the PESs andreconfigure employment measures –including those associated with industrialrestructuring – so as to provide help formost unemployed young people.

135


5. INSTITUTIONALARRANGEMENTS FOR THEIMPLEMENTATION OFEMPLOYMENT POLICIES INTHE WESTERN BALKANS

Arjen Deij and Meri Lorencic

5.1 INTRODUCTION

The purpose of this chapter is to:

� examine the key issues of the currentinstitutional setting for implementation ofemployment policies in the WesternBalkans;

� discuss the relevant mechanisms andtools that can be improved, and as suchcontribute to more efficient and effectiveimplementation of employment policies.

In Chapter 4 the employment policiesdeveloped in the Western Balkans inrecent years have been reviewed. Therehas been significant progress in forwardplanning. Inspired by the EuropeanEmployment Strategy (EES), the countriesand territories have started a process oftransforming existing policies that deal withexisting situations into policies that willsupport employment. The EES offers a

relevant framework for the WesternBalkans, especially in relation to thealignment of economic, educational andsocial policies and the involvement ofpublic and private stakeholders at differentlevels. There is a gradual shift from apreoccupation with job protection, retentionand stimulation towards more variedresponses. The transition process bringswith it additional challenges. The natureand relatively small share of formalemployment in the labour market requiresspecific approaches to increase formalemployment. There is a trend of growingjoblessness across the Western Balkans.In general the countries and territorieshave not yet found the combination offlexicure responses that could supportsustainable growth and more jobs in theformal economy.

The effective implementation of theseemployment policies depends on the

137

5

soundness and capacity of the institutionalsettings144 that are in place to plan,implement, monitor and evaluateemployment policies. The transition fromcentrally planned towards functioningmarket economies in the Western Balkans– as elsewhere – requires a change in therole of the central government in policydevelopment and implementation. Althoughstrong government commitment remains aprecondition for effective policyimplementation, governments have lostdirect influence on job creation, as mostnew jobs are created outside the publicsector. The multifaceted nature of theemployment policies, as expressed in theEES, requires the direct involvement of andcooperation among different actors,including social partners, regional and localauthorities and civil society. Accordingly,the governments of Western Balkancountries and territories need to redefineand readjust their role to the newsocioeconomic environment and worktowards appropriate institutionalarrangements that will ensure better policyperformance. One of the main questionsthey need to deal with to ask what kind ofinstitutional settings would effectivelyaddress labour market issues and henceensure the achievement of employmentpolicy objectives.

In this chapter the institutional settings inthe Western Balkans will be discussed andanalysed on the basis of fourparameters145:

� interministerial cooperation;� the role of the social partners;� decentralisation in terms of policy

delivering and sharing responsibilities;� institutional and administrative capacity.

The ultimate question that forms the basisof the discussions on all four topicsremains: ‘What needs to be done so that

employment policy will become asubstantial and integrated part of acountry’s socioeconomic developmentprocess?’

The intention of this chapter is to discusshow relevant mechanisms and tools cansupport employment policies moreefficiently. Clearly, there is no single modelthat will adequately fit the needs of allcountries and territories.

5.2 INSTITUTIONALARRANGEMENTS ATCENTRAL LEVEL ANDINTERMINISTERIALCOOPERATION

At policymaking level the institutionalconfiguration in the field of employment isfairly similar across the Western Balkans.In accordance with national legislation theresponsible ministries cover employment,labour and social policy, as is the case inthe former Yugoslav Republic ofMacedonia and Albania (where equalopportunities is also included), while inMontenegro one ministry recently becameresponsible for labour, social affairs andhealth policy. In Croatia the labour sector isjoined with economic affairs (the Ministry ofEconomic Affairs and Labour). In Serbiathe employment sector was separated fromthe Ministry of Labour and Social Affairsand became an integral part of the Ministryof Economy and Regional Development(2007). UN Security CouncilResolution 1244 placed Kosovo undertransitional UN administration pending adetermination of the territory’s future status,and so within the Provisional Institutions ofSelf-Government (PISG), the Ministry ofLabour and Social Welfare is responsiblefor the employment and labour sector146.The situation is more complex andfragmented in Bosnia and Herzegovina,

138


144 ‘Institutional settings’ refers to the institutional configuration or arrangements in each country or territory, thatis, the type of institutions in place and their internal capacity to fulfil their roles and responsibilities, thesharing of responsibilities among the different institutions and the mechanisms or processes through whichthey interact.

145 The same parameters were used for the analysis of the institutional settings for employment policies in theETF labour market reviews in Albania, the former Yugoslav Republic of Macedonia, Bosnia and Herzegovina,Montenegro and Serbia; in the survey ‘Employability in Kosovo’, Employment and Skills Observatory ofKosovo, 2003; and in ‘Country Review of the Employment Policy in Croatia’, ILO and Council of Europe,2004.

146 In accordance with the Constitutional Framework (UNMIK, May 2001).

with many layers and institutions at alllevels. At the state level, the employmentand labour sector is the responsibility of theMinistry of Civil Affairs, but according to theLaw on Ministries and other AdministrativeBodies, quite limited competences aregiven to the state ministries. Theresponsibility for legislation and the designand delivery of employment services isdivided between 13 different institutions.The state-level institutions are mostlyweak, and the same could be said for therelations between state and entity levels.

In all countries the PES has an importantrole to play at policy implementation level.PESs are normally organised at state level,with offices at lower (county/district/municipality) levels. In Bosnia andHerzegovina, however, the structure ismore complex. In addition to a stateagency with a limited mandate, PESs areorganised at entity level and at cantonallevel in the Federation of Bosnia andHerzegovina, where they act independentlyfrom one another. (For further details seethe section on decentralisation in terms ofpolicy delivering and sharingresponsibilities.)

In general the institutional arrangementsfor employment policy in the WesternBalkans could be described as centralisedwith a vertical structure. Employmentprogrammes and budget allocations aredesigned and determined at central level,and adaptations to the needs of the locallevel are generally of limited importance.

At the same time, behind the apparentclear distribution of ‘policymaking’ and‘policy implementation’ roles betweenministries and PESs, there is occasionallya lack of transparency and confusionbetween these two roles. Moreover, noclear responsibilities have yet beenattributed to one or other institution formonitoring and evaluation of employmentpolicies. The focus is still entirely onplanning and implementation.

The recent processes aimed atharmonising national employment policiesin the region with the EuropeanEmployment Policy seem to contribute in apositive way to the strengthening of the role

of relevant ministries as policymakingbodies and the PESs as implementingbodies. The preparation of NationalEmployment Action Plans (NEAPs) hassignificantly contributed to this in somecountries. There is a clear definition in theNEAPs of the actions that need to beundertaken as well as the actorsresponsible, i.e. institutions. This processhas already resulted in a performanceagreement between the Ministry of Labourand the PES in Serbia (in 2006). Theagreement is a step towards a moretransparent role for the Ministry of Labouras a policymaking body responsible fordesigning policy, and for the PES as abody responsible for implementing policyand achieving planned objectives.

The next important aspect of the effectiveimplementation of employment policies iswhether the resources required to executeactivities are planned, and how they areensured. The question is whetheremployment strategies and NEAPs areaccompanied by annual working plans, andsupported by adequate funds (eithernational and/or donor funds) so as toproduce expected results and outcomes.The lack of available funds in particularfrequently impedes the implementation ofemployment policy, since in most of thecountries in the region the funds collectedthrough contributions are far fromsufficient. In order to be able to ensuresufficient funds, labour ministries need toattract the attention of all key stakeholdersand gain strong commitment on the part ofgovernments to employment policies andto the objectives of the employment actionplans. In this respect, some of the WesternBalkan countries and territories havealready taken an important step forward,since employment policy documents havebeen adopted by government, or even byparliament, as is the case of Croatia’sNEAPs.

As is the case elsewhere, employmentpolicies in the Western Balkans will beconstantly evolving as a result of changingcircumstances in the labour markets andexternal pressures. The key challenge is tofind the circumstances under which policiescan be effectively planned, implemented,monitored, evaluated and improved.

139

5. INSTITUTIONAL ARRANGEMENTS FOR THE IMPLEMENTATION OF EMPLOYMENTPOLICIES IN THE WESTERN BALKANS

More effective implementation ofemployment policies could be achievedthrough a better common understanding ofemployment-related policies, includingmore targeted objective setting and betterplanning, effective implementation, andmonitoring and evaluation mechanisms,with greater participation at all stages onthe part of key stakeholders, socialpartners, and civil society at state, regionaland local level. The implementation systemshould ensure that the different stages ofimplementation are linked, and that lessonsare learned, feedback is given, andprocedures for change and improvementare in place.

The real challenge in this respect, and notonly for countries and territories in theWestern Balkans, is to develop a moresystematic approach.

Policies are followed by objective setting,resource allocation and planning, whichshould be in line with policy objectives,resulting in appropriate employmentmeasures. Monitoring and evaluationshould provide inputs for feedback andprocedures for change that can feed intobetter targeting, planning and resourceallocation. Monitoring will focus on theprocesses, outputs and results ofemployment measures, while evaluationnormally focuses on the impact. Monitoringand evaluation are currentlyunderdeveloped, suggesting that fewlessons, if any, are learned fromimplementation. In view of the increasing

importance of employment policies in theWestern Balkans, this is an area of workthat needs special attention.

5.2.1 INTERMINISTERIALCOOPERATION IN THE FIELDOF EMPLOYMENT POLICY

As employment is the final outcome of aseries of economic and social factors,employment policy depends heavily oncommunication and harmonisation withother policies in the country or territory,particularly education and training policies,social policies, economic policies, regionaldevelopment policies and financial policies.Furthermore, strong and fruitfulcooperation between all relevantstakeholders, including the variousministries involved in the process ofdesigning the employment strategy, is vitalfor the creation of a comprehensive andcoherent approach to the use of labourmarket instruments alongside theeconomic restructuring process.

The importance of such cooperation in thefield of employment policy has to a certainextent already been recognised in allWestern Balkan countries and territories.EU and other donor projects aimed atassisting countries and territories todevelop NEAPs have always promotedcooperation between the Ministry ofLabour147 – being the initiator andultimately responsible for the developmentof employment policy – and other line

140


Systematicapproach

Implementation

Purpose and plan

Feedback andproceduresfor change

Monitoring andevaluation

147 We use the term ‘Ministry of Labour’ to encompass the names used in the different countries and territories.

ministries in a structured way through theestablishment of working groups and/orwritten procedures. However, it is clear thatthis cooperation is often limited to the‘provision of comments on draft papers’,and has a consultative rather than aresponsibility-sharing character. In fact it isquestionable to what extent existingemployment strategies and NEAPs reflectthe actual participation and commitment ofkey national stakeholders to theirimplementation.

There follows an examination of effectiveinterministerial cooperation in four areas ofpolicymaking:

� setting objectives� planning� implementing� monitoring and evaluation.

Setting objectives

The objectives of an employment strategyneed to arise from a previously conductedanalysis, not only in the employment sectorbut also in other relevant sectors. The lackof quality data and the limited capacity tocarry out in-depth analyses of the complexlabour market situation in the WesternBalkans (see Chapter 2) still representserious barriers to the formulation ofemployment policies and the definition ofobjectives in some countries and territories(such as Albania, Kosovo and the formerYugoslav Republic of Macedonia).Certainly, many of the Western Balkancountries and territories will need toimprove the collection and processing ofstatistical data in order to allowbenchmarking with EU countries and to beable to set realistic quantitative objectives.

Achieving coherence between employmentpolicy objectives and other policies (suchas economic development, social policy,education policies, and fiscal and taxpolicies) is another challenge. All countriesin the region have developed policies indifferent fields such as macroeconomicstability, SME development, privatisationand economic restructuring, education andpoverty reduction. There is potential forincompatibility of priorities orcontradictions, and these could be avoided

if negotiated between ministries. There isalso the risk of duplication of efforts.

Finally, the adoption of policies orstrategies is not always followed up byspecific actions (i.e. they are never, or onlypartially, implemented), and this is oftenbecause of governmental changes, whichimpose disruption in the implementationprocess. This serves as a warning thatnational strategies must be transparent,widely communicated and adopted withmaximum consensus.

Planning

Planning is a crucial stage. Employmentstrategies need to be translated intomedium-term and annual plans withmeasures, sub-programmes, objectives,target groups, resources, responsibleimplementing bodies and expectedoutcomes all clearly defined. This meansthat the responsibilities and tasks need tobe shared between all key stakeholders atnational, regional and local level. Thisnecessity was recognised during thepreparation of the Serbian EmploymentStrategy, which not only foresees threegroups of participants responsible for itsimplementation, but also defines theirresponsibilities and tasks (see Annex 9).

Because of limited budgetary resources inmost countries and territories of the region,the process of planning must be conductedwith great caution and must also addressthe issue of how to pool together allavailable resources. One importantcriterion for planning is affordability, whichoften explains the gap between plans andobjectives. The planning stage is thereforea first opportunity for providing feedback onthe objectives of employment strategies.Although national resources are generallyscarce, national authorities often do notrecognise the opportunities presented bydonor projects in that these fundsrepresent additional support for theimplementation of their national strategy orNEAP. Projects are not aimed at regionalsocioeconomic development, and projectsthat support VET reforms are notrecognised as part of employmentstrategies or NEAPs. The recently adoptedSerbian NEAP, for example, includes only

141


the projection of national funds for activelabour market measures for the period2006–07, and lacks information thecontributions of other ministries or donorfunds. The former Yugoslav Republic ofMacedonia’s NEAP 2006–08 does includethe projection of national and donor funds(although only for one year), but still lacksdetails and transparent calculation ofplanned activities, measures andprogrammes, and consequences of itsimplementation on the national budget. Theintroduction of new measures, programmesand approaches also depends on theappropriate allocation, in terms of bothnumbers and competence, of staff withininstitutions at different levels. This requiresadditional funds that have often not beenincluded in planning. This aspect isparticularly neglected in the currentregional NEAPs. Moreover, it is verydifficult to ensure any multi-annualbudgetary commitments.

The planning stage is also the stage forsetting targets and defining indicators formonitoring implementation.

Implementation

Cross-ministerial cooperation andcross-institutional cooperation rarely existsin the implementation phase. Cooperationat this stage means pooling togetheradministrative capacities, financialresources, procedures, providers andpremises. A classic example is the supportto business start-ups, where training andmicro-credit schemes are often not linked,as different institutions are responsible fortraining and credit schemes. Another istraining for unemployed and redundantworkers, which is one of the most importantactive labour market measures, but whichis still underdeveloped in all countries as aresult of the absence of a systemicapproach to adult education and training.The provision of adult education is oftenconcentrated in larger cities and skewedtowards specific areas of training thatrequire little investment. Initial traininginstitutions such as VET schools anduniversities are not prepared to providesupport for the training of adults.Improvements in this respect can beachieved through better and more

constructive cooperation betweenministries responsible for employment andthe ministries responsible for education.VET schools could certainly play a muchmore important role in the implementationof active labour market measures than theycurrently do in most of the countries andterritories. In Kosovo a good start has beenmade, with the Ministry of Labour andSocial Welfare and the Ministry ofEducation, Science and Technologysigning a protocol for cooperation(Employment and Skills Observatory,2002).

A key question is how the PES as themain implementing body can cope withthe current situation in the labour market –characterised by a large number of peoplewho are unemployed, and relatively lowdemand – on one side, set against theambitious goals contained in NEAPs. Aswas shown in Chapter 4, all PESs sufferfrom a lack of staff, with a particularlyunfavourable ratio of unemployedindividuals to counsellor (particularly in theformer Yugoslav Republic of Macedonia).Moreover, often many of the PES staffthat are counted as counsellors areactually doing administration work, makingthe ratio even less favourable. Althoughthe process of PES modernisation hasalready started in most countries andterritories, the lack of resources hindersthe introduction of new measures andmethods of work, such as a personalactivation approach when working withthose who are unemployed.

Lack of funds is often the key obstacle forimplementation. However, more fundscould be secured in various ways, forexample:

� sharing costs of measures andinterventions among different ministriesand with municipalities;

� combining budget funds with donorfunds with the purpose of implementingstrategies or plans;

� engaging teachers who are at risk ofredundancy to train unemployed people,redundant workers and the labour forcein general;

� sharing premises and maintenancecosts.

142


Monitoring and evaluation

The issue of the monitoring and evaluationof policy implementation has recentlybecome a topic for discussion in somecountries and territories, though mainlyinitiated by donors. There is still not enoughcommitment to the issue, particularly atministry level. Monitoring of employmentpolicies is rarely planned by NEAPs, whileevaluation of planned programmes andmeasures is completely neglected.

In order to learn from policyimplementation, ministries and PESs willneed to enhance their capacities to designtheir own monitoring and evaluationsystems, to implement them effectively andto ensure feedback and procedures forchange and improvement.

Assessment

At the programming level of employmentpolicy most of the countries and territorieshave made significant progress, butimplementation is still weak andprogrammes and measures aimed atreducing unemployment and at job andemployment growth remain too modest torespond effectively to employmentobjectives.

While the circle of institutions andstakeholders involved in the development ofemployment policies has been widenedsuccessfully, implementation too oftenremains the sole responsibility of Ministriesof Labour and PESs. As employment is aninterrelated sector, all relevant ministriesshould participate in planning,implementing, monitoring and evaluating theprogrammes and measures envisaged byNEAPs.

Except in Bosnia and Herzegovina, existinginstitutional arrangements are still highlycentralised, with vertical structures andlimited local competences to respond tolocal employment situations. In spite of thefact that different arrangements exist forthe division of responsibilities, it is first of allimportant to make explicit what theresponsibilities and tasks of each institutionare. Further progress could be made, forexample, by using performanceagreements such as those used in Serbia.

There should be more emphasis on asystemic approach to objective setting,planning, and implementation, monitoring,evaluation and feedback mechanisms, asthis will allow countries and territories tolearn from experience and adapt andimprove policies in a systematic way.

The planning stage is an opportunity totranslate objectives into realistic actions.Effective cooperation among ministries andinstitutions at this stage could lead to thedevelopment of additional programmes andmeasures and result in a higherpercentage of unemployed people beingincluded in programmes, through thecombined efforts of employment anddevelopment policies.

Monitoring and evaluation of employmentpolicies are often absent. But only bypermanently searching for ways ofimproving the situation based on actualexperience can employment objectives beachieved.

Donor-sponsored activities are often anarea that is outside the nationally drivenprocess, although they should be based onemployment strategies and action plans.

A more systematic approach, with moreattention given to each stage – planning,implementing, monitoring and evaluating –requires not only better cooperation amongministries and other partners, but alsoadvanced cooperation with donors.

5.3 SOCIAL PARTNERS ANDTHEIR ROLE IN EMPLOYMENTPOLICY

Most new jobs are created in the privatesector. Employment policies that aredeveloped without the involvement ofprivate sector stakeholders run the risk ofbeing less effective, and the exclusion ofprivate stakeholders could increaseresistance to labour market andemployment regulation. But privatestakeholders are not well organised, andinclude many fragmented groups. Socialpartners still seem to be the best optionavailable, offering a platform for dialogueand negotiation. However, collective

143


bargaining is not well developed, and israther limited in scope, as will be seenbelow, and social partner organisations areweak in terms of both representativenessand capacities.

Both the European Commission and theILO have placed great hopes on thedevelopment of social dialogue as amechanism to improve flexicurity in theWestern Balkans and hence contribute toemployment growth. Flexicurity is generallyseen as the key to more balancedeconomic and employment growth. Moreflexibility at company level could bebalanced by greater collective securitythrough social dialogue, hence improvingthe adaptability and responsiveness ofcompanies to change. According to the ILOonly the engagement of the three partners– the government and the representativesof employers and workers – in a true socialdialogue can lead to the identification andimplementation of appropriate policyoptions that are acceptable to all sides andfinancially affordable for restoring theoptimum combination of flexibility andsecurity (ILO, 2006). Beyond measures tosupport collective security, incomeprotection and improved employmentsupport, increased social dialogue couldlead to better collective conditions for adulttraining, benefiting companies, workersand unemployed people, and could supporteconomic growth by bringing productivityinto the dialogue and promoting the costsharing of labour market measures, thusincreasing the volume of employmentpromotion measures.

According to the European Commissionthe Western Balkan countries andterritories will increasingly need to focus onreforms in order to approach Europeanstandards. The economic and socialagenda will come to the fore, as weakeconomies, high unemployment andinadequate social cohesion are majorproblems throughout the area. EU policiesfor the region should focus more onequitable and sustained economicdevelopment and on extending the benefitsof economic growth to vulnerable groupsand communities by combatingunemployment, social exclusion anddiscrimination and by promoting social

dialogue (European Commission, 2006d).Social dialogue is important as aninstrument of economic modernisation andas an acquis communautaire. There is aneed for more space for dialogue, ratherthan centralised legislation. But in order forthe dialogue to gain importance, theexisting fragmentation between employers’organisations and trade unions needs to beovercome, and representation of socialpartner organisations strengthened. Moresectoral dialogue could lead to a moremeaningful consultation (EuropeanCommission, 2005g).

In the previous socialist system, particularlyin the former Yugoslavia, both trade unionsand employers’ organisations had differentroles and functions, being mainly used astools and mechanisms to allow the politicalelite to achieve their objectives. Thetransition from the command-economysystem towards a more open marketeconomy and the new socioeconomiccontext require that social partners redefinetheir roles and become equal partners withthe government in all issues that arerelevant for the development of the countryor territory.

There follows a review the state ofdevelopment of trade union organisations,employers’ organisations and current formsof social partnership, in the context ofemployment policy in the Western Balkans.

5.3.1 TRADE UNIONS

Over the past 15 years, trade unions havehad severe difficulties adapting to thechanging labour conditions and maintainingtheir membership in an increasinglyglobalised economy. Many think that uniondecline can be attributed to social changesthat will inevitably affect all trade unionsand marginalise their role. The major socialchanges quoted are the shift from anindustrial to a service economy and frommanual to white-collar work, increasedfemale labour participation, a larger shareof the economy being made up of smallercompanies, the development of teleworkingand a rise of part-time and flexible workcontracts. These changes will lead to amore heterogeneous labour force, with

144


female, part-time and white-collar orservice workers often being lesscollectively oriented. However, it seemsthat unions worldwide have responded invery different ways to these socialchanges, with some being more capable ofadapting to new situations. As aconsequence, some trade unions that haveshown openness to these new socialgroups have been able to grow, whileothers that have remained focused on theirtraditional constituencies have seen steepdecline. However, this declining trend is notuniversal (Ebbinghaus, 1995).

There is a decreasing international trend inmembership. Overall trade unionmembership in existing EU countries fell byaround 15% over the period 1993–2003. Inthe old EU Member States the fall wasnearly 5%, while in the new and futureMember States it was almost 50%. Of theEU countries in which union membershiprose between 1993 and 2003, the upwardtrend slowed after 1998 in Belgium,Denmark and the Netherlands, while itaccelerated in Finland, Ireland, Italy andLuxembourg. Of the EU countries in whichunion membership fell between 1993 and2003, the rate of decline slowed after 1998in all cases – Austria, Bulgaria, Estonia,Germany, Greece, Poland, Slovakia,Sweden and the UK – which may beencouraging for the unions in thesecountries (Eurofund, 2004).

The success of the Scandinavian tradeunions that have seen a strong increase inmembership over the past decade can bepartly attributed to the support which theseunions give to their new constituencies.What unions do matters, and it varies agreat deal. What is interesting in thecontext of this chapter is that in WesternEurope the union density rates are 20 to 30percentage points higher if unions, ratherthan the state, assess unemploymentinsurance claims, even where theinsurance itself is fully subsidised andnon-members have the same legalentitlements as members (Visser, 2006).

Surprisingly, trade unions have become the‘missing’ actors of post-communisttransformation. At the beginning of the

transformation process, after 1989, theexpectation was that trade unions wouldshape subsequent developments, defendingworker prerogatives and privileges thatstemmed from the previous societal model.Fifteen years later, trade unions strike, orworry for their absence and remain silent.The fears of ‘social dumping’ bypost-communist countries (especially thosethat are now in the EU) and the pessimisticviews about the state of social dialogue inthose countries assume that trade unionsare too weak or too submissive to defendworker interests effectively148.

There are several reasons for the steepdecline of membership in new MemberStates. One of these is certainly the legacyof the old trade unions. Since membershipwas hardly a free choice in the past, it is notsurprising that the high membershipnumbers from before 1989 provedunsustainable after the transition todemocracy (Crowley and Ost, 2001).Another development has been theinfluence of industrial restructuring andprivatisation, and the increase in the numberof jobs in smaller companies. Moreover, thedecrease in formal employment and theincrease of employment in the informalsector, agriculture and migration have alsonegatively contributed to membershipfigures.

Table 5.1 provides a snapshot of unioncharacteristics in the new Member States onthe eve of accession. Trade union power innew Member States is more limited than thistable suggests, as the decreasing trendsseem to be continuing, and union membersare concentrated in the public sector(70–80% of union members as against20–30% of employees are in this sector) incomparison to Western Europe. The data onstrikes show a continuous decline.

Trade unions in the Western Balkancountries are going through the sameprocess and have lost a vast share of theworkforce and business, though they arenot yet at the stage of decline of those inthe new Member States. Hence, there isstill a chance to reverse the negative spiral,if trade unions manage to capitalise on jobgrowth for new constituencies.

145


148 http://www.warwick.ac.uk/russia/Intas/MoscowWorkshop.doc

Reliable statistics on trade unionmembership and trade union density149 inthe Western Balkans are not available.However, union density in the WesternBalkans and in Romania is perceived to be(still) substantially higher (around one inthree workers) than in the new MemberStates, where levels have fallen to lessthan one in five employees in dependentemployment.

Moreover, trade unions in the WesternBalkans mainly represent workersemployed in the public sector and largeprivatised companies, while the SMEsector is less represented. The previouslylarge number of workers who wereorganised in trade unions decreased asworkers either became unemployed orbegan working in the informal economy.The increase in employment in smallercompanies and organisations (SMEs inparticular) complicates the ability of unionsto organise themselves.

As well as the ‘inherited’ trade unions,many former socialist countries have seenthe development of alternative independenttrade unions. This has often led to further

fragmentation, and the existence ofcompeting trade unions has not contributedpositively to union density, as can beclearly demonstrated by developments inPoland and Bulgaria. Although someBalkan trade unions have benefited fromclose links with political parties, thesepolitical connections have not generallyhelped the plight of trade unions in general.

Sectoral organisations are still relativelyweak, as trade unions focus their activitiesmainly at the enterprise level. The absenceof a functioning sectoral dialogue does notencourage trade union branches to investmore in the sector level. This is a majorimpediment for the development ofstronger trade unions, though somepositive developments in neighbouringcountries may inspire trade unions in theWestern Balkans to develop more sectoralinitiatives. In particular there areopportunities in growth sectors such asfinancial services, construction andtourism, where shortages of skilled workersmay create new opportunities for tradeunions. Construction and tourism aregrowth sectors with a high turnover oflabour and with a great deal of seasonal

146


Table 5.1: Some characteristics of trade unions in new Member States

Union density

(%)

Collective

bargaining

coverage (%)

Strike volume,

1998–2001

Estonia 16.6* 25 0.0

Latvia 20.0 15 7.3

Lithuania 16.0 15 3.4

Poland 14.7* 45 2.8

Czech Republic 25.1 25 no details available

Slovakia 35.4 45 0.0

Hungary 19.9 35 25.1

Slovenia 41.0 100 no details available

Average EU15 27.3 79 57.5

Data 2002, *2001; sources: European Commission, Industrial Relations in Europe 2004, Brussels, 2005;

Eurostat, taken from http://www.warwick.ac.uk/russia/Intas/MoscowWorkshop.doc

149 Trade union density is the share of trade union members among the total employed population. The OECD,with Prof. Jelle Visser of the University of Amsterdam and Bernard Ebbinghaus of the Mannheimer Zentrumfür Europäische Sozialforschung, University of Mannheim, are systematically collecting and verifying datafrom OECD and EU Member States, while the Université catholique de Louvain in Louvain-la-Neuve, Institutdu Travail, has been collecting figures from Central and Eastern European countries for the EuropeanCommission based on the Representativity Survey of Unions and Employers’ Associations in the newMember States. However, for the Western Balkans there are very few figures available, and those that doexist are based mainly on self-declarations from trade unions.

147


Box 5.1: Trade unions in the Western Balkans

Croatia The following trade unions are reported:

� Union of Autonomous Trade Unions of Croatia (UATUC, which includes22 trade unions and 21 branch offices);

� an Independent Croatian Trade Union (NHS);� Trade unions of services (UNICRO);� Croatian Trade Union Association (HUS);� Workers’ Trade Unions Association of Croatia;� The Association of Croatian Public Sector Unions.

Montenegro The Independent Trade Unions represent around 68% of the formal sectorand 45% of total employment. So far they have been very active in wagenegotiations with the government. On many occasions they have been thekey drivers of strikes, which were used as a method for improving theprofessional and economic position of employees, although sometimes indifficult financial circumstances. They have representatives on the SocialEconomic Council, but this institution has not started to act as a platform fora social dialogue (World Bank, 2005f).

Bosnia and

Herzegovina

Two separate confederations of trade unions exist within the entities, mainlyrepresenting workers employed in the public sector and in mass-privatisedenterprises. In Republika Srpska the Confederation of Independent TradeUnions of Republika Srpska has around 66% of workers organised in 14branch trade unions. The Confederation of Independent Trade Unions ofBosnia and Herzegovina represents around 68% of total workers in theFederation of Bosnia and Herzegovina and has 22 branches. The twoentities’ trade union confederations formed a joint State-level Confederation(KSB&H, May 2005), which has not yet been registered. (EU VETProgramme II, 2006 and World Bank, 2005b)

Serbia Two trade unions are considered as representatives of workers according tothe law, the Trade Union Confederation (TUC) ‘Independence’ and theConfederation of Autonomous Trade Unions of Serbia (together theyrepresent 700,000 employees) after the Associations of Free andIndependent Unions lost their members and no longer fulfilled the criteria tobe a ‘representative trade union’. They have an important role in theprocess of adoption of ‘Social programmes’ for redundant workers, andalthough they sometimes impede the process, their agreement to theprogramme is required by the government.

The former

Yugoslav

Republic of

Macedonia

Three trade unions are reported:

� Federation of Trade Unions of (CCM) of the former Yugoslav Republic ofMacedonia;

� Union of Independent and Autonomous Trade Unions of Macedonia(UNNACNM);

� Trade Union of Employees in the Public Sector.However, in order to be recognised as a representative trade union, at least33% of employees need to be included, and it therefore seems thatcurrently only the Trade Union of Employees in the Public Sector, which hasbeen separated from CCM, fulfils this criteria.

Albania Two national confederations of trade unions are reported:

� Union of Independent Trade Unions of Albania (BSPSH);� Confederation of Trade Unions of Albania (KSSH).

labour. In order to limit the loss of skilledlabour, social partners in Romania, forinstance, have developed social schemesat sectoral level to keep workers in thesector during winter.

Trade unions from the countries within theregion are seen as a relatively weakelement of tripartite social dialogue, partlybecause of their fragmentation, but alsobecause of their slow adjustment to thenew socioeconomic environment and itsrequirements. On the other hand, in somecountries they are quite powerful whennegotiating wages and when opposingredundancies (such cases are reported inthe ETF Labour Market Review of Serbiaand Montenegro). Their preoccupation withwage negotiations is perhaps quiteunderstandable because of the relative lowwages, which are frequently insufficient tosecure a decent standard of living (ETF,2002).

In order to be recognised as arepresentative social partner, trade unionsare organised in confederations in allWestern Balkan countries and territories.Box 5.1 gives an overview of the mainorganisations in each country and territory.

Trade unions, by their very nature, mustbe concerned about economicdevelopment issues leading to jobcreation and workforce development forbetter employment prospects (ETF, 2002).They would be expected to play a moreactive role, at least in the restructuringprocess, in order to negotiate withgovernments for greater provision ofassistance to potentially redundantworkers in terms of career developmentand the enhancement of theiremployability, and not only narrowlyadvocating social rights. There are someexamples of effective cooperationbetween government and trade unions atcompany level (as in the case of socialprogrammes in Serbia). There are furtherexamples of good practice in EU MemberStates that could help trade unions to takeon a more proactive role in the social andeconomic development of the countriesand territories.

The following Romanian initiative mightinspire Western Balkan trade unions toplay a more important role in improving theadaptability of workers to the newrequirements of the labour market.

148


Aware of the fact that most of the Romanian workers in the engineering sectorlacked up-to-date knowledge required by the rapidly changing economy andrisked joining the cohort of mass lay-offs, the two major trade unionconfederations in Romania, CNSLR-FRATIA and BNS, wanted to enhanceworkers’ competitiveness and thus ensure them good and stable jobs. Despitetheir lack of experience of bipartite cooperation with employers (apart from thecollective labour agreement), the unions decided to focus on actions to reinforcethe labour force through vocational training. Within a three-year project, startedin 2003 and financed by MATRA (Dutch bilateral assistance programme), theyestablished two bipartite centres of expertise in vocational training, in theshipbuilding and aeronautic sectors. As a result of a promotional campaign ontheir bipartite concept, trade union federations and employers from the machinebuilding industry contributed jointly to the policy paper on VET aimed atstipulating the training process for each branch through the Bipartite ExpertiseCentre in Vocational Training. Further activities are planned, aimed atestablishing centres in other sectors/branches, proposing retraining coursesand providing recognised diplomas and therefore contributing to the promotionof vocational training among workers in Romania.

Extract from ‘Evaluation Striking Deals’, views of the in-country coordinators of

Romania, 2006.

The process of moving towards a greaterand more proactive role for trade unions inthe Western Balkan has started, influencedpartly by the work of the ILO and supportprovided by donors. There are examples ofsuch activities within the Decent WorkCountry Programme Albania 2006–07(ILO), where the current activity aims tostrengthen the expertise of Albanian unionsin the areas of employment, active andpassive labour market policies, vocationaltraining, youth employment and women inthe labour market. The EU has alsolaunched a number of targeted initiatives.Moreover, the European Trade UnionConfederation (ETUC) is undertakingtraining activities in many countries of theregion and at the trans-national level withinthe framework of the Stability Pact forSouth Eastern Europe (Bucharestprocess).

However, further emphasis should be givento strengthening the potential of tradeunions to negotiate working conditions,employment, and training-related issues atcompany, sector or national level. Thecapacity-building measures available are farfrom sufficient to transform the trade unionsof the Western Balkans. Further loss ofmembership, as has happened in the newMember States, should be a concern.

5.3.2 EMPLOYERS’ORGANISATIONS ANDASSOCIATIONS

As long as there is a very large local poolof skilled workers available, employers arein a much stronger position than tradeunions. This means that most decisions onemployment can be taken at companylevel, and there is no strong incentive tobecome organised in order to agreeworking arrangements. As a consequence,employers’ organisations in the WesternBalkans are not well established andremain rather fragmented and divided.Several types of employers’ organisationsexist, including business associations,independent employers’ associations,chambers and foreign investors’ forums.

Although a number of foreign investorspromote social dialogue at company level,especially if this is in accordance with theirnational background, some are openlyhostile towards union membership in theircompany. On the whole, foreign investorslargely ignore collective negotiationprocesses at sectoral or national level.Associations of foreign investors oftenlobby governments directly in pursuit oftheir interests, and in many cases they actas advisers to the government oneconomic and social policy issues. Foreigninvestment has therefore not contributedsignificantly to a stronger social dialogue.

Independent employers’ associations havebeen established in most Western Balkancountries and territories over the past15 years. As is the case with trade unions,these organisations have to prove theirrepresentativeness in order to participate innational dialogue. They often have tocompete with influential chamberstructures. In the former Yugoslav Republicof Macedonia, Kosovo and Montenegro (aswell as in Bulgaria), the representativenessdebate in tripartite social dialogue hasclearly been complicated by the role of thechambers. In these countries and territoriesthe Chamber of Commerce either is thesole representative of employers in thecentral tripartite body (in the case ofKosovo and the former Yugoslav Republicof Macedonia) or shares this responsibilitywith independent employers’ associations(Bulgaria, Montenegro). Kosovo is the onlycase in which there is still no independentemployers’ association, the Chamber ofCommerce being the sole representative ofemployers’ interests in the tripartite socialdialogue (ILO, 2003).

These chambers have a long traditionamong employers’ organisations in all theformer Yugoslav countries. In line with ILOcriteria that oppose compulsorymembership and promote freedom oforganisation, chambers of economy cannotbe considered as a social partner150. Butthey have been, and are still frequently,involved in discussions on socioeconomictopics in most countries and territories.

149


150 The obligatory membership to the Chamber of Commerce is against the ILO criteria for free membership andthus it cannot be considered as a social partner.

151152

150


Box 5.2: An overview of employers’ organisations in some Western Balkan

countries

Croatia Both the Croatian Chamber of Commerce and Chamber of Trade have along tradition, but because of the mandatory membership are notconsidered social partners. The Croatian Employers’ Association (HUP) isthe first organisation in Croatia established for the purpose of representingthe interests of the Croatian private capital sector. It is a major negotiatorfrom the employers’ perspective and it plays a significant role in the field oflabour market policy and regulations. It coordinates and concludes branchcollective agreements. It influences the development of social legislationsby negotiating with trade unions and government when such legislation isprepared. It recently participated with trade unions in discussions on theinformal economy in Croatia and elaborated concrete proposals forcombating this issue. Employers in the SME sector are organised in aspecial organisation (UEAPME)151.

Montenegro Besides the Chamber of Commerce, which is by ILO criteria not considereda social partner, the Montenegro Union of Employers has the status ofnational representative employers’ organisation and includes 25 branchorganisations. This organisation recently started to negotiate with thegovernment on reducing the high labour costs in Montenegro.

Bosnia and

Herzegovina

The Chamber of Commerce has the longest tradition in the country, thoughat the state level it functions as the Foreign Trade Chamber. At state levelemployers’ associations were jointly founded in 2004 by both entities andBrcko District. Each entity also has its own employers’ organisation.

� Federation of Bosnia and Herzegovina: the Union of Associations ofEmployers of FBiH is organised geographically rather than by sector orbranch and was established in 2002; Zepce Union of Employers alsoremains active; the Chamber of Commerce is established at entitylevel and in all cantons.

� Republika Srpska: the Union of Associations of Employers of RSrepresents the private sector and is composed of 14 branches, whilethe Chamber of Commerce (at entity level and five regional chambers)mainly represents companies with majority state ownership; both areparticipating in collective bargaining.

� Brcko District: Chamber of Commerce.(EU VET Programme II, 2006)

Serbia

There are two employers’ associations, the Employers’ Union and theAssociation of Industrialists and Entrepreneurs. The first one in particularlyhas actively participated in the preparation of both the National EmploymentStrategy and NEAP. The Chamber of Commerce has an important role inthe reform process, but is also a designer and provider of training for itsmembers.

The former

Yugoslav

Republic of

Macedonia

The role of the Chamber of Commerce is still very strong, although it isreported that membership is not obligatory. As a social partner representingemployers, the Union of Employers of the Republic of Macedoniaparticipates in social dialogue.

AlbaniaThe Chamber of Commerce still plays the role of social partner. The ILOalso reports the existence of the Council of Employers’ Organisations152.

151 http://www.ioe-emp.org/en/members-regions

152 KOPSH (Këshilli i Organizatave të Punëdhënësve Te Shqiperise).

In some countries compulsory membershiphas recently been abandoned (Bosnia andHerzegovina, the former YugoslavRepublic of Macedonia). In some of theformer Yugoslav countries (Slovenia,Croatia) an important role is also played bychambers of crafts. These chambers oftenhave strong links with smaller privatecompanies that already existed in theformer Yugoslavia. Chambers in generalcontinue to enjoy privileged relations withgovernment structures.

Although the structure of employers haschanged in all countries and territories, thegovernments themselves remain thelargest employers. This is the consequenceof a relatively slow process of privatisationwhich maintains a high share of socially orstate-owned companies on one side and ahigh share of employment in public sectorservices on the other. The SME sector israpidly growing in many countries andterritories, and in general it seems thatemployers from this sector are the keypromoters of new employers’organisations. As social partners,employers’ associations participate insocial dialogue and in negotiations withgovernments and trade unions. Like tradeunions, employers’ associations are stillpreoccupied with wage negotiations. Butthey are slowly becoming more involved inthe reform processes in education andtraining and the employment sector, inparticular as partners in EU-fundedprojects and other donor projects. Theirreal influence on the processes andoutcomes remains limited.

A more proactive role on the part ofemployers could have been expected onstrategic issues, such as improving theadaptability of workers and enterprises aswell as in increasing investment in humancapital. But since existing labour costs arerelatively low, investment in HRD is not apriority for employers. This is worrying, as itcould inhibit a rapid increase in economiccompetitiveness for the Western Balkans.

Although the workforce in the new MemberStates is general considered to be welleducated, this is the case to a lesser extentin the Western Balkans.

Apart from the national employers’associations mentioned above, animportant role in employment policies couldbe played by local, regional or sectoralassociations, particularly those organisedin regulated sectors such as financialservices, (international) transport and themachine industry, as well as by local SMEand business associations, farmers’associations and cooperatives.

The restructuring process of state-ownedenterprises aimed at the improvement oftheir competitiveness has not yet startedseriously in most countries and territories,though the issue of overemployment willsoon need to be tackled. This will lead tonew redundancies. Change is inevitableand resisting it as long as possible canmake transition much more painful,resulting in unnecessary job losses.Although the privatisation and restructuringprocess can lead to better economicperformance, the social dimension will alsoneed to be taken into account. Employersshould play an important role in carryingout ‘socially responsible companyrestructuring’.

At this stage of development, there aredoubts about the ability of employers todeal with these challenges. Althoughemployers pay lip service to the need toenhance employees’ competences as wellas their own management capabilities153,very little effort has been made to invest inHRD. Employers and their organisationscould play a much more proactive role innegotiating incentives for investment inknowledge, competences and skills,particularly for the introduction of newtechnologies and products, and of qualityassurance measures.

151


153 Within training needs analyses and skill needs analyses implemented in Serbia in 2003 and 2004, in countiesin Croatia in 2001, and in Montenegro in 2004.

5.3.3 SOCIAL PARTNERSHIPAND ITS IMPACT ONEMPLOYMENT POLICIES

In comparison with the more developedEuropean countries, social dialogue154 inthe Western Balkans is still in anembryonic stage. Although socialpartnership and social dialogue arepotentially important tools for thedevelopment and implementation ofemployment policies, the preconditions forsocial partners to play a more active roleare still lacking in the Western Balkans.

Collective bargaining

In most countries and territories collectivebargaining is reduced to wage negotiationsand is to a certain degree regulated by law.As described above, bipartite dialogue ishampered by the fact that both tradeunions and employers tend to lobbygovernment in order to advance theirinterests, rather than rely on bipartiteagreements. There is no habit of socialdialogue, and expectations in respect ofthe government lead to passive behaviour.Moreover, trade unions and employers’organisations are often fragmented and donot represent the majority of companies orworkers. As a consequence collectivelabour agreements are often only valid forcompanies represented in the dialogue.

Sectoral social dialogue is still poorlydeveloped. Countries and territoriestherefore resort more to generalagreements that have more a generalframework character. In Serbia a new lawrequires negotiations, though there is norequirement to reach collective agreement,so the relationship between employer andemployee is often determined by theemployer’s rulebook and/or theemployment contract in the absence of acollective agreement (ETF, 2006c). InAlbania collective agreement on wages isenvisaged only for the public sector. InBosnia and Herzegovina the collectiveagreement largely functions as a workingagreement between the government andemployees in the public sector (European

Commission, 2006b). Following theadoption of a new Law on Labour Relationsin 2005, there are two national collectiveagreements in the former YugoslavRepublic of Macedonia, one with thegovernment and one with the Chamber ofCommerce (European Commission,2005b). But in Croatia, where there is alonger tradition of social dialogue, thecollective agreements contain extensionclauses making them generally binding.

The question of social partnerrepresentativeness is generating muchdebate and tension between socialpartners and governments. Governmentsare attempting to define criteria wherenone exist with a view to distinguishingbetween representative andunrepresentative organisations. The latestlaws seem to indicate that workers’organisations and employers’ associationsmust represent at least a third of theworkforce or companies in particularsectors, or in the economy as a whole.Some existing workers’ and employers’organisations have been denied the statusof representative organisations, and aretherefore banned from representation inthe national tripartite body and the right toengage in collective bargaining. Newlyestablished organisations are challengingexisting criteria before the courts. Therepresentativeness debate has createdtensions among tripartite actors in Serbia,Croatia and the former Yugoslav Republicof Macedonia (also in Romania) and has tosome extent complicated tripartite socialdialogue in these countries (ILO, 2003).

The representativeness debate has hadanother consequence that weakens theinfluence of social dialogue. Labourministries rarely declare sectoralagreements to be generally binding.Although one problem seems to be thatsectors are often not well defined, hencemaking it difficult for labour ministries todetermine which enterprises are affectedby sectoral agreements, governments tendto leave insufficient space for socialpartners to reach agreement amongthemselves.

152


154 Social dialogue as defined by the ILO includes all types of negotiation, consultation and simply the exchangeof information between, or among, representatives of governments, employers and workers, on issues ofcommon interest relating to economic and social policy. The definition and concept of social dialogue variesfrom country to country and from region to region.

155

153


Box 5.3: An overview of economic and social councils in some Western Balkan

countries

Croatia Social dialogue in Croatia had already begun in 1993, when the Economicand Social Council (ESC) was initiated by the Chamber of Commerce (laterreplaced as a social partner by the Croatian Employers’ Association), threetrade union confederations and the government. At the beginning the ESCplayed a positive role in terms of building up social dialogue and evenenabled discussion between the government and social partners on thelabour policies. As a result of overlapping responsibilities with the council forsocial partnership, which covered the public sector, the political climate andthe tense relationship between the trade union confederations, itsoperations have been seriously complicated. In 2000 the ESC wasrevamped. Since then it has more or less been an advisory body to thegovernment, providing opinion on the draft legislation in the field of labourand social security, but it also serves as a forum for consultation andnegotiation of tripartite agreements. It covers a wide range of issuesincluding employment and economic policies, wage policy and privatisation.In 2001 the social partners and the government concluded the tripartiteagreement ‘Partnership for Development’ (2002–2003), which includedemployment policy as well as education and science. But since not all ofrepresentative trade unions signed the agreement, this has never beentranslated into practice (Cvitkovic, 2003).

Bosnia and

Herzegovina

Each entity has its own legislation and bodies for social dialogue, and eachentity established its own Economic and Social Council. While the ESC inthe Federation is very active and operates on daily basis, the one in theRepublika Srpska has not functioned regularly since the breakdown of theGeneral Collective Agreement in 2004. Some initiatives have beenundertaken by the Ministry of Civil Affairs towards establishment of this bodyat state level, and assistance from the EC and ILO has been requested. Itsestablishment depends on political will, as decisions have to be made by theCouncil of Ministries. (World Bank, 2005b; European Commission, 2006b)

Serbia The Socio-Economic Council (SEC) represents the main platform for socialdialogue at national level. It was set up in 2001. According to the law (2004)it consists of representatives of the government (six), trade unions (six) andemployers’ associations (six). It was established with the purpose ofdeveloping social dialogue in all key social and economic issues. Accordingto the law the SEC provides an opinion on such issues as development andenhancement of collective bargaining, economic policy and measures for itsimplementation, policy on wages and prices, employment policy,competitiveness and productivity, privatisation, and education andtraining155. The law also envisages the establishment of an SEC atprovincial and local level.

The former

Yugoslav

Republic of

Macedonia

The Economic and Social Council (ESC), the three-party consultative bodyof the social partners (three from the government, three from trade unionsand three from employers’ organisations) has the role of reviewing proposeddraft laws and proposals for amending laws prepared by the relevantministries before they are submitted to the government and assembly. TheAssociation of Employers participate in the ESC, while the new labour law(2005) ended the automatic presence of the Chamber of Commerce(European Commission, 2005b). However, the Ministry of Labour hasreported that the Council only began to work seriously in 2007.

Montenegro The Social Economic Council as a tripartite advisory body was establishedby government decision, but as its mandate had expired, it did not functionin 2006.

155 Law on Social Economic Council, Serbia. Available at http://www.minrzs.sr.gov.yu

As the IMF and World Bank exerciseconsiderable influence on the nationaldevelopment agendas, the room formanoeuvre for national governments isoften limited. Once a national developmentagenda is established, there is not much leftfor social partners to negotiate (ETF, 2004b).

The fact that government can play animportant role in promoting social dialogue isrecognised by all parties. The government’srole is to ensure that wages, particularly instate or socially owned companies and in thepublic sector, are increasing in line withproductivity and hence to prevent a potentialloss of jobs. Governments should beinterested in the outcomes of the collectiveagreement. But the role of government is notalways seen as very supportive. In somecountries the collective agreements arevalidated through the tripartite socialdialogue, which allows the governments touse its power and levers to protect itseconomic and social policy objectives. Thefact that government policies aim to strike acompromise between parties is sometimesseen as a weakness. In a survey carried outby the ILO among social partners in theWestern Balkans there was a generalcomplaint that governments lack the politicalwill to engage in meaningful consultationswith social partners on economic and socialissues. The social partners believe that theirlack of influence is a result not of theircapacity to influence policies but of the way inwhich social dialogue functions (lack oftransparency in policy elaboration, poorcommunication with the government). Poorcommunication between social partners andgovernment seems to be a real problem inthe Western Balkans (ILO, 2003).

Tripartite cooperation

A number of tripartite bodies have beenestablished in the Western Balkans.

Social dialogue has already taken differentforms and varies from exchange ofinformation to cooperation and consultationbetween social partners in the process ofdefining strategic priorities and objectives(such as employment policy and strategies

for poverty reduction). However, it still lacksmore in-depth dialogue. The role of socialpartners is frequently reduced to one of anadvisory-consultancy body to ministries ornational institutions, and social partners arenot considered as equal partners in thedecision-making process. This is oftennoticeable in the work of the ESC, which ingeneral represents a platform for a tripartitesocial dialogue in all countries andterritories, though it does not operatepermanently and in a sustained manner insome countries and territories, such asMontenegro, the former Yugoslav Republicof Macedonia, and Republika Srpska, wherethe ESC only meets once in a while.

Contribution to employment policies

The narrow focus of social dialogue onwage policy should be widened. The WorldCommission on the Social Dimension ofGlobalization, which was established bythe ILO in February 2002, highlighted theimportance of tripartite and bipartite socialdialogue in order to strengthen governancein the context of globalisation, inparticularly in relation to global supplychains, transitions in the labour market andthe growing share of the informal sector(European Commission, 2006a). In a studyon the role of tripartite social dialogue onemployment, the ILO stressed that theWestern Balkan countries and territorieshave instruments of social dialogue whichcould be used to address the problem ofunemployment in a consensual way. Butestablishing a framework for tripartitedialogue is not enough. It should be usedby government to build consensus withsocial partners on employment strategiesand policies (ILO, 2003).

Representatives of trade unions andemployers’ associations are alreadyfrequently involved in tripartite managementor governing boards of the PESs.

In general the social partners are involvedin implementing employment policiesthrough the Management Boards of thePES, again except in Bosnia andHerzegovina156. Lack of evidence on the

154


156 Such a body does not exist in Bosnia and Herzegovina. An advisory body is established at the EmploymentAgency, consisting of representatives of the state, entities and (Brcko) district level, while social partners arenot represented.

real performance of social partnershipimpedes a more in-depth assessment, butthe statement from a member ofMontenegro’s Union of Employers – that‘social partners’ cooperation within theManagement Board of the PES is thebest-running partnership in our country andwe would also like to have the same role inthe state funds (such as in the PensionFund)’ – is rather encouraging.

However, this statement does not reflectthe state of social partnership onemployment policies as a whole. Accordingto the ILO, social dialogue in the WesternBalkans has lost its significance forpromoting employment and labour forceparticipation and alleviating unemployment.The only effect found was a negativecorrelation between union density andyouth unemployment: this could reflect thefact that strong protection of core workers(to preserve jobs) might be at the expenseof young, inexperienced workers (last in,

first out) and could thus contribute to higheryouth unemployment (ILO, 2006). 157

The dialogue on employment policy issuesneeds to change, using the added value ofintegrating employers’ and trade unioninitiatives, rather than merely asking forsocial partners’ views and comments ondocuments prepared by the government.

Assessment

There is a need to ensure the activeinvolvement of private sectorrepresentatives in the development andimplementation of employment policies inthe Western Balkans. Social partnership isthe best formula for this. Social dialogue isthe appropriate tool for agreeing moreflexibility in employment arrangements,facilitating adaptability to change at thecompany level, while ensuring bettercollective security arrangements for careerdevelopment, job reintegration and income

155


Box 5.4: Composition of the management boards of the PESs in some Western

Balkan countries

Croatia The PES Management Board consists of nine members appointed by thegovernment: three nominated by the Ministry of Labour, threerepresentatives of trade unions, and three representatives of employers thatare all nominated by the ESC. According to the PES statutory act, the boardapproves its work plan and financial report, monitors labour market trendsand defines active labour market measures, among other things.

The former

Yugoslav

Republic of

Macedonia

In the former Yugoslav Republic of Macedonia the Board of theEmployment Agency consists of nine members: five appointed by thegovernment, two representatives of trade unions, and two representatives ofemployers’ organisations.

Montenegro The Management Board of Montenegro’s PES consists of nine members:three representatives of the government, two representatives of tradeunions, two representatives of the Chamber of Commerce and tworepresentatives of the PES. The Management Board is responsible forstrategy proposals in the field of employment, approving employmentprogrammes and plans, adopting the PES annual programme and plan, andtaking decisions on financial plans and reports of the PES, among otherthings157.

Serbia The Management Board of the Serbian PES consists of 15 membersappointed by the government, including nominated representatives ofemployers, trade unions, those who are unemployed and the PES.According to the law it is responsible for making decisions on the statutoryact and other acts of the PES, and for the work programme and financialplans; it also validates the PES financial reports.

157 www.zzzcg.org

protection of workers. This requiressufficient space for dialogue and initiativeon the part of social partners. Moreover,social partners must be sufficientlyrepresentative and competent to agreeflexicurity arrangements. This is not thesituation at the moment, and withoutchanges there will only be a marginal rolefor social partners in employment policies.

Trade union membership in the WesternBalkans has declined and now only a thirdof dependent workers are trade unionmembers. Fragmentation and strongpolitical alliances have not helped the plightof trade unions in the Western Balkans. Inorder to stop fragmentation, trade unionsshould work towards stronger cooperation,and should distance themselves frompolitical parties and focus more on theinterests of their prospective members.

Some trade unions in Europe have seen astrong growth in membership in spite of adeclining global trend in trade unionmembership. In the new Member Statesunion membership has fallen to very lowlevels, a trend that Western Balkan tradeunions may also face. Membership iscurrently overrepresented in the publicsector and in privatised larger companies,while membership in the growing numberof SMEs is very low. Further restructuringand privatisation will drive the numbers ofmembers further down. If trade unionswant to avoid a further decline inmembership, they need to developinitiatives that appeal to new constituencies(workers with short-term contracts,jobseekers, young people, women, andworkers in small enterprises).

Trade union activities are currently focusedon the company level. In order to addressemployment and training policieseffectively, sectoral social dialogue needsto be strengthened. This developmentcould start with growth sectors in which thevalue of skilled labour is more appreciated.Trade unions should invest more of theirresources in the sector level. Trade unionscould, for example, assist in theestablishment of ‘buffer funds’ for sectorswith seasonal labour, such as construction,food processing, agriculture and tourism.Trade unions could possibly play a role in

the management of employment insurance(as an outcome of flexicurity discussions).This has been an important binding factorfor membership in some EU countries.Addressing new areas of activity alsorequires trade unions to invest more incapacity building.

There is a strong legacy of chamberorganisations in the Western Balkans.However, companies should be able to jointhe employers’ organisation of their choice.Employers’ organisations need toovercome existing fragmentation and formstronger organisations. A new model ofemployers’ organisation is emerging.Larger organisations that includeforeign-owned companies and that canintegrate chamber experience will be morepowerful. Employers will need to realisethat skilled labour will become more scarceand existing skills outdated. They shouldbe concerned about labour adaptability.Individual companies will not be able toimprove flexibility and labour adaptabilityon their own, and can not providesignificant security in exchange for moreflexibility. Employers will need to discussthese issues collectively, and smallcompanies in particular will needrepresentation.

As is the case for trade unions, there is aneed for stronger sectoral employers’organisations. Companies working in thesame sector share many similar challengesthat can be better addressed collectively.At the sector level companies can betterforecast HRD needs in support of newtechnologies, different ways of working andimproved quality assurance. Byunderstanding what type of changes willaffect their sector in the future, they candefine common responses. As such theycan reduce job losses during industrialrestructuring and compete better for humanresources and skills in tighter labourmarkets. Change is inevitable, andrestructuring is affecting all sectors. Incooperation with unions, employers canwork on socially responsible restructuring.

There needs to be sufficient room forbipartite dialogue between social partners toenable them to make arrangementsbetween themselves. If governments really

156


want social partners to make an activecontribution, they need to refrain frominterfering. At this stage Western Balkangovernments need to pay greater attentionto improving communication with socialpartners, to invest more in reinforcing socialdialogue capacity and to enhance socialpartnership in the areas of labour marketreform and workforce development. Moreincentives need to be provided for capacitybuilding, notably through autonomousbipartite social dialogue. This requires:

� better access to information foremployers’ organisations and tradeunions;

� adequate technical capacities on thepart of social partner staff;

� sufficient staff resources to support thefunctioning of organisations;

� an adequate legal institutionalframework that facilitates effective work,ensures representative organisationsare included in the dialogue, andprovides space for dialogue.

Social partners need to become moreinvolved in the training and employmentissues of the national developmentagenda, including social and economicissues that the government discusses withinternational organisations. They must useexisting bodies for dialogue in which theyare represented in order to strengthen theirinfluence, and must come forward withinitiatives, rather than waiting for thegovernment to set the agenda.

5.4 DECENTRALISATION INTERMS OF POLICYDELIVERING AND SHARINGRESPONSIBILITIES

Demands for the better performance ofemployment policies are increasing all overEurope. Sustainable growth, increasedcompetitiveness and employment havebecome highlighted topics in relation tostructural and cohesion policy. Cohesionpolicy in particular is being strengthened inorder to ensure that Community prioritiesare better integrated into national, regionaland local development programmes and

hence support growth and jobs (EuropeanCommission, 2006n).

Faced with poor employment and jobgrowth, as well as significant regionaldisparities, Western Balkan countries andterritories are becoming more and moreaware of the need to promote balancedregional socioeconomic development. Thisimplies better adjustment of labour marketpolicies to regional and local needs, and thisremains one of the greatest challenges forall countries and territories in the region. Inthis context the key question that needs tobe answered is how can local developmentneeds be met and regional disparities inemployment and unemployment reduced.

Two basic and closely linked principles arefrequently discussed in this respect,namely (i) decentralisation and a moreinclusive decision-making process and (ii)the partnership approach.

5.4.1 DECENTRALISATIONAND A MORE INCLUSIVEDECISION-MAKING PROCESS

The first mechanism that can be used bygovernments to ensure effectiveemployment policy implementation isdecentralisation, which can be describedalso as ‘a tool developed by governments toimprove local governance’ (OECD, 2003a).

Decentralisation is the transfer of authorityand responsibility from the state or centrallevel to regional, intermediate or localgovernments. It may involve:

� deconcentration – reallocation of certaintasks (planning, financing andmanagement) to the lower level;

� devolution – lower level of government;� delegation – semi-autonomous

authorities.

Decentralisation requires modification ofthe structure and system of governance.Deconcentration and delegation require areorganisation of central government, whiledevolution entails relinquishing politicalpower158.

157


158 DFID, The Netherlands Ministry of Foreign Affairs, www.keysheets.org

Different approaches to the issue ofdecentralisation can be found amongOECD and even EU countries. Accordingto the OECD two main forms ofdecentralised structure exist. The first isbased on a policy framework established atnational level, with PESs organised at alllevels, and programmes that are designedand implemented at regional level followingnational guidelines (as in Denmark andAustria, for instance). The second type ofdecentralisation is characterised by shiftingthe power to design and implement fromnational governments to regionalgovernments, with a certain level ofresponsibilities given to regional PESs (asin Belgium, Canada, Italy and Spain)159.

But what type of decentralisation inemployment policy implementation wouldbe appropriate for the Western Balkans?

As has already been discussed, theinstitutional arrangements in most of theWestern Balkan countries and territoriesare centralised, with clear verticalstructures. The institutions responsible fordesign and implementation of employmentpolicy are still weak and lack adequatetransparency and accountability. Theimplementation of employment policies isstill modest, and there are poorlydeveloped mechanisms for monitoring andevaluation. In addition, the existing piecesof legislation lack mechanisms for shiftingdecision-making powers to lower levels,except in Bosnia and Herzegovina. Bearingin mind these weaknesses, the models ofdecentralisation described above might notbe a proper solution for more effective andefficient employment policies in theWestern Balkans at this stage. It shouldalso be remembered that the WesternBalkan countries and territories arerelatively small. Where it exists,decentralisation in the Western Balkanshas been driven by political rather thanefficiency motives. The extremely complexdecentralised institutional arrangements interms of responsibility and rights given tothe entity, cantonal and municipality level inBosnia and Herzegovina (frequentlyconsidered to be fragmentation) certainlyimpede a more effective and efficientimplementation of employment policy.

The centralised decision-making processesthat still prevail in the other Western Balkancountries, which have no mechanisms formore efficiently addressing local labourmarket needs, hinder the successfulperformance of employment policies.

There is a need to develop more inclusivedecision-making processes that takeaccount of the role of regional and localstakeholders. In designing andimplementing programmes and measuresthat will better address local needs, thefollowing are important:

� identifying the short-, medium- andlong-term needs of the local andregional labour markets:� information on the local and regional

socioeconomic environment andtrends, and on the structure ofenterprises;

� information on the supply side;� mapping the capabilities of institutions

responsible for the implementation ofemployment policies:� capacities of local and regional

service providers (including schools,faculties, private institutions, NGOsand associations);

� capacities of local and regionalstakeholders (such as municipalities,trade unions and employers’organisations);

� the level of cooperation andpartnership with regard toemployment policy and otherpolicies.

In addition, the following remain the mainunresolved challenges:

� how to encourage local initiatives as anintegrated approach in the context ofemployment policy instruments;

� how to fund local and regionalinitiatives;

� how to ensure coherence between localinitiatives and national strategy;

� how to monitor and evaluateimplementation from the perspective ofnational policy objectives.

158


159 Ibid.

Most of the Western Balkan countries andterritories have already started to discussthe issue of decentralisation of employmentpolicy implementation, and have evenlaunched pilots, mainly through donorprojects. Examples of such pilots are:

� employment and job creation throughthe enhancement of regionalsocioeconomic development;

� the introduction of active labour marketmeasures as a responsibility of localself-governments (as, for example,envisaged as a voluntary measure for

municipalities in Employment Law inSerbia, 2003); 160161

� the establishment of Regional LabourMarket Councils in four counties inCroatia;

� progress towards better planning,management and delivery of servicesthrough the modernisation of PESs.

Moreover, emerging performancemanagement systems in institutions, suchas that in the PES in Serbia, can contributeto more efficient and effectiveimplementation of employment policies.

159


At state level the employment and labour sector is the responsibility of theMinistry of Civil Affairs, which, according to the legislation, is responsible forhealth and social welfare, pensions, science and education, labour andemployment, culture and sports, and geodetic, geological and meteorologicalissues160.

Within the ministry, the Department for Labour, Employment, Health, SocialProtection and Pensions is responsible, within certain limitations, for draftinglegislation and policymaking, inter-entity and inter-sector cooperation, andinternational relations and coordination.

The Bosnia and Herzegovina Agency for Labour and Employment conductsadministrative and other professional activities in the area of labour andemployment set by the law, unless those activities are within the competencesof the entities and Brcko District161.

In the Federation of Bosnia and Herzegovina the ministry responsible for labourand employment is organised at entity level and at cantonal level (10 cantons),while employment services are organised at entity level, cantonal level(10 cantons) and municipality level (74 municipalities). The power in terms ofpolicymaking, decision-making and implementation is concentrated at cantonallevel, while entity level has only limited responsibilities and rights.

In Republika Srpska one ministry is responsible for labour and employment, and theRepublika Srpska employment bureau is the implementing body with its regionalunits (6) and local units at the municipality level (63). Hence the institutionalarrangements are similar to the other Western Balkan countries and territories.

Overall, current decentralisation and the state-level institutional arrangements inBosnia and Herzegovina, with their limited opportunities for intervention,represent a weak point for future development and implementation of moreefficient employment policies and for fulfilment of EU accession requirements.

Box 5.5: Institutional arrangements for employment policy in Bosnia and

Herzegovina

160 Article 15 of the Law on Ministries and other Administrative Bodies in Bosnia and Herzegovina, according towhich quite limited competences are given to the state ministries.

161 The Agency was established on the basis of the Law on Agency for Labour and Employment of Bosnia andHerzegovina, passed in the second half of 2003 (EU CARDS, 2006).

Efforts will be required in the near future toimprove capacities for the delivery anddevelopment of local partnerships,including the issue of sharingresponsibilities and funding. In addition, itis important to ensure that donorcontributions and national employmentfunds allocate sufficient resources forinvestment in local capacity development.

5.4.2 THE PARTNERSHIPAPPROACH

Partnership is the basic principle of EUcohesion and employment policy.Partnership can be defined as ‘the tool andinstrument by which individual orcommunity potential can be pooled,whether through formal or informalcooperation, within which agreements andconsensus that result in better economicand employment effects can be reached’(EU CARDS, 2004).

Partnerships, platforms and alliances arefrequently used by governments in OECDcountries as mechanisms to improve localgovernance and further stimulate drivers ofeconomic and employment development(OECD, 2005). Both local partnerships andbottom-up approaches have beenrecognised by many countries asinstruments for effective and efficientimplementation of employment policies.

A number of reasons are mentioned byvarious sources for the enhancement oflocal partnerships (OECD, 2005):

� to build up a network of differentinstitutions and organisations that cancontribute to the speeding up ofeconomic and social development byemploying HRD instruments and tools;

� to put forward guidelines for furthereconomic and social development thataffects future employment, knowledge,skills and training needs;

160


Within the CARDS programme implemented in Sumadija, Serbia (2003–04), apartnership group for HRD and employment was established, consisting ofrepresentatives of district authorities, municipalities, PES (national and locallevel), the Ministry of Labour, NGOs, accredited training providers, trade unions,employers’ associations, the Chamber of Commerce and the Regional Agencyfor SMEs. Its original mission was to contribute to the best use and efficiency ofthe HRD Special Fund, but this was later extended to more strategic roles andtasks of development partnership for supporting HRD and employment in theSumadija District. Great emphasis was placed upon capacity building of thepartnership group through training, a study visit and the involvement in theworking groups for:

1. implementation of the Training Needs Analysis;2. preparation of Employment Development Plan of Sumadija District;3. preparation of a concept of work for the Local Employment Councils;4. monitoring of the training programmes delivered within the HRD Fund;5. sustainability of the HRD Fund;6. improvement of cooperation with employers.

Although the partnership group as such did not continue after the projectexpired, it delivered the first Training Needs Analysis in the district, launchedthe proposal for establishing a Local Employment Council, prepared theproposal for sustainability of the HRD fund and contributed to a more fruitfulcooperation between employers and training providers. Moreover, theinstitutions that were part of the partnership group were later fully involved in thepreparation of the Regional Development Plan and the Operational Programmefor HRD in Sumadija and Pomoravlje.

� to encourage joint action by supportingactivities that contribute to improving theunemployment situation;

� to generate local and regionalparticipation, ownership and use of localresources;

� to participate in advisory anddecision-making structures thatencourage engagement andparticipation of all important groups inthe HRD field;

� to improve the coordination andefficiency of policies;

� to coordinate the various agencies,groups and companies and help toidentify new opportunities for economicactivity;

� to develop additional support services interms of suitable and innovative projectsfor special needs;

� to search for solutions and answers onkey problems in the field of employmentand HRD;

� to improve the flow of information;� to increase the possibility of acquiring

funds from national and internationalsources for HRD programmes andprojects;

� to increase the possibility of obtainingother necessary support;

� to enable the real fulfilment of localneeds and better coordination andadjustment of national guidelines andobjectives to local needs.

Local partnerships can play an importantrole in opening up local economies andcreating an attractive labour marketenvironment for FDI. They can also be aninstrument for dealing with on-goingprivatisation and sectoral restructuringprocesses and for increasing investment inhuman capital, and can be an importantinstrument for implementing reforms ineducation and training and employment inthe Western Balkans (see box, p. 160).

The partnership approach has also beenrecognised as an appropriate instrumentfor more efficient and effectiveimplementation of employment policy inother Western Balkan countries andterritories (such as Croatia, Albania andKosovo). Effective local partnershipsrequire sustainable structures that are ableto carry out the necessary responsibilitiesfor achieving employment policy objectivesand goals (see box below).

Introducing local partnership is a complexprocess because its success greatlydepends on the existing social andeconomic development, on absorption andadministrative capacities, on appropriatelegal mechanisms and on culturalidiosyncrasies. If local solutions to localproblems are to be found, local stakeholdersneed to be empowered. This necessitatesmore investment in capacity building, but

161


In 2003, Serbia launched a new Law on Employment and UnemploymentInsurance that represented a basis for establishing national, provincial and localEmployment Councils. Employment Councils, consisting of representatives ofall key stakeholders and not only social partners, are supposed to play more ofan advisory role to the ministry, provincial authorities and municipalitiesconcerning the annual programme of active labour market measures, andtherefore play an important role in active labour market policy at a differentlevel. By mid 2006 more than half of the municipalities had established a localEmployment Council and many of them had already launched and financedsome active labour market measures.

The law also envisages that the Social-Economic Council as a decision-makingbody should be established at national, provincial and local level. However,recent discussions with local participants indicate that some overlap betweenthese two bodies exists. Moreover, the partnership approach is also foreseenfor adult education and training. All these partnerships seek cooperation withemployers and trade unions, but seem to ignore their own limitations in terms ofcapacity.

also monitoring of the performanceachievements of local partnerships in orderto identify key strengths and weaknesses,and to see what works and what needs tobe improved further.

The strong link with cohesion and

regional policies

A partnership approach in the field ofemployment (including HRD) is closelylinked to cohesion and regional policy,which contribute significantly to job andemployment growth in EU Member States.The new EU Regional andCompetitiveness and Employmentobjectives for 2007–13, which are aimed atstrengthening competitiveness,attractiveness and employment withinregions, anticipate a two-fold approach.

1. Development programmes will helpregions to anticipate and promoteeconomic change through innovationand the promotion of the knowledgesociety, entrepreneurship, protection ofthe environment and increased accessto education and training.

2. More and better jobs will be supportedby adapting the workforce and byinvesting in human resources(European Commission, 2006o).

Regional Development Agencies, andparticularly their HRD departments, couldimplement many activities in the field ofemployment policy, such as:

� systematically identifying and analysingtraining and employment needs in theregion in order to support fastereconomic and social development of theregion;

� promoting HRD activities in the regionand raising awareness regarding theimportance of investing in HRD;

� programming the development of HRDand employment projects required forthe re-employment of workers, new jobcreation and the enhancement ofemployability of those who areunemployed;

� supporting the development andimplementation of new trainingprogrammes according to the identifiedneeds in the region;

� promoting counselling and offeringtechnical assistance to SMEs in thearea of HR restructuring anddevelopment;

� gathering information on national andinternational tenders supporting HRDand employment, and informingpotential applicants on a regular basis;

� assisting institutions in the identificationand preparation of HRD andemployment development projects, andproviding technical assistance in thepreparation of projects;

� monitoring and evaluating the RegionalDevelopment Programme in the area ofHRD;

� networking and exchanging bestpractice with others;

� ensuring that on-going information isavailable on training programmes foradults in the region.

Assessment

Decision-making processes in most of theWestern Balkan countries and territoriesare still currently highly centralised at statelevel, and the capacities of institutionsresponsible for the design, and particularlyfor the implementation, of employmentpolicies are limited. There is a lack oftransparency and accountability in thedesign of policies. Existing measures aremodest and mechanisms for monitoringand evaluation poor, inhibiting betterperformance of employment policies. Sofar none of the Western Balkan countriesor territories has managed to address locallabour market needs effectively.

Decentralisation along the lines of EUpractices is not the proper solution for moreeffective and efficient employment policiesin the Western Balkans at the moment. As afirst step solutions should be sought towardsgreater inclusiveness of key stakeholders atall levels in decision-making processes andin implementation. This inclusive approachis already being piloted in most of thecountries and territories, with the support ofdonor projects. The partnership approachhas been recognised as a particularlyrelevant instrument for more efficient andeffective implementation of employmentpolicy as well as regional and cohesionpolicies.

162


5.5 GOVERNANCE,INSTITUTIONAL ANDADMINISTRATIVE CAPACITYBUILDING

Well-functioning institutions and publicadministrations are important for thesuccessful design and implementation ofpolicies to promote socioeconomicdevelopment and cohesion, and hence tocontribute to growth and employment(European Commission, 2005h). WesternBalkan countries and territories thereforeneed to pay greater attention to the issueof institutional and administrative capacityon their way towards achieving moreeffective and efficient implementation ofpolicies.

In this respect two issues that areclosely connected will be discussedfurther, (i) governance, and (ii)institutional and administrative capacitybuilding.

5.5.1 GOVERNANCE

The process of decision making and theprocess by which decisions areimplemented (or not) rely on effectiveformal and informal structures that havebeen put in place to arrive at andimplement decisions. National, regionaland local authorities are one set ofparticipants in governance, while otheractors usually include social partners,civil society, NGO, research institutionsand the media (European Commission,2005h).

When analysing governance in thecontext of the Western Balkans manyweaknesses are apparent, such as a lackof transparency in institution operations,a lack of institutional responsiveness tolabour market issues, a need for greateraccountability, and a lack of evaluation ofeffectiveness. Weak governance ismentioned as one of the main obstaclesto better performance and greaterefficiency of employment policies. Themain challenge in addressing the issue ofweak governance and management ofchange lies in institutional capacitybuilding.

5.5.2 INSTITUTIONAL ANDADMINISTRATIVE CAPACITYBUILDING

Institutional and administrative capacitybuilding is defined as a set ofcharacteristics related to the human capitalin the public sector and to the performanceand success of public policies (EuropeanCommission, 2005h).

Where are the key gaps in this respect

in each of the Western Balkan countries

and territories?

In the ETF labour reviews severalweaknesses in the institutional andadministrative capacity in the WesternBalkan countries have been identified.

In Bosnia and Herzegovina there are weakstate-level institutions and the ministriesresponsible for labour and employmenthave too few staff allocated to employmentpolicies, in addition to not enoughcompetent staff at the cantonal/local level.There is a lack of staff, and particularlywell-trained staff, and a lack of skills formanaging the EU assistance programmesand other donor projects (the formerYugoslav Republic of Macedonia, Serbia).Staff lack knowledge and there is noinstitutionalisation of the Social Acquis (theformer Yugoslav Republic of Macedonia).Institutions have poor ICT infrastructure(common to all PESs, with Croatia as anexception). There is a lack of labour marketresearch. Consistent monitoring andevaluation is absent in all countries. Thereare extremely poor labour market andemployment statistics in Albania, whichrepresents an obstacle for the process offormulating employment policies.

These findings represent serious barriersfor better performance of employmentpolicies. Thus, if governments want to havemore effective and efficient employmentpolicies, they will need to pay greaterattention to these issues. Ministries mustenhance their own capacities, but alsoassess whether existing staff numbers aresufficient to be able to ensure bettergovernance in the management of change.This requires not only sufficient staff tokeep operations going, but also resources

163


to support new reform initiatives. Moreover,the main support must be given to theinstitutions that provide services, such asthe PESs and education and traininginstitutions. Most public institutions lack acustomer orientation, systems for servicedelivery are obsolete, and cooperation andcoordination between institutions in servicedelivery are absent.

The process of modernisation of PESs hasalready started in some countries (Croatia,the former Yugoslav Republic ofMacedonia, Montenegro, Serbia). PESs(as well as other public institutions) need toincrease their credibility through theimprovement of services. This can beachieved through investment in the trainingof managers and staff aimed at enhancingtheir ability to contribute to the reformprocess.

The Instrument for Pre-AccessionAssistance (IPA)162 offers manyopportunities for institutional capacitybuilding for the development andimplementation of policies at all levels.As countries prepare themselves for theintroduction of EU structural and cohesionpolicy through IPA (which has strongsimilarities to European structural funds),discussions and actions aimed at theintroduction of new institutions and bodieshave started. However, new institutionsare not a panacea for modernisation, andneed to be sustainable. Moreover, modernconcepts of capacity developmentadvocate a shift from building newinstitutions towards the enhancement andstrengthening of existing capacities. Withthis in mind, it is recommended thatcapacity development be initiated as the‘process by which individuals, groups,organisations and societies increase theirabilities to (i) perform core functions, solveproblems, define and achieve objectivesand (ii) understand and deal with theirdevelopment needs in a broad contextand in a sustainable manner’ (OECDdefinition).

Can lessons be learnt from the new

Member States’ experiences in the

implementation of employment policy,

and structural and cohesion policies?

Prior to their accession, many measuresaimed at the enhancement of employabilityof unemployed and redundant workerswere conducted in the new Member States,and funded either by the EU or by otherdonors. However, in most cases thesemeasures did not succeed in extendingbeyond the pilot stage to become anintegrated part of national policy. Thefindings of research conducted in theCzech Republic, Estonia, Hungary andSlovenia in the second half of 2003 showthat despite many Phare programmes, andparticularly the Special PreparatoryProgramme, the issues of absorptioncapacities and efficient implementation ofEU Structural Policy were not adequatelyaddressed during the preparatory years. Inparticular, the number of staff from theministries responsible for structural fundmeasures that were trained, and the typeof competence development needed toimplement structural funds, were notadequately addressed. Although it isrecognised that there has been a problemabsorbing European funds, at this momentthere is still a lack of analysis to enable anyfinal conclusions to be drawn on theefficiency of implementation of EUstructural funds in the new Member States,given that the first shortened programmingperiod (2004–06) has only recently ended.The table below demonstrates howdifferent countries allocated staff for theimplementation of structural funds.

It would be interesting to know whetherSlovenia and the Czech Republic haveoverestimated their administrative capacity,and whether Estonia and Hungary haveplanned for too many staff to deal withstructural funds. The experiences of thenew Member States can help the WesternBalkan countries and territories to avoidmaking the same mistakes.

164


162 Council Regulation (EC) No 1085/2006, 17 July 2006.

What can Western Balkan countries and

territories do to ensure adequate

administrative absorption capacities in

order to achieve better performance of

employment policies and to be prepared

for the use of EU structural funds?

In order to answer this question, the criteriafor measuring administrative absorptioncapacities will be examined. TheNetherlands Economic Institute (2002)proposed three variables for measuringadministrative absorption capacities,focusing on the design, functioning and

performance of structural funds. For thepurpose of assessing administrativeabsorption capacities of candidate (orpre-candidate) countries, only design canbe taking into consideration. The properdesign of structures, human resources,systems and tools is an important input formanaging structural funds in relation to therequirements (Horvat, 2004).

The following key indicators could beapplied for measuring administrativeabsorption capacities (key absorptionindicators for future Member States).

165


Table 5.2: Financial allocations for cohesion and structural funds per administrator

in some new Member States (2003)

Total funds

per administrator

(� million)

Structural funds

per administrator

(� million)

Hungary 1.5 0.9

Czech Republic 3.5 2.2

Slovakia 3.7 2.5

Estonia 1.2 0.6

Slovenia 4.0 2.3

Source: Horvat and Majer, 2004.

INDICATORS

DESIGN

FUNCTIONING

Structure Human resourcesSystemsand tools

Management Designation ofmanaging authority

Staffing ofmanaging authority

Arrangements fordelegating tasks

Existence of amodern civilservice

Programming Partnership exists Capacity to carryout programming

Guidelines/manualsfor programmingexist

Existence andquality of NDP

Implementation Assignment ofimplementing body

Staffing ofimplementing body

Development andmanagementprocess for existingoperational projects

Absorption of andproject pipeline forpre-accessionfunds

Evaluation andmonitoring

Designation ofmonitoring andevaluationresponsibilities

Availability ofindependentevaluationexpertise

Existence ofcomputerisedmonitoring andevaluation system

Functioningmonitoring systemfor pre-accessionfunds

Financialmanagement andcontrol

Designation ofpaying authorityand functions

Accounting andauditing expertisesecured

Existence ofaccounting systemand financialproceduressecured

Establish practicefor dealing withfinancialirregularities

Source: Netherlands Economic Institute, 2002; Boijmans, 2003; von Breska, 2003; elaborated in Horvat, 2004.

The experience of EU Member Statesshows that the fewer institutions that areinvolved at the levels of management andprogramming, the greater the possibility ofbetter administrative absorption ofstructural funds. The IPA regulation (2006)incorporates the main lessons learned fromthe last pre-accession process, giving moreattention to institutional capacity building.Both future and potential Member Stateswill be able to receive assistance in thisrespect. The following example (see boxbelow) demonstrates how Croatia hasalready started to prepare itself.

Assessment

Weak governance is often mentioned asone of the major obstacles to betterperformance and greater efficiency ofemployment policies. The main challengefor addressing weak governance andmanagement of changes lies in institutionalcapacity building. The process towardsimproved institutional capacities hasstarted in most Western Balkan countriesand territories. It is very important that

institutions responsible for the labourmarket and employment policy are involvedin the process of preparation of thestructural funds at an early stage; theavailable instruments (CARDS, Phare, andIPA instruments) enable key institutions toincrease their capacities in designing,planning, implementing, monitoring andevaluating policies, programmes andmeasures.

5.6 CONCLUSIONS

The intention of the cross-country analysiswas to identify common weaknesses inrespect of the design and delivery ofemployment policies in the WesternBalkans. The Western Balkan region is nota homogenous region. The levels ofproblems, and the levels of institutions’development and their responsiveness tothe problems, vary between countries andterritories. Although there is no intentionhere to propose a single model, there are anumber of key findings that need to beaddressed to support institutions and

166


Croatia as a candidate country gained many experiences relating to ESF actionsduring the implementation of the CARDS programme, particularly in the field oflabour market and unemployment (Restructuring the labour market, CARDS 2001,Local partnership for employment, CARDS 2002 and CARDS 2004,Decentralisation for employment, CARDS 2003). The EC Progress report for 2005clearly states that Croatia will have to adapt its structure and legislation in order tocreate adequate administrative capacity for the management, implementation,monitoring, audit and control of ESF-type measures at national and regional levels(European Commission, 2005d and 2006f). In 2006 Croatia prepared a DraftStrategic Coherence Framework 2007–13 and introduced several improvements interms of administrative capacity, such as increasing the number of state inspectors,establishing special departments and chambers within the courts to deal withprocedures deriving from labour-related disputes, establishing Departments forProject Preparation and Monitoring within the Ministry of Labour and within thePES. It contains plans to promote economic and social cohesion of the mostvulnerable groups, and to improve the Croatian Employment Service’s basicfunctions towards a successful integration into the EU labour market and a betterquality of services for clients within the Phare programme163.

In addition, in 2006 four Regional Labour Market Councils were established inVukovar, Sisak, Zadar and Sibenik, with the support of an EU project. Thesecouncils could play in important role in the planning, organisation andmonitoring process of HRD activities and within the active labour market policyat regional level – the intervention level of the future ESF.

163 ‘Institutional capacity to use EU structural funds’, draft paper, Croatia, 2006.

capacities for more effective employmentpolicies in the context of the state of affairsof each country and territory.

� Current institutional settings in theWestern Balkans are not yet able torespond effectively to complexemployment challenges. Further effortsneed to be directed towardsstrengthening interministerialcooperation and improving theinvolvement of social partners whereverpossible, leaving space for realparticipation and initiatives by socialpartners, including more sectoralinitiatives. Social partner organisationsneed to be enhanced.

� Employment strategies and plans arevery important for effective employmentpolicies, but it is time to move beyondanalysis and strategies toimplementation.

� Effective and efficient employmentpolicies require institutionalarrangements that involve institutions atall levels. Western Balkan countries andterritories will need to take stepstowards greater inclusivedecision-making processes if betterperformance in terms of employmentpolicies is to be achieved. Instrumentsto enable the identification of regionaland local needs and to obtain moreappropriate information need to bedeveloped and adequately translatedinto more targeted measures andprogrammes. Furthermore, guidelinesfor the implementation of nationalpolicies and plans should be preparedas a tool for local institutions andbodies.

� Local partnerships as a mechanism forpooling local potential need to beintroduced, taking into account theoverall socioeconomic context.

Once established, partnerships need tobe outcome-oriented, and partnerinstitutions or organisations mustparticipate in planning, implementingand monitoring.

� Key gaps in institutional andadministrative capacities and a lack ofcompetences block progress towardsbetter performance in terms ofemployment policies. This means thatall countries and territories will need toinvest more in existing administrativecapacities in order to be able toimplement employment policiesefficiently.

� Preparations for more effectiveemployment policies in the context ofstructural and cohesion policy must startearly in order to align existing policiesand instruments to future perspectives.In order to learn from implementation,attention needs to be given toprogramming, implementation,management, evaluation andmonitoring, feedback and financialmanagement and control procedures.

Finally, this macro-level analysis does havelimitations in that it leads to conclusion thatthe institutional background in the WesternBalkans is not yet sufficiently mature formore effective and efficient employmentpolicies. The institutional settings underscrutiny are populated by social actors whoare not yet prepared for the policy shift thatis envisaged. There are a wide range ofimportant issues that are not addressed bythis chapter, but that deserve to bementioned, such as the organisationalculture for a functional labour market andthe level of social capital. After all, thecurrent interinstitutional relationshipsmerely reflect the fragmentation anddismantling of societies in the WesternBalkans.

167


ANNEXES

ANNEX 1: CORRESPONDENCE OF ONE-DIGIT NACEMANUFACTURING SECTORS AND SKILLS

Sectors Skills

Products of the chemical or allied industries High skills

Machinery and electrical equipment High skills

Vehicles, aircraft, ships High skills

Optical, musical and medical instruments High skills

Arms and ammunition High skills

Base metals Medium skills

Miscellaneous manufactured articles Medium skills

Mineral products Medium skills

Plastics and rubber Medium skills

Pulp, paper products Medium skills

Articles of stone, ceramics, glass Medium skills

Pearls and precious stones Medium skills

Other Medium skills

Foodstuffs; beverages, spirits; tobacco Medium skills

Live animals, animal products Low skills

Vegetable products Low skills

Animal or vegetable fats, oils and wines Low skills

Leather products Low skills

Wood products Low skills

Textiles Low skills

Footwear Low skills

Source: ‘Economic Restructuring and Labour Markets in the Accession Countries’, European Commission, 2004.

169

ANNEX 2: DISTRIBUTION OF LABOUR MARKET STATUS BY SEX,AGE GROUP AND EDUCATIONAL ATTAINMENT

Note for all figures: IE-W (non-agricultural informal wage employment), IE-S

(non-agricultural informal self-employment), AGR (agricultural employment), FE

(non-agricultural formal employment), U (unemployment), ED (participation in education),

RET (retirement), HW (household work), and OTH (others). For Serbia IE refers to all

informal employment.

170


0

5

10

15

20

25

30

35

MenWomen


Figure 1: Distribution of labour market status in Albania by sex (%)

Source: Own calculation from the Albania Panel Survey.

Note: The numbers indicate the proportion of men and women in the total working-age population who have a

particular labour market status.

0

5

10

15

20

25

30

35

40

45

50


15-2425-3435-4445-5455-64

Figure 2: Distribution of labour market status in Albania by age (%)


Note: The numbers indicate the proportion of individuals in different age groups in the total working-age

population who have a particular labour market status.

171

ANNEXES

IE-W IE-S AGR FE U ED RET HW OTH0

10

20

30

40

50

60

70

PrimarySecondaryHigher

Figure 3: Distribution of labour market status in Albania by educational attainment (%)


Note: The numbers indicate the proportion of individuals with different educational attainment levels in the total

working-age population who have a particular labour market status.


5

10

15

20

25

30

35

40

MenWomen

Figure 4: Distribution of labour market status in Bosnia and Herzegovina by sex (%)




172



5

10

15

20

25

30

35

40

15-2425-3435-4445-5455-64

Figure 5: Distribution of labour market status in Bosnia and Herzegovina by age (%)




0

10

20

30

40

50

60



Figure 6: Distribution of labour market status in Bosnia and Herzegovina by

educational attainment (%)


Note: The numbers indicate the proportion of individuals with different educational attainment in the total


173

ANNEXES

0

5

10

15

20

25

30

35

40

45

IE AGR FE U ED RET HW OTH

MenWomen

Figure 7: Distribution of labour market status in Serbia by sex (%)




0

10

20

30

40

50

60

70


15-2425-3435-4445-5455-64

Figure 8: Distribution of labour market status in Serbia by age (%)




ANNEX 3: LABOUR MARKET TRANSITIONS IN ALBANIA,BOSNIA AND HERZEGOVINA AND SERBIA

Table 1: Labour market transitions in Albania between 2003 and 2004

2004

2003 IE-W IE-S AGR FE U ED RET HW OTH Total

IE-W 56.0 9.8 4.3 17.2 3.9 1.6 0.5 0.9 5.6 100

IE-S 11.6 67.0 5.4 7.9 1.2 0.6 1.6 0.3 4.4 100

AGR 2.4 1.1 80.9 0.9 0.5 1.4 2.1 5.8 5.0 100

FE 7.3 2.9 2.1 81.1 1.0 0.7 0.9 0.6 3.5 100

U 14.8 6.0 6.4 6.5 35.7 1.0 0.5 6.9 22.3 100

ED 2.0 0.0 7.6 2.6 2.7 76.6 0.0 1.7 6.9 100

RET 1.1 1.4 6.4 0.4 0.0 0.0 85.2 3.5 2.2 100

HW 2.2 2.2 11.7 3.2 4.0 1.1 5.2 49.1 21.2 100

OTH 6.2 3.5 11.1 3.2 8.0 1.7 2.5 14.1 49.6 100

Share 8.5 7.6 29.3 15.0 3.6 9.0 6.6 8.6 12.0 100

Source: Own calculations from the Albanian Panel Survey

Notes: The different labour market statuses are abbreviated as IE-W (non-agricultural informal wage

employment), IE-S (non-agricultural informal self-employment), AGR (agricultural employment), FE

(non-agricultural formal employment), U (unemployment), ED (participation in education), RET (retirement), HW

(household work), and OTH (others). Share refers to the proportion of the total working-age population

(aged 15–64) who have a particular labour market status. The numbers in the boxes display the labour market

status in 2004 in relation to the labour market status in 2003 for the working-age population (aged 15–64); for

example, what proportion of those who were formally employed in 2003 were formally employed, informally

employed, etc., in 2004.

174


0

10

20

30

40

50

60

70



Figure 9: Distribution of labour market status in Serbia by educational attainment (%)


Note: The numbers indicate the proportion of individuals with different educational attainment in the total


Table 2: Labour market transitions in Bosnia and Herzegovina between 2001 and

2002

2002

2001 IE-W IE-S AGR FE U ED RET HW OTH Total

IE-W 39.8 4.1 6.2 26.0 11.2 1.8 0.8 1.0 9.3 100

IE-S 21.0 24.3 6.5 20.9 7.1 0.0 4.5 2.6 13.1 100

AGR 5.7 1.7 47.7 4.7 8.2 1.4 5.0 18.5 7.1 100

FE 8.2 1.3 1.1 80.5 2.9 0.6 1.7 0.3 3.4 100

U 11.7 6.3 6.6 8.9 34.3 3.2 1.9 6.8 20.2 100

ED 2.4 0.9 0.3 2.1 9.2 71.0 0.1 0.1 14.0 100

RET 2.5 1.4 1.8 0.9 1.6 0.0 78.7 7.7 5.5 100

HW 1.8 2.3 4.1 1.2 5.5 0.2 3.1 70.1 11.7 100

OTH 8.8 3.9 5.7 7.1 22.5 12.5 3.4 8.3 27.9 100

Share 11.1 3.2 6.4 24.2 12.0 8.0 6.2 15.9 13.1 100


Notes: The different labour market statuses are abbreviated as IE-W (non-agricultural informal wage

employment), IE-S (non-agricultural informal self-employment), AGR (agricultural employment), FE

(non-agricultural formal employment), U (unemployment), ED (participation in education), RET (retirement), HW

(household work), and OTH (others). Share refers to the proportion of the total working-age population

(aged 15–64) who have a particular labour market status. The numbers in the boxes display the labour market

status in 2002 in relation to the labour market status in 2001 for the working-age population (aged 15–64); for

example, what proportion of those who were formally employed in 2001 were formally employed, informally

employed, etc., in 2002.

Table 3: Labour market transitions in Serbia between 2002 and 2003

2003

2002 IE AGR FE U ED RET HW OTH Total

IE 34.3 7.0 31.4 8.1 3.3 4.5 2.2 9.2 100

AGR 5.6 61.1 11.4 3.1 0.5 5.9 6.9 5.6 100

FE 5.3 5.1 76.7 3.0 1.1 2.5 0.9 5.5 100

U 17.2 7.8 20.6 24.8 2.3 0.5 4.2 22.6 100

ED 3.9 3.9 7.4 4.4 70.6 1.2 0.9 7.7 100

RET 4.4 7.5 8.5 0.2 1.1 68.2 7.0 3.2 100

HW 4.6 16.3 7.0 4.7 1.8 5.6 57.4 2.5 100

OTH 10.9 14.2 16.0 12.6 3.8 2.4 10.5 29.7 100

Share 7.6 15.0 37.3 5.1 9.4 10.3 7.2 8.2 100


Notes: The different labour market statuses are abbreviated as IE (non-agricultural informal employment), AGR

(agricultural employment), FE (non-agricultural formal employment), U (unemployment), ED (participation in

education), RET (retirement), HW (household work), and OTH (others). Share refers to the proportion of the total

working-age population (aged 15–64) who have a particular labour market status in. The numbers in the boxes

display the labour market status in 2003 in relation to the labour market status in 2002 for the working-age

population (aged 15–64); for example, what proportion of those who were formally employed in 2002 were

formally employed, informally employed, etc., in 2003.

175

ANNEXES

ANNEX 4: BASIC CHARACTERISTICS OF LABOUR MARKETATTACHMENT GROUPS

Basic characteristics for group 1: Strong attachment

Albania Bosnia and Herzegovina

Sequencepattern

* Frequency % in group% of totalin sample

Sequencepattern


444 461 49.2 10.7 4444 755 59.12 15.7

222 97 10.35 2.3 1444 79 6.19 1.6

111 90 9.61 2.1 1111 53 4.15 1.1

122 54 5.76 1.3 1144 34 2.66 0.7

144 35 3.74 0.8 4144 27 2.11 0.6

422 22 2.35 0.5 4441 25 1.96 0.5

121 21 2.24 0.5 1114 18 1.41 0.4

114 20 2.13 0.5 4414 18 1.41 0.4

141 15 1.6 0.3 5444 16 1.25 0.3

414 15 1.6 10.7 4111 15 1.17 0.3

Total 937 — 21.67 — 1,277 — 26.47


Gender composition (%)

Males 68.66 68.18

Females 31.34 31.82

Educational level (%)

Primary 27.63 16.06

Secondary 48.87 67.73

Higher 23.49 16.20

Age

Mean age 41.3 40.8

Mobility

Average number of episodes oflabour market status in eachsequence(Alb.: max=3; BiH: max=4)

1.40 1.59

* Only the ten most frequent sequences are shown. The code used refers to: 1 – informal non-agricultural

wage-employment; 2 – informal non-agricultural self-employment; 3 – agricultural employment (whether formal or

informal); 4 – formal non-agricultural employment; 5 – unemployment (following the standard ILO definition); 6 –

in education; 7 – retirement; 8 – taking care of household; 9 – others; and 0 is the combination of unemployed

and ‘others’ for wave 3 in Bosnia and Herzegovina.

176


Basic characteristics for group 2: Some attachment


Sequencepattern


Sequencepattern


449 32 9.67 0.7 9444 31 3.71 0.6

511 24 7.25 0.6 6655 22 2.63 0.5

911 22 6.65 0.5 1555 20 2.39 0.4

522 17 5.14 0.4 1999 18 2.15 0.4

922 17 5.14 0.4 4445 15 1.79 0.3

944 17 5.14 0.4 6995 14 1.67 0.3

544 16 4.83 0.4 1155 13 1.56 0.3

919 14 4.23 0.3 5544 12 1.44 0.2

119 9 2.72 0.2 1121 11 1.32 0.2

949 9 2.72 0.2 1995 11 1.32 0.2

Total 331 — 7.66 — 836 — 17.33


Gender composition of the group (%)

males 67.18 65.31

females 32.82 34.69


primary 45.50 19.57

secondary 39.91 70.22

higher 14.59 10.20

Age

Mean age 36.5 33.5

Mobility


2.39 2.84






177

ANNEXES

Basic characteristics for group 3: Weak attachment


Sequencepattern


Sequencepattern


433 22 7.69 0.5 9555 74 10.54 1.5

377 17 5.94 0.4 5555 52 7.41 1.1

337 16 5.59 0.4 9559 43 6.13 0.9

133 14 4.9 0.3 9995 37 5.27 0.8

977 12 4.2 0.3 8999 17 2.42 0.4

299 11 3.85 0.3 8858 16 2.28 0.3

877 10 3.5 0.2 8899 16 2.28 0.3

499 9 3.15 0.2 5995 15 2.14 0.3

188 7 2.45 0.2 5559 14 1.99 0.3

233 7 2.45 0.2 9991 13 1.85 0.3

Total 286 — 6.62 — 702 — 14.55



males 45.13 53.82

females 54.87 46.18


primary 65.05 36.94


higher 7.07 1.74

Age

Mean age 44.8 34.4

Mobility


2.41 2.61






178


Basic characteristics for group 4: Education


Sequencepattern


Sequencepattern


666 136 49.64 0.5 6666 185 51.25 3.8

669 33 12.04 0.4 6665 33 9.14 0.7

663 8 2.92 0.4 6669 18 4.99 0.4

366 7 2.55 0.3 6699 15 4.16 0.3

664 7 2.55 0.3 6664 13 3.6 0.3

966 7 2.55 0.3 6966 9 2.49 0.2

336 5 1.82 0.2 5666 6 1.66 0.1

661 5 1.82 0.2 6661 6 1.66 0.1

665 5 1.82 0.2 6656 5 1.39 0.1

696 5 1.82 0.2 6969 5 1.39 0.1

Total 274 — 6.34 — 361 — 7.48



males 47.48 46.23

females 52.52 53.77


primary 24.00 12.63


higher 12.02 23.21

Age

Mean age 19.2 19.8

Mobility


1.66 1.74


wage-employment; 2 – informal non-agricultural self-employment; 3 – agricultural employment (regardless of

formal or informal); 4 – formal non-agricultural employment; 5 – unemployment (following the standard ILO

definition); 6 – in education; 7 – retirement; 8 – taking care of household; 9 – others; and 0 is the combination of

unemployed and ‘others’ for wave 3 in Bosnia and Herzegovina.

179

ANNEXES

Basic characteristics for group 5: Agriculture


Sequencepattern


Sequencepattern


333 796 65.84 18.5 3333 103 54.21 3.8

339 67 5.54 1.6 9333 16 8.42 0.7

338 41 3.39 1.0 8333 15 7.89 0.4

388 38 3.14 0.9 5333 10 5.26 0.3

383 34 2.81 0.8 5133 6 3.16 0.3

399 32 2.65 0.7 1933 3 1.58 0.2

393 30 2.48 0.7 5338 3 1.58 0.1

322 23 1.9 0.5 1531 2 1.05 0.1

311 16 1.32 0.4 2233 2 1.05 0.1

331 15 1.24 0.3 2333 2 1.05 0.1

Total 1,209 — 27.97 — 190 — 3.94



males 43.96 61.98

females 56.04 38.02


primary 78.86 67.86


higher 0.73 2.00

Age

Mean age 37.0 41.0

Mobility


1.47 1.73






180


Basic characteristics for group 6: No attachment


Sequencepattern


Sequencepattern


777 175 13.61 4.1 8888 343 23.53 7.1

999 175 13.61 4.1 7777 188 12.89 3.9

888 91 7.08 2.1 9999 92 6.31 1.9

933 63 4.9 1.5 8883 35 2.4 0.7

833 45 3.5 1.0 9888 34 2.33 0.7

988 43 3.34 1.0 8833 29 1.99 0.6

555 35 2.72 0.8 5999 28 1.92 0.6

889 35 2.72 0.8 8889 27 1.85 0.6

989 34 2.64 0.8 8988 22 1.51 0.5

899 25 1.94 0.6 3888 20 1.37 0.4

Total 1,286 — 29.75 — 1,458 — 30.22



Males 34.79 24.41

Females 65.21 75.59


Primary 61.17 63.79

Secondary 35.58 33.36

Higher 3.26 2.85

Age

Mean age 37.3 46.4

Mobility

Average number of episodes oflabour market statuses in eachsequence(Alb.: max=3; BiH: max=4)

1.86 1.93


wage-employment; 2 – informal non-agricultural self-employment; 3 – agricultural employment (regardless of

formal or informal); 4 – formal non-agricultural employment; 5 – unemployment (following the standard ILO

definition); 6 – in education; 7 – retirement; 8 – taking care of household; 9 – others; and 0 is the combination of

unemployed and ‘others’ for wave 3 in Bosnia and Herzegovina.

181

ANNEXES

ANNEX 5: EDUCATIONAL ATTAINMENT LEVELS BY AGE ANDGENDER

All males and

females

Age group

25–34 35–44 45–54 55–64 25–64

Albania 2004

Low 57.0 53.7 56.6 72.0 58.6

Medium 34.7 38.9 31.7 17.3 32.1

High 8.3 7.3 11.7 10.7 9.3

Bosnia and Herzegovina 2004

Low 26.9 29.7 43.1 62.1 39.0

Medium 61.8 62.2 47.2 27.8 51.2

High 11.3 8.0 9.7 10.1 9.7

The former Yugoslav Republic of Macedonia 2005

Low 36.8 34.9 41.5 54.4 40.8

Medium 51.3 51.6 43.5 29.1 45.2

High 11.9 13.5 15.0 16.5 14.0

Serbia 2005

Low 16.9 21.7 36.7 47.2 30.4

Medium 69.2 62.8 40.7 37.0 52.8

High 13.8 15.5 22.6 15.8 16.8

Montenegro 2005

Low 15.0 17.1 21.6 39.7 22.2

Medium 66.9 63.6 63.2 47.6 61.2

High 18.2 19.3 15.2 12.7 16.6

MalesAge group

25–34 35–44 45–54 55–64 25–64

Albania 2004

Low 65.1 48.6 51.1 63.0 55.6

Medium 29.3 43.4 33.8 21.0 33.3

High 5.5 8.1 15.0 16.0 11.1


Low 24.2 18.8 30.1 47.2 28.8

Medium 66.1 73.9 57.6 38.6 60.6

High 9.7 7.3 12.3 14.2 10.7


Low na na na na na

Medium na na na na na

High na na na na na

Serbia 2005

Low 15.1 19.7 35.8 34.8 25.7

Medium 73.7 66.3 34.8 45.1 56.2

High 11.2 14.0 29.3 20.1 18.1

Montenegro 2005

Low 12.7 17.2 15.5 22.3 16.6

Medium 69.7 62.3 64.9 59.5 64.3

High 17.6 20.6 19.6 18.2 19.1

182


FemalesAge group

25–34 35–44 45–54 55–64 25–64

Albania 2004

Low 51.6 58.4 62.4 81.9 61.2

Medium 38.2 35.0 29.4 13.3 31.0

High 10.1 6.6 8.3 4.8 7.7


Low 29.9 40.1 57.7 76.1 49.7

Medium 57.0 51.2 35.5 17.7 41.6

High 13.1 8.7 6.8 6.2 8.8


Low na na na na na

Medium na na na na na

High na na na na na

Serbia 2005

Low 18.8 23.7 37.5 58.7 34.7

Medium 64.7 59.4 45.3 29.4 49.7

High 16.5 16.9 17.2 11.8 15.6

Montenegro 2005

Low 16.9 17.0 27.0 57.5 27.4

Medium 64.4 64.9 61.7 35.4 58.3

High 18.7 18.1 11.3 7.1 14.2

na: not available

ANNEX 6: ANNUAL CHANGES IN GDP AND AVERAGE GROSSWAGES (AGW), 2001–06 (%)

2001* 2002 2003 2004 2005 2006

Albania

GDP 7.1 4.3 5.8 6.2 5.6 5.0

AGW 15.9 16.0 14.7 14.4 9.9 na

BiH

GDP 4.5 5.5 3.0 6.0 5.5 6.2

AGW 20.5 1.4 8.4 4.3 6.1 9.6

Croatia

GDP 4.4 5.6 5.3 4.3 4.3 4.8

AGW 1.3 6.0 4.8 6.4 4.4 6.2

fYR Macedonia

GDP -4.5 0.8 2.9 2.9 3.8 3.0

AGW 3.5 6.9 4.8 4.0 2.7 8.0

Montenegro

GDP -0.2 1.7 2.4 4.2 4.0 6.5

AGW na na na 11.7 8.0 15.6

Serbia

GDP 5.1 4.2 2.5 8.4 6.2 5.7

AGW 16.4 52.6 25.3 23.7 24.1 24.4

Kosovo (as defined by UNSCR 1244)

GDP na -2.4 -0.1 3.3 0.6 3.8

AGW na na 2.0 9.3 8.5 na

na: not available

Source: EC DG Economic and Financial Affairs, CCEQ,

http://ec.europa.eu/economy_finance/indicators/cceq_en.htm, July 2007; * EC DG Economic and Financial

Affairs, CCEQ, http://ec.europa.eu/economy_finance/indicators/cceq_en.htm, July 2006

183

ANNEXES

ANNEX 7: PUBLIC EMPLOYMENT SERVICES IN THEWESTERN BALKANS

Albania

In Albania the NES has a staff of 431. Some 44 of these work in the central headquarters,while the remainder (387) are based in 12 regional offices and 24 local labour offices.(Each of the 12 regional offices also incorporates a local labour office, so that in all thereare 36 locations at which the NES delivers services to the public.) In the whole NES thereare 14 counsellors. The staff of the NES are well educated, as 340 are universitygraduates and 91 secondary education graduates. In 2004 there were approximately157,000 jobseekers registered with the NES. The service thus has one member of staff forevery 364 people registered as unemployed; the ratio of NES staff to the overall labourforce of 1.09 million is approximately 1:2,500. Both ratios suggest that NES staffing isrelatively low compared with that in the employment services of other countries, and itspotential workload is relatively very high.


In Bosnia and Herzegovina the employment services are hard pressed and are not wellregarded. They are hampered by the institutional arrangements and by ambiguity in whatis expected of them. There is great scope for improvement in their performance, but thiswill only come about when non-labour-market incentives for registering as unemployed areremoved and workloads are drastically reduced as a result. There are a number of areas inwhich efficiency can be improved and the quality of service raised. Information technologyneeds to be modernised and to support process improvements. Crucially, theinadequacies in management and other statistics need to be addressed. Of course not allemployment services are at the same level, and these observations will not apply to allwith equal force. In particular, the employment service in Republika Srpska appears to bemore focused and innovative. Employment services have little or no impact on the scale ofthe grey economy at the moment, but they could have an effect, especially if they work inconcert with the reformed labour inspectorate.

Croatia

The Croatian employment service is being modernised and transformed through theintroduction of modern management techniques, technology and advanced training formanagers and counsellors. It is a key instrument of the government policy in developing anefficient labour market. It has been successful in introducing the measures arising from therecent legislative changes, and it has the potential to play an even more effective role inthe labour market. It has a considerable body of knowledge on the labour market(s) inCroatia and on unemployment, and is piloting arrangements for gaining a betterunderstanding of employers’ labour requirements.


In the former Yugoslav Republic of Macedonia the National Employment Service (NES)employs 507 staff, 30 of whom are in the head office in Skopje, and 477 in a network of 30local offices. At the beginning of 2005 there were approximately 380,000 jobseekersregistered as unemployed. The bureau thus has one head of staff for every 750 peopleregistered unemployed; the ratio of NES staff to the overall labour force of 860,000 isapproximately 1:1,700. Relative to the size of the labour force, NES staffing comparesreasonably with that in other countries. However, if it is measured relative to the high levelof unemployment its staffing is relatively low and its potential workload is relatively veryhigh.

184


Montenegro

In Montenegro the Employment Agency of Montenegro (EAM) collects employmentcontributions and manages both active and passive labour market policies, as well as anumber of active measures, including the successful self-employment loans scheme. It hasbeen very effective in reducing substantially the number of people who are registeredunemployed to levels closer to those reported in the LFS. However, although benefitingfrom relatively substantial resources, a high proportion is spent on maintenance costs and,once funds for the self-employment loans are subtracted, active measures receive verylimited funding. EAM revenues are also unstable and may vary substantially from year toyear. Passive measures represent an increasing portion of expenditure, while activemeasures are decreasing.

Serbia

There have been frequent changes at director level in the Serbian Public EmploymentService (PES), and there is frustration that the service is not more effective. Around 1,670people are employed by the PES in Serbia (excluding Kosovo and Metohija). Most (1,420)work in the branch network and over 220 work in the central office. The staff within boththe central office and the branch and service offices are organised along functional lines:737 staff work on activities associated with mediation – some 71% of all employees inemployment offices – and a further 117 (9%) deal with unemployment benefit. These coreservices together account for little more than a half of all of the staff employed by theemployment service. Research into the actual work carried out by mediation staff – almostall of them advisers – revealed that only 15% of their time was spent advising individualsand 40% was spent on record keeping. This means that only around 7.5% of all theemployment service aggregate staff time is devoted to one of its key functions.


Since 2001, the Public Employment Service (PES) offers employment counselling andcareer guidance, together with job brokering and labour market training. Access toemployment services in Kosovo is open to all registered jobseekers, although registrationis mandatory only for social assistance beneficiaries. The high ratio of unemployed to PESstaff (1,600:1) contributes to the difficulties faced by the PES in fulfilling its main function,i.e. to provide accurate information on the labour market and well-targeted job searchassistance, as well as addressing gender and ethnic inequality in employment. However,this ratio has to be viewed with caution since the unemployment register is inflated by ahigh number of people who are not actively looking for work, or are working informally, orhave abandoned the labour market. Enterprises do not need to notify the PES of any jobopenings; information on open vacancies is collected by PES counsellors through directcontact with employers. This fairly new task is not yet operational. The passive approach ofwaiting for the employers to post vacancies still predominates with little effort put intomarketing the service. Hence, the service cannot adequately respond to the needs of bothjobseekers and enterprises. Service provision and procedures are not geared towards thetiering of services, i.e. ensuring that assistance and labour market programmes target themost vulnerable groups of unemployed. In addition, there is no performance evaluationsystem to monitor the service’s impact. The overall strategy of the PES is affected by thelack of balance between efficiency and equity targets and this, in turn, affects the capacityof the Ministry of Labour to achieve employment policy objectives164.

185

ANNEXES

164 Provisional Institutions of Self-Government, Kosovo Employment Strategy 2008–13, draft strategy,April 2007.

ANNEX 8: RESPONSIBILITIES FOR EMPLOYMENT POLICIES

Albania

The country has commenced a strategic approach to economic and social development,with concrete and specific goals against which progress can be monitored. There has beensome overlap, confusion and inconsistency between the three broad strands ofgovernment targets and priorities and their respective approaches to the monitoring ofprogress, and inadequate integration with the process of actual budgeting and resourceallocation in the public sector under the government’s Medium Term ExpenditureFramework. Many of the planned actions either have not taken place or else have beenonly partially implemented because of insufficient funding.

As well as these implementation issues, severe difficulties have been created for the initialprocess of formulating employment policies by the lack of adequate data on employmentand the labour market in Albania. These difficulties mean that the analysis of the labourmarket that underpins the Strategy on Employment and Vocational Training and therelated parts of the National Strategy for Social and Economic Development (NSSED) isbased on inadequate administrative data. As a result, employment policy in Albania israther patchy and lacks coherence.


The institutional arrangements for the labour market in Bosnia and Herzegovina areunusually complex. The state, the entities and the cantons all have involvement in aspectsof labour market regulation or provision through labour ministries, employmentagencies/services and labour inspection. The institutional architecture is complex andmakes awkward the development of clear active labour market policies and the efficientdelivery of employment services. The state plays a limited role in labour market policy,although there are signs that the State Employment Agency is beginning to involve itself inaspects of operational policy. Below state level an extraordinary number of institutions areinvolved in both policy and operations. This has a significant cost in terms of the effortneeded to achieve reasonable coherence across the institutions and labour market(s); toservice the many political interfaces; to develop, install and maintain common informationsystems and other operational processes; and to develop sufficient expert capacity in anysingle organisation. This is true across the entities but especially so within the Federationof Bosnia and Herzegovina as a result of the cantonal structure. The position in RepublikaSrpska is relatively straightforward in so far as there is a single integrated employmentservice and no political institution between the municipality and the entity government.

Croatia

The institutional arrangements in Croatia are clear. The Ministry of Labour is responsiblefor policy and the Croatian Employment Service (CES) is responsible for operationalmatters. The CES is the most developed employment service in the West Balkans in termsof its clarity of purpose and operational procedures and capacity. The labour section in theministry is small and relies quite heavily on the CES to help develop policy and draftlegislation. Only in Croatia has the issue of people registering as unemployed in order toget basic health insurance been resolved; and only in Croatia and Montenegro haveserious attempts been made to activate those who are unemployed.

186



In the former Yugoslav Republic of Macedonia primary responsibility for employment policyrests with the Ministry of Labour and Social Policy. Until a few years ago there was noarticulation of government employment policy. The National Action Plan for Employment2004–05 (NAPE) was the first statement of employment policy. In framing employmentpolicies, NAPE takes explicit account of the government’s broader economic policyobjectives, and recognises the place of employment policies as contributing to the overallprocess of structural reform.

Montenegro

In Montenegro the Ministry of Labour and Social Welfare is responsible for employment.The ministry discusses with social partners the drafting of laws on employment and socialissues and compliance with the laws, while definition and implementation of the labourmarket policies are delegated to a state agency, the Employment Agency of Montenegro(EAM). This agency, as well as allocations from the state budget, also controls theemployment fund and retains income from privatisation for labour market policies. TheMontenegrin Ministry of Labour has a department for labour relations headed by a deputyminister, with four units and 73 employees; most of the work is focused on labourinspection, particularly health and safety and the payment of social contributions. Althoughunderresourced for the scale of the task, the labour inspectorate has contributedsuccessfully to the programme on Legalisation of Jobs.

Serbia

In Serbia the Ministry of Labour, Employment and Social Policy has an active labourdepartment and a dedicated department to ensure compliance with labour regulation.Much of its work concerns health and safety inspection, but it is also increasingly involvedin business registration and combating the informal economy. It is important to recognisethe shift in the policy thinking of the ministry from ad hoc actions to mitigate or fightunemployment towards strategic actions to support employment and improve the quality ofthe labour supply. The objectives and methodology of the National Employment Strategyunder consultation demonstrate this shift. Moreover, there is a growing recognition of theneed to avoid excessively generous arrangements in future social programmes thatdamage work incentives. However, policies have yet to be introduced that give greaterprominence to the needs of new entrants to the labour market and those who aregenuinely long-term unemployed.


The Ministry of Labour and Social Welfare (MLSW) has a two-fold mission, which isreflected in its organizational structure. The Social Welfare Department designs andimplements social policies and measures aimed at alleviating poverty and at providingentitlements for retired persons. The Employment Department formulates and implementslabour law, employment and training policies and programmes. Employment and trainingservices are operated through a number of decentralised employment offices andvocational training centres. The labour inspectorate has autonomous status within thesame ministry and is responsible for supervising compliance with legislation andstandards.

187

ANNEXES

ANNEX 9: INSTITUTIONS RESPONSIBLE FOR IMPLEMENTATIONOF THE SERBIAN EMPLOYMENT STRATEGY 2005–10 ANDTHEIR RESPONSIBILITIES165

The first group includes ministries, agencies and other government institutions. The tasksof the various institutions are defined as follows.

� The Ministry of Labour, Employment and Social Policy develops, implements andcoordinates the government’s employment and social policy, directly organises andcoordinates the creation of the National Employment Action Plan and, in cooperationwith other institutions, monitors the implementation of objectives and operational tasksset forth in the strategy and the NEAP. This includes activities of the labour inspectoratein transforming the illegal economy into a legal one.

� The Ministry of Finance has a key role in the preparation of the state budget andimprovement of the tax system, including introduction of income tax cuts.

� The Ministry of Capital Investments, along with other ministries – particularly theMinistry of Economy, Ministry of International Economic Relationship and the ForeignInvestment Support Agency – has a key role in providing a favourable climate forforeign investments, by offering support to investments in the high-technology and ITindustry, infrastructure food industry and other growing sectors.

� The Ministry of Education and Sports has a leading role in providing conditions foreconomic growth based on knowledge, through enhancement of the level of knowledgeand skills of the labour force, as part of implementation of the strategy elements dealingwith education and investment in development of HR.

� The Ministry of Economy and other relevant ministries, together with the Agency forDevelopment of Small and Medium Enterprises, are responsible for the economicdevelopment strategy and the implementation of economic policy aimed at stimulatingthe development of small and medium-sized enterprises.

� Other ministries, within their portfolios, are also substantially involved in implementationof the strategy.

The second group consists of the following institutions.

� National Employment Service is responsible for the efficient and effectiveimplementation of the NEAP and the balance of supply and demand, includingimplementation of the active labour market measures.

� Employment agencies implement programmes and other employment policy measuresfor the purpose of enhancing employability and alleviating structural aspects ofunemployment.

� Social work centres play an active role through cooperation with institutions responsiblefor employment-related activities and the implementation of measures for reintegrationof certain disadvantaged groups into the labour market, preventing ‘double payment’ ofboth assistance and compensation, and preventing the creation of permanentdependence on pecuniary aid.

� Institutions offering education and training services are involved through thedevelopment of appropriate programmes primarily oriented toward satisfyingrequirements of local labour markets.

The third group comprises a wide network of social partners directly interested inimplementation of the strategy.

� Associations of employers, entrepreneurs and chambers of commerce appear to beimportant partners in the articulation of further development of the economic policy, thecreation of a positive climate for new business operations and new jobs, the forecastingof educational needs and the improvement of professional education and training of thelabour force.

188


165 Serbian National Employment Strategy 2005–10.

� Workers’ trade unions and organisations have a very important role in the implementation ofthe strategy because of the influence they have in the realisation of collective agreementsand the affirmation of principles of profitability of work, and in improving the adaptability ofworkers through participation in various measures of the employment policy.

� Socioeconomic Council is the key institution for achieving and maintaining the socialagreement of the government, employers and trade unions with the purpose ofincreasing employment and the competitiveness of the Serbian economy.

� There is a network of regional and local employment coalitions, in which social partnersare involved at corresponding levels, educational institutions, development agenciesand NGOs.

� Professional associations and NGOs, as well as other bodies, should play a significantrole in implementing the key guidelines of the strategy, and in its monitoring.

ANNEX 10: STATISTICS ON DEMOGRAPHY

1.1 COUNTRY PROFILES

Albania

2001 2002 2003 2004 2005

Total population (thousands) 3,063 3,069 3,103 3,120 3,135

% female 50.1 50.1 50.2 50.2 50.2

% 0–14 29.5 29.3 28.1 27.3 26.5

% 15–24 17.1 17.2 17.9 18.3 18.7

% 25–64 45.8 45.9 46.3 46.5 46.8

Dependency ratio 58.7 58.3 56.1 54.8 53.4

% change 0.2 1.1 0.5 2.3

Source: ETF calculation on INSTAT data


2001 2002 2003 2004 2005


% female na na na na na

% 0–14 na na na na na



Dependency ratio na na na na na

% change 0.8 0.1 0.3 1.2

Source: ETF calculation on Wiener Institut für Internationale Wirtschaftsvergleiche (WIIW) database incorporating

national statistics

na: not available

Croatia

2001 2002 2003 2004 2005


% female 51.9 51.9 51.9 51.9 51.9

% 0–14 17.0 16.7 16.4 16.3 16.0

% 15–24 13.6 13.6 13.5 13.4 13.3

% 25–64 52.1 52.3 52.4 52.4 52.6


% change 0.1 0.0 0.0 0.1

Source: ETF calculation on Central Bureau of Statistics data

189

ANNEXES


2001 2002 2003 2004 2005

Total population (thousands) na na na na na

% female 49.2 50.3 49.5 50.4 49.8

% 0–14 32.2 30.6 32.1 31.9 30.6

% 15–24 20.1 20.8 20.2 20.0 19.1

% 25–64 41.2 42.0 41.5 42.1 43.4

Dependency ratio na na na na na

% change na na na na

Source: LFS

na: not available


2001 2002 2003 2004 2005


% female 50.0 50.0 49.8 49.8 49.8

% 0–14 21.8 21.5 20.7 20.2 19.7

% 15–24 16.3 16.2 16.2 16.2 16.1

% 25–64 51.6 51.7 52.2 52.5 52.9


% change 0.2 -0.6 0.3 0.1

Source: ETF calculation on State Statistical Office data

Serbia

2001 2002 2003 2004 2005


% female 47.8 51.4 51.4 51.4 51.4

% 0–14 17.7 16.1 15.9 15.9 15.8

% 15–24 14.3 13.5 13.4 13.3 13.1

% 25–64 60.7 53.2 53.1 53.2 53.3


% change 4.0 -0.3 -0.2 3.2

Source: ETF calculation on Republic Statistical Office data

Montenegro

2001 2002 2003 2004 2005

Total population (thousands) 665 618 619 621 623

% female 50.2 50.6 50.7 50.7 50.8

% 0–14 22.4 21.4 21.1 20.8 20.5

% 15–24 15.8 16.0 16.0 16.0 15.9

% 25–64 50.0 51.2 51.2 51.2 51.3


% change -7.2 0.3 0.3 -6.4

Source: ETF calculation on MONSTAT and LFS data

190


1.2 COUNTRY AND TERRITORY COMPARISONS

Graph 1: Total population 2005 – % of females

Graph 2: Total population 2005 – % of young people

Graph 3: Total population 2005 – Dependency ratio

191

ANNEXES

48%

49%

50%

51%

52%

fYRMacedonia

Kosovo Albania Montenegro Serbia Croatia

26.5 18.7 54.8

16.0 13.3 70.7

32.2 20.1 47.7

19.7 16.1 64.2

20.5 15.9 63.6

15.8 13.1 71.1

Albania

Croatia

Kosovo

fYR Macedonia

Montenegro

Serbia

% 0-14 %15-24 % 25+

40%

44%

48%

52%

56%

fYRMacedonia

Croatia Serbia Montenegro Albania

1.3 POPULATION PYRAMIDS

192


65+

60-64

55-59

50-54

45-49

40-44

35-39

30-34

25-29

20-24

15-19

10-14

5-9

0-4

200000 100000 0 100000 200000

Males Albania 2005 Females

65+

60-64

55-59

50-54

45-49

40-44

35-39

30-34

25-29

20-24

15-19

10-14

5-9

0-4

200000 100000 0 100000 200000

Males Bosnia and Herzegovina 2005 Females

65+

60-64

55-59

50-54

45-49

40-44

35-39

30-34

25-29

20-24

15-19

10-14

5-9

0-4

200000 100000 0 100000 200000

Males Croatia 2005 Females

193

ANNEXES

65+

60-64

55-59

50-54

45-49

40-44

35-39

30-34

25-29

20-24

15-19

10-14

5-9

0-4

100000 50000 0 50000 100000

Males fYR Macedonia 2005 Females

65+

60-64

55-59

50-54

45-49

40-44

35-39

30-34

25-29

20-24

15-19

10-14

5-9

0-4

30000 15000 0 15000 30000

Males Montenegro 2005 Females

65+

60-64

55-59

50-54

45-49

40-44

35-39

30-34

25-29

20-24

15-19

10-14

5-9

0-4

400000 200000 0 200000 400000

Males Serbia 2005 Females

ANNEX 11: STATISTICS ON EMPLOYMENT

2.1 COUNTRY PROFILES

Albania

Activity rates by age and gender

2002 2003 2004

Male Female Total Male Female Total Male Female Total

15–24 58.01 48.25 52.42 50.68 40.77 45.38 50.11 37.52 43.57

25–34 86.48 67.08 75.54 87.01 62.97 73.37 85.64 61.60 71.78

35–44 91.86 73.15 82.23 95.59 68.81 81.72 94.27 69.85 81.51

45–54 93.24 63.34 79.22 93.20 62.38 78.02 92.88 63.43 78.49

55–64 66.52 30.24 48.72 60.43 23.97 42.46 63.93 27.60 45.94

Total 79.16 58.24 68.05 76.92 53.18 64.48 76.10 52.75 63.92

Source: ETF calculation on LSMS data

Activity rates by education level and gender (population aged 25–64)

2002 2003 2004


Low 87.6 60.7 72.8 87.6 56.0 69.8 87.2 56.7 70.1

Medium 86.9 65.5 77.1 86.1 58.8 72.5 87.3 59.4 73.4

High 87.4 81.8 85.1 88.7 81.0 85.4 85.0 79.4 82.4

Total 87.3 63.3 75.0 87.2 59.0 72.3 86.9 59.5 72.4


Employment rates by age and gender

2002 2003 2004


15–24 49.29 43.34 45.88 41.50 36.34 38.74 42.42 33.93 38.01

25–34 76.98 60.98 67.95 80.00 58.42 67.75 81.96 57.56 67.89

35–44 83.26 65.65 74.20 90.04 63.10 76.08 91.01 65.64 77.75

45–54 88.10 60.38 75.11 89.12 59.11 74.34 90.79 60.66 76.07

55–64 63.79 29.92 47.18 58.59 23.97 41.52 62.11 27.60 45.02

Total 71.72 53.24 61.91 71.00 49.20 59.58 72.00 49.55 60.28


Employment rates by education level and gender (population aged 25–64)

2002 2003 2004


Low 81.0 57.4 68.0 82.6 53.1 66.0 84.7 54.7 67.9

Medium 78.8 55.9 68.2 80.5 53.2 66.9 83.6 54.0 68.9

High 82.4 79.1 81.0 86.6 79.6 83.6 83.2 76.5 80.2

Total 80.3 58.1 68.9 82.2 55.3 68.1 84.1 56.3 69.4


194


Unemployment rates by age and gender

2002 2003 2004


15–24 15.0 10.2 12.5 18.1 10.9 14.6 15.3 9.6 12.8

25–34 11.0 9.1 10.0 8.1 7.2 7.7 4.3 6.6 5.4

35–44 9.4 10.3 9.8 5.8 8.3 6.9 3.5 6.0 4.6

45–54 5.5 4.7 5.2 4.4 5.2 4.7 2.3 4.4 3.1

55–64 4.1 1.0 3.2 3.0 0.0 2.2 2.8 0.0 2.0

Total 9.4 8.6 9.0 7.7 7.5 7.6 5.4 6.1 5.7


Unemployment rates by education level and gender (population aged 25–64)

2002 2003 2004


Low 7.6 5.4 6.6 5.8 5.1 5.5 2.8 3.5 3.1

Medium 9.3 14.8 11.5 6.5 9.6 7.8 4.1 9.2 6.2

High 5.7 3.3 4.8 2.4 1.8 2.2 2.1 3.6 2.7

Total 8.1 8.1 8.1 5.6 6.3 5.9 3.2 5.4 4.2




2001 2002 2003 2004

Male Female Total Male Female Total Male Female Total Male Female Total

15–24 40.9 24.0 32.8 42.2 28.9 35.6 nc nc nc 52.6 30.4 41.7

25–34 76.8 42.0 59.8 83.1 48.2 65.8 nc nc nc 87.4 59.5 74.3

35–44 82.0 50.3 65.9 88.6 54.1 71.4 nc nc nc 86.4 55.7 70.6

45–54 78.5 39.3 58.9 83.1 42.6 63.2 nc nc nc 84.2 46.9 66.1

55–64 36.9 9.8 21.8 45.9 15.2 28.8 nc nc nc 49.5 19.9 33.1

Total 64.0 33.7 48.7 69.2 38.0 53.5 nc nc nc 73.3 42.7 58.0


nc: not computable

2006

Male Female Total

15–24 40.1 26.3 33.4

25–49 81.9 50.0 66.0

50–64 53.4 22.1 36.6

15–64 65.5 37.4 51.3

Source: LFS

195

ANNEXES


2001 2002 2003 2004


Low 60.1 22.4 36.5 69.6 25.5 42.1 nc nc nc 70.2 31.7 46.1

Medium 76.7 53.2 67.4 82.0 58.2 72.5 nc nc nc 84.1 60.9 74.8

High 82.0 70.6 77.1 81.9 76.9 79.7 nc nc nc 81.1 75.6 78.7

Total 72.1 38.4 55.5 78.3 42.9 60.9 nc nc nc 79.8 47.6 64.0


nc: not computable


2001 2002 2003 2004


15–24 25.6 14.3 20.2 22.9 14.5 18.7 28.2 19.6 24.1 30.2 17.0 23.8

25–34 63.7 33.5 49.0 62.7 34.0 48.5 62.0 40.7 51.6 64.7 42.4 54.2

35–44 75.0 44.0 59.2 77.3 44.3 60.8 74.0 45.2 59.4 71.3 43.0 56.7

45–54 70.6 35.2 52.9 75.7 36.0 56.2 76.7 36.9 57.3 74.6 39.0 57.3

55–64 34.3 9.6 20.6 43.5 13.7 26.8 37.2 15.3 25.1 44.4 19.2 30.5

Total 54.2 27.7 40.9 56.3 28.5 42.3 56.5 31.8 44.1 57.8 32.3 45.0


2006

Male Female Total

15–24 16.0 9.0 12.6

25–49 60.0 33.0 46.5

50–64 44.3 18.7 30.6

15–64 46.1 24.0 35.0

Source: LFS data


2001 2002 2003 2004


Low 50.8 19 31 57.3 19.9 34 53.9 23.3 34.7 54.5 26.3 36.9

Medium 68.5 45.2 59.3 70.5 45.5 60.5 68.8 47.3 60.2 70.4 45 60.3

High 77.8 66.5 73 77.7 69.3 74.1 74.9 65.9 71 71.5 67.1 69.6

Total 64.1 33.2 48.8 67.2 34.3 51 65.1 36.7 51.2 65.9 37.6 52


196



2001 2002 2003 2004


15–24 37.3 40.4 38.4 45.7 50.0 47.4 nc nc nc 42.6 44.0 43.1

25–34 17.1 20.2 18.1 24.6 29.4 26.3 nc nc nc 26.0 28.7 27.1

35–44 8.5 12.7 10.1 12.8 18.2 14.9 nc nc nc 17.5 22.7 19.6

45–54 10.0 10.4 10.1 9.0 15.4 11.1 nc nc nc 11.4 16.7 13.3

55–64 6.9 1.7 5.6 5.4 9.8 6.7 nc nc nc 10.2 3.4 7.9

Total 15.2 17.6 16.1 18.6 25.1 21.0 nc nc nc 21.3 24.4 22.4


nc: not computable

2006

Male Female Total

15–24 60.2 65.7 62.3

25–49 26.7 34.0 29.5

50–64 17.1 15.2 16.4

15–64 29.5 35.7 31.8

Source: LFS data


2001 2002 2003 2004


Low 15.4 15.0 15.3 17.7 22.0 19.3 nc nc nc 22.4 16.9 20.0

Medium 10.6 14.9 11.9 14.1 21.7 16.5 nc nc nc 16.3 26.1 19.5

High 5.1 5.8 5.4 5.1 9.8 7.0 nc nc nc 11.9 11.2 11.6

Total 11.2 13.6 12.0 14.1 20.1 16.2 nc nc nc 17.4 21.0 18.7

nc: not computable

Croatia


2001 2002 2003


15–19 18.7 15.3 17.0 19.5 18.6 19.0 16.1 14.5 15.3

20–24 64.2 58.0 61.2 65.9 55.4 60.8 67.3 53.4 60.6

15–24 42.4 36.7 39.6 42.5 37.1 39.9 41.7 33.6 37.8

25–34 88.6 80.9 84.6 87.3 78.6 83.0 89.3 78.7 84.0

35–44 89.5 78.9 84.1 89.9 81.1 85.4 88.5 79.9 84.1

45–54 81.0 57.9 69.4 82.0 64.7 73.1 81.8 62.1 72.1

55–64 38.3 14.7 25.3 40.7 19.7 29.0 41.7 20.2 30.0

Total 68.5 53.8 61.0 69.6 56.5 62.9 69.3 55.3 62.2

2004 2005

Male Female Total Male Female Total

15–19 19.0 17.5 18.3 18.0 15.8 16.9

20–24 65.2 58.7 62.0 65.7 54.9 60.5

15–24 42.9 38.6 40.8 41.9 35.4 38.7

25–34 89.3 80.6 84.9 88.3 78.5 83.4

35–44 89.2 78.4 83.7 89.8 81.6 85.6

45–54 81.5 60.2 70.7 82.2 63.9 72.9

55–64 37.4 15.5 25.3 38.0 18.4 27.3

Total 68.9 54.7 61.6 69.2 56.3 62.6

Source: ETF calculation on LFS data

197

ANNEXES


2001 2002 2003


Low 84.9 83.3 84.1 85.5 85.1 85.2 86.7 86.9 86.8

Medium 62.1 36.9 46.0 64.8 39.1 48.6 65.5 40.5 49.9

High 79.0 69.0 74.5 79.0 68.8 74.4 78.5 67.1 73.3

Total 75.8 58.1 66.6 76.9 61.2 68.7 76.7 60.4 68.4

2004 2005


Low 68.0 41.4 51.4 66.9 42.6 51.4

Medium 78.1 69.3 74.1 78.0 68.1 73.5

High 86.9 85.4 86.1 85.2 85.1 85.2

Total 77.2 62.1 69.5 76.9 62.2 69.4



2001 2002 2003


15–19 7.9 8.0 8.0 8.0 8.7 8.4 8.8 7.3 8.1

20–24 43.0 32.6 38.1 47.4 40.4 44.0 46.3 34.4 40.6

15–24 26.2 20.4 23.4 27.6 24.6 26.1 27.6 20.6 24.2

25–34 76.3 65.9 70.9 76.0 62.7 69.5 77.1 63.7 70.4

35–44 81.3 69.8 75.4 80.7 71.3 75.8 80.9 69.6 75.1

45–54 72.1 50.8 61.4 74.6 57.4 65.8 74.2 55.3 64.9

55–64 35.7 14.4 24.0 37.1 18.6 26.8 38.2 19.3 27.9

Total 58.7 44.4 51.4 60.1 47.4 53.6 60.2 46.3 53.2

2004 2005


15–19 7.5 8.0 7.7 8.1 7.0 7.6

20–24 42.7 35.3 39.1 46.6 37.9 42.3

15–24 25.7 21.9 23.8 27.4 22.4 25.0

25–34 76.0 63.7 69.7 76.0 62.3 69.2

35–44 81.0 68.5 74.7 80.4 70.6 75.4

45–54 73.5 53.1 63.2 75.3 56.7 65.8

55–64 34.9 14.8 23.8 34.8 17.3 25.3

Total 58.9 44.6 51.6 59.8 46.7 53.1



2001 2002 2003


Low 80.0 76.5 78.3 79.7 78.6 79.1 81.9 80.3 81.1

Medium 55.1 31.9 40.2 56.4 33.4 42.0 56.9 34.5 42.9

High 69.6 58.6 64.6 70.5 57.9 64.8 70.3 56.9 64.3

Total 67.7 50.4 58.7 68.8 52.9 60.6 69.0 52.4 60.5

2004 2005


Low 59.5 34.9 44.2 58.9 37.2 45.1

Medium 70.2 58.7 65.0 70.5 58.4 65.0

High 80.7 80.0 80.4 80.3 80.5 80.4

Total 69.5 53.7 61.4 69.7 54.8 62.1


198



2001 2002 2003


15–19 57.7 47.6 53.2 58.8 53.1 56.1 45.1 49.8 47.3

20–24 33.0 43.8 37.9 28.0 27.2 27.6 31.1 35.5 33.0

15–24 38.2 44.6 41.1 35.1 33.6 34.4 33.8 38.7 35.9

25–34 13.9 18.6 16.2 13.0 20.2 16.3 13.7 19.0 16.2

35–44 9.1 11.5 10.3 10.3 12.1 11.2 8.5 12.9 10.7

45–54 10.9 12.2 11.5 9.0 11.3 10.0 9.3 10.9 10.0

55–64 6.9 2.4 5.5 8.7 5.9 7.6 8.5 4.4 7.0

Total 14.3 17.5 15.8 13.6 16.1 14.8 13.1 16.3 14.5

2004 2005


15–19 60.5 54.6 57.7 55.2 55.6 55.4

20–24 34.4 39.9 37.0 29.1 31.1 30.0

15–24 40.0 43.2 41.5 34.7 36.6 35.5

25–34 15.0 20.9 17.8 13.9 20.6 17.0

35–44 9.1 12.6 10.8 10.4 13.4 11.9

45–54 9.8 11.8 10.6 8.4 11.3 9.7

55–64 6.9 4.7 6.1 8.4 5.8 7.4

Total 14.6 18.4 16.3 13.7 17.0 15.2



2001 2002 2003


Low 5.7 8.1 6.9 6.7 7.6 7.2 5.5 7.6 6.6

Medium 11.3 13.7 12.5 12.8 14.4 13.6 13.1 14.8 14.0

High 11.9 15.0 13.2 10.8 15.8 12.9 10.4 15.1 12.4

Total 10.7 13.3 11.9 10.4 13.6 11.9 10.1 13.3 11.6

2004 2005


Low 12.5 15.7 14.1 11.9 12.5 12.2

Medium 10.1 15.4 12.3 9.6 14.3 11.6

High 7.1 6.3 6.7 5.8 5.4 5.6

Total 10.0 13.5 11.6 9.4 11.9 10.5



Activity, employment and unemployment rates, by gender

Activity rate Employment rate Unemployment rate

Males Females Total Males Females Total Males Females Total

2001 64.5 26.8 45.6 31.1 8.1 19.6 51.8 69.9 57.1

2002 72.9 34.5 52.8 39.4 8.8 23.8 45.2 74.5 55.0

2003 71.7 29.5 50.3 42.8 8.3 25.3 40.3 71.9 49.7

2004 67.8 25.2 45.9 46.4 9.9 27.7 31.5 60.7 39.7

2005 68.3 29.7 48.7 45.8 11.7 28.5 32.9 60.5 41.4

Source: LFS

199

ANNEXES


Activity rates by age and education level

2001 2002 2003

Low Medium High Total Low Medium High Total Low Medium High Total

15–19 14.4 32.4 nc 19.5 14.1 26.8 nc 16.7 11.8 28.7 nc 15.4

20–24 62.7 59.6 58.1 60.5 59.2 54.6 38.7 55.5 60.8 52.9 50.2 55.2

15–24 28.7 51.3 58.1 39.9 26.7 47.7 38.7 35.6 25.3 47.0 50.2 35.3

25–34 64.6 83.8 88.5 77.2 63.0 84.8 88.3 77.4 62.7 85.0 89.5 77.5

35–44 66.0 89.3 94.2 80.8 65.0 89.0 96.0 81.0 62.2 90.1 95.1 80.3

45–54 57.2 79.7 91.2 70.9 55.3 79.0 90.6 69.9 55.9 79.5 90.8 70.9

55–64 26.9 32.3 59.3 31.9 25.2 33.7 57.3 31.1 30.9 34.5 62.4 36.4

15–64 47.0 72.0 85.1 61.8 44.0 71.5 83.9 59.8 45.2 72.0 85.5 61.3

2004 2005

Low Medium High Total Low Medium High Total

15–19 50.1 31.1 nc 47.2 9.9 26.8 100.0 14.7

20–24 56.7 47.9 69.6 51.2 57.5 47.6 66.4 51.0

15–24 51.3 43.3 69.6 48.7 22.6 42.0 68.3 33.1

25–34 60.2 81.8 90.4 74.4 57.3 85.3 89.7 75.5

35–44 59.9 87.2 95.6 78.2 58.1 89.1 97.3 79.4

45–54 59.5 79.4 94.0 72.2 55.4 84.0 94.8 73.8

55–64 44.9 43.6 62.0 46.3 27.9 40.6 72.4 38.9

15–64 40.4 69.8 87.4 58.8 42.5 71.3 86.9 60.5


nc: not computable

Activity rates by education level (population aged 25–64)

2001 2002 2003 2004 2005

Low 53.7 50.9 53.1 55.5 49.6

Medium 79.2 78.8 80.0 77.7 80.7

High 86.4 85.9 86.7 88.0 89.3

Total 68.7 67.4 69.5 68.9 69.2


Activity rates by gender (population aged 15–64)

Male Female Total

2001 72.2 51.2 61.8

2002 71.7 47.6 59.8

2003 72.8 49.4 61.3

2004 70.5 46.7 58.8

2005 71.9 49.1 60.7


200


Employment rates by age and education level

2001 2002 2003


15–19 7.0 11.3 nc 8.2 6.2 8.2 nc 6.6 4.4 8.0 nc 5.2

20–24 26.6 26.8 31.9 26.9 22.3 24.2 18.8 23.4 18.0 19.2 26.3 19.1

15–24 12.8 22.0 31.9 17.5 10.7 20.2 18.8 14.8 8.1 16.5 26.3 12.1

25–34 33.4 53.5 55.7 46.3 28.3 53.3 59.9 45.0 23.1 48.8 61.4 41.1

35–44 44.1 70.6 82.9 61.9 40.9 68.3 82.7 60.1 35.4 66.2 80.3 56.6

45–54 45.4 65.8 84.3 58.9 41.6 63.3 84.9 56.7 38.6 63.9 79.6 55.2

55–64 23.7 26.9 51.9 27.7 20.5 26.8 51.8 25.8 24.5 25.5 48.1 28.2

15–64 30.4 49.2 70.0 42.6 26.4 48.6 70.4 40.4 24.1 45.9 68.0 38.5

2004 2005


15–19 1.8 5.7 nc 2.4 4.6 7.2 0.0 5.3

20–24 15.6 20.7 22.4 19.2 19.4 18.8 20.5 19.0

15–24 4.2 16.6 22.4 8.8 8.5 15.7 19.3 12.2

25–34 22.0 51.2 61.3 40.9 26.6 50.9 55.5 42.5

35–44 26.9 64.1 82.5 52.8 32.1 60.7 82.9 53.7

45–54 29.8 58.1 85.7 48.7 36.9 58.5 86.4 53.7

55–64 14.3 20.2 53.4 19.9 19.7 25.4 44.2 25.4

15–64 21.3 43.5 71.3 36.8 23.5 43.8 73.3 38.1


nc: not computable

Employment rates by education level (population aged 25–64)

2001 2002 2003 2004 2005

Low 36.8 32.6 30.5 22.9 28.9

Medium 58.7 57.3 55.4 52.7 52.7

High 71.8 72.7 69.3 73.2 68.7

Total 50.6 48.4 46.8 41.6 45.2


Employment rates by gender

Male Female Total

2001 50.6 34.5 42.6

2002 48.6 32.0 40.4

2003 45.6 31.3 38.5

2004 44.4 28.9 36.8

2005 45.4 30.1 37.9


201

ANNEXES

Unemployment rates by age and education level

2001 2002 2003


15–19 51.5 65.2 nc 58.0 55.7 69.4 nc 60.2 62.9 72.1 nc 66.6

20–24 57.6 55.1 45.0 55.5 62.3 55.6 51.5 57.8 70.5 63.7 47.6 65.5

15–24 55.5 57.1 45.0 56.1 59.8 57.5 51.5 58.4 67.9 64.9 47.6 65.7

25–34 48.3 36.2 51.1 40.0 55.2 37.2 43.7 41.8 63.2 42.6 42.6 47.0

35–44 33.1 21.0 12.8 23.4 37.1 23.3 15.2 25.8 43.1 26.5 17.0 29.5

45–54 20.7 17.5 7.8 16.9 24.8 19.8 6.5 18.9 30.9 19.6 13.3 22.1

55–64 11.7 16.8 13.4 13.2 18.7 20.3 10.0 17.1 20.9 26.0 27.8 22.7

15–64 35.4 31.7 20.0 31.1 40.0 32.0 18.0 32.4 46.6 36.2 24.1 37.2

2004 2005


15–19 7.7 66.8 nc 13.7 54.1 73.0 100.0 64.2

20–24 61.8 62.6 67.9 62.6 66.3 60.5 69.2 62.7

15–24 18.2 63.5 67.9 33.2 62.4 62.7 71.7 63.0

25–34 51.5 43.4 45.1 44.4 53.5 40.3 55.2 43.7

35–44 39.1 31.5 15.1 30.6 44.7 31.9 16.3 32.3

45–54 23.4 26.7 9.3 22.2 33.4 30.3 9.3 27.1

55–64 12.7 25.6 14.9 16.1 29.4 37.5 41.9 34.8

15–64 47.2 37.6 21.3 37.4 44.7 38.7 18.6 37.1


nc: not computable

Unemployment rates by education level (population aged 25–64)

2001 2002 2003 2004 2005

Low 31.5 35.8 42.6 31.5 41.8

Medium 25.9 27.3 30.8 33.8 34.7

High 16.9 15.3 20.0 16.9 23.0

Total 26.4 28.1 32.7 30.2 34.7


Unemployment rates by gender (population aged 15–64)

Male Female Total

2001 30.0 32.6 31.1

2002 32.2 32.7 32.4

2003 37.4 36.7 37.1

2004 37.1 38.0 37.4

2005 36.9 38.8 37.6


202


Serbia


2001 2002 2003


15–19 nc nc nc nc nc nc nc nc nc


15–24 37.4 29.7 33.7 38.5 28.7 33.8 41.5 25.8 33.8

25–34 89.4 76.2 83.0 87.5 76.5 82.0 88.5 74.3 81.8

35–44 95.8 79.2 87.5 96.1 81.1 88.5 97.0 77.9 87.5

45–54 90.5 70.0 80.2 89.7 68.9 79.2 90.4 68.8 79.4

55–64 50.2 22.4 36.0 52.9 23.7 38.1 56.8 25.3 40.7

Total 74.4 56.6 65.6 74.5 56.9 65.6 76.3 55.0 65.7

2004 2005

Males Females Total Males Females Total

15–19 20.3 14.5 17.4 22.5 15.4 19.1

20–24 59.6 50.1 54.7 59.0 35.6 48.4

15–24 40.8 33.2 36.9 40.9 24.8 33.3

25–34 90.9 75.5 83.3 89.6 74.6 82.2

35–44 93.9 81.8 87.8 94.8 81.2 87.9

45–54 86.2 65.3 76.0 80.1 74.0 76.7

55–64 54.3 25.5 39.0 55.7 24.2 39.4

Total 74.8 57.2 65.9 72.1 56.4 64.1


nc: not computable


2004 2005


Low 76.8 44.7 57.3 76.2 39.5 54.5

Medium 84.6 69.7 77.9 80.8 74.7 77.9

High 85.8 83.2 84.5 85.7 81.7 83.8

Total 82.9 63.0 72.9 80.5 63.6 71.8


203

ANNEXES


2001 2002 2003




15–24 19.6 14.0 16.9 21.6 13.8 17.9 23.0 11.7 17.5

25–34 74.1 53.3 63.9 70.6 52.5 61.5 69.0 54.4 62.1

35–44 88.3 70.5 79.5 85.6 70.8 78.1 84.0 66.6 75.4

45–54 85.3 65.0 75.1 84.0 64.0 73.8 82.7 61.0 71.7

55–64 47.7 21.7 34.4 49.5 23.0 36.1 52.3 23.7 37.7

Total 65.5 47.1 56.4 64.6 47.0 55.8 64.4 44.9 54.7

2004 2005


15–19 9.1 5.3 7.2 12.1 6.0 9.1

20–24 33.8 26.6 30.1 32.8 27.3 30.3

15–24 22.0 16.5 19.2 22.5 16.0 19.4

25–34 75.4 52.7 64.2 70.0 46.4 58.3

35–44 83.5 64.7 74.0 82.5 61.3 71.8

45–54 77.1 60.3 68.8 66.0 58.9 62.1

55–64 48.1 23.6 35.1 49.4 22.3 35.4

Total 62.8 44.5 53.5 57.8 41.6 49.6


nc: not computable


2004 2005


Low 67.0 35.3 47.8 65.7 29.0 44.1

Medium 73.3 56.0 65.5 65.0 53.9 59.6

High 77.1 72.2 74.7 77.3 67.6 72.6

Total 72.5 51.2 61.8 67.4 47.4 57.1


204



2001 2002 2003




15–24 47.6 53.0 49.8 43.8 51.9 47.1 44.5 54.7 48.3

25–34 17.1 30.0 22.9 19.3 31.4 24.9 22.1 26.9 24.1

35–44 7.8 10.9 9.2 10.9 12.7 11.7 13.3 14.5 13.9

45–54 5.8 7.2 6.4 6.4 7.2 6.8 8.5 11.3 9.8

55–64 5.0 3.1 4.4 6.3 2.9 5.3 8.0 6.0 7.4

Total 12.0 16.7 14.0 13.3 17.3 15.0 15.6 18.3 16.8

2004 2005


15–19 55.0 63.5 58.6 46.2 61.0 52.0

20–24 43.3 46.8 45.0 44.4 23.2 37.3

15–24 46.1 50.3 48.0 44.9 35.7 41.6

25–34 17.0 30.3 22.9 21.9 37.8 29.0

35–44 11.0 21.0 15.7 13.0 24.5 18.3

45–54 10.6 7.7 9.4 17.7 20.4 19.1

55–64 11.5 7.5 10.1 11.2 8.0 10.2

Total 16.1 22.2 18.8 19.7 26.3 22.7


nc: not computable


2004 2005


Low 12.8 21.0 16.7 13.7 26.4 19.2

Medium 13.3 19.7 15.9 19.6 27.9 23.5

High 10.1 13.2 11.6 9.9 17.3 13.3

Total 12.6 18.6 15.2 16.3 25.5 20.5


205

ANNEXES

Montenegro


2004 2005


15–19 17.3 13.5 15.6 17.6 8.2 13.4

20–24 59.9 47.5 54.1 59.4 44.7 52.7

15–24 38.3 30.3 34.5 37.8 26.3 32.6

25–34 88.2 66.4 76.8 86.4 64.4 74.4

35–44 93.4 75.7 84.7 93.1 75.3 84.3

45–54 80.2 61.9 70.6 77.0 64.1 70.1

55–64 51.6 19.2 34.2 41.7 20.9 31.4

15–64 69.1 51.5 60.2 66.2 51.8 59.0



2004 2005


Low 66.9 30.0 43.7 62.0 28.7 40.7

Medium 82.7 66.2 74.8 77.2 64.9 71.1

High 88.4 87.1 87.8 86.4 91.9 88.8

Total 80.6 58.0 68.9 76.4 58.8 67.3



2004 2005


15–19 6.5 3.1 4.9 6.1 2.7 4.6

20–24 25.1 19.2 22.3 28.2 17.1 23.1

15–24 15.7 11.1 13.5 16.8 9.8 13.7

25–34 65.4 36.8 50.5 59.1 34.1 45.5

35–44 77.5 54.8 66.3 76.5 48.6 62.7

45–54 69.5 51.5 60.0 63.9 50.2 56.6

55–64 45.2 15.7 29.4 35.6 19.7 27.7

15–64 52.5 34.3 43.3 48.7 33.2 40.9



2004 2005


Low 45.3 18.2 28.3 41.8 17.5 26.2

Medium 69.3 45.6 57.9 60.7 40.8 50.8

High 78.0 74.5 76.4 74.9 77.9 76.2

Total 66.1 41.4 53.3 60.3 39.6 49.6


206



2004 2005


15–19 62.4 77.0 68.4 65.3 67.1 65.8

20–24 58.1 59.6 58.7 52.5 61.8 56.1

15–24 59.1 63.5 60.9 55.6 62.6 58.1

25–34 25.8 44.5 34.3 31.6 47.0 38.8

35–44 17.1 27.7 21.7 17.8 35.4 25.6

45–54 13.4 16.7 14.9 17.0 21.7 19.3

55–64 12.3 18.5 14.2 14.7 5.8 11.8

15–64 24.1 33.5 28.1 26.4 35.9 30.6



2004 2005


Low 32.3 39.1 35.3 32.5 39.3 35.6

Medium 16.1 31.1 22.5 21.4 37.2 28.5

High 11.8 14.4 13.0 13.4 15.2 14.2

Total 17.9 28.7 22.6 21.1 32.6 26.4


2.2 COUNTRY AND TERRITORY COMPARISONS

Working-age population

Sources: LSMS 2004 (AL); LFS 2005 (HR, MK, SR, CG, KS); LFS 2006 (Bosnia and Herzegovina).

207

ANNEXES

0%

20%

40%

60%

80%

Activity rate 15-64 Employment rate 15-64 Unemployment rate 15-64

Albania Bosnia andHerzegovina

Croatia fYRMacedonia

Serbia Montenegro Kosovo

Young population

Sources: LSMS 2004 (AL); LFS 2005 (HR, MK, SR, CG); LFS 2006 (Bosnia and Herzegovina).

Employment rate by gender

Sources: LSMS 2004 (AL, Bosnia and Herzegovina); LFS 2005 (HR, MK, SR, CG, KS).

208


0%

20%

40%

60%

80%

Activity rate 15-24 Employment rate 15-24 Unemployment rate 15-24



Serbia Montenegro

0%

20%

40%

60%

80%



Serbia Montenegro Kosovo

Male Female

Employment rate by education level

Sources: LSMS 2004 (AL, Bosnia and Herzegovina); LFS 2005 (HR, MK, SR, CG)

Note: Croatian data refer to population aged 25–64.

209

ANNEXES

100%

80%

60%

40%

20%

0%Albania Bosnia and

HerzegovinaCroatia fYR

MacedoniaSerbia Montenegro

Lower educated Higher educated

DEFINITIONS

Dependency ratio

The ratio of dependants (people younger than 15 or older than 64) to the working-agepopulation (aged 15–64).

Percentage change in the population

For the values observed in two different years, t1 and t2, this percentage is calculated usingthe formula: (t2 - t1) / t1

Activity rate

The proportion of the population aged 15–64 that is economically active (i.e. all people whosupply labour for the production of goods and services during a specified period).

Employment rate

The proportion of the population aged 15–64 that is employed.

Unemployment rate

The number of unemployed people expressed as a percentage of the labour force (i.e. theemployed plus the unemployed) aged 15–64.

211

ACRONYMS

AGW average gross wage

ATP Autonomous Trade Preference

BEEPS Business Environment and Enterprise Performance Survey

BiH Bosnia and Herzegovina

CARDS Community Assistance for Reconstruction, Development and Stabilisation

CAT Change Agent Team

CEC Commission of the European Communities

CEFTA Central European Free Trade Agreement

CSW Centre for Social Welfare

EBRD European Bank for Reconstruction and Development

EES European Employment Strategy

ESC Economic and Social Council

ESF European Social Fund

ESI European Stability Initiative

ETF European Training Foundation

ETUC European Trade Union Confederation

EU European Union

FBiH Federation of Bosnia and Herzegovina

FDI foreign direct investment

fYR Macedonia the former Yugoslav Republic of Macedonia

GCA General Collective Agreement

GDP gross domestic product

GNI gross national income

HR human resources

HRD human resources development

HSPS Household Survey Panel Series

ICT information and communication technology

ILO International Labour Organisation

IPA Instrument for Pre-Accession Assistance

ISCED International Standard Classification of Education

ISCO International Standard Classification of Occupations

LFS labour force survey

213

LSMS Living Standards Measurement Study

NEAP National Employment Action Plan

NES National Employment Service

NGO non governmental organisation

NQF national qualification framework

OECD Organisation for Economic Cooperation and Development

PES public employment service

Phare Community aid programme for central and east European countries

PIRLS Progress in International Reading Literacy Study

PISA Programme international pour le suivi des acquis des élèves

PPP purchasing power parity

RTC Regional Training Centre

SME small and medium-sized enterprise

SWOT Strengths, Weaknesses, Opportunities and Threats

TIMSS Trends in International Mathematics and Science Study

UN United Nations

UNDP United Nations Development Programme

UNICEF United Nations Children’s Fund

UNMIK United Nations Interim Administration Mission in Kosovo

UNSCR United Nations Security Council Resolution

USAID United States Agency for International Development

USD US dollar

VET vocational education and training

WBA Western Balkans

214


BIBLIOGRAPHY

Abbott, A., ‘Sequence Analysis: New Methods for Old Ideas’, Annual Review of Sociology,Vol. 21, Annual Reviews, 1995, pp. 93–113.

Abraham, K.G. and Houseman, S.N., ‘Does Employment Protection Inhibit Labour MarketFlexibility? Lessons from Germany, France and Belgium’, Staff Working Papers 93-16,W.E. Upjohn Institute for Employment Research, 1993.

Anyadike-Danes, M. and McVicar, D., ‘You’ll never walk alone: Childhood influences andmale career path clusters’, Labour Economics, Vol. 12, Issue 4, Elsevier, 2005,pp. 511–30.

Azam, J. and Rutkowski, J., ‘Wages and Unemployment in the former Yugoslav Republic ofMacedonia (1992–1997)’, World Bank Working Paper, 1998.

Barjaba, K. ‘Albania: Looking beyond Borders’, Migration Policy Institute, Washington DC,August 2004.

Barry, F., Gorg, H. and Strobl, E., ‘Multinationals and training: Some evidence from Irishmanufacturing industries’, Scottish Journal of Political Economy, 51, BlackwellPublishing, 2004, pp. 49–61.

Bartlett, W., ‘Barriers to SME development in Bosnia and Herzegovina, Macedonia andSlovenia: A comparative analysis’, in Franicevic, V. and Kimura, H. (eds), Globalization,

Democratization and Development, Masmedia, Zagreb, 2003, pp. 363–76.

Bartlett, W., ‘Labor market discrimination and ethnic tension in Yugoslavia: The case ofKosovo’, in Wyzan, M. L. (ed.), The Political Economy of Ethnic Discrimination and

Affirmative Action: A Comparative Perspective, Praeger, New York, 1990, pp. 197–216.

Bartlett, W. and Baagoe, U., ‘The social sector administration in the former Yugoslav Republicof Macedonia’, country report, CARDS Social Sector Study, January 2005.

Bartlett, W. and Bukvic, V., ‘What are the main barriers to SME growth and development inSouth-East Europe?’, in Bartlett, W., Bateman, M. and Vehovec, M. (eds), Small

Enterprise Development in South-East Europe: Policies for Sustainable Growth,Kluwer, Dordrecht, 2002, pp. 17-38.

Bartlett, W. and Cuckovic, N., ‘Knowledge transfer, institutions, and innovation in Croatia andSlovenia’, Drustvena istrazivanja, 15, Institute of Social Sciences, 2006, pp. 371–99.

Bartlett, W. and Kolin, M., ‘The functioning of the social sector administration in Serbia’,country report, CARDS Social Sector Study, January 2005.

Berman, E., Bound, J. and Griliches, Z., ‘Changes in the Demand for Skilled Labor withinUnited States Manufacturing – Evidence from the Annual Survey of Manufacturers’,Quarterly Journal of Economics, Vol. 109, MIT Press, 1994, pp. 367–97.

Bevan, A.A. and Estrin, S., ‘The determinants of foreign direct investment into Europeantransition economies’, Journal of Comparative Economics, 32, Elsevier, 2004,pp. 775–87.

Bilsen, V. and Konings, J., ‘Job creation, job destruction, and growth of newly established,privatized, and state-owned enterprises in transition economies: Survey evidence fromBulgaria, Hungary, and Romania’, Journal of Comparative Economics, 26, Elsevier,1998, pp. 429–45.

215

Blanchard, O., Employment Protection and Unemployment, 1998.http://econ-www.mit.edu/files/778

Blien, U. and Wolf, K., ‘Regional development of employment in eastern Germany: Ananalysis with an econometric analogue to shift-share techniques’, Papers in Regional

Science, 81, Blackwell Publishing, 2002, pp. 391–414.

Boeri, T., Structural Change, Welfare Systems, and Labour Reallocation: Lessons from the

Transition of Formerly Planned Economies, Oxford University Press, Oxford, 2000.

Boeri, T. and Scarpetta, S., ‘Regional mismatch and the transition to a market economy’,Labour Economics, 3, Elsevier, 1996, pp. 233–54.

Boijmans, P. ‘Building Institutional Capacity: From ISPA to Cohesion and Structural Funds’,Annual Meeting of ISPA partners, Brussels 9–10 April, 2003.http://europa.eu.int/comm/regional_policy/sources/docconf/ispaconf/index_en.htm

Borensztein, E., De Gregorio, J. and Lee, J.W., ‘How does foreign direct investment affecteconomic growth?’, Journal of International Economics, 45, Elsevier, 1998, pp. 115–35.

Bornhorst, F. and Commander, S., ‘Regional unemployment and its persistence in transitioncountries’, Economics of Transition, 14, Blackwell Publishing, 2006, pp. 269–88.

Botero, J.C., Djankov, S., La Porta, R., Lopez-de-Silanes, F. and Shleifer, A., ‘The Regulationof Labour’, Quarterly Journal of Economics, Vol. 119, No 4, MIT Press, 1339–82, 2004.

Bourguignon, F., ‘Development strategies for more and better jobs’, Paper presented at theconference Help Wanted: More and Better Jobs in a Globalized Economy, organisedby the Carnegie Endowment for International Peace, 14 April 2005, Washington DC,2005.

Brada, J.C., Kutan, A.M. and Yigit, T.M., ‘The effects of transition and political instability onforeign direct investment inflows – Central Europe and the Balkans’, Economics of

Transition, 14, Blackwell Publishing, 2006, pp. 649–80.

Brzinsky-Fay, C., Kohler, U. and Luniak, M., ‘Sequence analysis with Stata’, The Stata

Journal, No 4, Stata Corp, 2006, pp. 1–26.

Carstensen, K. and Toubal, F., ‘Foreign direct investment in Central and Eastern Europeancountries: A dynamic panel analysis’, Journal of Comparative Economics, 32, Elsevier,2004, pp. 3–22.

Cazes, S. and Nesporova, A., ‘Combining Flexibility and Security for Employment and DecentWork in the Western Balkans’, SEER-South-East Europe Review for Labour and Social

Affairs, Nomos Verlag, Issue 2, 2006.http://www.ceeol.com/aspx/issuedetails.aspx?issueid=89ee9bc8-df6a-4d52-a524-5ecc7ee1f657

Cazes, S. and Nesporova, A. (eds), Labour Markets in Transition: Balancing Flexibility and

Security in Central and Eastern Europe, International Labour Office, Geneva, 2003.

CEB, Social Challenges in South Eastern Europe: Economic and Social Situation in Target

Group Countries of South Eastern Europe, Council of Europe Development Bank,Paris, 2005.

Commander, S. and Kollo, J., ‘The changing demand for skills: Evidence from the transition’,IZA Discussion Paper No 1073, Bonn, 2004.

Council of the European Union, Council Regulation (EC) No 1085/2006 of 17 July 2006establishing an Instrument for Pre-Accession Assistance (IPA), Official Journal, L 210,2006, pp. 82–93.http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2006:210:0082:01:EN:HTML

Council of the European Union, Resolution of the Council and of the representatives of the

Governments of the Member States meeting with the Council on Strengthening

policies, systems and practices in the field of guidance throughout life in Europe,Brussels, May 2004.http://ec.europa.eu/education/policies/2010/doc/resolution2004_en.pdf

216


Crnkovic-Pozaic, S., ‘Flexibility and security in the labour market: Croatia’s experience’,Flexicurity Paper 2004/1, International Labour Office, Budapest, 2005.

Crnkovic-Pozaic, S., ‘Measuring Employment in the Unofficial Economy by Using LabourMarket Data’, Study by Director of Croatian Employment Service, Zagreb, 2002.

Croatian Employment Service, Annual Reports, 2002, 2003 and 2004.

Croatian National Action Plan for Employment 2005–08, draft, November 2004.

Croatian Office of the Chief Negotiator Draft Strategic Coherence Framework 2007–13, 2007.

Cross, J., Formalizing the Informal Economy: The Case of Street Vendors in Mexico, TheAmerican University in Cairo, January 1995.

Crowley, S. and Ost, D. (eds), Workers after Workers’ States, Rowman and Littlefield,Lanham, MD, 2001.http://www.warwick.ac.uk/russia/Intas/MoscowWorkshop.doc

Cuka, E., Papapanagos, H., Polo, N. and Sanfey, P., ‘Labor market developments in Albania:An analytical overview’, Review of Development Economics, 7, Blackwell Publishing,2003, pp. 217–27.

Cvitkovic, A., ‘Social partnership and the labour market’ (originally ‘Socijalno partnerstvo itrziste rada’), The Government Department for Social Partnership, UDK 321:331.5,Zagreb, 2003.

Davis, S.J., Haltiwanger, J.C. and Schuh, S., Job Creation and Destruction, MIT Press,Cambridge MA, 1996.

De Loecker, J. and Konings, J., ‘Creative destruction and productivity growth in an emergingeconomy: Evidence from Slovenian manufacturing’, LICOS Discussion Paper138/2003, LICOS Centre for Transition Economics, Katholieke Universiteit Leuven,2003.

Demekas, D.G., Horvath, B., Ribakova, E. and Wu, Y., ‘Foreign Direct Investment inSoutheastern Europe: How (and How Much) Can Policies Help?’, IMF Working PaperWP/05/110, 2005.

Department for International Development (DFID), ‘Bosnia and Herzegovina – Privatisationand Enterprise Restructuring Programmes: Effects on Unemployment and Poverty’,London, 2001.

Department for International Development (DFID), ‘Employment and Labour Market Statusand Potential for Policy Development in Bosnia and Herzegovina’, London, 2002.

Department for International Development (DFID), Governance and Democracy in Bosnia and

Herzegovina; Post-Industrial Society and the Authoritarian Temptation, EuropeanStability Initiative, Berlin/Sarajevo, 2004.http://www.esiweb.org/index.php?lang=en&id=156&document_ID=63

Department for International Development (DFID), Regional Assistance Plan for the Western

Balkans, 2004/05–2008/09, London, September 2004.http://www.dfid.gov.uk/pubs/files/rapwesternbalkans.pdf

Department for International Development (DFID) and RDA Development Association Tuzla,‘Labour and Socio-economic Regeneration’, Tuzla, 2004.

Djankov, S. and Murrell, P., ‘Enterprise restructuring in transition: A quantitative survey’,Journal of Economic Literature, 40, American Economic Association, 2002,pp. 739–92.

Durovic, G., Radovic, M. and Boskovic, P., ‘The Montenegrin Labour Market and the NewEmployment Law’, SEER-South-East Europe Review for Labour and Social Affairs,Nomos Verlag, Issues 1–2, February 2003.

217

BIBLIOGRAPHY

Dutz, M., Kauffmann, C., Najarian, S., Sanfey, P. and Yemtsov, R. ‘Labour market states,mobility and entrepreneurship in transition economies’, European Bank forReconstruction and Development WP 65, November 2001.

Ebbinghaus, B., ‘The development of Trade Unions in Western Europe: Global Convergenceor Cross-national Diversity’, EURODATA Newsletter, Issue 2, 1995, pp. 1–8.http://www.mzes.uni-mannheim.de/eurodata/newsletter/no2/feature.html

EBRD, Transition Report 2000: Employment, Skills and Transition, European Bank forReconstruction and Development, London, 2000.

EBRD, Transition Report: Business in Transition, European Bank for Reconstruction andDevelopment, London, 2005.

Economic Policy Research Unit, Bosnia and Herzegovina – The Economic Report 2004,Sarajevo, 2005.http://www.eppu.ba/pdf/Economic_report_2004_2406_English.pdf

Employment and Skills Observatory of Kosovo, Employability in Kosovo: Assessment and

options for development, Report by the international peer review team, Prishtina,April 2003.

Esteban, J., ‘Regional convergence in Europe and the industry mix: A shift-share analysis’,Regional Science and Urban Economics, 30, Elsevier, 2000, pp. 353–64.

ETF, Country studies on ‘Access of ethnic minorities in education and employment in theWestern Balkans’, ETF internal reports, Turin, 2005a.

ETF, ‘Ethnic minorities in the Western Balkans and their access to education andemployment’, ETF internal document, Turin, 2005b.

ETF, Labour market review of Albania, ETF, Turin, 2006a.

ETF, Labour market review of Bosnia and Herzegovina, ETF, Turin, 2006b.

ETF, Labour market review of Serbia, ETF, Turin, 2006c.

ETF, Labour market review of the former Yugoslav Republic of Macedonia, ETF, Turin,2006d.

ETF, Peer review report – Decentralisation as part of overall VET reform in the former

Yugoslav Republic of Macedonia, ETF working paper, Turin, February 2004a.

ETF, Peer review report – Decentralisation of the VET system in the Republic of Serbia, ETFworking paper, Turin, March 2003a.

ETF, Peer review report – Employability in Kosovo: Assessment and options for development,ETF working paper, Turin, April 2003b.

ETF, ‘Report from the Advisory Forum meeting of the South Eastern Europe regional group’,Durres (Albania), 21–22 June 2004b.

ETF, Short descriptions and assessments of VET teacher training systems in South EastEurope: Mustafai, A., Albania; Pekmez, M., Bosnia and Herzegovina; Luburic, V.,Croatia; Angeloska-Galevska, N., former Yugoslav Republic of Macedonia; Likak, R.,Kosovo; Milosevic-Atos, R., Montenegro; Despotovic, M., Serbia, ETF, Turin, January2006e.

ETF, ‘Skills and work in the informal economy, evidence from Tirana’, internal report preparedby the Institute for Contemporary Studies (Tirana), the International Training Centre ofthe ILO (Turin) and ETF (Turin), 2005c.

ETF, Social dialogue in South Eastern European countries: Possibilities, limitations,

perspectives, ETF, Turin, 2002.

EU CARDS Programme, Employment project Serbia ‘Partnership for HRD and employment inSumadija district’, as part of the project ‘Support for human resource developmentmeasures for unemployed and redundant employees in Serbia’, 2004.

218


EU CARDS Programme, ‘Vertical review of the labour and employment sector in Bosnia andHerzegovina’, 2006.

EU CARDS Programme 2002, ‘Local partnerships for employment’ project, project CD,Croatia, 2006.

EU VET Programme II, ‘Strategic documents on continuing vocational training in Bosnia andHerzegovina’, draft, July 2006.

European Agency for Reconstruction, Annual report to the European Parliament and the

Council, January–December 2003, EAR, Thessaloniki, June 2004.

European Commission, Albania 2005 Progress Report, European Commission, Brussels,November 2005a.http://ec.europa.eu/enlargement/archives/pdf/key_documents/2005/package/sec_1421_final_progress_report_al_en.pdf

European Commission, Analytic report for the Opinion on the application from the former

Yugoslav Republic of Macedonia for EU membership, European Commission,Brussels, November 2005b.http://ec.europa.eu/enlargement/archives/pdf/key_documents/2005/package/sec_1425_final_analytical_report_mk_en.pdf

European Commission, Annex to the Communication from the Commission to the Council, the

European Parliament, the European Economic and Social Committee and the

Committee of the Regions: Promoting decent work for all, Commission staff workingdocument, COM(2006) 249 final, Brussels, 2006a.http://ec.europa.eu/employment_social/news/2006/may/sec_2006_643_en.pdf

European Commission, Bosnia and Herzegovina 2006 Progress Report, Commission staffworking document, COM(2006) 649 final, Brussels, November 2006b.http://ec.europa.eu/enlargement/pdf/key_documents/2006/nov/bih_sec_1384_en.pdf

European Commission, Candidate and Pre-accession Countries’ Economies Quarterly,Directorate-General for Economic and Financial Affairs, Brussels, October 2006c.http://ec.europa.eu/economy_finance/indicators/cceq/2006/cceq0306en.pdf

European Commission, Communication from the Commission, Making a European Area of

Lifelong Learning a Reality, COM(2001) 678 final, Directorate-General for Educationand Culture, Brussels, November 2001.http://eur-lex.europa.eu/LexUriServ/site/en/com/2001/com2001_0678en01.pdf

European Commission, Communication from the Commission, Mobilising the brainpower of

Europe: Enabling universities to make their full contribution to the Lisbon Strategy,COM(2005) 152 final, Brussels, April 2005c.http://europa.eu.int/eur-lex/lex/LexUriServ/site/en/com/2005/com2005_0152en01.pdf

European Commission, Communication from the Commission, The Western Balkans on the

road to the EU: Consolidating stability and raising prosperity, COM(2006) 27 final,Brussels, January 2006d.http://eurlex.europa.eu/smartapi/cgi/sga_doc?smartapi!celexplus!prod!CELEXnumdoc&numdoc=506DC0027&lg=en

European Commission, Communication from the Commission to the Council, the European

Parliament, the European Economic and Social Committee and the Committee of the

Regions, Promoting decent work for all: The EU contribution to the implementation of

the decent work agenda in the world, COM(2006) 249, Brussels, May 2006e.http://ec.europa.eu/employment_social/news/2006/may/com_2006_249_en.pdf

European Commission, Croatia 2005 Progress Report, COM(2005) 561 final, Brussels,November 2005d.http://ec.europa.eu/enlargement/archives/pdf/key_documents/2005/package/sec_1424_final_progress_report_hr_en.pdf

219

BIBLIOGRAPHY

European Commission, Croatia 2006 Progress Report, Commission staff working document,COM(2006) 649 final, Brussels, November 2006f.http://ec.europa.eu/enlargement/pdf/key_documents/2006/nov/hr_sec_1385_en.pdf

European Commission, Draft Multi-annual Indicative Planning Document 2007–2009 for

Bosnia and Herzegovina, Brussels, 2006g.http://ec.europa.eu/enlargement/index_en.htm

European Commission, Draft Multi-annual Indicative Planning Document 2007–2009 for

Serbia, Brussels, 2006h.http://ec.europa.eu/enlargement/index_en.htm

European Commission, Draft Multi-annual Indicative Planning Document 2007–2009 for the

former Yugoslav Republic of Macedonia, Brussels, 2006i.http://ec.europa.eu/enlargement/index_en.htm

European Commission, Employment and labour market in Central European countries, No 1,Office for Official Publications of the European Communities, Luxembourg, 2001.

European Commission, Employment in Europe 2006, Office for Official Publications of theEuropean Communities, Luxembourg, 2006j.http://ec.europa.eu/employment_social/news/2006/nov/employment_europe_en.pdf

European Commission, Integrated Guidelines for Growth and Jobs 2005–2008,COM(2005) 141 final, Brussels, 2005e.http://ec.europa.eu/growthandjobs/pdf/COM2005_141_en.pdf

European Commission, Joint Development Report 2005/2006, More and Better Jobs:

Delivering the Priorities of the European Employment Strategy, Brussels, 2006k.http://ec.europa.eu/employment_social/employment_strategy/jer_en.pdf

European Commission, Linking the worlds of work and education through Tempus,Directorate-General for Education and Culture, 2007.http://ec.europa.eu/education/programmes/tempus/doc/linking.pdf

European Commission, ‘Progress report for the implementation of Education and TrainingAgenda 2010’, Directorate-General for Education and Culture, Brussels, 2006l.

European Commission, Progress towards meeting the economic criteria for accession,2005 Country Assessment, Enlargement Papers No 26, Directorate-General forEconomic and Financial Affairs, Brussels, 2005f.

European Commission, Progress towards the Lisbon objectives in education and training,Commission staff working document, Directorate-General for Education and Culture,Brussels, May 2006m.http://ec.europa.eu/education/policies/2010/doc/progressreport06.pdf

European Commission, Proposal for a Council Decision on Community strategic guidelines

on cohesion, COM(2006) 386 final, Brussels, July 2006n.http://www.europarl.europa.eu/oeil/FindByProcnum.do?lang=2&procnum=AVC/2006/0131)

European Commission, Regions and Cities for Growth and Jobs: An overview on the

Regulations 2007–2013 for Cohesion and Regional Policy, Memo/06/281, Brussels,July 2006o.http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/06/281&format=HTML&aged=0&language=ES&guiLanguage=en

European Commission, Report on the implementation of the European Charter for Small

Enterprises in Moldova and the countries of the Western Balkans, SEC(2006) 283,Commission staff working document, Directorate-General for Enterprise and Industry,Brussels, February 2006p.

European Commission, Speech of Odile Quintin, Director-General for Employment, SocialAffairs and Equal Opportunities, at the Conference on social dialogue in the WesternBalkan countries, Skopje, 7 October 2005g.http://ec.europa.eu/employment_social/speeches/2005/oq_071005_fr.pdf

220


European Commission, Strengthening institutional capacity and efficiency of public

administrations and public services in the next programming period (2007–2013),Directorate-General for Employment and Social Affairs, Brussels, September 2005h.http://ec.europa.eu/employment_social/esf/docs/institutionsandcapacitybuilding_en.pdf

European Commission, The Western Balkans in Transition, European Economy,Enlargement Papers No 23, Directorate-General for Economic and Financial Affairs,Brussels, December 2004a.

European Commission, The Western Balkans in Transition, European Economy, OccasionalPapers No 1, Directorate-General for Economic and Financial Affairs, Brussels,January 2003.

European Commission, The Western Balkans in Transition, European Economy, OccasionalPapers No 5, Directorate-General for Economic and Financial Affairs, Brussels,January 2004b.

European Foundation for the Improvement of Living and Working Conditions, Europeanindustrial relations observatory on-line, Trade union membership 1993–2003,EIROnline, March 2004.http://www.eurofound.europa.eu/eiro/2004/03/update/tn0403105u.html

Falcetti, E., Sanfey, P. and Taci, A., Bridging the gaps? Private sector development, capital

flows and the investment climate in South-Eastern Europe, EBRD working paperNo 80, European Bank for Reconstruction and Development, London, 2003.

Federation of Bosnia and Herzegovina Employment Bureau, Annual Report 2003, Sarajevo,2003.

Former Yugoslav Republic of Macedonia Ministry of Labour and Social Affairs, ‘NationalAction Plan for Employment 2004–2005’, Skopje, 2004.

Former Yugoslav Republic of Macedonia Ministry of Labour and Social Policy, ‘NationalEmployment Strategy 2010’, draft, September 2006.

Fretwell, D., Benus, J. and O’Leary, C.J., Evaluating the Impact of Active Labour Market

Programmes: Results of Cross Country Studies in Europe and Central Asia, SocialProtection Discussion Paper No 9915, World Bank, Washington DC, June 1999.

Ghellab, Y. and Vylitova, M., Tripartite Social Dialogue on Employment in the Countries of

South Eastern Europe, ILO, Budapest, 2005.http://www.ilo.org/public/english/region/eurpro/budapest/download/tripartite_sd.pdf

Government of Montenegro, Economic policy of Montenegro for the year 2004, Podgorica,December 2003.http://unpan1.un.org/intradoc/groups/public/documents/UNTC/UNPAN015632.pdf

Government of Serbia, Law on Social Economic Council, Official Gazette of RS No 125/04,Serbia, 2004.http://www.minrzs.sr.gov.yu

Government of Serbia, National Employment Strategy 2005–10.http://www.prsp.sr.gov.yu/download/Nacionalna%20Strategija%20zaposljavanja%20final%20draft.doc

Government of Serbia EU Integration Office, ‘Action plan for empowering institutionalcapacities for taking over obligations arising from the process of European integration’,March 2006.

Gruber, T., ‘Employment and Labor Market Flexibility in the New EU Member States’, Focus

on European Economic Integration 1/04, OeNB, Vienna, 2004, pp. 96–121.http://www.oenb.at/en/img/feei_20041_tcm16-20269.pdf

Gunny, M., and Viertel, E., Designing adult learning strategies – The case of South Eastern

Europe, ETF, Turin, 2006.

221

BIBLIOGRAPHY

Haltiwanger, J. and Vodopivec, M., ‘Worker flows, job flows and firm wage policies: Ananalysis of Slovenia’, Economics of Transition, Vol. 11, Issue 2, Blackwell Publishing,2003, pp. 253–90.

Haltiwanger, J., Lehmann, H. and Terrell, K., ‘Symposium on job creation and job destructionin transition countries’, Economics of Transition, Vol. 11, Issue 2, Blackwell Publishing,2003, pp. 205–19.

Hanousek, J. and Palda, F., ‘Problems measuring the underground economy in transition’,Economics of Transition, Vol. 14, Issue 4, Blackwell Publishing, 2006, pp. 707–18.

Horvat, A., Absorption Problems in the EU Structural Funds, 2004.www.gov.si/zmar/conference/2004/papers/Horvat.pdf

Horvat, A. and Maier, G., Regional Development, Absorption Problems and the EU Structural

Funds: Some aspects regarding administrative absorption capacity in the Czech

Republic, Estonia, Hungary, Slovakia and Slovenia, ERSA conference papers,European Regional Science Association, 2004.http://ideas.repec.org/p/wiw/wiwrsa/ersa04p591.html

Huitfeldt, H. and Selezneva, E., ‘Labour market attachment in the Western Balkans: Someevidence using sequence analysis’, manuscript, ETF, 2007.

ILO, Combining flexibility and security in employment and decent work in the Western

Balkans, ILO, Geneva, 2006.http://www.ilo.org/public/english/region/eurpro/geneva/download/events/meetingpaper06_en.pdf

ILO, Decent Work Country Programme – Albania, 2006–2007, ILO, Geneva, September 2005.http://www.ilo.org/public/english/bureau/program/dwcp/download/albania.pdf

ILO, Decent Work, Report of the Director-General to the 87th Session of the InternationalLabour Conference, ILO, Geneva, June 1999.

ILO, ‘Resolution concerning statistics of employment in the informal sector, adopted by theFifteenth International Conference of Labour Statisticians’ (January 1993), in Current

International Recommendations on Labour Statistics, 2000 Edition, ILO, Geneva.

ILO and Council of Europe, Country Review of the Employment Policy in Croatia, first draft,ILO/Council of Europe, November 2004.http://www.stabilitypact.org/soc-cohesion/3%20CREP%20complete%20version%20CRO.DOC

IMF, Serbia and Montenegro: Joint Staff Assessment of the Poverty Reduction Strategy

Paper, IMF Country Report No 04/117, Washington, DC, May 2004.https://www.imf.org/external/pubs/ft/scr/2004/cr04117.pdf

Janesca, V., Migration of Highly Educated and Skilled Persons from the Republic of

Macedonia, Institute of Economics, Skopje University, Ss. Cyril and Methodius, Skopje,2003.

Kekic, L., ‘Foreign direct investment in the Balkans: Recent trends and prospects’, Southeast

European and Black Sea Studies, Vol. 5, Issue 2, Routledge, 2005, pp. 171–90.

Kosovo, Provisional Institutions of Self-Government, Ministry of Labour and Social Welfare,‘Employment Promotion – Performance Report 2005/06’, 2006.

Labour and Employment Agency of Bosnia and Herzegovina, ‘Report on Measures of ActivePolicy in Bosnia and Herzegovina’, Sarajevo, May 2005.

Lajh, D., ‘EU Cohesion Policy in Slovenia’, Preparation for EU Structural Funds, OccasionalPaper, OEUE Phase II, 2004.

Landesmann, M., ‘Structural change in the transition economies, 1989–1999’, Economic

Survey of Europe, UNECE, 2000, pp. 95–117.

222


Landesmann, M., Vidovic, H. and Ward, T., ‘Economic restructuring and labour marketdevelopment in the NMS’, Economic Restructuring and Labour Markets in the

Accession Countries, European Commission Directorate-General for Employment,Social Affairs and Equal Opportunities, Brussels, 2004, pp. 23–84.

Maastricht Communiqué on the Future Priorities of Enhanced European Cooperation in

Vocational Education and Training (Review of the Copenhagen Declaration of

30 November 2002), December 2004.http://ec.europa.eu/education/news/ip/docs/maastricht_com_en.pdf

Machin, S. and Van Reenen, J., ‘Technology and changes in skill structure: Evidence fromseven OECD countries’, Quarterly Journal of Economics, Vol. 113, No 4, MIT Press,1998, pp. 1215–44.

Marinkovic, D., Social dialogue in South-Eastern European countries: Possibilities, limitations,

perspectives, ETF, Belgrade, July 2002.http://www.etf.europa.eu/pubmgmt.nsf/(getAttachment)/7836708D6F004D6AC125702800299100/$File/SEE_SocialDialogue_03_EN.pdf

Matkovic, T. and Sosic, V. ‘EU Integration and Croatian Labour Market Flexibility’, Conferencepaper, Dubrovnik, 2004.

McBride, V., ‘Using the Copenhagen Process to Facilitate National Qualification FrameworkStrategies in South Eastern Europe: Croatia’, European Journal of Education, Vol. 40,No 3, Blackwell Publishing, September 2005, pp. 315–21.

Mencinger, J., ‘Does Foreign Direct Investment Always Enhance Economic Growth?’, Kyklos,Vol. 56, Issue 4, Blackwell Publishing, 2003, pp. 491–508.

Meznaric, S. and Adamovic, M., ‘Potential and Factual “Brain Drain” among Young Scientistsin South Eastern Europe’, Institute for Migration and Ethnic Studies and Institute forSocial Research, Zagreb, 2002.

Micevska, M., Unemployment and Labour Market Rigidities in Southeast Europe, GlobalDevelopment Network and the Vienna Institute for International Economic Studies,June 2004.http://www.wiiw.ac.at/balkan/files/GDN_EnterpriseLabourInformal_UnemploymentSEE.pdf

MIGA, Investment Horizons: Western Balkans – Benchmarking FDI Opportunities, WorldBank Group Multilateral Investment Guarantee Agency, Washington DC, 2006.http://www.eiop.org/documents/Benchmarking_study.pdf

Montenegro Public Employment Service, website.http://www.zzzcg.org/home/

Netherlands Economic Institute (NEI), Key Indicators for Candidate Countries to Effectively

Manage the Structural Funds, Country reports prepared by the NEI Regional andUrban Development for the European Commission Directorate-General for RegionalPolicy/Directorate-General for Enlargement, Rotterdam, 2002.

Nickell, S., ‘Poverty and Worklessness in Britain’, The Economic Journal, Vol. 114, Issue 494,Blackwell Publishing, March 2004, pp. C1–C25.

Noorbakhsh, F., Paloni, A. and Youssef, A., ‘Human capital and FDI inflows to developingcountries: New empirical evidence’, World Development, Vol. 29, Issue 9, Elsevier,2001, pp. 1593–610.

OECD, Employment Outlook, OECD, Paris, 1999.http://www.mszs.si/eurydice/pub/oecd/empout.pdf

OECD, Improving OECD Labour Market Performance, Prospects and Challenges for the 21st

Century, OECD, Paris, 2000a.

OECD, Labour Market Policies and the Public Employment Service: Lessons from Recent

Experience and Directions for the Future, OECD, Paris, 2000b.

223

BIBLIOGRAPHY

OECD, Local Governance and the Drivers of Growth, OECD, Paris, 2005.

OECD, Managing Decentralisation: A New Role for Labour Market Policy, OECD, Paris,2003a.

OECD, Reviews of National Policies for Education South Eastern Europe, Volume 2: FYROM,

Moldova, Montenegro, Romania, Serbia, OECD, Paris, 2003b.

OECD, Taxing Wages 2004–2005, OECD, Paris, 2006.

OECD, The Informal Economy in Albania, Analysis and Policy Recommendations, Reportprepared by the OECD – Investment Compact for the Ministry of Economy of Albania,OECD, 2004.http://www.investmentcompact.org/dataoecd/55/11/35559558.pdf

OECD, The OECD Jobs Study: Facts, Analysis,Strategies, OECD, Paris, 1994.http://www.oecd.org/dataoecd/42/51/1941679.pdf

OECD and EBRD, FYR Macedonia – Enterprise Policy Performance Assessment, OECD,Paris, September 2003a.http://www.investmentcompact.org/dataoecd/2/45/20635904.pdf

OECD and EBRD, South East Europe Region – Enterprise Policy Performance: A Regional

Assessment, OECD, Paris, October 2003b.http://www.investmentcompact.org/dataoecd/37/20/30631586.pdf

Ott, K., ‘The unofficial economy in Croatia 1990–2000’, in Franicevic, V. (ed.), Globalization,

Democratization and Development, Masmedia, Zagreb, 2003, pp. 437–53.

Parkes, D., Draft report of the peer learning exercise done in Albania, Kosovo andMontenegro on VET financing, ETF, 2006.

Parkes, D. and Nielsen, S., The reform of vocational curricula – Outcomes of the 2005 ETF

peer reviews in Bulgaria, Bosnia and Herzegovina, the former Yugoslav Republic of

Macedonia, and Serbia, ETF, Turin, 2006.

Peneder, M., ‘Industrial structure and aggregate growth’, Structural Change and Economic

Dynamics, Vol. 14, Elsevier, 2003, pp. 427–48.

Peri, G. and Urban, D., ‘Catching-up to foreign technology? Evidence on the“Veblen–Gerschenkron” effect of foreign investments’, Regional Science and Urban

Economics, Vol. 36, Issue1, Elseveir, 2006, pp.72–98.

Peter, K.S., Skill-Biased Transition: The Role of Markets, Institutions, and Technological

Change, IZA Discussion Paper No°893, Bonn, 2003.ftp://repec.iza.org/RePEc/Discussionpaper/dp893.pdf

Racic, D., Babic, Z. and Podrug, N., ‘Segmentation of the Labour Market and the EmployeeRights in Croatia’, Revija za Socijalnu Politiku, Vol. 12, No 1, Zagreb, 2005, pp. 45–65.http://www.rsp.hr/ojs2/index.php/rsp/article/viewFile/20/24

Radovic, M. and Duric, D., ‘Possibilities for Creating New Employment in Montenegro’,South-East Europe Review (SEER), Issue 4, Hans-Böckler-Foundation, Düsseldorf,2003.http://www.boeckler.de/pdf/South_East_Europe_Review_2003_04_Radovic.pdf

Raiser, M., Schaffer, M.E. and Schuchhardt, J., ‘Benchmarking Structural Change inTransition’, Structural Change and Economic Dynamics, Vol. 15, No 1, Elsevier, 2004,pp. 47–81.

Reilly, B. and Krstic, G., ‘Employees and second-job holding in the Federal Republic ofYugoslavia’, Economics of Transition, Vol. 11, Issue 1, Blackwell Publishing, 2003,pp. 93–122.

Repe, B., ‘Les migrations sur le territoire de l’ancienne Yougoslavie de 1945 à nos jours:Predavanje’, Séminaire européen d’enseignants ‘Être migrant(e) en Europe’, 6–9 mars2002, Faculté des lettres et sciences humaines, Université de Neuchâtel, Neuchâtel, 2002.

224


Republic of Albania, Council of Ministers, National Strategy for Socio-Economic Development,

Medium-term Program of the Albanian Government ‘Growth and Poverty Reduction

Strategy’ (GPRS 2002–2004), Tirana, November 2001.http://siteresources.worldbank.org/INTALBANIA/Resources/National_Strategy_for_Socio-Economic_Development.pdf

Republic of Croatia, Act on Job Placement and Unemployment Insurance, OfficialGazette 32/02, with amendments, Official Gazette 1576/03 and 2187/03.

Republic of Croatia, National Employment Action Plan 2004.

Republic of Serbia, ‘Forestry and Wood Processing Branch Collective Agreement’, 2004.

Republic of Serbia, Labour Law, Official Gazette 70/2001.

Republic of Serbia, Law on Employment and Insurance in Case of Unemployment, OfficialGazette 71/2003.

Rus, A. and Iglic, H., ‘Trust, governance and performance: The role of institutional andinterpersonal trust in SME development’, International Sociology, Vol. 20, No 3, SageJournals Online, 2005, pp. 371–91.

Rutkowski, J., Does Strict Employment Protection Discourage Job Creation? Evidence from

Croatia, World Bank Policy Research Working Paper No 3104, World Bank,Washington DC, August 2003.

Rutkowski, J., Earnings Inequality in Transition Economies of Central Europe – Trends and

Patterns during the 1990s, World Bank Social Protection Discussion Paper No 0117,World Bank, Washington DC, 2001.

Rutkowski, J. and Scarpetta, S., Enhancing Job Opportunities: Eastern Europe and the

Former Soviet Union, World Bank, Washington DC, 2005.

Sanfey, P., Falcetti, E., Taci, A. and Tepic, S., Spotlight on South-Eastern Europe: An

Overview of Private Sector Activity and Investment, European Bank for Reconstructionand Development, London, 2004.

Schmid, G., ‘Social risk management through transitional labour markets’, Socio-Economic

Review, Vol. 4, Issue 1, Oxford Journals, Oxford University Press, 2006, pp. 1–33.

Schmid, G., ‘Transitional Labour Markets and the European Social Model: Towards a NewEmployment Compact’, in Schmid, G. and Gazier, B. (eds), The Dynamics of Full

Employment. Social Integration Through Transitional Labour Markets, Edward Elgar,Cheltenham, UK and Northampton, MA, USA, 2002, pp. 393–435.

Schmid, G. and Schömann, K., ‘Managing Social Risks through Transitional Labour Markets:Towards a European Social Model’, tlm.net Working Paper No 2004-01, Institute for theSocial Sciences (SISWO), Amsterdam, 2004.

Schneider, F., The Size and Development of the Shadow Economies of 22 Transition and

21 OECD Countries, IZA Discussion Paper No 514, Bonn, 2002.

Schömann, K. and Schmid, G. (eds), The Concept of Transitional Labour Markets and Some

Policy Conclusions: The State of the Art, tlm.net Working Paper No 2003-01, SocialScience Research Center Berlin (WZB), Berlin, 2003.

Serbia, National Employment Service, Annual Reports 2002, 2003 and 2004.

Sosic, V., ‘Does it pay to invest in education in Croatia? Return to human capital investmentas a factor in human resource competitiveness’, in Bejakovic, P. and Lowther, J. (eds),Croatian Human Capital Competitiveness Study, Institute of Public Finance, Zagreb,2004a, pp. 29–38.

Sosic, V., Regulation and Flexibility of the Croatian Labour Market, Global DevelopmentNetwork and the Vienna Institute for International Economic Studies, June 2004b.http://www.wiiw.ac.at/balkan/files/GDN_EnterpriseLabourInformal_LabourMarketCroatia.pdf

225

BIBLIOGRAPHY

Stilwell, F.J.B., ‘Regional growth and structural adaptation’, Urban Studies, Vol. 6, 1969,pp. 162–78.

Sweet, R., ‘Cross-country report on the vocational guidance systems in the Western Balkancountries’, ETF, Turin, November 2006.

UNDP, Employment, Labour Market and Standard of Living in Montenegro, UNDP LiaisonOffice, Podgorica, 2002.http://www2.undp.org.yu/files/reports/employment_mont_eng.pdf

UNDP, From Brain Drain to Brain Gain: Mobilising Albania’s Skilled Diaspora, Tirana, April 2006.http://www.migrationdrc.org/publications/other_publications/Brain_Gain_Policy_Paper_english_FINAL.p df

UNECE, ‘South-East Europe’, Economic Survey of Europe, Issue No 1, 2005, pp. 45–57.http://www.unece.org/ead/pub/051/051c4.pdf

UNMIK (United Nations Interim Administration Mission in Kosovo), Constitutional Framework

for Provisional Self-Government in Kosovo, UNMIK Regulation No 2001/9, May 2001.

USAID and Financial Services Volunteer Corps, Assessment of the Labour Law Environment

in Bosnia and Herzegovina, Sarajevo, 2004.

USAID and Financial Services Volunteer Corps, Estimate of Non Observed Economy in

Bosnia and Herzegovina, Sarajevo, November 2004.

Visser, J., ‘Union membership statistics in 24 countries’, Monthly Labor Review, Vol. 129,No 1, US Department of Labour, Bureau of Labor Statistics, January 2006, pp. 38–49.

Vlahinic-Dizdarevic, N., Buterin, V. and Zagar, A., ‘The external debt sustainability inSoutheast European countries: The analysis of debt indicators’, Internationalconference From transition to sustainable development: The path to Europeanintegration, School of Economics and Business, Sarajevo, 2006.

von Breska, E.; ‘Further indicative guidelines for the Candidate Countries: From ISPA to Cohesionand Structural Funds’, Annual Meeting of ISPA partners, Brussels 9–10 April, 2003.http://europa.eu.int/comm/regional_policy/sources/docconf/ispaconf/index_en.htm

Vos, A., ‘Peer reviews and peer learning: Options for policy learning’, Discussion paper for theETF Advisory Forum conference, June 2006.

Vroman, W. and Brusentsev, V., Unemployment Compensation Throughout the World: A

Comparative Analysis, W.E. Upjohn Institute for Employment Research, 2005.

World Bank, Albania – Labor Market Assessment, Report No 34597–AL, World Bank,Washington DC, May 2006a.

World Bank, Bosnia and Herzegovina – Addressing Fiscal Challenges and Enhancing Growth

Prospects: A Public Expenditure and Institutional Review, Report No 36156–BA, WorldBank, Washington DC, September 2006b.

World Bank, Bosnia and Herzegovina – Country Economic Memorandum, ReportNo 29500–BA, World Bank, Washington DC, May 2005a.

World Bank, Bosnia and Herzegovina – Labor Market in Postwar Bosnia and Herzegovina:

How to Encourage Businesses to Create Jobs and Increase Worker Mobility, ReportNo 24889–BIH, World Bank, Washington DC, November 2002.

World Bank, Bosnia and Herzegovina – Labor Market Update: The Role of Industrial

Relations, Report No 32650–BA, World Bank, Washington DC, December 2005b.

World Bank, Doing Business in 2005, Removing Obstacles to Growth, co-publication of theWorld Bank, the International Finance Corporation and Oxford University Press,Washington DC, 2005c.

World Bank, FYR Macedonia – Country Economic Memorandum: Tackling Unemployment,Report No 26681–MK, World Bank, Washington DC, September 2003a.

226


World Bank, ‘Labor market reform for growth and competitiveness’, Serbia and Montenegro –

Republic of Montenegro: Economic Memorandum – A Policy Agenda for Growth and

Competitiveness, Report No 32623–YU, World Bank, Washington DC, October 2005d,pp. 20–38.

World Bank, ‘Labor markets’, Serbia and Montenegro – Republic of Serbia: An Agenda for

Economic Growth and Employment, Report No 29258–YU, World Bank, WashingtonDC, December 2004a, pp. 91–115.

World Bank, ‘Labor Taxes and Employment in the EU8’, EU8 Quarterly Economic Report,Part II, World Bank, Washington DC, April 2005e.

World Bank, Serbia – Labor Market Assessment, Report No 36576–YU, World Bank,Washington DC, September 2006c.

World Bank, Serbia and Montenegro – Poverty Reduction Strategy Paper, ReportNo 27918–YF, World Bank, Washington DC, February 2004b.

World Bank, Serbia and Montenegro – Republic of Montenegro: Economic Memorandum – A

Policy Agenda for Growth and Competitiveness, Report No 32623–YU, World Bank,Washington DC, October 2005f.

World Bank, Serbia and Montenegro – Republic of Serbia: An Agenda for Economic Growth

and Employment, Report No 29258–YU, World Bank, Washington DC, December 2004c.

World Bank, ‘Strengthening the legal and regulatory framework for efficient labor markets’,Croatia – Country Economic Memorandum: A Strategy for Growth through European

Integration, Vol. II: Main Report, Report No 25434–HR, World Bank, Washington DC,July 2003b, pp. 126–57.

Wössmann, L. and Schütz, G., Efficiency and Equity in European Education and Training

Systems, Analytical report for the European Commission to accompany theCommunication and staff working paper by the European Commission,Directorate-General for Education and Culture, April 2006.

Xhumari-Vaso, M., ‘The functioning of the social sector administration in Albania’, countryreport, CARDS Social Sector Study, January 2005.

Zahra, S.A., ‘Entrepreneurship education and economic development in Central, East andSoutheast Europe: The role of higher education’, Fostering Entrepreneurship: The Role

of Higher Education, OECD LEED Centre for Local Development, Trento, 2005,pp. 11–34.

227

BIBLIOGRAPHY

EUROPEAN TRAINING FOUNDATION


Luxembourg: Office for Official Publications of theEuropean Communities

2007 – 230 pp. – 21.0 x 29.7 cm

ISBN: 978-92-9157-542-8

SALES AND SUBSCRIPTIONS

Publications for sale produced by the Office for Official Publications of the EuropeanCommunities are available from our sales agents throughout the world.

You can find the list of sales agents on the Publications Office website(http://publications.europa.eu) or you can apply for it by fax (352) 29 29-42758.

Contact the sales agent of your choice and place your order.

LABOUR MARKETS IN THE

WESTERN BALKANS

CHALLENGES FOR THE FUTURE

TA

-30-0

7-1

00-E

N-C

Publications Office

Publications.europa.eu

Copyright

photo

:P.

Sic

card

i/S

YN

C©

labour markets in the wb part - european training …...labour markets in the western balkans...

Documents