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Economic growth in Western Balkans does not lead to labour market recovery - WIIW, World Bank

Author Radomir Ralev
Economic growth in Western Balkans does not lead to labour market recovery - WIIW, World Bank Author: Team Massachusetts 4D Home. License: Creative Commons, Attribution 2.0 Generic.

BELGRADE (Serbia), April 5 (SeeNews) – The job creation rate in the Western Balkans is not enough to address the challenges of the labour market and inactivity in the region remains high, the Vienna Institute for International Economic Studies (WIIW) and the World Bank said in a report.

Unemployment in the Western Balkans declined by an estimated 200,000 people - from 23% to 21% of the labour force in the period between 2010 and 2016, with youth unemployment levels remaining critically high, for example, 57% in Kosovo, the WIIW and the World Bank said in their Western Balkans Labour Market Trends 2017 report released on Tuesday.

On the other hand, the Western Balkan countries have increased employment by roughly 300,000 jobs since 2010, from an estimated 5.5 million in 2010 to 5.8 million in 2016. The unexpected winners are adults who are close to retirement, but also the highly educated, which shows that higher education is a pathway into the labour markets, the WIIW and the World Bank said.

Activity rates in the Western Balkans are suppressed because of low female labour market participation. Male activity rates in Albania, Macedonia and Serbia compare well with those of the EU peer countries, while female participation in the labour market is significantly lower across the region. Differences are particularly noticeable in Kosovo, where less than 20% of women are active in the labour and in Bosnia and Herzegovina, where the figure stands at 42%.

The share of people outside the labour market was highest in Kosovo, 61.8%, and Bosnia and Herzegovina, 45.4%, and lowest in Macedonia and in Albania, where it was close to 36% in each country. In some countries, such as Macedonia, Kosovo and Bosnia and Herzegovina, female inactivity is twice as high as the male rate, the institutions explained.

Informal employment remains a significant challenge. In Serbia, where informal employment is measured comprehensively, roughly half of the new jobs created recently have been in the informal sector, suggesting a strong pro-cyclical relationship between growth and informal employment, the report showed.

A remarkable increase in labour productivity took place in Kosovo as well as in Bosnia and Herzegovina and Macedonia, albeit at a lower rate. In Bosnia and Herzegovina and Kosovo it has been driven by shrinking employment combined with a higher GDP growth, while in Macedonia and Montenegro it was boosted by higher GDP than employment growth.

Almost the entire region is facing either a demographic contraction or stagnation, driven by high outward migration and declining birth rates. Since 2010, the population of the Western Balkan countries has declined by about 246,000 persons, standing at 18.2 million in 2015. The only country to report a significant population increase was Kosovo, up 8.2%, while Serbia recorded the largest decline of 3.2%, the WIIW and the World Bank said. 

The shrinking of the working age population could imply lower GDP growth in the future if not compensated by higher corresponding productivity growth. Furthermore, the continuous rise of the dependency ratio in the coming years will have implications on the fiscal system as well as be placing a burden on social welfare systems.

Details on the activity rate in the Western Balkans by country follow (data for the second quarter of 2016, unless otherwise stated): 

  Male Female Total
Albania 64.7 49.9 57.2
Bosnia and Herzegovina 54.9 32.1 43.1
Kosovo (end-2015) 51.9 17.3 35.1
Macedonia 70.0 43.0 56.5
Montenegro 61.8 47.4 54.5
Serbia 62.7 46.0 54.1
Western Balkans (end-2015) 60.3 40.4 50.2

Overall, the evidence suggests that the jobs challenge in the Western Balkans is structural, and growth alone will not be sufficient to create the number and types of jobs needed in the labour market. No significant impact of growth on employment has been observed in the aftermath of the financial crisis in the Western Balkans, and the impact of growth on unemployment is small.

This suggests that the Western Balkan countries are not yet in a situation where current economic growth will guarantee a return to jobs growth. The transition to modern market economies is not yet complete, and many structural issues remain to be addressed.