(UN)EMPLOYMENT - THE GREATEST PROBLEM IN B&H

At the End of Economic Year 1998

AIM sarajevo, 3 December, 1998

The greatest economic and social problem in Bosnia & Herzegovina is unemployment. Both domestic and foreign analysts agree about that, stressing that the best cure for resolution of this big problem is accelerated economic growth. Since it did not occur, or at least not in the planned extent, unemployment has reached its climax both in the number of workers on forced leave and those who are looking for a job.

In his recent analysis of the economic situation in the state, Prof. Dr. Jozo Sovic from the Chamber of the Economy of B&H established that about 40 per cent of working age population was unemployed, and if the number of workers who are on forced leave - "waiting for work" - is added to this, an alarming percentage is arrived at - 70 per cent of the working age population is unemployed. At the employment office of B&H, the rates were calculated even more precisely and it was established that about 35 per cent of the population was employed while 65 were unemployed (if assumed that the active population has 2.2 million). In developed countries, when the number of unemployed persons approaches a two-digit figure, red alert is sounded for saving the economy. Around here, not even the record unemployment is sufficient to cause concern of the economists, planners, entrepreneurs, and least of all the politicians.

The Federal Statistics Office claims that at the moment there are about 361 thousand employed workers in the Federation, but this figure includes those who are "waiting for work" (about 71 thousand of them). In comparison with 1991, when about one million people worked in B&H, this is just 36 per cent, or 43 per cent if municipalities of the present B&H Federation are taken into account. The picture of current unemployment is complete only when the figure of about 246 thousand persons registered at the employment office as the unemployed is added to it, which - along with the workers who are registered by the enterprises but actually do not work

• is equal to the number of the employed. Comparing the rise of the employment rate in this with that of last year, we arrive at the fact that on the average about 20 thousand persons are employed annually, which is not at all little.

What is in this respect the situation like in Republika Srpska? According to official data, in this part of B&H, about 244 thousand workers are employed at the moment, and about 143 thousand are unemployed. The statistics does not register how many re "waiting to work".

This year has limited the total employment rate growth because - according to assessments of experts of the World Bank which is the main financier, advisor and coordinator of the project of reconstruction of B&H - in the past few months, economic growth in the Federation has slowed down. The reason for this is failure to carry out economic reforms and privatization, and since we are a country in transition, it means that establishment of market economy has been interrupted. Having become aware of these negative trends in the economy of B&H, donors have slowed down the inflow of capital into our state and for as long as economic reforms do not proceed more resoltely, there will be no money for opening new plants, which means no new jobs either.

The army of the unemployed in B&H appeared in the end of 1995 and in the beginning of 1996, that is, in the end of the war and after demobilization of combatants. For political and social reasons, many enterprises received their former workers who were returning from the frontline. There was actually no work for most of them because the demolished factories did not work, and even those which had started operation did not need many workers because there was no market for their products. That is why in many enterprises workers were entered into registers of employees but majority of them did not really work and still are not working. The steelworks in Zenica is a good example for this, which still has 11 thousand listed workers, while less than half of them actually work for a minimum pay. There is little chance of employing another several thousand people. Nevertheless, there are enterprises which are looking for workers, such as GRAS from Sarajevo which needs 450 workers (drivers, mechanics, enineers, etc.).

In such circumstances, the population resorts to grey economy, because it needs the minimum of minimum in order to survive. Nowadays, economists speak of about 150 thousand people who are working illegally, although this figure is bigger. Nobody pays any contributions and taxes on salaries of these employees, meaning that the state loses great sums of money in this way. If the state would find a way to register these 150 thousand people as regularly employed, which they in fact are, the employment rate would rise, contibution and tax funds would fill, and that would be the end of grey economy. Before that, it would be necessary to reduce contribution rates on salaries, and this would automatically increase the employment rate because illegal labour would decrease in some privately-owned enterprises which have unregistered workers. Since there are no indications that the state could do anything of the kind, the question which arises is how cam the problem of unemployment be alleviated?

Seeking an answer to this question, member of Presidency Alija Izetbegovic recently proposed that a contribution (of one per cent) on salaries of the employed be introduced and that a fund be established for financing new jobs. At the time when entrepreneurs are demanding reduction of contribution rates on salaries, former president of presidency of B&H is asking for a new burden on the economy. Some economic experts reacted immediately to Izetbegovic's proposal who claimed that a new burden on the economy - even if it were just one per cent - was not recommendable. Boris Tuhi, professor of the Faculty of Economy in Sarajevo, says that such measures for resolving the problem of unemployment have never yielded results, reminding that we have high tax rates on salaries and that they are ruining the economy. According to him, tax rates are the main reason why people are working illegally, and he stresses also that due to high tax rates on salaries foreign investors do not wish to invest capital in labour intensive technologies, the only field which we can expect fresh capital in. Professor Tihi sees chances for accelerated employment in reduction of contributions levied on salaries since new burdens have never yielded economic progress.

Obviously, the problem of employment is too complex to be quickly and simply resolved. That is why it is interesting to know how foreign experts look upon resolving this problem in B&H. The opinion of Saumi Mitra, deputy director of the permanent mission of the World Bank in Sarajevo is typical in this sense when he says that the greatest friend of employment is economic growth. He assesses that the growth of 25 per cent in the Federation could be maintained in the forthcoming years, but for that it would be necessary to attract foreign investors since donations in B&H would continue to decrease. At the same time, Mitra believes that unemployment could be reduced by introducing order into the labour market which would increase flexibility in employment, but also in dismissal of workers. He also thinks that the decisive condition for employment growth is reduction of tax and contribution rates, because this curbs grey economy and increases employment in a pure economy. He corroborates this with the fact that B&H has an educated labour force capable of working in the West.

Other foreign experts share this opinion. They nevertheless stress that in the global approach to the problem of employment, it is necessary to start implementing economic reforms as soon as possible. If this is not done soon, the World Bank - and other financial institutions - will reduce the inflow of aid. This means less loans and less possibilities of opening new jobs. The ultimate consequences are already clear: economic growth will continue being slow, and the number of the employed will quickly decrease. It is not difficult to assume that unemployment in such cases, from the economic quickly becomes a social issue.

Therefore, the direction for resolving the problem of unemployment is quite clear. If this direction is not taken, collapse of chronically ailing economy and social unrest will be inevitable.

Raif CEHAJIC

(AIM Sarajevo)