World Bank recommends actions for creating more jobs and making them more accessible
Pristina, January 28, 2014 – Improving employment prospects for citizens—and especially for women and the young—represents the single most important socio-economic development challenge in Kosovo, building on an important reform agenda already implemented to create more jobs and reduce unemployment.
A recent World Bank report “Back to Work: Growing with Jobs in Europe and Central Asia” says that unemployment in is high and job creation is weak throughout Eastern Europe and Central Asia (ECA), despite impressive reform efforts in many countries of the region and a decade of strong economic growth before the post-2008 crisis.
“There is a broad consensus in Kosovo. High rates of unemployment and exceptionally low rates of employment are the Achilles’ heel of an otherwise resilient economy,” said Jan-Peter Olters, World Bank Country Manager for Kosovo. “Therefore, rather than focusing on the methodologies employed for the analysis of Kosovo’s labor market outcomes, as has often been done in the public debate, the focus will have to be placed on domestic productivity-enhancing policies and most effective measures aimed at ensuring high-quality jobs for the country’s youthful population.”
The report recommends actions in two main policy areas to create more and better jobs in ECA:
- Laying the fundamentals for job creation through an enabling macroeconomic and business environment that allows existing firms to grow and new firms to emerge and succeed or fail quickly and at low cost; and
- Supporting workers to tap into new job opportunities, so that they have the right skills and work incentives, unhindered access to the labor market, and are able to move to places with more job creation potential.
According to the report, employment creation in the region was slow even before the crisis (2000-2007), when the region grew faster than many other emerging economies. ECA economies and employment levels in particular were then severely affected by the post-2008 crisis; and job creation remains sluggish in the post-crisis recovery. In 2012, the average unemployment rate for Europe and Central Asia stood at 14 percent, as compared to 31 percent in Kosovo. A worrying factor is that about half of all unemployed people have been looking for a job for more than a year. Young and older workers, women, and ethnic minorities are more likely to be jobless or employed in informal or low-wage jobs. For example, one in five young people in ECA is neither working, nor searching for work, nor studying.
In analyzing the factors behind this worrying situation, the report arrives at five main conclusions:
1. Market reforms that increase competition in domestic markets pay off in terms of achieving both job creation and productivity growth, although results take time to materialize. Initially, economic restructuring means that jobs are both created and destroyed. As countries further modernize their economies, job creation outpaces job destruction and this then translates into higher levels of employment. Countries that reformed early and have integrated into global markets, the so-called “advanced modernizers”, have been more successful in creating more jobs than “late modernizers” (such as the countries in the Western Balkans), which have implemented reforms slowly or unevenly.
2. A small fraction of high-growth firms (the so called “gazelles”), largely young, account for most of the new jobs created in the region. Entrepreneurship levels, however, remain low, especially among late reformers, compared to other middle-income regions and the OECD. Thus, countries need to translate entrepreneurship potential into successful creation of new businesses that can accelerate job creation.
3. Skills gaps hinder employment prospects, especially of youth and older workers, due to the inadequate response of the education and training systems to changes in employers’ demand for skills. Addressing this challenge will require rethinking the fundamentals of education, training, and life-long learning systems.
4. Employment is also hindered by high implicit taxes on work for those transitioning to formal jobs from inactivity or unemployment, and by other barriers to employment that affect particularly low-wage and part-time workers and second-earners in the household, who tend to be women, minorities, youth, and older workers.
5. Low labor mobility within countries prevents worker relocation to places with greater job creation potential. Migration abroad substitutes for low internal mobility, but worsens the demographic outlook in many countries.
The jobs agenda in Kosovo builds on steps already taken to streamline business regulations and improve the business climate, making it easier for local entrepreneurs to establish and register a company and have it succeed in the marketplace. The focus on related reforms have been reflected in Kosovo’s improved ranking in the 2014 Doing Business survey, with its 86th rank representing a 40-place improvement over two years among 189 countries. However, the current labor market situation implies that considerably more needs to be done to improve the business environment and help to increase the employment rate, especially among women and the young.