Active labour market measures in Bosnia and Herzegovina: Solving instead of amortising the unemployment issue

Finding a job is anything but easy for a person in Bosnia and Herzegovina (BiH). Sluggish economic growth results in a slow pace of jobs creation, thus offering very limited opportunities for job-seekers. On the other side, tectonic changes in the economic setup that occurred during 1990s and 2000s – including deindustrialisation and the collapse of many giant state-owned enterprises, which were employing large amounts of low-to-medium skilled workers in ex-Yugoslavia – ended in massive redundancies of hard-to-employ workforce. It created harsh structural imbalances on the labour market, considering that many of these workers could not find job that matches their skills and abilities, thus slipping in long-term unemployment.

Furthermore, education system, which should, more or less, follow the market dynamics and meet economic demands for relevant and up-to-date skills, often plays a quite opposite role, widening gap and perpetuating skills-related discrepancies on the labour market. In such environment, picture of the labour market, as captured by the Labour Force Survey, is pretty discouraging: despite some slight recent improvements, unemployment is persistently high, at the rate of 18.4% in 2018, while this rate is much higher for youth, 38.8%. Around 82% of unemployed people are looking for a job 12 months or more. Majority of recent university graduates experience unemployment spells, being unemployed in average, as some recent findings presented by Bartlett, Branković and Oruč suggest, for the period of 8 months after the graduation.

Inadequate support from the public employment services in the job seeking process

However, an unemployed person in BiH would receive a little support from the public employment services (PES). Once a person enters the employment bureau, an officer would ask him/her for the basic information and finish necessary paperwork - maybe giving a few high-level advice. After that, relationship of unemployed person with PES comes down to periodical reporting to the bureau. For the sake of illustration, research conducted by Bartlett, Branković and Oruč in 2016 suggests that almost 88% of recent graduates receive none or a very little support from PES during the unemployment period.

If the same unemployed person was lucky enough to live in Denmark, support received by the employment services would look quite different: in addition to registration, he or she would receive extensive support in terms of counselling and guidance through the job-seeking process. Employment bureau officer would create an individual employment plan to adapt job-seeking path to the specific profile of the job-seeker in terms of skills, previous experience, and educational background, i.e. to his/her already established career path and potentials. As the part of employment support, officer would enrol an unemployed person in best-fitting programmes of the so-called active labour market policies (hereinafter: ALMPs).

What are active labour market policies?

ALMPs could be, in the simplest way, defined as government’s economic measures implemented to improve functioning of the labour market in a way to work for unemployed people or, more specifically, to enhance the labour market position and employability prospects for unemployed people. Such policies emerged, for the first time, in the first half of 20th century, during the Great Depression, as the part of New Deal policies and were mainly based on public work schemes and direct job creation within the public sector. However, modern-day active policies were created in Sweden, during 1950s and 1960s, when the country has been going through systemic reforms and changes – including ridding off low-productive, low-end, economic activities - to ensure an efficient and effective reintegration of redundant workforce in economic trends and employment. Today, such measures are an integral part of the activation policy conducted in majority of EU and OECD countries, often as a part of the flexicurity model – a model in which increased flexibility of the labour market is compensated with strong welfare schemes and active support to employment. Active measures are usually consisted of various employment incentives (e.g. wage subsidies), self-employment schemes, direct job creation or retention measures, and (re)training programmes. In that sense, they tackle both labour demand and labour supply sides.

Active labour market policies in Bosnia and Herzegovina: flawed design and approach undermines the results and effectiveness

However, active measures are rather under-developed and poorly designed in BiH. First of all, targeting of the measures is not sufficiently personalised, meaning that programmes are usually implemented in a form of public call to employers, who have to apply for grants and subsidies tailored for employment - or other types of support - of people who are registered as unemployed and meet other relevant criteria. In other words, ALMPs, in the majority of cases, target employers instead of the unemployed (end-beneficiaries). This can be, partially, attributed to insufficiently developed counselling support and weak capacities of employment services to administer a “personalised” approach. Furthermore, public calls sometimes lack transparency and end in inefficiencies: for the sake of illustration, several cantons in FBiH organized a selection procedure in 2017 in a way that employers who were the fastest in filling in the online application were granted with subsidies; the call was open only for a several minutes and many employers, who did not have the information about the procedure in advance, were not able to apply for the support.

As a result of such, non-personalised, approach, support often does not reach properly those with lower prospects for employment, does not target beneficiaries (i.e. unemployed) in accordance to their needs but also does not provide timely reaction. To illustrate the latest, timely support, encompassed by counselling support and participation in active measures, would help the above-mentioned recent graduate to stay economically active and to upgrade his/her skills and abilities and become more attractive for employers, thus avoiding prolonged or even long-term unemployment. Another example could be the case where a person becomes redundant after a long period of working in the company. It can be assumed that the person has lost some of the abilities of searching for a job and does not have a proper overview of the labour market demand and trends - this is especially true in the case of older workers. Employment services should jump in here, to immediately support job-seeking efforts and potentially direct the person toward appropriate programmes of active measures, thus preventing person from having a long career break or even slip in long-term unemployment, due to inability to properly manage job-loss crisis and job-seeking process. If a skillset of the person is outdated or does not meet market demand, (re)training programmes could help the person to stay competitive on the labour market. Recent examples of domestic workforce going through retraining programmes to find an employment in EU countries – predominantly in Germany – suggest a viability and high potential of retraining schemes in redirecting careers in a quality manner.

Furthermore, active measures are predominantly concentrated around employment incentives: it could be roughly estimated, on the basis of the report on ALMPs in 2017 published by the BiH Labour and Employment Agency, that around 2/3 of ALMP funds is allocated on these measures, which also covers more than 70% of beneficiaries. These measures provide a quick fix, relatively easily moving unemployed from the bureaus’ registers to jobs and boosting or maintaining employment statistics. However, regional evidence suggests modest or even negative effects of employment incentives on long-term labour market position of beneficiaries. Another widespread measure is self-employment, which consists slightly less than 1/4 of ALMP expenditure. On the other side, (re)training measures are neglected, despite their potential to tackle skills mismatch to some extent, redirecting unemployed toward professions in demand: on-the-job training, accompanied with hiring subsidies, is usually considered as one of the most successful measures in the regional context. They have a positive impact on the beneficiary’s employability in mid-to-long-term perspectives. However, less than 8% of all active measures’ funds are allocated to (re)training measures, compared to EU where training measures consist 30-40% of ALMP spending. It clearly indicates that authorities prioritise a reactive, short-term, approach, which helps to temporarily amortise unemployment as one of the burning social issues, over utilising more substantial, long-term, and potential of active measures.

When looked from the macro perspective, it is clear that such design of active measures produces questionable overall results. Very often, ALMPs support those who are enough competitive on the market and who would find a job even without the support. Besides, employment incentives often substitute regular employment by subsidising jobs which would be anyhow created, even without the support; however, employers would rather wait for employment incentives to decrease their hiring costs, than advertise for vacancy once the need is identified or opportunity is created.

However, it seems that “money” is no longer an issue – at least temporarily. After the period of several years, when public spending on ALMPs fluctuated around 0.15% of GDP, it started to increase since 2016, exceeding 0.21% of GDP recently and being as half as in EU and OECD countries, which in average spend 0.40% of GDP on ALMPs. The trend of further growth is expected in 2019, partially as a result of implementation of the loan agreement BiH governments reached with the IBRD. Although justification and sustainability of financing through loans is a questionable by itself and requires special attention that cannot be devoted in this text, it can be noted that despite increased spending, the key challenges remain almost untouched.

What active measures do we need?

In that sense, ALMPs should not serve as a social quick fix to poor labour market outcomes – primarily unemployment - and boost to employment statistics. Instead, governments should start to address the labour market issue at its core, creating favourable business climate, improving education policies and adapting labour regulation to meet new business and technological realities. ALMPs should supplement market mechanisms, serving to the policy’s primary function: to timely and substantially support those for which the labour market works less, primarily by improving their employability. Thus, ALMPs should play a role in the policy efforts to tackle skill-gaps. It seems very challenging to prevent and reduce skills imbalances and long-term unemployment through active measures, but we have to be honest and admit that we never tried. At least not in a right manner.

There is no simple and universal receipt for designing effective ALMPs. However, existing flaws in ALMP design, briefly discussed in this text, require improvements that could be articulated in two high-level recommendations:

• Current approach of targeting employers through open calls should be gradually shifted toward the approach which would put real beneficiaries of ALMPs – unemployed people – in the center of the schemes: employment services should guide unemployed people more actively through the job-seeking process, matching them with employers based on their profile. Although employers would still be incentivised to take unemployed on board, better guidance and tailor-made approach would increase effectiveness of the measures.
• Higher share of ALMP funds should be allocated to (re)training measures, setting as a goal to reach 1/3 of total funding, thus approaching the EU average. Rising in expenditure on training measures should be followed by their diversification and adjustment to needs of industries with high jobs creation potential.

Author: Amar Numanović

Disclaimer: This is the original text version of the blog: "Aktivne mjere zapošljavanja u Bosni i Hercegovini: rješavanje namjesto amortiziranja problema nezaposlenosti".