UN Resident Coordinator in the Republic of Armenia. Copyright 1999 by the United Nations Office in Armenia.

Transcription

1 1

2 This document has been prepared as follow-up to the UN World Summit for Social Development under the auspices of the United Nations Coordinator System in Armenia and the Regional Office of the International Labour Organisation in Moscow. The findings, interpretations, and conclusions expressed here are those of the author and do not necessarily represent the views of UN Agencies. UN Resident Coordinator in the Republic of Armenia Copyright 1999 by the United Nations Office in Armenia. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission of United Nations Office in Armenia. Assistant: Nairuhi Jrbashyan Translation and design: Aram Bayandouryan 2

3 Contents FOREWORD 4 Introduction 5 CHAPTER I Macroeconomic analysis of labour market in Armenia 9 1. Decline in overall employment 9 2. Structural changes in employment Property and employment reforms Unemployment (statistics and analysis) Demand and supply on the labour market Wages Conclusion to chapter I 23 CHAPTER II Special statistical study of the labour market in Armenia Specifics of the use of labour force in enterprises Surplus employment or hidden unemployment Visible unemployment and its characteristics Employment and its characteristics in the transition period Informal employment Employment, unemployment and poverty Conclusion to chapter II 46 CHAPTER III Government policy on labour market Legal framework for government regulation of labour market Budget policy in the area of employment Analysis of existing mechanisms for regulating the labour market Complex of government mechanisms for regulating the labour market Conclusion to chapter III 72 Bibliography 74 3

4 FOREWORD The labour market is the largest segment of market economy, which is not subject to simple regulations, and is hard to predict. Of course, it is subject to market laws and rules, but at the same time is highly dynamic and problematic because of the subjective behaviour of individuals (workforce), who form the basic substance of the labour market. The problems of labour market are the most exigent at the current stage of Armenia s development. By the level of official unemployment rate (11% in 1997) the country is in the first place among the Republics of the Former Soviet Union. The level of unemployment in Armenia is comparable to Eastern European countries, in most of which it fluctuates between 10-15%. Expert studies reveal that emigration, reaching one fourth of the total population in , is basically work related migration. In recent years, seasonal migration has become popular again, especially among rural male population, leaving the country to work abroad between agricultural seasons. The ensemble of aggravating problems of the labour market is the main factor effecting the political life in the country today. Several public opinion polls, conducted during 1998 Presidential elections, showed that Armenian voters gave top priority to job creation and ensuring stable employment, among problems expected to be solved by the future President. The problems of labour markets, and measures for reducing unemployment and job creation were the cornerstones of UN World Summit for Social Development (Copenhagen, March 6-12, 1995). Armenian delegation to the Conference was headed by the former President of the Republic. The present government also endorsed the principles of the Declaration on Social Development and Programme of Action. In particular, President Robert Kocharyan has proclaimed all-out efforts for job creation and promoting social justice in Armenian society, as priorities in his national socioeconomic policy. At the first national forum of Armenian entrepreneurs (Yerevan, 11 December 1998), Prime Minister Armen Darbinyan addressing the participants, declared job creation as the basic factor in the realisation of government policy on transition from economic stability to economic growth. This explains the great interest of the government and public bodies, as well as national scientists and researchers, in studying the problems of labour market and developing measures for its regulation. This Study is an attempt in this direction. It is not an attempt to fully encompass all aspects of the problem in detail. Nevertheless, the most actual manifestations of specifics of the labour market in Armenia and a number of approaches to its regulation have been reflected in the Study. 4

5 INTRODUCTION The study 'Labour Market in Armenia' is prepared in the light of the decisions made at the UN World Summit for Social Development, the 3 rd Commitment of which concerns general issues of job creation and full employment. As mentioned in the Foreword the situation of employment in Armenia is one of the main social problems the country faces today. Considering the importance of this problem for Armenia s further socio-economic development, an attempt has been made in this study to follow-up the achievement of social development objectives mentioned in Copenhagen Declaration and to develop recommendations for improving the employment situation in the country. The objective of 'Labour Market in Armenia' is studying the situation of country's labour market in three main directions. First, macroeconomic analysis of the main tendencies in the labour market in transition period (mainly ), using official statistical data, materials and current information of ministries and agencies of Armenia (Ministries of Statistics, State Registry and Analysis; Social Security; Industry and Trade; Finances and Economy; State Social Insurance Fund; Republican Employment Service; etc.). Special consideration has been given to the issues of decline and structural changes in employment, characteristics of unemployment, and analysis of wages as an indicator and regulator of labour market. Specifics of these phenomena in Armenia and their disparities with CIS and Eastern European countries are identified, explanations and economic justifications for these phenomena are as well provided. These and issues of demand and supply in the labour market are discussed in chapter I. Second, after discussing general statistics and main macroeconomic tendencies, we advance to detailed analysis of particular aspects of labour market, such as the use of labour force in enterprises and households, underemployment and informal employment, hidden unemployment and overall employment (not only officially registered), extent and duration of unemployment and 'discouraged workers', interrelation of employment phenomena, unemployment and poverty and a number of other issues. Studying the mentioned problems became possible only through a number of special sample surveys by 'Armstat 1, the results of which will be presented in chapter II and in specially prepared Boxes. The reports and scientific papers prepared on the basis of the data from these surveys are listed under 'Bibliography'. 1 The Department of Statistics, State registry and Analysis was granted Ministry status in May In order not to confuse the Department of Statistics, which has prepared the reports on sample statistical surveys, with its current title 'Ministry of Statistics, it is suggested to use its internationally recognised name 'Armstat'. 5

6 Third, logical continuation of studying the current situation of the labour market is the analysis of development tendencies in the legal framework and government regulation mechanisms during the period of reform in this area In this part of the Study (chapter III) current rules (legal framework) and mechanisms (specific government measures) regulating interrelations of main labour market actors: government, employer, worker and trade unions are studied. During the analysis of specific government measures, some gaps in government employment policy, currently being implemented were revealed, which served as the basis for developing necessary recommendations for its improvement. *** The soviet school of economics had two important prerequisites, which one way or another limited the research on labour problems. The first one was categorical refusal of the definition 'labour force is a commodity', which was the source of all the complexities of scientific-conceptual apparatus used. Categories such as 'labour market', 'demand and supply', 'value of labour', 'marginal value of labour' became automatically useless, even banned. The second well-known prerequisite was the 'objective application of the economic law of socialism: ensuring full employment for all'. This prerequisite was the basis of soviet labour legislation ('Labour Act'), in the introduction of which the victory of socialism, uprooting exploiters (in today's language 'employers') and the exploited ('employees') and conditions created for free labour are proclaimed. The utterly socialistic principles of 'From each one according to his possibilities and to each one according to his labour' and 'who does not work, does not eat' are also stated in the Labour Act. 2 And only with the liberalisation of the economy and adoption of the 'Law on Employment' (1992) the economic and legal foundation for formalisation and legalisation of the conceptual apparatus of the economic category of 'labour market' were laid. From this time on, registration and analysis of trends in supply and demand, employment and unemployment, nominal and real wages, as well as evaluation of the extent and directions of labour force movements in market conditions became possible for country's official statistics. But here as well statisticians and economists face certain difficulties. With the collapse of socialistic economic system, previous administration methods became useless. Current statistics, based on the registry and reports on legal and physical entities, today at best has the possibility to follow certain outdated and periodically repeating economic processes. Even in this case country's statistics faces serious problems of methodological nature, financial and technical difficulties, inadequate legal framework for information collection, etc. 2 However irrelevant it might seem, this Labour Act still regulates labour relationships in Armenia's labour market. See chapter III of this study. 6

7 An enormous number of recently developed and introduced indicators are collected for a very small circle of enterprises and practically are not collected for physical entities, which increases the level of uncertainty in informational-statistical area. This problem is well known among specialists, who are involved with the problems of transition countries, and statisticians of Economic Commission of Europe have suggested the term 'non-observable economy' for these phenomena. This segment of statistics, in addition to informal and illegal economy, includes cases of statistical non-registration and under-registration. There is a similar segment in labour market statistics. Thus, the analysis that is presented in this Study is made in two, in our opinion having equal statistical validity, directions: 1) studying the data bank of current statistics, which allows for observing dynamic processes in the labour market and comparing them with macroeconomic indices and social-demographic statistical indicators; 2) studying the specific manifestations in the functioning of the labour market by the data bank created in result of sample statistical surveys of enterprises and households. Research is not exclusively the aim of statistical-economic analysis presented in this Study. It is a basis for evaluating and identifying the directions of government policy on labour market, the urgency of which is stated in Copenhagen Declaration on Social Development and Programme of Action for participating countries, among them the Republic of Armenia. One of the points in Copenhagen Declaration (commitment 3) directly concerns government policies on employment and states that the signatory governments are committed to ' promoting the goal of full employment as a basic priority and enabling all men and women to attain secure and sustainable livelihoods through freely chosen productive employment and work '. 3 Because of the importance of this issue, a large part of the Study is devoted to the analysis of specific activities of the government and developing main directions of further improvements in government mechanisms for regulating the labour market in Armenia in the light of commitment 3 of Copenhagen Declaration. The circle of interests of UN Agencies and especially ILO, as the sponsor of this Study, are also considered to the possible degree. Special attention has been paid to the study of legal framework. The absence of new laws on labour and trade unions, corresponding to present conditions of the market, as well as the absence of complex programme approach by government bodies to the solution of urgent social-economic problems (maybe out of disrespect for old socialistic planning system), in our opinion are serious gaps in government policy on employment. 3 World Summit for Social Development - UN Briefing Papers. The World Conferences. Developing Priorities for the 21st Century. March 1997, p

8 It is also noticed, that other than integrated-programme approach to the problem of regulating the labour market needs the study of specifics of the behaviour of different social groups of economically active population (the youth, entrants to the labour market, pre-pension age people, women, temporarily ceasing economic activity because of childbirth, men of mature age (35-45) and especially refugees, the issue of integration of whom in the new socio-economic environment is extremely important for the country). Being important components of the structure of recommendations on the labour market of Armenia, they form the basic part of surplus, not demanded labour force, conditioning the high level of tension in the labour market. The Study 'Labour Market in Armenia' has been prepared in two official UN languages: English and Russian, in 75 Pages, with statistical tables and figures. 8

9 CHAPTER I. MACROECONOMIC ANALYSIS OF THE LABOUR MARKET IN ARMENIA Statistical survey and study of dynamics and trends for With the liberalisation of Armenia s economy in , the economic basis, and in 1992, by the first Employment Act adopted by the Supreme Soviet of Armenia the legal framework for the formation of the labour market were laid. And it was just beginning from 1992, that collecting data on supply and demand in the labour market, registering the unemployed by several characteristics (gender, age, profession, education, work experience, etc.), and evaluating the size and direction of workforce mobility in market conditions became possible for official statistics services of the country. In this chapter, the dynamics and trends in three main components of the Armenian labour market are studied, mainly based on the data from official statistics: employment (balance of labour force supply and demand); unemployment (surplus labour force supply), and wages (price of work, or workforce). The influences of the mentioned labour market components on economic growth, namely the GDP, are also identified. The Study includes factor analysis, study of cause-effect relationships, as well as comparative analysis of pre-reform (80-ies) and country s economic reform period (90-ies). 1. Decline in overall employment From 1985 to the end of 1991, according to country s official statistics, population s overall employment increased by an annual average of 20,000 to 25,000 people, and for even 40,000 people. 4 At this stage, before discussing the issue of reliability of these data, which are particularly based on the soviet methodology for registering the employed, we would like to mention that in 1992, with the adoption of the Employment Act and its procedures for registering the non-active (including the unemployed), already by the end of the year there were 64,000 non-active people registered with the employment services. This already indicates that de facto overall employment in these years has not been very high (81-86% of the workforce in ), and has not increased, especially in , when in the aftermath of the devastating earthquake in 1988 one third of country s economic potential was lost, and as a result of Karabakh conflict and political crisis in the country, economic activities in all areas were frozen. In 1992, the official statistics indicated a de jure decrease in employment by 100,000 people (or by 5.6%) compared to previous year, and as of 1 December 1998, the 4 Labour Market in the CIS Countries, Statistical collection, Moscow, 1998, page Ibid. Page

10 number of unemployed, who were registered with the employment services already constituted 180,000 to 190,000 people, or 11-12% of economically active population. 6 FIGURE 1.1 Dynamics of employment (thousand people) On the whole, the dynamics of changes in overall employment in Armenia s labour market is presented in Figure 1.1 As presented in Figure 1.1, beginning in 1992 a systematic decrease in overall employment in the economy is noticed. At the same time, global labour market trends have a small correlation to general economic processes. In particular, the dynamics of GDP has a completely different characteristic, which is clearly seen in Figure Comparative analysis of trends, presented in Figures 1.1 and 1.2, reveals the following specifics of current development of Armenian economy conditioned by the observed changes in labour market: The high level of overall employment de jure persisted longer (until the end of 1991), than positive GDP growth rates (until 1989). In the following years ( ), the decline in employment was not proportional to the depth of economic crisis. This is explained by initial absence of the corresponding legal framework and later lack of economic interest on enterprises' side for reducing surplus employment. These will be discussed in chapters II and III. Insignificant but nevertheless positive rates of GDP growth in , was accompanied by increasing rates of decline in employment, which testifies to significant structural changes in employment. FIGURE 1.2 GDP indices for (1988=100) Structural changes in employment The absolute decline in overall employment in Armenian economy, was accompanied by completely reversed direction of structural changes. In industrial production infrastructures (industry, construction, transport and communications), the annual growth rates of 1.5-2% employment for was replaced by a sharp and 6 Data from the Ministry of Social Security 10

11 continuous decline in the following years (up until today). As a result, overall employment index in the sector for 1997 compared to 1990 amounted to Just the opposite situation was noticed in the agriculture sector of economy. Here the decline in employment rates in constituted -7.7%. But in connection with land privatisation in employment in this sector increased by 200,000 people during these two years only. Increase in employment in the agriculture sector continued (however at lower rates) until 1996 (employment index in 1996 was 2.03 compared to 1990), after which the decline in employment became characteristic to the agriculture sector as well. On the whole, according to official statistics over the past two and a half years (from the end of 1996 to the middle of 1998), employment in the sector decreased by 34,000 people. Employment trends in the tertiary sector (trade and services) were characterised by their diversity, not only in pre-reform and reform periods, but in as well. In the first years of reform ( ) employment in this sector declined negligibly but steadily, in 1995 it increased notably (by economy for (thousand people) 30,000 people), and in it started to decrease again. The general picture of employment trends in three sectors of economy (A-industrial production, B-agriculture sector, C-trade and services) 7 is presented in Figure Figure 1.3 Employment trends in three sectors of Disparities in employment trends in different sectors of economy introduced qualitative changes in the overall employment structure, which resulted in a sharp increase in employment in the agriculture sector at the expense of similarly steep decline in employment in the industrial sector. (see Figure 1.4) The data presented in these Figures illustrate an important specificity of the reform of Armenian economy, namely absorption of surplus employees freed from the industrial sector not by the tertiary sector, but by the agriculture sector of economy. What is the explanation? Agriculture Services Industry 7 Breakdown into three sectors of economy is based on sector classification used by the Armstat and includes the following sectors: Industrial production (including energy, construction, transport, telecommunications; Agriculture, hunting and forest industries; Trade and public food, material and technical provision, realisation, processing, real estate operations, culture, education, science, health, sport, finances, credit, insurance, municipal services and service industry, etc. Administrative employees and other forms of employment are taken into account under Other. 11

12 FIGURE 1.4 Structure of employment by sectors of economy in 1985 and 1997 (%) 1985 other 4% 1997 other 3% Teriary sector 30% Industrial production infrastructure 46% Teriary sector 25% Industrial production infrastructure 31% Agriculture sector 20% Agriculture sector 41% First, because Armenian economy experienced a deep economic crisis, on both supply and demand sides. This means that with the decline in employment in the industrial sector, the population was largely impoverished, and consequently its purchasing power behind the demand for services diminished. For this same reason an absolute decline in tertiary sector employment also took place the index for 1997 compared to 1990 constituted Second, land privatisation and mechanisms for its implementation ensured adequate economic and legal conditions for acquiring land by urban population as well, if they had their roots in rural areas. Many employees, being originally from rural areas, and unable to work during the crisis of industrial enterprises, exercised this right and returned to their villages for agricultural activities (see box 1.1). As a result, employment in the agriculture sector increased about two times the index for 1997 compared to 1990 constituted Thus, macroeconomic equilibrium in Armenia s labour market was attained primarily due to the increase in agriculture sector employment. But we should mention that increase in employment in agriculture sector was not effective form the viewpoint of ensuring economic growth. Regression-correlation analysis of employment dynamics in A, B and C sectors and GDP growth rates for revealed that structural changes in employment had diverse effects on economic growth rate. Increase in employment in Agriculture sector has negative effects (correlation coefficient -0.7) on the dynamics of GDP. At the same time, fairly strong and positive interrelation has been observed between dynamics of GDP and employment in tertiary sector (correlation coefficient +0.9). The influence of industrial sector in the observed period was weak but positive (correlation coefficient +0.5). 12

13 This means that for the period , equilibrium in the labour market has been achieved by increase in employment in agriculture sector, but activation of economy and the economic growth in recent years have been ensured due to employment in tertiary sector. 3. Property and employment reforms One of the most important components of studying employment in transition economies, Armenia in particular, is the analysis of restructuring (redistribution) of employment by organisational-legal forms of property. The process of privatisation in Armenia, beginning in the first years of 90s with small trading firms, services (sector C) and land (sector B), acquired new impetus in 1995, with the privatisation of large and medium-size enterprises in the industrial sector (sector A). As of 1 January 1996, there were 190,000 employees in the privatised part of Armenian economy. 8 BOX 1. 1 Agrarisation of economy and ruralisation of population Armenia in the 80s was characterised as a country with a predominant share of developed industrial production in the economy (the share of industrial production in GNP was approximately 70%), while in the 90s the structure of economy changed toward agrarisation. The share of agriculture sector increased not only because of its strong growth, but also as a result of the deep crisis in country s industrial production caused by the collapse of soviet economic space (especially the military-industrial complex, the most important part of which was Armenian industry). Compared to 1988, the level of industrial production in 1993 declined by almost 64%, and in some sectors, food production in particular, even by 90%. As a result, the share of agriculture in the structure of national economy (GDP) mechanically increased by 2.5 times, or from 17.2% in 1990 to 40.2% in The agrarisation process of economy was accompanied by populations ruralisation, which started in 1992 and was expressed in the constant increase of rural populations share in country s overall population (in %, in %, in %, and in the beginning of %). The main reason behind the agrarisation of national economy was the crisis in industry, while the economic preconditions for population s ruralisation were created by land privatisation. It was just with the latter that the process of institutional reform started in Armenia. Urban population, from rural origins, used their right to the land of origin (this right was granted by the law on land privatisation), and acquired land parcels they were entitled to. Later, because of the tense situation of the labour market, many unemployed in urban areas were forced to reside in their parental homes and cultivate the land received. In reality the process of ruralisation is the result of urban population s return to their villages of origin. According to calculations of Armstat, on the whole 61% of the employed in the country are busy in the private (more precisely non-governmental) sector 9 of economy (see Figure 1.5). In the meanwhile, employment in the non-governmental sector has steadily increased over the period of economic reforms ( ), which is clearly presented in Figure Calculations are made on the basis of data from State Registry of Armenia, where according to the law on privatisation, Stock companies and Partnerships, formed on the basis of previous state enterprises are registered. 9 Hereinafter private means the non-governmental sector, including private property of citizens and groups of citizens, as well as property of non-governmental organisations and institutions jointly owned with foreign investors. 13

14 Naturally, distribution of employment by forms of property in various economic sectors (A, B and C) is not even. The highest level of private employment (98%) is noticed in the agriculture sector, while the lowest in tertiary sector (32.3%). The ratio of private sector employees in industrial infrastructures constituted 48.9%. FIGURE 1.5 Structure of employment by main types of property in Property of citizens, collectives, mixed 61% State owned 37.1% Property of religious organizations 1.2% Property shared with foreign investors 0.7% This is another manifestation of specifics of employment in Armenia. In contrast to all other CIS Republics, Armenia has the highest level of employment in private agriculture sector. 10 At the same time, compared to transition economies in Eastern Europe 11, not to mention countries with developed market systems, the share of employed in private tertiary sector does not reach even one third of overall employment in this sector: by its comparative level it is three times less than in the agriculture sector and 1.5 times less than in private industrial production. This is explained by: First, the high level of employment in the sphere of public social services, the wide and branched network of which is inherited from previous system. The State 100 Agriculture education system provides 80 Agriculture employment for 126,000 people; health care, sports 60 and social security for 40 78,000, science, culture Industry and arts for 47,000 (1997). 20 Industry Services These spheres are mainly Services financed from the state 0 budget, therefore this form Average: 32% Average: 55% of employment is considered as state employment in statistics (however there are many questions in this regard) 12. FIGURE 1.6 Dynamics of changes in employment in the private sector in Agriculture Industry Services 10 Labour Market in the CIS Countries, pp Unemployment, restructuring of economy and labour market in Eastern Europe and Russia, Moscow, 1995, pp The absolute majority of employees in this sector have additional private incomes, not necessarily through some other informal employment, but right at their workplace. For example, medical workers, besides their wages from the state budget, receive cash payments form patients for services rendered, 1997 Average: 62% 14

15 Second, it is the tertiary sector (C) that takes the lion s share of informal, and often unstable and/or additional employment of workers in the industrial sector (A). Over the years of economic reforms up to 30% of the employed in industrial enterprises, are on extended obligatory administrative leaves (in more than 80% of cases without pay). Naturally, many of them in search of income turn to trade or services sphere, however they are statistically registered at industrial enterprises infra-structures. Third, a small part of farmers, registered in the agriculture sector (B) are also employed in the tertiary sector (C). By special statistical surveys on farms in 1997 and 1998 (see box 1.2), it became possible to evaluate and adjust the number of employed in the agriculture sector Farmers employment based on farming seasons, but nevertheless it is still difficult to differentiate the informal employment of farmers by sectors. BOX 1.2 A survey on main forms of employment of 6,941 members of 1,500 farms in 75 Armenian villages revealed that: For 36.6% of farmers working in their farms was the main activity; 2% are farm workers, but not on their own farms; 2% are mainly employed in industrial sphere and services, and less than 1% in trade; 3% are state employees, and another 3.3% social workers; 1.2% household assistance, 4.1% have some other form of main employment; 47% of all household members, are so called socially dependants or economically inactive, among whom 24.2% are pupils and students, 12% pensioners, 10.8% children of preschool age. Comparatively, the overall ratio of the economically inactive population in the country was 60% in At the same time, 28.3% of participants mentioned having an additional employment as well, and according to 83.8% this additional work was farming. Source: Analysis of farm survey results (March-February 1998) Fourth, the highest level of employment in the private tertiary sector, 87% of employed in 1997, belongs to trade, public food, and technical services. But, in all sections of sector C the above-mentioned ones are the most privatised. Therefore, their employment trends were contradictory: on one hand, it declined as it was characteristic to all privatised sectors of economy, on the other hand it was in these sections that new private enterprises, and consequently, new work-places were intensively created. In the final analysis, in employment in these sectors declined, and only from 1995 it started to increase. Hence, the economic reforms implemented in Armenia beginning 1990, by their logical consequences have a tangible effect on the increase in employment in the private sector of economy: it increased almost twofold in the period from 1991 to which exceeds their state wages by tens of times. Up to 25% of teachers in secondary schools are private tutors as well, which brings them an income many times more than their yearly income. Teachers in rural schools are farmers as well. On the whole 60% of teachers in the country have additional employment. More details in Poverty social indicators, results of surveys on health care, education and pensioners, Yerevan, Armstat and UNDP,

16 4. Unemployment (statistics and analysis) BOX 1.3 Increase in private sector employment in transition economies The economic term unemployment was banned from use among soviet economists. It was considered that the socialistic system of production relationships ensures the necessary and adequate conditions for the implementation of one of the most important principles of socialistic political economy, i.e. the principle of employment for all. But unemployment, despite the refusal of politicians and scientists in its formalisation, was present everywhere in the country. Although not to the same extent, duration or with the same heavy consequences. Armenia was not an exception. Already in 70s the country ranked among the major countries by the share of employed in home gardens and housekeeping (in different years from 13% to 18%). Soviet statistics reflecting the realities of full employment, took into account the unemployed population in the balance of labour resources as employed in With the transition to market relationships former socialist countries, especially USSR republics, underwent steep changes in the size and structure of employment. At the same time, with the decline in overall (absolute) employment rates in these countries, a comparative increase in the private (non-governmental) sector is noticed. The following data, assert the above mentioned. TABLE 1.1 Indices of employment, unemployment, and employment in private sector in CIS countries for 1996 compared to 1991 CIS Republic Source: Calculated using statistical abstract 'Labour Markets in the CIS Countries', Index of overall employment Index of employment in non-governmental sector home gardens and households. From the end of 70s, some difficulties in ensuring employment for teachers and medical workers were noticed. There were specific difficulties in ensuring full employment in soviet and collective farms, and large number of farmers would leave for different corners of the Soviet Union for temporary employment between agricultural seasons. Index of unemployment (by number of registered at employment services) Azerbaijan Armenia Belarus Georgia 85. Kazakhstan Kyrgyzstan Moldova Russia Tajikistan Turkmenistan Uzbekistan Ukraine For regulating the mentioned employment problems, Job Centres were created in State Committees on Labour of USSR and Soviet Republics. Enterprises and organisations voluntarily provided information on vacancies, and unemployed citizens 16

17 or those who were willing to change their work registered with these Job Centres. Of course, unemployment as a status or unemployment benefit were out of the question. FIGURE 1.11 Changes of tension in the labour market 400 With the transition to market relationships, many hidden sides of soviet economy obtained their real economic forms and the 100 corresponding legitimate terms. 0 And with the adoption of The Law on Employment by the Supreme Soviet of Armenia in 1992, employment services under the Ministry of Labour and Social Security (presently, the Ministry of Social Security) were created all over the country. The law provided mechanisms for registering the unemployed, in search of employment; acquiring unemployment status and determining the size of unemployment benefit. It is from 1992 that the economic notion unemployment is statistically registered. The number of unemployed, registered with employment services, is reflected monthly (at the end of each month) in official statistics of the country. With a few exceptions (at the end of 1994, and beginning of 1995) 13, the absolute level of unemployment for steadily increased. The comparative level of official unemployment 14 for increased more than three times. The dynamics of the number of officially registered unemployed and level of unemployment in Armenia for is presented in Figure 1.7. On average, more than 8% of working age labour force had unemployed status in 1997, and 1.2% received unemployment benefits, i.e. only 14-15% of all the unemployed registered with employment services of the FIGURE 1.8 Dynamics of official unemployment rate for (end year, %) In the mentioned periods changes in the direction of stricter procedures for acquiring unemployment status and receiving unemployment benefits were introduced. 14 Is calculated as the ratio of the number of unemployed, registered with employment services, to the number of economically active population. 17

18 country received unemployment benefits. 15 In the meanwhile, compared to other CIS countries, the ratio of the unemployed receiving benefits is very low in Transcaucasian countries (as of September 1997, 10.3% in Azerbaijan, Secondary Aged ed. or low er 12.8% in Georgia and 14.9% in Armenia). In Russia, for 96 example, this indicator equals 88.3%, in Ukraine 59.1%, in Central Asian Republics %, etc. 16 This is explained first by strict rules for receiving 94 benefits, according to which working age citizens, who have at least one year of work experience and a paid job no FIGURE 1.9 Dynamics of the main characteristics of the unemployed, registered with the employment services (end year, ratio to total unemployment) more than six months before application (more details on government policy on the labour market in chapter 3 of this study). Second, such low level of receiving benefits is explained by the low number of unemployed applying for such benefits through employment services. The distribution of the unemployed by gender reveals a steady increase in the share of women, from 63% in 1993 to 73% in 1996, analysis of age composition shows a continuos growth of the ratio of the group aged 30-49, from 39% in 1994 to 47% in (see Figure 1.9). More than 2/3 of the unemployed have secondary or lower education. The analysis of gender-age and education structures of unemployment allows us to conclude that middle aged women (30-49) with secondary education or lower are under the highest risk of becoming unemployed. Studying unemployment from the viewpoint of working origins reveals its characteristics in contemporary Armenia: the main part of the unemployed, officially registered with employment services (60-70%) are those working in home gardens and households, who have legalised their status. In addition, late marriages and low birth rate accompanied by difficult material situation 17 of families compel many housewives to resume work, they had terminated at some point (for taking care of children, family burdens, etc.). 18 Total unemployment 15 Labour Market in the CIS Countries, p Ibid. 17 See the National Report Social snapshot and poverty in Armenia prepared by the Armstat on specifics of demographic situation and level of poverty in Armenia. 18 This is the reason behind such a small rate of the unemployed receiving unemployment benefits. Former housewives usually have not been employed six months before applying. 18

19 But there is the other side of the coin. According to data from several studies and surveys only every fourth unemployed registers with employment services. 19 Reasons are: FIGURE 1.10 Supply and demand on the labour market in Armenia thousand people Vacancy/year Searching employment Unemployment benefits are so small, that many 100 unemployed (especially men) 50 consider it degrading to go through the entire procedure 0 of registration for 800 to 2,400 drams per month ($1.5- $4.6). Real possibilities and actual rate of finding jobs through employment services is so low (not more than 500 people per month), that does not promote cooperation from the unemployed side Jobs That is why, basically only those who have difficulties in integrating into the labour market, family women who left the workforce long time ago, or young people entering the market for the first time (up to 20% of the unemployed are young people up to age 21). 5. Demand and supply on the labour market According to the methodology of the State Statistics Committee of CIS the statistics of demand and supply on the controlled labour market is collected by two indicators: (1) the number of 400 unemployed, registered with 300 employment services in search of employment; and (2) the demand for 200 employees presented to employment 100 services by enterprises (the number of 0 jobs available, vacancies). The first indicator characterises the supply of workforce on the labour market, and the second one its demand. FIGURE 1.11 Changes of tension in the labour market As presented, labour statistics reveal that the supply of workforce exceeds its demand in recent years on average by times. As a result the level of tension in the controlled labour market 20 (see Figure 1.11) of Armenia is in the worst situation 19 Results of some of these surveys are presented in chapter 2 of this Study. 20 The indicator of tension in the labour market is the ratio of the number of unemployed for one 19

20 among the CIS republics, and difference in this indicator is from 3 (compared to Georgia) to 250 times (compared with Uzbekistan). 21 FIGURE 1.12 Registered and checked out unemployed, and citizens who found jobs through employment se rvice s (thousand people) In these conditions the employment 30 services in Armenia can not play any effective role in finding 25 employment for citizens. Despite high mobility of officially unemployed, characterised by their high numbers going through employment services, annually only % of the officially unemployed find employment. According to 10 data from Republican Employment Centre of Armenia in , 5 138,600 people were registered and given unemployed status, and 0 139,700 unemployed were taken off the registry, 10,000 of which due to finding employment, or 7% of the formers. The main part of the unemployed is taken off the registry because of procedural limitations, in the law on employment Registered Checked out Found jobs 6. Wages As it is known in classical economic theories, wages have a dual role in the labour market. First, being the price of work (workforce) they should reflect expenditures on reproduction (even more, enhanced reproduction) of the workforce as a commodity. In this context wages should not be less than the monetary equivalent of the minimum consumer basket, needed for the physical survival of the owner of the workforce, i.e. the person. This is how the demand side establishes the price of work. Second, being the main mechanism for regulating the parameters of the labour market (demand and supply), wages should be flexible to demand, which supposes that its amount is established according to the maximum benefit produced by the commodity workforce. In this regard, it is important to follow the interrelation between trends in employment changes (demand) and wages. vacancy (Methodology of State Statistics Committee of CIS) 21 'Labour markets in CIS', p Data for 1998 are for the first three quarters. 20

21 The official statistics on wages include the amounts, structures and trends of wages in both the abovementioned aspects. The relationship between wages and minimum consumer budget is included in statistics through the following indicators: FIGURE 1.13 Comparative analysis of average wage, minimum wage and minimum consumer budget(thousand drams) May 98 Dec. 97 Minimum wage Average nominal wage Minimum consumer Budget (estimated) 1. The ratio of the minimum wage, at the end Dec. 96 of the corresponding period, to the minimum consumer budget and average monthly wage; 2. The established minimum wage and frequency of its review; 3. Differentiation of employees on the basis of wage amounts, according to the established minimum monthly wage First of all, it must be mentioned that at present there is no established official minimum consumer budget in Armenia. 24 The only minimum that is legally adopted and is periodically indexed is the minimum wage, which first was established by the President s decree in 1992 and was reviewed 16 times in (parallel to the indexing of public service wages, pensions and allowances). But the level of the minimum wage is so low (only 8-9% of average wage in ), that it practically plays no role in the government policy on incomes. 25 The minimum consumer budget, according to the evaluations of the Armstat and experts even the lowest estimations of minimum per capita consumer expenditures exceeds the nominal wage of an employee by times. It we take into account that each employed person has no less than 2.8 dependants 26, the insignificance of the role of wages in the family budgets of the majority of population becomes clear. 23 All the mentioned statistical indicators are calculated by the methodology of CIS Goskomstat 24 According to the corresponding resolution of the Government of Armenia, the minimum consumer budget is calculated every quarter by the Armstat on the basis of the minimum consumer basket and the coefficient of minimum expenditures on primary industrial goods and services. But this calculations are used only as guiding Figures for the socio-economic policy of the Government. 25 The official minimum wage is practically utilised for payments of benefits to employees in paid administrative leaves (according to the law, 2/3 of the monthly minimum wage) and for determining administrative fines (according to the law multiple minimum wage, for example 20, 30, 50 times the minimum wage). 26 The estimation has been done on the basis of official data on the number of country s population, which as of 1 January 1998 was 3.8 million, and the number of population employed in the economy in 1997, which equalled 1.37 million, the rest of the population has been classified as dependants, including children under 7 years of age, schoolchildren, students and pensioners. 21

22 According to the data from household surveys, carried out by the Armstat each year, the share of wages in the overall incomes of families steadily declined in 90s. In 1990, it amounted to 72% of overall family incomes, while in 1997 only 20%. Figure 1.13 presents the comparative analysis of minimum wages, average nominal wages and minimum consumer budget for December 1996, December 1997 and May The first two figures are based on the official *End year data, and the third (minimum per capita consumer budget) is based on expert evaluations of the author. As mentioned, wage level distribution of employees, who worked for a whole month, compared to the minimum wage, is also statistically registered. The analysis of this indicator for shows that wage polarisation trend: the share of lowest paid employees, receiving up to three times the minimum wage is increased, at the expense of the increase in the ratio of those, who receive 15 or more times the minimum wage (see table 1.2) 27 Another form of studying wages is the analysis of its changes caused by trends in the labour market, the synthetic indicator of which is the level unemployment. But, taking into account procedural complexities for receiving unemployment status in Armenia, which distorts even the official level of unemployment, the number of unemployed in search of work was preferred. TABLE 1.2 Differentiation of employees by wage level FIGURE 1.14 Trends of nominal and average real wages for January 1996-May 1998 (dram/month, 1996=100) Jan. 96 Jan. 97 Jan. 98 For this purpose, attempts have been made to determine the correlation of relationship between the dynamics of average real wages in the economy and changes in the number of unemployed, searching for work through employment services * 1997* All employees, who worked for a whole month Including: Less than official minimum times the minimum times the minimum times the minimum times the minimum times the minimum More than 20 times the minimum Data from Labour Market in the CIS Countries, p. 84, as well as the Armstat. 28 Real wages are calculated on the basis of two indicators: average nominal wage and consumer price index, taken from Armenia, economic trends, June 1998, Yerevan, 1998, (in Armenian and English), 22

23 The correlation coefficient was equal to 0.157, which proves the weak connection between the mentioned phenomena. In other words, the price of work is not yet the regulating mechanism for the labour market and is not flexible with regard to the supply of workforce. Studying the flexibility of wages depending on the demand, loses meaning because of the extremely low level of official demand, statistically presented by the number of vacancies. (see Figure 1.14) Nevertheless, the dynamics of nominal and average real wages is of interest and is presented in Figure As presented, the real wage for the period has increase 1.5 times, while the nominal wage for the same period increased almost two times. In fact, the increase in consumer prices, halved the effect of the increase in nominal wages. 7. Conclusion to chapter I The statistics of the last years of the transition period in Armenian economy allows us to identify the following main trends in the labour market: 1. The transition period and structural changes in the economy, were naturally accompanied by a systematic decline in overall employment of the able-to-work population. The level of the unemployed searching for work, as of 1 December 1998according to the official data of employment services has been 11-12% of the economically active population, which is twice more than its level in This is the highest level in all CIS countries. (see section 1) 2. The largest decline in employment has taken placed in industry and industrial production infrastructures: the index of overall employment in this sector in 1997 compared to 1990 has constituted (see section 2) 3. Surplus workers laid out from the industrial sector were not absorbed by the tertiary sector (as happened in the majority of CIS and CEE countries), but by the agriculture sector, which induces an important specificity to the structure of employment in Armenia. In 1997, 41.3% of the employed were in the agriculture sector (employment index for 1997 compared to 1990 was 1.81), while only 24.6% were employed in the industrial sector, and 31% in the tertiary sector (employment index in 1997 compared to 1990 was 0.83). (see section 2) 4. Restructuring of employment by forms of property took place by its steady decline in governmental sector and increase in private sector. For the reform period of , the cornerstone of which was land and state property privatisation, employment in the private sector increased almost twice, amounting to 61% in (see section 3) 5. The highest level of private employment, at 98% of all the employed in the sector (the highest rate in CIS), was in the agriculture sector, while the lowest pp. 29, 31. Data for January 1996 is taken as the base level of average wage. The number of unemployed in search of work registered with the employment services, is taken from Labour Market in the CIS Countries, p