Holding the bull by its horns in Bosnia & Herzegovina: Tackling Structural Unemployment in the Labour Market

FROM: Amar Numanović, Zenebe B. Uraguchi – 21. October 2019

It was 2012. A small initiative by the Swiss government in the labour markets in Bosnia & Herzegovinian was launched. Implemented by Helvetas Swiss Intercooperation and Kolektiv ltd, the MarketMakers project aims to identify and address bottlenecks in the growth of private businesses for creating jobs.

The economic conditions of the country six years ago looked quite pessimistic. Imagine the impact of the global financial crash in 2008/2009 on fragile and unprepared Bosnia & Herzegovinian! The labour market worsened, especially hitting the youth hard.

Growth slipped to a negative rate (-0.8%) and the unemployment rate was at its post-war maximum (28%). Unemployment among 15-24 age jumped to 63% and stayed the same until 2016.

So, how could a small project make a real contribution in such challenging economic context?

Turn of the tide? How things seemed to be better after 2015

Why the economic was doing badly? There were several reasons.

To begin with, the business climate was poor due to rigid regulations, inefficient and costly procedures of registering and closing business. In addition, tax burdens on labour were high, worsened by out-dated labour legislation. No significant policy efforts emerged from successive governments.  

Since 2015, things have seemed to be improving. Once the contracting economy has started to expand modestly and gradually, labour market outcomes have also notably improved. This was due to the recovery in the European Union and to some extent to socioeconomic reform implemented since 2015, for example, the Reform Agenda focusing on a set of medium-term policy measures.

Over the past few years, jobs have been created at a faster pace, which is reflected in the positive trend in year-over-year net employment. The overall demand for goods and services in the economy started to support employment creation. Cyclical unemployment, which occurs during periods of slow economic growth or during periods of economic contraction, seemed to improve.

Yet, economic improvements haven’t addressed major labour market problems    

Private sector investment has led to increased production, sales and income. Therefore, more people were needed to meet consumers demand for more goods and services. However, such positive developments haven’t been able to solve a bigger and more serious problem: structural unemployment.

Simply stated, the jobs available due to economic improvements didn’t attract people with suitable skills. There has been a mismatch between the jobs available and the skill levels of the unemployed.    

The economy of Bosnia & Herzegovina has been undergoing technological changes like other countries in the region. A number of state-owned enterprises that employed large number of low-to-medium skilled workers during the ex-Yugoslavia time collapsed, leading to massive unemployment. Many of these workers couldn’t find employment that matches their skills and abilities, thus slipping into long-term unemployment.

We believe at the heart of the problem is the changing economic landscape that hasn’t been accompanied by an education system to generate workforce and meet the demands in the economy. Skills development determines success in the labour markets. It’s a strong predictor of stable and quality jobs among young people. Young people with enhanced skills and looking for their first job are better prepared for a smooth transition from school to work.

This hasn’t been the case in Bosnia & Herzegovina. Around 1/3 of employed young people in Bosnia & Herzegovina work outside of their profession and this is due to mismatch between the education system to industries’ needs. Close to 38% of graduates are overqualified for the position where they are employed and 15% of them are under-qualified.

The seriousness of the problem is made clear when half of the employers surveyed stated that they experienced difficulties of finding suitable employees, and 72% of these companies believed that the problem was mainly due to skills mismatch. The country has also a large number of young people (24.3% in 2017) that aren’t in employment, education or training (NEET).

As the report of the World Economic Forum states, if the changing nature of work is managed poorly, it'll “pose the risk of widening skills gaps, [leading to] greater inequality and broader polarisation”. Under the changing nature of the future of work – often in complex, dynamic and unpredictable manners – young people who succeed in finding employment are typically hired into low-skilled, low-productivity positions, often in the informal sector.

MarketMakers: a story of evolving and adapting to new realities

This’s where MarketMakers has jumped in – to identify and address bottlenecks that undermine the growth of private businesses and thus result in a slow pace of job creation. MarketMakers is focused on supporting new business models, practices, market functions, more favourable policies and alike that could overcome or respond to challenges that industries face in sectors such as information technology, tourism and business process outsourcing.

MarketMakers understands adaptive management as consistently navigating complexity. Simply put, this means the ability to change strategies, plans and activities quickly in response to new information or signal to become more effective. Linear, largely pre-planned initiatives are poorly suited to complex problems and contexts.

Thus, MarketMakers has recognized the changing nature of the challenges in the labour market of Bosnia & Herzegovina and related sectoral environment timely and adopted its approach to meet new and sector-specific realities. Examples are here and here.  

In that sense, MarketMakers is still a job-creation initiative and still primarily focused on enhancing demand for the labour. But once the demand exceeds supply or supply doesn’t match the needs of the industry (skills gap), MarketMakers has jumped in and supported industries in overcoming the skills gap issue, thus helping to prevent deterioration of industries that have a huge growth and even development (e.g. the software industry) potential.

Besides, better skilled and knowledgeable workforce is a necessary precondition for knowledge-intensive industries to increase quality and advance complexity (sophistication) of their products (goods and/or services), thus contributing to developing conditions for industries to move up the value chain.

Above all, solutions proposed to structural unemployment should focus on different dimensions of labour market systems – from supply (skills) to intermediation (labour market information and matching services) and demand (investment in job creation).

Additional sources

 

 

Amar Numanović
Amar Numanovic is a researcher and analyst with an extensive experience working with think tanks, academia and non-governmental organizations in the Western Balkans. The primary fields of his research interest are industrial policies, the role of the State in economic development and labour market. He currently works at the MarketMakers project in Bosnia and Herzegovina as Impact Analyst.
Programme Coordinator, East and Southeast Europe, Senior Advisor, Sustainable & Inclusive Economies