Download - Bosnia and Herzegovina Labor Market Update
Europe and Central Asia Region
The World Bank
Bosnia and Herzegovina Labor Market Update
The Role of Industrial Relations
The World BankHuman Development Sector UnitEurope and Central Asia Region
December 2005
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Europe and Central Asia Region
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Enhancing Job Opportunities 2
What is the aim of this report?
Update the analysis of the 2002 World Bank Labor Market Study based on 2003 and 2004 LSMS and compare with countries in the region Review in-depth the system of industrial relations and their impact on labor market outcomesPropose concrete labor market policy directions to make the labor market in BH more dynamic
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Employment and unemployment…
BH has strong economic growth but insufficient to make a dent into continued high unemploymentAlready very high youth unemployment has increased furtherBut gains in labor force participation and employmentIncrease in hours workedStill overstaffing in State-owned sector – unproductive and fictitious employment
0
10
20
30
40
50
60
70
2001 2002 2004
Source:Ow n calculations and World Bank (2005) based on LSMS
perc
ent
Unemployment
Employment
Labor ForceParticipation
Unemployment by age
0%
10%
20%
30%
40%
50%
60%
70%
15-18 19-24 25-34 35-44 54-54 55-64
Source: Ow n calculations, based on LSMS
Per
cen
t 2001
2002
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…the informal sector…Much of the employment creation happens in the fast growing informal sectorInformal sector dominated by employment in agriculture and self-employed and contributing family membersFalling share of small business in informal employment
Employment by sector, in percent of total employment
0%10%20%30%40%50%60%70%80%90%
100%
2001 2004
Ow n calculations and World Bank (2005), based on LSMS
Pe
rce
nt
Informal sector
Formal sector
Distribution of Informal Sector Employment 2004
Agriculture
Construction
Manufacturing
Other
Trade
Hotels andRestaurantUtility
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…wages and productivity…Formal sector wages are high relative to productivity in a regional comparisonAnd in RS they are growing fast relative to productivity
Net wage/GNI per capita, 2004
0.020.040.060.080.0
100.0120.0140.0160.0180.0200.0
Per
cent
Net wage/GNI per capita
Wage and Productivity Growth
0
50
100
150
200
250
1999 2000 2001 2002 2003 2004
FBH wage
FBH prod
RS prod
RS wage
Average Net Monthly Wages in EUR, 2000 and 2004
0100200300400500600
Source: World Bank staff calculations
EURO
2000
2004
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…and the payroll tax burden
The payroll contribution and wage tax burden as evident in the tax wedge is not excessive in a regional context, but there is room for improvementThe effective burden is equal between RS and FBHBut what differs is the taxable base: FBH excludes wage allowancesSystems remain non-harmonized
ECA tax wedge on labor, 2003
010203040506070
Source: World Bank (2005b) and ow n calculations
Shares of take-home pay and payroll deductions in total labor cost
0%
20%
40%
60%
80%
100%
FBH RS
Source: Ow n calculations
Wage Tax
Social InsurancecontributionsRS Take-home pay
FBH Allow ances non-taxableFBH Base Wage
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Industrial Relations are evolving
Historically, collective bargaining dominated by Government and public sector trade unions, with Government extending collective agreement coverage across the economyWhile FBH just adopted first new GCA since 2000, RS GCA has remained unchanged for yearsRecent strengthening of private sector employers’ associations in collective bargaining, but still limited representativenessTrade union density on the decline and little penetration of the new private sectorStrengthening of tripartism in Economic and Social Councils at Entity and possibly State level
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Impact of labor regulations on labor market outcomes: Main Findings
Mixed message: the labor market in BH is more dynamic than often assumed, but constraints remainAlthough substantial aspects of labor regulations are rigid on paper (particularly in the collective agreements) they do not appear to have the expected negative effect on the labor market at large in practiceEvidence of non-enforcement of collective agreement provisions across the economy as a whole, but application in some sectors Improving job opportunities requires continued strong growth, wage restraint, improvements in the business environment and a careful look at labor regulationsData are often inconsistent and of low quality
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The FBH minimum wage is not fully binding…
20 percent of formal sector employees in FBH report earnings less than the minimum wageShare of employees reporting less than 50 percent of the average wage are almost similar between SR and FBH, despite different MW levels
Share of formal sector employees reporting earnings below 50 percent of the average wage
0
5
10
15
20
2001 2002 2003
Source: Ow n calculations based on LSMS,Note: (a) Earnings are for w orkers aged 15 and older; (2) Averages are calculated from the
LSMS and are based on usual earnings.P
erce
nt FBH
RS
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FBH wage indexation mechanism has not led to higher wage growth…
FBH minimum wage remains high in a regional context, which may undermine complianceHowever, “minimum wage - average wage spiral” in FBH has not led to higher wage growthWages have been growing faster in RS, where there is no automatic indexation mechanism
Average net wage growth, 1997=100
0
50
100
150
200
250
300
1997 1998 1999 2000 2001 2002 2003 2004
Source: FBH and RS Statistical Institutes
FBH
RS
Minimum/average wage ratio, 2002 (%)
0 10 20 30 40 50 60 70
AzerBelar
RussiaMoldArmRSEst
BulgRom
PolLat
CzechSlovak
HungSloven
UkrMacFBHLith
Source: World Bank (2005) and ow n calculations
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Many collective agreement provisions have no significant impact on wages…
Length of employment (“seniority”) has no significant impact on earningsThis is opposed to what the Branch Collective Agreements’ wage coefficient systems would predictReturns to education weaker than in many other countries, despite rigid education coefficients in the collective agreementsWhile in theory covering the entire economy, de facto coverage is limited, especially in the de novo private sector
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But….
Flexibility through non-enforcement of labor regulations is undesirable, as it leads to informality, creates uncertainty and undermines worker protectionCollective agreements remain broad in scope and rigid and, while being partly evaded, can still have negative effect in some sectorsThere are obstacles to labor adjustment due to gaps in legislation and regulations
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Collective agreement rigidities
Automatic extension of collective agreement coverage to companies not represented in bargainingCollective agreement duration open-ended – while FBH has just adopted a new GCA (the first since 2000), the RS GCA remains unchanged since 2000Transferable seniority premium in wage determination in RS Education coefficients in wage determinationCaps on temporary and part-time employmentLong maternity leave provisions
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Obstacles to temporary and part-time employment
The work book system is not geared towards temporary and part-time employment Doing Business: BH scores worse than regional comparators on an index of hiring difficulty – due to caps on temporary employment
Employment Rigidity in 2005
0
10
20
30
40
50
60
Diff iculty ofHiring Index
Rigidity ofHours Index
Diff iculty ofFiring Index
Rigidity ofEmployment
Index
Hiring cost(% of salary)
Firing costs(w eeks ofw ages)
Ind
ex
Bosnia andHerzegovina
Region
OECD
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Long maternity leaveBH’s maternity leave extends to 1 year – substantially longer than in many European and OECD countriesContinued low female employment and labor force participation rates
Maternity Leave - Duration in Weeks
0 10 20 30 40 50 60
Portugal
Turkey
US
Germany
Belgium
Austria
Luxembourg
Netherlands
Poland
Spain
Sw itzerland
Romania
Canada
Greece
Denmark
Finland
Ireland
UK
Estonia
Italy
Hungary
Bulgaria
Czech Republic
Croatia
Macedonia
Albania
Norw ay
Bosnia and Herzegovina
Weeks
BH Labor Market Outcomes and Gender, 2004
0
10
20
30
40
50
60
70
80
unemployment employment labor forceparticipation
Pe
rce
nt
Men
Women
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Regulatory Gaps
Representativeness criteria for social partners in collective bargainingLegal framework for firm-level bargainingAlternative to employee work book system to keep records for social insurance contributionInsurance of employers for wage payment obligations in cases of natural disaster and disabilityNo system to deal with temporary lay-offs – to prevent re-emergence of “fictitious” worker problem
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Policy directions for a more dynamic labor marketCreate a leaner but more enforceable set of labor regulations– Allow for a gradual reduction of the minimum
wage as a share of the average wage in the FBH
– Introduce a youth minimum wage– Rationalize and simplify the system of
“coefficients” and other aspects of wages, employment and benefit determination
– Allow for wage restraint– Reduce the duration of maternity leave and
pay maternity benefits through the social insurance system
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Policy directions for a more dynamic labor market
Review the system of payroll contributions– Integrate non-wage benefits into the taxable
base in the FBH– Harmonize systems of payroll social insurance
contributions and rates between the Entities– Allow for reductions in payroll contribution
burden by identifying savings in the health, pension and unemployment insurance system and by introducing limited general revenue financing
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Policy directions for a more dynamic labor market
Review systems of collective bargaining and wage determination– Separate public sector wage determination
from that in other sectors– Limit collective agreement coverage to those
enterprises that are represented in bargaining
– Define criteria for representation of social partners involved in tripartite bargaining
– Create a State-level Economic and Social Council as a forum to discuss medium-term labor market and collective bargaining reforms
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Policy directions for a more dynamic labor market
Facilitate labor adjustment and stop the flow of new “fictitious” workers– Promote enterprise restructuring and free
up labor currently held up in fictitious and unproductive employment
– Develop an alternative to employee workbooks to promote labor mobility
– Introduce legislation to address temporary layoffs
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Policy directions for a more dynamic labor market
Improve the statistical basis for labor market analysis– Introduce an annual Labor Force Survey,
complemented by enterprise surveys– Increase capacity of the statistical offices to
collect more accurate data from enterprises
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Thank You
World BankBosnia and Herzegovina Country Office
Fra Anđela Zvizdovića 171000 Sarajevo
www.worldbank.ba