EUROPEAN ECONOMY Economic Papers 346| November 2008 Adjustment capacity of labour markets of the Western Balkan countries (Countries studies - Volume II) Directorate-General for Economic and Financial Affairs and the Vienna Institute for International Economic Studies EUROPEAN COMMISSION Economic Papers are written by the Staff of the Directorate-General for Economic and Financial Affairs, or by experts working in association with them. The Papers are intended to increase awareness of the technical work being done by staff and to seek comments and suggestions for further analysis. The views expressed are the author’s alone and do not necessarily correspond to those of the European Commission. Comments and enquiries should be addressed to: European Commission Directorate-General for Economic and Financial Affairs Publications B-1049 Brussels Belgium E-mail: [email protected] This paper exists in English only and can be downloaded from the website http://ec.europa.eu/economy_finance/publications A great deal of additional information is available on the Internet. It can be accessed through the Europa server (http://europa.eu ) ISBN 978-92-79-08271-9 doi: 10.2765/17422 © European Communities, 2008 Adjustment capacity to external shocks of EU candidate and potential EU candidate countries of the Western Balkans, with a focus on labour markets Volume II 1 Adjustment capacity to external shocks of EU candidate and potential EU candidate countries of the Western Balkans, with a focus on labour markets Volume II This study is based on the final report of a study by The Vienna Institute for International Economic Studies, carried out within the contract ECFIN/169/2007/473194. The final version of this study was received on 13 October 2008. Due to its size, we publish the study in two volumes: Volume I contains the bulk of the report which has been drafted by an expert team of The Vienna Institute for International Economic Studies (wiiw), consisting of Vladimir Gligorov, Anna Iara, Michael Landesmann, Robert Stehrer and Hermine Vidovic. Volume II contains the background studies which were elaborated by a team of local experts: Arsena Gjipali, University of Tirana, Albania; Miroslav Tomic, Office of The High Representatives, Bosnia and Herzegovina; Valerija Botric, Institute of Economics, Zagreb, Croatia; Avdullah Hoti, University of Pristina, Kosovo; Maja Micevska, University of Klagenfurt, Austria; Ana Krsmanovic, Institute for Strategic Studies and Prognoses, Podgorica, Montenegro; Kosovka Ognjenovic, Economic and Social Policy Institute, Belgrade, Serbia; and Nataša Kump, Institute for Economic Research, Ljubljana, Slovenia. The views expressed are the author’s alone and do not necessarily correspond to those of the European Commission. Comments and enquiries should be addressed to: Corresponding editor: José Leandro European Commission BU-24 02/23 B – 1049 Brussels E-mail: [email protected] 2 Contents Volume II 1 Slovenia (Nataša Kump).................................................................................................5 2 Romania (Mariana Kotzeva).........................................................................................35 3 Albania ..........................................................................................................................67 4 Bosina and Herzegovina.............................................................................................99 5 Croatia.........................................................................................................................115 6 Former Yugoslav Republic of Macedonia ..............................................................141 7 Kosovo under UNSCR 1244/1999 (Avdullah Hoti) ...................................................159 8 Montenegro (Ana Krsmanovic) ..................................................................................177 9 Serbia (Kosovka Ognjenović) .....................................................................................199 3 4 SLOVENIA Nataša Kump 1. CONTRIBUTION TO THE LITERATURE REVIEW Authors Kump, Nataša; Stropnik, Nada Title Sistem kazalnikov za ugotavljanje, ali se delo izplača Reference (journal, publisher, …) Institute for Economic Research, Ljubljana Year 2007 The study investigates the “may work pay” indicators: unemployment trap, inactivity trap and poverty trap. It analyses the characteristics of individual transfers and income tax that have impact on the attractiveness of employment/activity. It presents the indicators for six family types and four income levels. The OECD methodology is applied. The disposable income of a single unemployed person who takes a job paying 67% of the average production worker (APW) wage (the same as before unemployment) increases by 17%; and by only 1% if the job pays a half of the APW wage. A single parent with two children (with previous earnings at the level of an average APW wage) looses 21.3% of the disposable income after taking up a job paying a half of the APW wage. The net replacement rates have not significantly changed due to abandoning the unemployment assistance. This is due to the fact that financial social assistance exceeds the former unemployment assistance (and in fact was supplementing it). Families with two children face the inactivity trap, too, if their probable earnings are below a half of average wage. Apart from social assistance and unemployment benefit, the social security contributions are the most important component of the traps. Authors Vodopivec, Milan Title Analiza mobilnosti dela in fleskibilnost sistema plač izplača Reference (journal, publisher, …) Manuscript Year 2005 Index of job protection decreased from 4.1 in 1995 to 3.1 in 1998 (when the Employment and Unemployment Insurance Act was revised), and to 2.7 in 2003 and 2004. In 1998, temporary work agencies were regulated. New Labour Relations Act (2003) shortened periods of notice and lowered severance payments. Collective dismissals became more flexible too. On the other hand, restrictions regarding temporary employment increased the index. Through decreasing the restrictiveness of the employment regulation, the revised Employment and Unemployment Insurance Act (1998) significantly contributed to a decrease in the differences between exits from employment of workers with permanent and temporary contracts. Index of job protection also indicates changes towards smaller rigidity, though at some points the legislations still does not allow for sufficient flexibility. Authors Kajzer, Alenka Title Spremembe na trgu dela v Sloveniji v obdobju 1995-2005 Reference (journal, publisher, …) Institute for Macroeconomic Analysis and Development 5 Year Delovni zvezek 5/2006, 2006 The study describes trends in Slovenian labour market; employment, unemployment, educational structure, labour market flexibility, wages, the institutional regulation of labour market and active labour market policy programmes. Authors Kajzer, Alenka Title The problem of ageing and labour market flexibility in Slovenia Reference (journal, publisher, …) International Social Security Association 5th International Research Conference on Social Security Year 2007 The Slovene labour market is often considered as rigid. The labour market situation is relatively favourable at the moment. A notable rise was observed particularly in fixed-term jobs, while the incidence of part-time work remained relatively modest. Flexibility mostly affects younger people (15-24 years), particularly young women. The paper shows age-related labour market segregation in Slovenia. The problem of the low employment rate of the elderly population (aged 55-64 years) in the context of population ageing brings forward the role of the social security system (pension system) and employment policy in Slovenia in coping with the demands for increased labour market flexibility also for the elderly population. 2. DESCRIPTION OF LABOUR MARKETS Brief summary of main characteristics Slovenia has undergone vast political, economic and social changes in the 1990s. The transition to a full- fledged market economy resulted in large changes on the labour market. The figures from administrative sources are telling: the number of labour active persons decreased from 909 thousand in 1990 to 743 thousand in 1997. Since then, there has been a gradual increase, to 825 thousand in 2006. Registered unemployment increased from 45 thousand in 1990 to the peak value of 129 thousand in 1993. A gradual decrease followed, so that by the end of 2006 there were some 86 thousand registered unemployed in Slovenia. Needless to say, much of the labour withdrawal was absorbed by the pension system, through generous early retirement schemes. Pension system of Slovenia also underwent a number of changes. In 1992, the Pension and Disability Insurance Act (PDIA) was passed. This was a comprehensive act: it did not introduce sweeping changes, but rather sought to establish full national sovereignty in this important area of social insurance. The 1992 PDIA gradually tightened eligibility criteria for pensioning. Early retirement was still possible at age 55 for men and 50 for women, provided certain conditions were met1. The tightening of conditions for early retirement came somewhat late in the day, as the large wave of early retirees already entered the pension system in 1990 and 1991. Preparations for a full-fledged reform started soon after the passage of the 1992 PDIA, and the reform was finally enacted at the end of 1999, with the passage of the