Private sector job creation: Where are the Gazelles? Nikica Mojsoska Blazevski Jadranka Kaludjerovic

Aim and motivation To provide some further evidence on the factors that contribute(d) to the persistently high unemployment and low employment in the Western Balkan region, - mainly through the prism of the demand side of the labour market and private sector growth Why are Gazelles largely absent? Motivation? Some recent studies (ex. Kovtun et al., 2014)

GDP per capita data

Unemployment rates (population aged 15+)

Employment-to-population ratios (population aged 15+)

Employment structure in 2015

Private wage employment contribution

Theoretical framework Optimal speed of transition (OST) literature that emerged in early 1990s (mainly established by Aghion-Blanchard, 1994) Quick and painless reallocation of resources Privatization and flow of workers WB economies are in a high-unemployment equilibrium

What can explain the insufficient labour demand: theory and evidence? Framework (Kovtun et al. 2015) i) labour market institutions which affect the matching process, and shape the adjustment capacity of firms (EPL, LTE, relations between employee and employers) ii) cost factors which prevent the wages to adjust downwards to reflect the oversupply of labour (bargining system, ULC) iii) structural factors which accompany the transition process and the association to the EU, including the industrial and SMEs policy (FDIs, export structure, SME density, doing business)

What did we learn (1) Initial economic and political environment (with wars, trade embargos, disconnect with the previous trade partners, etc.) all contributed to initial poor performance of the WB labour markets Distracted FDIs, and hence the WB countries failed to attract some initial boost in the transition, and to establish and develop a propulsive, new private sector “negative Balkan” effect on attracting FDIs in the region (Estrin and Uvalic, 2013)

What did we learn (2) Some standard, institutional-based explanations seem to be unimportant (the role of the unemployment benefits, EPL, MW, etc.) Labour costs, two elements: - wages seem not to be high compared to NMS (comparator?) - wages of skilled workers and managers are relatively high

What did we learn (3) Very important role of the structural factors in the growth and job creation Lack of large resource reallocation at the outset of transition Inflow of FDIs in the non-tradable sectors Low sophistication of businesses in the WB region Predominance of traditional, low-skill products in the exports Large bottlenecks (sometimes in the basic elements of the business environment)

What did we learn (4) Need for large support (and support system) for the potential Gazelles Positive: large improvements in doing business, and increasing investments Towards increasing capital and labour accumulation

Data and knowledge gaps Lack of comparative, high quality database for the main economic indicators for the WB countries Access to data Availability of firm level data - dynamics Wage rigidity, revenue sharing, elasticity of demand on the enterprise level, tax wedge on the MW and elsewhere in the distribution, labor mobility, skills mismatch and demand for skills Reliance on international organizations

Thank you for the attention nikica@uacs.edu.mk