A SKILLED WORKFORCE FOR AVOIDING THE MIDDLE-INCOME TRAP IN BIH Vjekoslav Domljan CRES Mostar, BiH A SKILLED WORKFORCE FOR AVOIDING THE MIDDLE-INCOME TRAP IN BIH  

Overview Introduction Escaping income trap Mass unemployment Policy recomendation

Key causes of economic problems Introduction Key causes of economic problems internal external Bad legacy Regional non-cooperation War damages Global crisis Wrong privatization Wild liberalization

Introduction Middle income trap Low to middle income country - industrialisation Middle to high income country? -

Introduction High income (> 12,196 US$) Middle income Country GNI pc Greece 28,630 Slovenia 23,520 Croatia 13,810 Country GNI pc Moldova 1,590 Kosovo 3,240 Albania 3,950 Macedonia 4,400 BiH 4,700 Bulgaria 5,770 Serbia 5,990 Romania 8,330 Turkey 8,730

Escaping middle income trap

Escaping middle income trap For moving up the value chain with knowledge and innovative-based products and services: investment rates >25-32 % of GDP innovation-conducive policy framework business environment

Escaping middle income trap

Escaping middle income trap transition countries share the same 3 top business obstacles (EBRD, 2010): skills availability corruption tax administration.

BiH Albania Belarus Bulgaria Croatia Maced Hungary Moldova Mont. Romania Serbia Slovakia Slovenia infrastrucutre -0.11 0.16 0.09 0.01 -0.17 -0.07 0.07 -0.12 0.03 0.08 telecom -0.21 0.06 -0.05 -0.26 -0.18 -0.13 -0.22 -0.06 -0.01 electricity 0.02 0.73 0.13 -0.15 0.14 0.11 0.15 0.36 0.22 0.26 0.19 transport -0.10 -0.08 -0.04 -0.03 land access -0.19 -0.02 -0.16 -0.2 -0.36 -0.14 0.04 skills 0.3 0.25 0.1 tax administration 0.12 0.61 0.18 labour regulations -0.24 customs -0.1 -0.29 -0.25 licencing -0.09 courts 0.2 corrupton 0.31 0.32 crime

Overcoming middle income trap enterprises in transition countries with small private sector and higher unemployment rate …complain less about skills.

2007 2008 High income 2.37 2.29 High income: OECD 2.41 R&D (% GDP) 2007 2008 High income 2.37 2.29 High income: OECD 2.41 Upper middle income 0.79 World 2.07 BiH 0.03 Bulgaria 0.48 0.49 Croatia 0.81 0.90 Greece 0.57 Montenegro 1.10 Romania 0.53 0.59 Serbia 0.35 Slovenia 1.45 1.66 Turkey 0.72

Researchers /1 mln people 2003 2004 2005 2006 2007 2008 High income 3726 3761 3840 3945 OECD members 3217 3257 3354 3442 3012 Upper middle income 1032 1025 1037 1029 1112 World 1281 BiH 61 63 67 177 197 Bulgaria 1223 1262 1299 1344 1466 1499 Croatia 1315 1605 1289 1303 1384 1514 Greece 1418 1771 1796 1873 Macedonia 551 526 547 521 Moldova 759 757 720 700 726 Romania 960 978 1061 952 877 908 Serbia 1196 Slovenia 1893 2018 2625 2921 3109 3490 Turkey 471 482 550 592 680

Patents 2006 2007 2008 2009 High income 808819 826192 813996 764583 OECD members 809402 827681 816102 766793 Upper middle income 44574 36842 World 994324 Albania BiH 55 59 Bulgaria 243 211 249 242 Croatia 317 344 330 250 Greece 532 575 628 698 Kosovo Macedonia 34 Moldova 303 333 273 134 Romania 814 827 995 1054 Serbia 432 395 386 319 Slovenia 287 331 301 373 Turkey 1072 1810 2221 2555

High-technology exports (% of exports of manufactured products) 2003 2004 2005 2006 2007 2008 2009 High income 21.3 21.2 21.1 18.7 18.6 19.4 OECD members 20.4 20.1 20.2 20.3 17.8 17.3 19.0 Upper middle income 17.5 15.5 13.9 13.6 11.7 14.3 World 20.9 20.8 20.5 20.6 18.2 19.6 Albania 1.0 1.1 5.0 12.6 1.7 3.7 1.3 BiH 3.2 3.6 2.9 3.9 3.1 Bulgaria 4.3 4.0 4.7 6.0 6.6 8.2 Croatia 12.3 13.0 11.5 10.2 9.1 10.9 Greece 12.2 11.4 10.5 8.0 10.0 11.3 Kosovo Macedonia 0.8 3.0 Moldova 2.6 5.1 4.2 5.4 Montenegro Romania 3.4 4.4 7.2 10.1 Serbia Turkey 2.1 2.0 1.5 1.9

Mas unemployment the labour market in BiH face many challenges: Activity rates are low Unemployment rates are long-term, largely structural Very few new jobs are created Underemployment is significant Employment services have a very limited role Education programmes are not in line with labour demand Young people are poorly prepared for labour market Young people do not consider entrepreneurship as an option for them.

Mass unemployment

Mass unemployment

Mass unemployment

Mass unemployment

Mass unemployment Issue of human capital development is a priority for faster, export-oriented and sustaining growth Improved skills will upgrading the skill content of exports (and reducing vulnerability to low-wage competition) lead to increased productivity and employability ... will also endogenize the creation of new enterprises through the creation of more entrepreneurs.

Mass unemployment mismatch between demand and supply of skills is a result of A) supply side failure undeveloped private market for skills provision, and a small number of the (un)employed are willing to participate in lack of adequate government policies and strategies addressing the problem B) demand side failure Very few new jobs are created

Mass unemployment wages are high relative to the product composition of exports productivity in a regional comparison

Policy recomendations The policy recommendation Follow the export and competitiveness strategy (agro-food, metal, wood, construction materials and tourism) Introduce the private and develop public institutions mathing demand and supply Create a tertiary education strategy Review the secondary school curricula Create an adult education strategy frameworks/regulation Create cluster training centres

Policy recomendations 1. Increase talent base Review the primary and secondary education system – shift approach from ‘rote learning’ to ‘creative and critical thinking’ Increase emphasis on reintroducing technical and vocational training schools Identify and nurture talent through a demand-driven process Improve autonomy and accountability of educational institutions Encourage R&D collaboration between terciary education and firms Enhance English language proficiency

Policy recommendations 2. Re-skill the existing the labour force Upgrade skills of the bottom segment of the labor force through continuing education and training Develop tranining centres at employment agencies Formalise international quality standards and certification of skills Allow wage levels to be reflective of the skill level

Policy recomendations 3. Remove labour market distortions constraining wage growth Protect workers, not jobs, through a stronger safety net, while encouraging labour market flexibility Revise legal and institutional framework to facilitate hiring and firing Raise pay through productivity gains, not regulation of wages

Policy recomendations 4. Increase reliance on diaspora Create a strategy for tapping into the country’s diaspora Review existing programmes to attract highly-skilled Bosnians-Herezgovinians overseas to return home Offer permanent residence for ex-Bosnian and Herzegovinians and their families Centralise oversight of foreign labour and expatriates to enable coherent practice Build up critical mass of skilled professionals through simpler work permit and immigration procedures Liberalise professional services through mutual recognition arrangements