1. LABOUR MARKETS AND EMPLOYABILITY IN THE SIX EASTERN PARTNERS (EaP) Armenia, Azerbaijan, Belarus, Georgia, Republic of Moldova and Ukraine Ummuhan Bardak, European Training Foundation (ETF) Tbilisi, 19 May 2011 1

2. Socio-economic background: One region, different countries  Population and demographic trends (Table 1, Graph 1)Table 1Graph 1  Human development level (Graph 2)(Graph 2)  Economic performance (Table 2)(Table 2)  Options for the economic transformation process (next slide)(next slide)  Economic structure: GDP contribution and employment share (Table 3) (Table 3) 2

3. Economic transition over the two decades  Better economic performers: those who recovered 1989 GDP levels (Armenia, Azerbaijan, Belarus) versus those who did not (Moldova: 55%, Georgia: 65%, and Ukraine: 75%)  Different initial conditions: industrial base in BEL and UA, oil and gas resources in AZR, high share of agriculture in others  Growth spillover effects from Russia: positive impact for Belarus, Ukraine and Armenia  Determinants of transitional growth: oil and gas in AZR; loans and transfers from abroad in ARM, GEO, MOL; increasing exports in BEL and UKR  Different speed and intensity of structural reforms  Regional disputes and/or conflicts in ARM, AZR, GEO, MOL 3

4. Key labour market and employment indicators: similar trends, different outcomes  Declining activity and employment rates (Table 4, Graph 4)Table 4Graph 4  Significant under-employment or unemployment  High activity rates of females, but low rates for youth  Low and decreasing share of wage employment (Graph 5)(Graph 5)  High share of self-employment in agriculture (Graph 6)(Graph 6)  High informality due to restructuring process (Table 5)(Table 5) 4

5. Labour emigration as a way out?  Measuring migration: difficult, but increasing ‘economic migration’ as a fact (Table 6)(Table 6)  Mostly intra-regional movements: three quarters within CIS, more than half going to Russia  Bipolar outflows: East (CIS) versus West (EU) and certain degree of self-selection by destination  Motivations for migration and region-specific factors: e.g. poverty, unemployment, low salaries, ethnic refugees and/or diaspora, facilitating factors in CIS 5

6. Who are labour emigrants and what types of job abroad?  Young/ productive age group, more rural, and more males  Mostly medium-skilled (vocational and/or secondary graduates)  Migration as an individual initiative (no organised flows)  Self-selection by destination and work sector: age, gender and education  Mostly low-paid jobs: construction, trade, transport, industry, mining, agriculture, domestic services, hotels& catering, other services  Weak correlation between the education levels of labour migrants and jobs held abroad  Significant temporary and/or circular nature (including seasonal migration) 6

7. Impact of labour emigration on the sending countries  Remittances and poverty reduction (Table 7)(Table 7)  Reduced pressures in the labour markets: e.g. lower unemployment  Changing market demands and consumption patterns (telecommunication, construction, transport etc)  Worsening demographic trends (net senders)  Brain drain & brain waste: skills mismatch between migrants qualifications and jobs abroad 7

8. What policy responses to employment challenges? Similar trends, different policy options  Recognition of (un)employment problem in policy agenda, ambitious objectives with under-funded activities  Fragile institutional setting for policy implementation, in particular public employment services (PES)  Weak labour market information systems, with little policy monitoring and evaluation  Marginal involvement of social partners in employment policy-making and implementation  Labour market regulation: flexibilisation, but low level of law enforcement (Graph 7)(Graph 7) 8

9. Main directions of employment policy  Labour market policies: % of GDP expenditures spent for active and passive measures (Table 8)(Table 8)  Passive measures: low unemployment benefits with small coverage of the unemployed – 4% ARM, 1% AZR, 7.4% MOL  Active measures: employability measures, job subsidies, placement services – but limited funds  Improvements in training, but low number of beneficiaries, non- targeting, lack of impact evaluation  The need for better balance between security and flexibility (Graph 8)(Graph 8) 9

10. Human capital development: a competitive advantage?  Relatively high educational level of population as legacy of the past: a competitive advantage in the global economy  Improvements in educational enrolment rates, particularly higher education level (Table 9)(Table 9)  Vocational education and training (VET): lost credibility and importance as a pathway for skill development (Graph 9)(Graph 9)  Better employment prospects for the educated: higher activity and employment rates, lower unemployment rates  Lower risk of being poor for the better educated people 10

11. Unclear impact of education on skills & economy  High unemployment among graduates (ARM 23%, GEO 19%); substitution effects (MOL, UKR); public employment (AZE 70%)  Small budgets in education and training and lack of consistency in the policy efforts for system modernisation (Table 10)(Table 10)  Under-funded VET and higher education, low teacher salaries, increasing household expenses for education  Problems in the quality and/or relevance of education and training (Graph 10) (Graph 10)  Neglect of skill development process for adult population  Resulting skills mismatch: skill shortages, skill gaps, skill oversupply? 11

12. Conclusions: Key challenges to be addressed  Job creation & improvement of business environment  More balanced labour market policies between flexibility and security (e.g. LM regulation, active and passive measures)  Improvement of institutional settings and processes (Public Employment Services- PES, social dialogue)  Budget constraints & more efficient use of funds  Better management of labour migration for the benefit of all sides – win-win-win situation?  Improvement of the quality and relevance of education and training for the needs of economy (both youth and adults) 12

13. Table 1: Key Demographic Trends in 2009, WB-WDI 13 Countries Population (millions) Population growth (%) Fertility rate (%) Life expectancy Urban populatio(%) Armenia 3.082 0.2 1.7 73.563.8 Azerbaijan 8.781 1.22.370.252.1 Belarus 9.663-0.2 1.470.673.9 Georgia 4.260-1.11.671.552.8 Moldova 3.603 -0.81.5 68.441.5 Ukraine 46.008 -0.5 1.4 68.3 68.0

14. Graph 1: Population by age groups in 2009, WDI % 14

15. Graph 2: The ranking of UNDP Human Development Index, 2010 15

16. Table 2: GDP Growth and GDP Per Capita (PPP, USD) (*IMF est.) CountriesGDP growth (annual % change) GDP per capita (PPP, USD) 2007200820092010* Armenia 13.7 6.8 -14.41.2*5.0* Azerbaijan 25.0 10.89.37.3*10.1* Belarus 8.6 100.21.8*13.0* Georgia 12.4 2.0 -4.02*4.9* Moldova 3.0 7.2-6.50*2.8* Ukraine 7.9 2.1-15.12.6*6.7* Bulgaria 6.2 6-5.0-2.5*11.6* Poland 6.7 4.8 1.72.1*18.6* Romania 6.0 9.2-7.10.4*12.0* Russia 8.1 7.3-7.91.5*15.6* Turkey 4.63.8-4.73.7*12.8* EU-27 average3.00.5-4.21.0*- 16

17. Table 3: Main economic sectors by their value added to GDP and their employment share in 2009, WB-WDI 17 Countries AGRICULTUREINDUSTRY including construction SERVICES GDP share % 2009 Employment share % 2007 GDP share % 2009 Employment share % 2007 GDP share % 2009 Employment share % 2007 Armenia 20.746.234.615.644.838.2 Azerbaijan 8.238.760.012.831.848.4 Belarus 10.011.845.236.744.851.5 Georgia 9.653.421.410.469.036.0 Moldova 10.532.810.418.779.048.4 Ukraine 9.816.752.123.938.159.4

18. Table 4: Key labour market indicators in 2009 (15+, ILO-KILM) 18 Countries Activity rate % Employment rate % Unemploym ent rate % Youth unemploym Armenia66.338.128 (07) 41% (01) Azerbaijan63.060.06.5 (07) 14.0 (08) Belarus60.252.31* NA Georgia63.754.313.3 (07) 31.5 (07) Moldova49.644.74.0 (08) 14.5 (07) Ukraine58.153.56.4 (08) 14.9 (05) EU-27 (Eurostat)57.753.77.0 (08) 15.3 (07)

19. Graph 4: Modest activity, low employment and unemployment 19

20. Graph 5: Low and decreasing share of wage employment 20

21. Graph 6: High share of agricultural employment 21

22. Table 5: Size of informal sector (national estimates) 22 CountriesDate Informal sector’s size and features Armenia 2002- 2007 Undeclared work: 23-25% of non-agriculture employment. Agriculture: 98%; Total economy: 50%. Azerbaijan 2007Employment 66%, but with a broader definition; Manufacturing 44%; Youth 15-24 years-old 75%. Belarus 2007Employment 33%; GDP 28-43%. Official figure is around 10%. Georgia 1999 2007 Up to 70% of salaried workers; Employment 26%, 60% of informal workers have higher education Moldova 2007Employment 33%, mostly in agriculture (45.7%); 11% of informal work in formal firms, but legislation allows for non-declaration of small activities (trade) Ukraine 2002 2007 36% of GDP, 17.3% of employment. 32% of GDP; 22.3% of employment (71% in agriculture). Frequent under- declaration of wages

23. Table 6: Emigrant stocks and destinations in 2010 23 CountriesEmigrant stocksMain destination countries Armenia 870,200 thousands 28.2% of total population Russia, USA, Ukraine, Azerbaijan, Georgia, Germany, Israel, Turkmenistan, Greece, Spain, Belarus, France Azerbaijan 1.432,600 thousands 16.0% of total population Russia, Ukraine, Armenia, Israel, Kazakhstan, Germany, Turkey, USA, Georgia, Turkmenistan Belarus 1.778,900 thousands 18.6% of total population Russia, Ukraine, Poland, Lithuania, Latvia, Kazakhstan, USA, Israel, Germany, Estonia Georgia 1.057,700 thousands 25.1% of total population Russia, Armenia, Greece, Ukraine, Israel, Germany, USA, Cyprus, Turkey, Latvia, Spain Moldova 770,300 thousands 21.5% of total population Russia, Ukraine, Romania, USA, Israel, Germany, Kazakhstan, Italy, Greece, Spain, Latvia, Portugal, Belarus, Canada, Turkey Ukraine 6.563,100 thousands 14.4% of total population Russia, Canada, USA, Moldova, Kazakhstan, Poland, Belarus, Italy, Czech, Israel, Germany, Portugal, Spain, Slovakia, Turkey Source: World Bank, Migration and Remittances Factbook 2011

24. Table 7: Remittances and their share of GDP Country Remittances in 2000 Remittances in 2010 Their share of GDP in 2006 Armenia USD 87 millionUSD 854 million ↑ 9.4 fold increase 18.3% of GDP Azerbaijan USD 57 millionUSD 1,472 billion ↑ 25 fold increase 4.0% of GDP (9% of non-oil GDP) Belarus USD 139 millionUSD 387 million ↑ 2.7 fold increase 0.9% of GDP Georgia USD 274 millionUSD 824 million ↑ 3 fold increase 6.4% of GDP Moldova USD 179 millionUSD 1,316 billion ↑ 7.3 fold increase 36.2% of GDP Ukraine USD 33 millionUSD 5,289 billion ↑ 160 fold increase 0.8% of GDP 24

25. Graph 7: From job security to labour market flexibilisation 25

26. Table 8: % of GDP Expenditure for LM Policies, 2008 26 ArmeniaAzerbaijanBelarusGeorgiaMoldovaUkraineEU-27 0.1% 2007 0.1%0.09%N.A.0.05%0.1%1.6% Of which for Active Labour Market Measures (ALMMs) 40%15%90%N.A.44%30%Appx.30% for ALMP (0.45% of GDP)

27. Graph 8: Positioning of labour markets from «flexicurity» perspective Flexibility + Security+ Armenia Moldova Azerbaijan Georgia Ukraine Belarus 27

28. Table 9: Gross enrolment rates in education % in 2009, UNESCO-UIS database 28 Countries Pre- primary Primary Lower secondary Upper secondary Total Secondary Total Tertiary Armenia33.398.598.482.793.150.1 Azerbaijan26.4116.2100.8115.6105.615.8 Belarus97.499.295.778.490.177.0 Georgia62.5107.495.5124.8108.525.5 Moldova74.493.689.385.788.138.3 Ukraine10097.595.991.494.479.4

29. Graph 9: VET Enrolment Shares by ISCED 3+4 Levels as % of Total Enrolment in ISCED 3+4, UNESCO 2000 and 2009 29

30. Table 10: Public expenditure on education as % of GDP 30

31. Graph 10: % of enterprises declaring that skills are obstacle for firm growth (BEEPS) 31