1. 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  

2. Overview Introduction Escaping income trap Mass unemployment
Policy recomendation

3. 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

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

5. 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

6. Escaping middle income trap

7. 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

8. Escaping middle income trap

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

11. 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

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

14. 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

16. 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

18. 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

20. 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

22. 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.

23. Mass unemployment

24. Mass unemployment

25. Mass unemployment

26. Mass unemployment

27. 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.

28. 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

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

30. 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

31. 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

32. 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

33. 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

34. 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