The Labour Market during the Years of Crisis and Stagnation

The economic crisis negatively affected the labour market; the intensity and nature of this influence were different in different districts around the country. The specific characteristics of the labour market in Bulgaria, the duration of the crisis and the subsequent stagnation can best be analysed by the "employment rate" and "number of persons employed" indicators.

In order to trace the impact of the crisis on the labour market at the district level and the process of its gradual recovery, we have used data from the NSI quarterly sample survey "Labour Force Survey" for the years 2008-2013.

Figure 1: Districts with the highest and the lowest average annual rate of employment in 2008 and 2012

Source: NSI

Fig. 1 shows the seven districts with the highest average employment rate (in blue) and the seven districts with the lowest average employment rate (in red) in the respective years. In the pre-crisis year of 2008, two of the districts with the highest employment in Bulgaria (Varna and Gabrovo) were located in the northern part of the country. These were also two of the three districts in Northern Bulgaria with a positive migration balance as a result of daily labour migration (DLM)[1] according to data from the NSI 2011 Census (Fig. 2).

Figure 2: Migration balance of internal labor migration by districts

 

Source: NSI, Final data from the 2011 Census

This means that more working people travel to these districts on a daily basis to go to work than from these districts to other districts. In both of these districts, the period 2008-2012 registered a decline in the average employment rate by more than 10 percentage points. This, along with the serious decline in employment in the third district with a positive migration balance of daily migrants in Northern Bulgaria (Ruse) contributes to the more serious decline in employment in other districts of the northern part of the country.

In 2012, all seven districts with the lowest employment rate were located in the North and North Central regions of the country. These are Vidin, Montana, Vratsa, Lovech, Pleven, Silistra, and Razgrad. It can therefore be concluded that after the onset of the crisis, the economic activity in the country developed better in Southern Bulgaria, and fairly evenly covered the entire territory. In practice, each of the three Sub-Balkan regions has clear leaders in terms of employment. Moreover, in South Bulgaria are also the districts with positive migration balance from DLM - Sofia (capital city), Stara Zagora, Blagoevgrad, Plovdiv, and Bourgas.

On the Path to Recovery

The decline in both the number of persons employed in the economy on an annualised basis, and the employment rate of the population over 15 years started slowing in the second quarter of 2010 (Fig. 3). Although the number of persons in employment continued to decline over the following two years (as a result both of the labour market crisis and the shrinking labour force due to negative demographic processes in the country), in the third quarter of 2011 for the first time a growth in employment was registered on year-over-year basis: 0.2 percentage points. Real growth in the number of employed persons at the national level was only seen at the beginning of 2013.

Figure 3: Annual change in the number of employed persons and the employment rate by quarters (2009-2012)

Source: NSI

Despite the gradual stabilization, it is still much too early to announce a sustainable trend of recovery for the country’s labour market. The only three districts which in 2012 reached their 2008 employment levels are Kardzhali[2], Razgrad, and Stara Zagora. Employment levels close to the pre-crisis figures were also reported in Targovishte District. Analysis of the data covering the first two quarters of 2013 shows that, besides these, the only district in which the average employment rate in 2013 can be expected to reach pre-crisis levels is the district of Bourgas. At the same time, the number of persons in employment in Razgrad, Stara Zagora, and Targovishte marked a decline year-over-year in two consecutive quarters during the first half of 2013, which is a prerequisite for a possible decline on an annualised basis.

Methodology of the Survey

In most districts of the country, recovery in the labour market began in 2011. In order to trace the recovery process in the individual regions and districts in the country, we have used data on the number of persons employed and the employment rate of the population over the age of 15 between the first quarter of 2010 and the second quarter of 2013.

The tables that precede the analysis of each of the statistical regions are intended to illustrate the existence of trends of increase or decrease in the number of persons employed in the local economy on a year-over-year basis. For this purpose, each second consecutive quarter of increase in the number of persons employed year-over-year has been highlighted in green, and each second consecutive quarter of decline in the number of persons employed year-over-year has been colour-coded in red. In the attached example of Vratsa District, the red colour in the second quarter of 2011 means that this is the second consecutive quarter in the surveyed period (first quarter of 2010 - second quarter of 2013), in which there was a decrease in the number of persons employed in the district on an annualised basis. The reduction in this case is compared with the second quarter of 2010. The red colour in the third quarter of 2011 shows that a fresh decrease was registered (this time compared to the third quarter of 2010) and the white colour for the fourth quarter of 2011 shows an increase in the number of persons employed over the same quarter of 2010. The green colour for the first quarter of 2012 shows that this is the second consecutive quarter of increase in employment on an annualised basis.

Table 1: Example for presentation of the results

The aim of this approach is to clearly distinguish between the periods of permanent loss of jobs on an annualised basis (illustrated in red) and the periods of sustained growth (in green). The use of year-over-year comparisons allows for the isolation of seasonal trends (mostly in districts in North-eastern Bulgaria and Bourgas District) and the highlighting of positive trends in the labour market when such a trend is present and it is significant against the previous year.

The Recovery in the Labour Market in Different Statistical Regions

Source: NSI, IME calculations

The labour market in North-western Bulgaria was most severely affected by the economic crisis. Between the second quarter of 2011 and the first quarter of 2013, the region recorded a steady decline in the number of persons employed on an annualised basis. The first signs of stabilization in the labour market were observed in the districts of Vidin and Pleven in 2012. In early 2013, employment in these districts reached levels reported in the same period of 2010.

Compared to the second quarter of 2010 over the same period of 2013, the number of persons employed in the region was 41.6 thousand people lower, with over half of the jobs lost being in the districts of Lovech and Montana. On the other hand, these are two of the districts in the country where the employment rate has continued to decline. Particularly grave was the situation in Lovech; there, the number of persons employed failed to register growth in any of the ten quarters in the surveyed period.

There was a serious decline in employment in Pleven District in the period 2008-2010, but at the end of 2012 and in early 2013 a trend of improvement was registered. The labour market in Vratsa District remains depressed. Between 2010 and 2012, no positive signs were reported in labour market developments in the district, although unemployment remains lower than the national average. The lack of new job opportunities in the last three years made Vratsa one of the five districts in the country with an average employment rate of less than 40% in 2012. Three of the other areas in the region also fall into this group: Vidin, Montana, and Lovech.

Source: NSI, IME calculations

Similarly to North-Western Bulgaria, the North Central region is characterized by a relatively low workforce mobility, which is conditioned by the lack of a clear leader in economic development among individual districts.

Despite the extremely high levels of unemployment and traditionally low employment characteristic of Razgrad District, in 2011 it reported one of the largest increases in the number of employed persons in the country. Even after the subsequent decline in 2012, the average annual employment rate of the population over 15 years of age in the district remained at a level of 40.8%, against 40.6% in the pre-crisis year of 2008.

Another district reporting a faster recovery at this time is Veliko Tarnovo, where the employment rate of the population over 15 years increased both in 2011, and in 2012, reaching 42.9%. From the second quarter of 2011 onwards, the number of employed persons in Veliko Tarnovo District is larger than that in the Ruse District.

Ruse District is one of the few that reported growth in employment in 2009, but the subsequent economic downturn resulted in the loss of over 16,000 jobs in the period between the first quarter of 2010 and the same period of 2013.

The recovery of the labour market in the Gabrovo District started no earlier than in 2012. Before the crisis, the district used to enjoy one of the highest employment rates in the country for people over 15 years, and at the same time an extremely low average unemployment rate (1.2% in 2007, and 2.0% in 2008). Over the following years, unemployment remained lower than the national average, but the decline in average employment in 2012 compared to 2008 was significant (-6.9 percentage points). In the entire Northern Bulgaria, only the districts of Lovech and Varna registered a larger decline (respectively -9.8, and -10.6 percentage points).

Employment in Silistra District bottomed in 2011, but with the exception of the third quarter of 2012, the number of persons employed in the local economy has continued to decline on an annual basis throughout the period.

Source: NSI, IME calculations

Over the past few years, North Eastern Bulgaria was the region with the highest average annual unemployment rate in the country.

Targovishte is the only district in the country where the average employment rate of the population over 15 years in 2009-2011 was higher than in the pre-crisis 2008. Meanwhile, in 2012, a decline of employment was registered in the district, and the trend accelerated in the first quarter of 2013. The seven consecutive quarters of decline in the number of persons employed on an annual basis between the last quarter of 2011 and the second quarter of 2013 are due to the strong performance of the district in the worst years of the crisis. This is why the employment rate in the district continues to be close to the pre-crisis levels irrespective of the decline.

In spite of the positive labour market data in Varna District in early 2013, the district still remains among those most heavily affected by the crisis. Compared to 2008, the average employment rate in the district was 10.6 percentage points lower in 2012, which is the largest decline in the country. Unemployment in the districts of Varna and Targovishte peaked in 2012; the levels for the two districts were 16.4% and 15.6%, respectively.

During the period covered, a stable increase in the number of employed persons was only observed in the Shumen District, and 2012 was the third consecutive year of rising employment rates in the district. In Dobrich District, stronger seasonal trends were observed in the labour market; these, however, were not accompanied by significant job growth in non-seasonal sectors. Due to the declining local population, employment rates registered some progress compared to the 2011 bottom of 42.2%.

The business community's expectations are for a faster recovery in the number of employed persons in the districts of Targovishte and Dobrich. The acceleration of economic activity in Varna in 2013 may also have a positive impact on other districts in the region, but at this stage the business community's expectations are for a continuing decrease in the number of persons employed over the next twelve months (from June 2013 to May 2014).

Source: NSI, IME calculations

The only district in the South East region where the labour market continued to be strongly suppressed was Sliven. From 2008 to 2012, the average annual employment rate of the population over 15 years in the district declined by more than 6 percentage points. From early 2011 onwards, the district has reported a steady decrease in the number of persons employed year-over-year, in each quarter. The only exception was the second quarter of 2013; for that period, a slight increase of about three hundred persons employed was reported over the same period of 2012.

Since the second quarter of 2011, the number of persons employed in Bourgas has reported a steady annual growth. Employment remains 2.3 percentage points lower than in 2008, but the steady upward trend in the number of persons employed is a prerequisite for the rapid decrease in this difference. Since 2011, there has been an increase in the seasonal fluctuations of the number of workers in the district during the summer months, which is accompanied by a trend towards more sustainable employment in other periods of the year, too.

Stara Zagora is one of the few districts in the country which registered higher levels of employment in 2011 and in 2012 compared to 2008. Unemployment in the district remained low even in the period 2010-2012, fluctuating between 6 and 7%. In the last quarter of 2013, a serious decline was registered in the number of persons employed on a year-over-year basis, by approximately 7%, which continued over the next two quarters as well. Part of this decline is due to massive lay-offs in some of the leading companies in the district, as well as the gradual completion of construction works on the Trakia Highway in 2013.

The recovery in the labour market in Yambol District began in the first quarter of 2011. During the second quarter of 2013, the district reported only two quarters of decline in the number of persons employed on a year-over-year basis: the third quarter of 2012, and the first quarter of 2013.

Source: NSI, IME calculations

The South West region of the country is home to two of the country's districts with traditionally high levels of employment over the last decade: Sofia (capital city), and Blagoevgrad. This is also the region with the highest number of daily trips between districts.

Although during the period between the first quarter of 2011 and the second quarter of 2013, Blagoevgrad district registered only a single increase in the number of persons employed on an year-over-year basis (in the last quarter of 2012), employment in the district remains high: 53.1% in 2012, against an average of 46.6% for the country. At the same time, the business community's expectations are for an increase in the number of persons employed in the period June 2013 - May 2014.

In 2011, the capital city recorded four consecutive quarters of increase in the number of persons employed on a year-over-year basis, but they were followed by a decline in the following year. As a result of the slowdown, a drop of 0.5 percentage points was registered in 2012 for the annual average employment rate of the population over 15 years, on a year-over-year basis. The reason is that from the first quarter of 2012 onwards, the number of persons employed has varied from 625 to 631 thousand people, which is not enough to guarantee an increase of the employment rate in view of the population growth of the capital city.

The strong connection between the labour market in Sofia (capital city) and employment indicators in Sofia and Pernik districts, and the lack of a clear trend towards recovery in the labour market in the capital city have a negative impact on these two districts. According to NSI data, about 32 thousand people out of 147 thousand employed in Pernik and Sofia districts work in "another district". Given that the migration balance in terms of commuting workers for the capital city is 42.5 thousand, and when considering the low positive values for Blagoevgrad (344 people), the assumption that the vast majority of commuters work in the capital city seems justified.

The recovery of employment in Sofia District is yet to happen. In 2009, a rise was registered in the average employment rate to 49.5%. It was followed by three years of steady decline, to a level of 46% in 2012. In Pernik District, the recovery of the annual average employment rate began in 2011. In 2012, a renewed increase by 0.3 percentage points was reported, mainly due to the high number of employed persons during the first half of the year. The first data on the number of employed people in 2013 was rather negative.

The crisis has had the most negative effect on the labour market in Kyustendil District. The decrease in the annual average employment for the period 2008-2012 is 6.2 percentage points.

Source: NSI, IME calculations

Two of the three districts with an annual average decline in employment of over 10 percentage points compared to the period 2008-2012: Pazardzhik and Smolyan, can be found in the In South Central region of the country.

According to NSI data, the number of persons employed in the Kardzhali District has reported ten consecutive year-over-year increases in the period. This may be the result of either the sharp drop in the number of employed in the period 2008-2010 or the statistical effects resulting from under-representative data (by NSI's own assessment) on the labour market and demographics in the district between the two censuses.

The increase in employment in Plovdiv District started in 2012, when, after an annual increase of 0.9 percentage point, the indicator reached 47.3%. Despite the late recovery and the fact that employment is still far from its 2008 levels (50.8%), from mid-2011 onwards, the district reported only one quarter of decline in the number of employed on a year-over-year basis. The business community's expectations in Plovdiv District are for more active job creation in the second half of 2013 and the first half of 2014.

Following the year 2009 which was relatively good for the local labour market, employment in Haskovo District started on a downward trend, reaching a level of 42.2% in 2011 against 49.1% in 2008. At the end of the period, three consecutive increases were recorded in the number of persons employed on an annualised basis.

The first signs of improvement in the employment rate of the population over age 15 were observed in Smolyan, where in 2012 the employment rate increased by 3.4 percentage points. The number of people employed in the first and in the second quarter of 2013 decreased slightly, but still remains higher than the figures recorded in the corresponding period of any year since 2010. The recovery of the labour market started latest in Pazardzhik District, where an increase in the number of persons employed on an annualised basis was observed only in the first and second quarter of 2013. From 2008 to 2012, the average annual employment rate dropped by 10 percentage points, which is the third most negative result after those for the districts of Varna and Smolyan.

Business Expectations for 2013 and 2014

For the purposes of this paper, IME conducted a survey among 1,680 companies across the country in May 2013. One of the questions in it was designed to examine the business community's expectations about the dynamics in the number of employed in the period June 2013 - May 2014. The results are shown in Figure 4 by visualizing the average score given by interviewed business representatives about their intentions to hire or lay off personnel. A result above 3 shows expectations for hiring more people, a result below 3 means intended layoffs.

Figure 4: Expectations of the business for the dynamics of employees in the period June 2013 - May 2014

Source: IME (survey among businesses conducted in May 2013)

The business community's expectations about the dynamics in the number of persons employed in the period June 2013 - May 2014 show that the rate of recovery of the labour market in Northern Bulgaria will continue to lag behind that of the rest of the country. No increase in the number of employed is expected in any of the districts falling within the North West and the North Central regions.

Optimistic assessments for the development of the labour market are given by businesses in Bourgas and in Targovishte, followed by Pazardzhik, Plovdiv, Blagoevgrad, and Yambol. No changes are expected in the number of employed in Stara Zagora, Pernik and Kyustendil, while in Sofia (capital city) a slight decrease is expected.

None of the districts with positive net migration of workers in North Bulgaria (Bourgas, Varna and Ruse) are expecting an increase in the number of employed persons over the next 12 months. At the same time, the positive data on the increasing number of employed on an annualised basis in the first half of 2013 can be interpreted as a sign of gradual stabilisation in the labour market despite the pessimistic expectations in the business community.

Conclusions

The economic crisis exerted a much stronger negative effect on the labour market in the northern part of the country. In late 2012, five of the country's districts with employment rates below 40% were in North Bulgaria: Vidin, Vratsa, Lovech, Montana, and Silistra. Some of the poorest regions are here, too: Targovishte, Lovech, and Montana are the only three districts where the average annual income per household member is below three thousand BGN per annum. The main reasons include the low workforce mobility, the unfavourable demographic situation, the low level of urbanisation in many of the districts, the relatively weak inflow of foreign investment, and poor infrastructure development. On the background of the traditionally low wages in many of the districts in the northern part of the country, an additional negative effect on employment in many districts was caused by the administratively imposed increase of minimum social insurance thresholds by individual economic activities during the years of crisis in the labour market.

The labour market in Southern Bulgaria is more stable and better balanced. This is due to several factors, including the higher workforce mobility, the more favourable age structure of the population and the fact that Southern Bulgaria is home to four of the country's districts with the best developed economies: Sofia (capital city), Plovdiv, Stara Zagora, and Bourgas. The business community's expectations are also for a faster recovery of employment in the southern part of the country, while in Northern Bulgaria the districts expecting an increase in the number of persons employed are only two: Dobrich and Targovishte.