Job Creation Slows Down
Yavor Aleksiev
The long-awaited data for the development of the labor market in the first quarter of 2016 shows dormant structural problems disguised as betterment. Just as the IME predicted, the economic activity of the population stopped increasing and remained at last year’s levels, which led to a slower increase in employment. In the period January-April 2016 the amount of people employed increased by 25.3 thousand, which is the lowest growth rate on a yearly basis since the beginning of the labor market’s recovery.
Annual change of the number of people employed (quarterly data), thousand people
Source: NSI
The slower increase of the number of people employed was expected taking into account the stagnation in the economic activity and the structural character of the unemployment in Bulgaria. More than half of the people currently seeking occupation are long-term unemployed, which means that until now the labor market recovery has passed them by. If the economic activity doesn’t begin surging again the potential rise of the amount of people employed in the following quarter may be even lower, since the economy will have to create additional conditions for including, specifically, the long-term unemployed.
The data on youth unemployment continues to disappoint. In comparison to the first quarter of 2015 the amount of young people employed aged between 15 and 24 falls by 8.4 thousand, which leaves the employment coefficient to be only 19.4%. A serious decrease can be seen in the youth unemployment – from 23.2% in the first quarter of 2015 to 18.4% for the same period in 2016. This however, isn’t caused by higher youth employment but as a side effect of their lower economic activity.
Current Situation on a Regional Level
Considering the labor market data from a regional standpoint shows that the increase in number of people employed is more evenly distributed in comparison to previous periods. Most jobs are created in Sofia (capital) and Burgas.
Most notable is the improvement of the labor market in the capital where the employment level is growing for a 14-th consecutive quarter and already overshadows the pre-crisis levels reaching 666.3 thousand people, while it was 656.0 thousand in the same period in 2015. Sofia (capital) continues to concentrate a huge portion of the Southwestern region’s labor force - 2/3 of the employed people in this region work in the capital. A notable surge in employment can be seen in the wide Sofia region as well as in the Kyustendil region however it is too early to assume the existence of positive tendencies in the labor market of these districts.
In the Northern parts of the country there is an increase in the people employed in the districts Gabrovo (hike of 3.2 thousand people), Silistra (2.8 thousand people), Targovishte (6.1 thousand people) and Shumen (3.9 thousand people).
The number of people employed in Veliko Tarnovo and Varna falls for the first time in respectively two and three years. In Varna however, the drop is somewhat symbolic (only 700 people less than the first quarter of 2015) and the number of the employed remains close to 210 thousand people.
For a second consecutive quarter the only region in which the number of the people employed falls on a yearly basis is the Northwest. In this part of Bulgaria there is growth registered only in the Montana district.
The Effects of the Rise in the Minimum Wage and the Minimal Thresholds
The persistent decline in employment of some of Bulgaria’s poorest regions seems to be caused by demographic processes and not by the increasing price of labor. In the Vidin district, where the last increase of the minimum wage to 420 BGN meant that it now equals 65% of the average salary, the number of people employed via labor contract has surprisingly been increasing steadily from the start of this year. The drop in the number people employed according to NSI’s analysis of the labor force and the increase in the number of people employed via labor contract is not a rare phenomenon in the past few years and it does not necessarily imply the existence of contradicting statistical data. One possible explanation seems to be the decrease of the unregistered employment especially considering the recorded upsurge in the salaries in the private sector during the last few quarters.
Of course there’s always the possibility that the increase in the minimum wage and the minimal thresholds has slowed down or stopped the job creation process in some districts. This is one probable explanation of the sluggish increase in the number of people employed for the difficulties in including young people in the labor market. One thing is certain, at this moment the upturn in the minimum wage does not help attract more people to the labor force. In the absence of demand for low qualified workers the new minimal salary can additionally slow down the job finding process for the long-term unemployed. The cumulative effect of a stagnating economic activity and a slower transition towards employment of the currently unemployed, can lead to a lethargic increase in the number of people employed in future periods as well.
