News

Between 9^th and 19^th June 2014 a team of IME economists will visit and organize a series of roundtables in Blagoevgrad, Plovdiv, Stara Zagora, Varna, Gabrovo and Vratsa. The tour is part of the preparation of the third edition of the study "Regional Profiles: Indicators of Development", carried out with the financial support of the "America for Bulgaria" Foundation.

The roundtables are organized with the support of the central and local structures of the Bulgarian Chamber of Commerce and Industry.

Monday, June 9th, 2014 Blagoevgrad

• Presentation of the study "Regional Profiles: Indicators of Development" with a focus on the development of Blagoevgrad and the Southwest region , followed by a discussion
• Location : American University in Bulgaria , Red Hall
• Start: 9:45

Wednesday, June 11, 2014 Plovdiv

• Presentation of the study "Regional Profiles: Indicators of Development" with a focus on the development of Plovdiv and the South Central region, followed by a discussion
• Presentation of the investment profile of Plovdiv and the region (Industry Watch)
• Location: Novotel Plovdiv hall " Moscow"
• Start: 9:45

Thursday, June 12, 2014 Stara Zagora

• Presentation of the study "Regional Profiles: Indicators of Development" with a focus on the development of Stara Zagora and the Southeast region, followed by a discussion
• Location: Chamber of Commerce and Industry Stara Zagora, Georgi Rakovski 66
• Start: 9:45

Monday, June 16, 2014 Varna

• Presentation of the study "Regional Profiles: Indicators of Development" with a focus on the development of Varna and the Northeastern region, followed by a discussion
• Location: Varna Radio Concert Studio
• Start: 9:45

Wednesday, June 18, 2014 Gabrovo

• Presentation of the study "Regional Profiles: Indicators of Development" with a focus on the development of Gabrovo and the North Central region, followed by a discussion
• Location : Technical University - Gabrovo , Library Hall
• Start: 9:45

Thursday, June 19, 2014 Vratsa

• Presentation of the study "Regional Profiles: Indicators of Development" with a focus on the development of Vratsa and the North Central region, followed by a discussion
• Location: Chamber of Commerce and Industry Vratsa
• Start: 9:45

The events will be held in Bulgarian.

Join us! For more information and registration:
Vessela Dobrinova | vessela@ime.bg | (+359 2) 952 62 66

Despite the recently published positive labor market data, the number of employees under labor contract decreased on an annual basis in each of the first three months of 2014. The decline is concentrated mostly in the poorest areas of the country and is accompanied by a rise in the level of wages - a trend that deserves further attention.

Yavor Aleksiev

According to NSI’s last quarterly labor force survey the number of people employed in the first quarter of 2014 are 39 thousand more than the same period of last year. At the same time, the number of employees under labor contract in the country continues to decline in each of the first three months of the year (yoy), dropping to 2,216 million at the end of March 2014, compared to 2,231 million in March 2013.

The discrepancy of the two indicators is due to the different scope of the data presented in the labor force survey and the short term statistics on the number of people employed under labor contract and their average wages. NSI’s quarterly labor force survey includes all employed, i.e. it is based on survey among a sample of the entire population. Meanwhile, the short term statistics on the number of people employed under labor contract and their average wages are based on a sample of enterprises in both the private and the public sector. These include employees with existing labor contracts, but do not cover the so-called self-employed, or people working under civil contracts and others.

Therefore, the number of employees under labor contract is always smaller than the number of employed in the economy as a whole. Despite that, there has also been some improvement in the dynamics of first quarter data on employees under labor contract. The number of employees under labor contract in the first quarter fell by only 0.6% on an annual basis, which is the most positive result in years.

Figure 1: Annual dynamics of the number of employees under labor contract, %

Source: NSI

In the first quarter of 2014 there is a significant negative correlation (-0.58) between the annual growth in the average wages of employees under labor contract at the district level and the initial levels of those wages in the first quarter of 2013. This means that wages in districts where remuneration is usually higher have been increasing more slowly than wages in areas where they are traditionally lower. This is a somewhat expected result of the minimum wage increase at the beginning of 2014, In the poorer districts where wages are lower, increasing the minimum payments puts upward pressure on average wage levels, thus increasing the average wage. The available data on the number of employees under labor contract and their wages enable us to make some further observations.

Sofia (capital) is the only district in which the wages[1] of employees under labor contract decrease on an annual basis in the first quarter of the year (Figure 2). Other districts with traditionally high wages, but a relatively low increase are Burgas and Stara Zagora. This means that in three of the districts with the highest wage levels in the country, the annual increase in average pay is below the national average of 2.3%. At the same time, some of the largest wage increases are registered in some of the poorest districts. These are Vidin (12.1 %), Razgrad (11.1 %) and Silistra (10.1 %). In each of these three districts, however, the number of employees under labor contract continued to decline. The parallel growth of average pay and the declining number employees could mean that the latest minimum wage increase has forced employers to continue releasing some of their low-paid workers. Statistically, this has the effect of driving average wages in the enterprises concerned higher, which in turn raises average wage levels in respective districts.

Figure 2: Average wage in the first quarter of 2013 and increase registered in the first quarter of 2014 by districts

Source: NSI, IME calculations

In 10 of the 14 districts in which the increase in the average wage of employees under labor contract is higher than the national average (if we exclude the effect of the capital), and wage levels are lower than the national average, there have been three consecutive months of decline in the number of employees on an annual basis. Among them are three of the Northwest region districts - Vidin, Lovech and Montana, where in March the number of people employed under labor contract is 5% lower than the same period last year. Similar developments in terms of the number of employees can also be seen in other relatively less developed districts in the country like Silistra and Razgrad .

Targovishte, Yambol, Smolyan and Veliko Tarnovo are the four districts in which the increase in wages at a rate faster than the national average is not accompanied by a decline in the number of employees.

Meanwhile the labor market has performed relatively well in districts with traditionally higher wages, where the annual increase of remuneration is lower or in line with the national average (excluding the effect of the capital). Most such places observed timid growth or minimal decrease of the number of employees. Such is the case in Sofia district), Plovdiv and Varna.

It is likely that the data reflect a shrinking shadow economy in large districts, a process which puts a downward pressure the level of average wages. A possible explanation of this process can be found in the recently introduced tax incentives for low-income people (the possibility for those receiving minimum wages to request a refund of their income tax for 2014 in the spring of 2015). At the same time, we see no increases in the number of employees in the vast majority of poor districts (on the contrary), despite rising wages. We can speculate that employees there are being released, or that they move into the informal economy. Forthcoming labor survey data on employment at the district level, will allow further examination of this issue.

This is the first time since the beginning of the crisis, when such a significant negative correlation exists between these two factors – rising wage levels and their proportional effect on remuneration in districts where labor is not as well paid. This may be a sign of hitting the ceiling of business’ capabilities to pay a higher minimum wage in some districts. Although data on the labor force survey gives some hope that the negative effect of an increasing minimum wage has been relatively relatively well contained, any subsequent increase should be subject to careful analysis of labor market developments smaller districts.

Yavor Aleksiev

In recent years EU operational program fund utilization has become a leading prerequisite for the successful realization of many rural development, infrastructure and environmental projects on the local level. Although the actual payments as of January 31st, 2014 amount to less than 40% of all the value of all contracts of Bulgarian municipalities as beneficiaries of EU funding, the speed and scope of utilization is quite diverse.

To analyze their dynamics, we’ve used data provided by the Unified Management System for the EU Structural Instruments in Bulgaria[1]. By January 31, 2014 the total utilization of EU funds by Bulgarian municipalities amounts to 2.76 billion BGN and the total value of all contracts amounts to 7.55 billion BGN.

Utilization at district level

EU fund utilization is highest among municipalities in the district of Burgas – 285.7 million BGN, and lowest among municipalities in the district of Kuystendil – 23.2 million BGN. A clearer representation of the different speed of EU fund utilization is shown in the figure below, which shows the per capita utilization in different districts[2]. In per capita terms utilization is highest in Gabrovo, Burgas and Sofia, and lowest in Ruse, Kuystendil and Stara Zagora.

Source: IME

Municipal level

The comparison of EU fund utilization and IME data on e-government development in 226 municipalities (provided by the municipalities themselves) shows no correlation between the scope and quality of e-services, provided by local authorities, and their utilization of EU funds. There are plenty of examples of both municipalities with low level of e-government development which have managed to attract significant EU funding (like Hissarya and Pirdop), and municipalities with well developed-services with relatively low EU fund utilization rate (like Petrich and Pazardzhik). A slightly stronger, but statistically insignificant correlation can be found between municipalities’ one-stop-shop capabilities and their EU fund utilization results. In other words, there is no evidence that these two factors have any effect on the capabilities of municipalities to attract projects, which may be attributed to the specific characteristics of EU fund distribution mechanisms. Having a modern local administration is by no means a prerequisite for the attraction of EU funding, but may theoretically have relevance to the successful completion of planned activities.

The highest rate of per capita EU operational program fund utilization is observed in Pirdop – 4 373 BGN per capita, and an overall population of just 8 thousand people. As of January 31^st, 2014 the total sum of EU fund utilization by the municipality amounts to 35.5 million BGN, with further contracts for about 10 million BGN. In comparison to that the municipality of Kazanlak, which has a total population of over 70 thousand people, has managed to utilize just 20.2 million BGN. In other words – in a municipality where the population is 10 times larger, utilization is two times lower.

Among well performing municipalities are also several small in size resorts like Hissarya (3 204 BGN per capita), Primorsko (2 852 BGN) and Sozopol (2 463 BGN). Kostinbrod also caught our attention with a per capita utilization of 3 419 BGN. The lowest utilization is registered in Gramada (0 BGN per capita), Kovachevtsi (0 BGN), Alfatar (2 BGN), Simeonovgrad (4 BGN) and Nevestino (5 BGN). The municipalities of Gramada and Kovachevtsi haven’t managed to attract a single project. Gramada has only put forward 2 project proposals, both of which were turned down.

• EU fund utilization surpasses 1 000 BGN per capita in 26 municipalities. Among these are Gabrovo and Dobrich (city) – the only district centres in this group. The municipality of Byala (Varna district) deserves a mention with a population of a little over 3 thousand people and value of concluded payments of over 7 million BGN.
• EU fund utilization is below 1 000 BGN per capita, but above the national average of 379.8 BGN per capita, in 64 municipalities. Twelve of those are district centres like Burgas, Vratsa and Lovech.
• The largest group consists of 121 municipalities, where EU fund utilization is below the national average of 379.8 BGN per capita, but above 100 BGN per capita.
• EU fund utilization is below 100 BGN per capita in 52 municipalities, among which are Plovdiv and Kuystendil - the only district centers with such a low result. It is worth mentioning that both municipalities have negotiated contracts for more than 100 million BGN in EU funding. However, their actual utilization is still to come.

The fact that 7 years after Bulgaria’s EU accession there are still municipalities that haven’t been able to secure any EU funding, is indicative of the nature of the problems. Apart from the purely administrative weakness of some smaller municipalities, this is due to other important factors and circumstances such as the quality of the strategic development documents, as well as the coordination between local and central authorities.

The continuing problems in some municipalities threaten to turn the absorption of EU funds in an increasingly serious problem in some areas of the country where the need for such projects is greatest. The reason is that other municipalities gain project experience and develop best practices, while those 52 municipalities where EU fund utilization as of January 31, 2014 was less than 100 BGN per capita, are becoming less able to compete for EU funds. These communities are scattered throughout the country. With the exception of the capital, only three districts (Gabrovo, Targovishte and Shumen) have no such municipalities.

Source: IME

Petar Ganev

Despite being quite intriguing the data concerning poverty and inequality on the local level are often overlooked. It is widely known that every fifth Bulgarian lives below the poverty line, but regional differences are mostly ignored – for example in Vidin and Sliven this is the case for practically every third person. What’s more – every district has its own poverty line, which is formed by the median income in the district itself, in other words – this is the measure of the relative poverty levels in each separate district. The poverty line in Vidin is almost two times lower than the one in Sofia. Despite that the relative share of people below it is two times larger. Does this imply that the development of a given district leads to decreasing income inequality and vice-versa – does the lack of development lead to higher income inequality?

The poverty line in Bulgaria is a relative measure of poverty. Thus it is also a measure of inequality, since it is determined by the median income levels. Simply put – a poor person is someone whose income is lower than the income of others. Despite all the conditionality that the regional data on income and inequality levels suggest, the overview of the situation in Bulgarian districts gives a more or less affirmative answer to the questions above. Richer districts, where GDP per capita levels are higher, are usually the ones where fewer people live below the district’s relative poverty line. This also holds true for local inequality, measured by the ratio between the income of the richest and poorest 20% of households in those districts. This ratio varies from 3.5 in Blagoevgrad to over 10.0 in Vidin, Pazardzhik and Sliven.

In both cases there are examples of poor districts, where income inequality is relatively low. However, there are hardly any examples of rich districts, where income inequality is high. For instance, Kardzhali and Lovech are poor districts, where income inequality is low. Stara Zagora is an example of a relatively rich district, where inequality is high. The overall view, however, doesn’t suggest a negative correlation between better economic development and rising inequality. These observations for the most part also hold true when we look at the Gini coefficient at the local level.

If we replace GDP per capita indicator with employment ratios, the correlation is even clearer. The assumption that higher employment leads to lower inequality is confirmed by the data. What’s even more interesting is that there is a strong correlation between the employment ratios and the poverty line itself – more jobs lead to higher median income levels, while also reducing the share of people living below that line. This is another argument that leads us to conclude that the focus of policies, targeted at reducing poverty should be on creating more jobs and not on income policies. The latter usually includes not only income redistribution, but also labor market interventions, which despite aiming to help the employed, actually drive the price of labor up and hinder job creation, especially in poorer districts.

The IME presented the English version of the study “Regional Profiles: Indicators of Development 2013” on March 11^th, 2014. The event was attended by representatives of leading foreign embassies and chambers of commerce and industry.

Aleksander Tsvetkov, Ph.D, Regiostat

The goal of the multidimensional analysis of regional development using neural networks – Cohonen Self-Organizing Maps (SOM) is to review and analyze the overall socio-economic development of Bulgarian districts in the 2008-2011 period, using a wide variety of indicators, grouped in seven categories: economy, infrastructure, demographics, education, healthcare, environment, social environment.

Two “fake regions” have been established for the purpose of this analysis. One is a “perfect” region, which scores best (has the highest marks) in all indicators at the same time. The other one is a “worst” region, which has the lowest marks. These “fake regions” are used as reference points and benchmarks for assessing the development of the 28 regions during this period. After the analysis, the districts have been grouped into clusters, formed by Cohonen’s self-organizing maps. This presents an overview of the development of the districts throughout the entire period, by visualizing the degree of dissimilarities between the regions, their development trends – whether they are negative or positive, as well as their cohesion.

The main conclusion of the analysis is that there is no evident cohesion between the districts. To the contrary – there is one district, Sofia (capital), which significantly differs from the others in its socio-economic development. What’s more – the gap between Sofia (capital) and the other districts keeps growing. In practice, there is no visible result from the regional development policy that the government should try and implement.

The overall socio-economic state of Sofia (capital) is the highest of all the districts, which can be seen by its proximity to the “perfect region”. The districts Blagoevgrad and Varna are also close, but despite their good overall condition, they are far less developed than the capital. This conclusion is confirmed by the colour on the border between the cluster of Sofia (capital) and the other two districts – highly saturated color, that implies significant differences.

• Sofia (capital) has the best developed economy of all Bulgarian districts, followed by Varna. The weakest economic development is observed in the districts Silistra, Razgrad and Vidin.
• Sofia (capital) also has the best developed infrastructure, especially in the end of the period (2010 and 2011).
• Vidin, Lovech and Montana have the worst demographic state during the entire period, while Gabrovo demonstrates pronounced worsening trends.
• The regions with worst-developed education systems are Sliven, Targovishte, Razgrad and Silistra.
• Stara Zagora has both the best healthcare systems and worst state of the environment during the entire period.
• Unlike the other categories (economy, for instance), the social environment indicators have more pronounced dynamics. The color saturation on the map demonstrates negative development trends in the most regions, for example – Blagoevgrad, Sofia (capital), Gabrovo, Ruse, Stara Zagora and so on. In practice, Smolyan had the best social environment in the country for 2011, what’s more the positive trend is present during the entire period.

The full text of the analysis and all Cohonen maps are available here.

On February 6^th 2014 the Institute for Market Economics organized a round table discussion, as part of the project “Regional Profiles: Indicators of Development”, carried out with the financial support of the America for Bulgaria Foundation.

The discussion was attended by experts from public administration and NGOs, academics and professionals in the fields of regional development and statistics.

After a brief presentation of the main findings of the recently published second edition of the study, the participants were invited to share their thoughts on key regional development issues and to make recommendations regarding the focus of the upcoming 2014 edition of the study.

The IME team would like to thank all the experts, who attended the discussion. Their comments and recommendations are of key importance for the preparation of the upcoming third edition of the study "Regional Profiles: Indicators of Development".