News

Desislava Nikolova

Since 2012, IME has been conducting a comprehensive study on the socio-economic development of the districts in Bulgaria. For the objectives of this research, we collect and analyze data on regional level for more than 50 various indicators. One of them is the average annual wage of the employed people (under labour and professional contracts).

What can be easily seen from the data on the 28 districts are the enormous and constantly growing differences of the work pay between districts. While in 2000 the gap between the best-paid districts and the ones with lowest wage levels was around 1.5 times, in 2011 the difference widened to more than 2 times. It is interesting to note that the city of Sofia steadily and unconditionally preserves its leadership throughout the entire 2000-2011 period. The bottom of the ranking in the beginning of the period is occupied by Smolyan (until 2005), followed only shortly by Haskovo (2006) and Blagoevgrad (2007). Since 2008 the district with the lowest pay has been Vidin, which is hardly a surprise having in mind the overall economic lagging behind of the north-western region and especially of the Vidin district.

Table 1: Difference in wages of employed personnel in the best-paid and worst paid district (in times)

Source: NSI, calculations by IME

The data show not only the growing difference between the highest and lowest paid districts, but also the constantly widening gap between district-level annual wages and their country average level. The process is clearly illustrated by the dynamics of two related statistical indicators - the variance and the standard deviation. The standard deviation shows the extent of deviation of regional values from the country average level. Its dynamics for the 2000-2011 period clearly shows that the difference with the country average is increasing. While the standard deviation was less than 500 BGN in the beginning of the period, in 2011 it already surpassed 2000 BGN, hence it has increased more than 4 times. Although we operate with nominal values, inflation is not to blame -inflation for the 2000-2011 period (December to December) is 77.4%, while the nominal increase of the standard deviation is more than 400%.

Table 2: Standard deviation of wages by region

Source: IME’s calculations

In general, regional wage data confirm one of the main conclusions in our study, namely that differences in the socio-economic development among Bulgaria’s districts are intensifying. This process is observed in the period of economic growth up until 2008, as well as in the crisis and stagnation period that followed. The discrepancies are especially evident between the centre, i.e. the city of Sofia, and the rest of the country - meaning that the country can be easily divided into Sofia on the one hand and the remaining territory, on the other. �This tendency becomes more acute over the years.

It is about time to start considering the increasing gap between districts in the planning and implementation of government policies, especially regarding income policies and measures against the informal economy. What we witness every single year is the constant increase of minimum social security thresholds by sectors and occupations for everyone without taking into account the region’s characteristics. While this increase might have a generally low effect on the labour force in Sofia, where wages are already above the new threshold, in less developed regions like Vidin, for instance, it could be harmful for a part of the employees, as the new requirement increases labour costs and might lead to job cuts.

Unfortunately, up to this moment the government has not published an analysis on the effects of the thresholds’ annual increases on employment or on the informal economy, although such a report is quoted in the latest version of the National Reform Program, uploaded recently on the website of the Ministry of Finance. The quotation of the above-mentioned analysis that can be found in the program, says: “During the crisis, the increase of minimum incomes for low-skilled labour has weak negative effects upon the dynamics of the socially insured people by economic activities. A more serious negative impact is observed in a regional aspect between the change of the ratio between minimum incomes and average wages and the dynamics of those employed. In the districts, where the increase of the ratio between minimum thresholds and the average wage is greater than the country average, the decline in the number of employed people tends to be greater than the economy’s average, with few exceptions”. The quotation testifies that even the Ministry of Finance identifies a greater negative effect from the increase of thresholds on employment in some regions. The situation with the minimum average wage is analogical - its constant increase (by 29% within a little more than a year, between September 2011 and January 2013) most likely gives the boot to some employees or sends a number of low-skilled ones into the grey economy. Most likely the negative effects are greater in the regions with a smaller difference between minimum and average wages.

The problem is whether these numbers, the economic theory and the empirical analysis of the Ministry of Finance will be finally considered at the annual discussions on social insurance thresholds or while politicians make their usual promises for further increases of the minimum wage? A differentiation of thresholds and minimum wages by regions or by districts and their tying-up to local labour conditions (local levels of employment, salaries, unemployment and other relevant indicators) might lessen the negative effects, if the elimination of thresholds and minimum wages are politically unacceptable. It might be good to think about such a change in policies, if we do not want to continue losing jobs.

The project “Regional Profiles: Indicators of Development” is carried out with the financial support of the America for Bulgaria Foundation.

IME Hosted a Roundtable Titled "Regional Development of Bulgarian Districts - Approaches for Analysis and Key Issues" (29 January 2013)

The IME hosted a round-table discussion titled "Regional Development in Bulgaria - Analytical Approaches and Key Issues." The event took place on January 29, 2013 at the ”Sredets” Hall of Grand Hotel Sofia.

The discussion was attended by government officials, as well as representatives of NGOs, business associations and other stakeholders whose work is relevant to the issue of regional development.

The IME team presented the results of the study "Regional Profiles: Indicators of Development" to the expert audience and received useful recommendations regarding the further development and direction of the project, given the upcoming releases in 2013 and 2014.

The project “Regional Profiles: Indicators of Development” is carried out with the financial support of the America for Bulgaria Foundation.

Alexander Tzvetkov PhD, Regiostat

The goal of the multidimensional analysis of regional development, using Kohonen’s Self-Organizing Maps (SOM) is to track and analyze the region’s common socio-economic development during the 2008-2010 period, using a system of indicators grouped in seven categories: economy, infrastructure, demography, education, healthcare, environment and social environment.

Two “fake regions” have been established for the purposes of this analysis. One is a “perfect” region, which scores best in all indicators in the same time. The other one is a “worst” region, which scores worst. These “fake regions” are used as reference points and benchmarks for assessing the development of the 28 regions during this period. The current state and development of all 28 regions is assessed as positive or negative in comparison with these benchmarks. Afterwards the regions have been grouped in clusters, formed by Kohonen’s self-organizing maps. This allows us to compare all regions simultaneously showing the degree of difference, the development direction – whether there is a growth or a decline in development, the dynamics of the said development and the presence/lack of cohesion between the regions.

The main conclusion from the analysis is that there is no cohesion developing between the regions. On the contrary – there is a region – Sofia (capital) – which stands out among all the rest in terms of socio-economic development and this difference is increasing during the research period.

The common socio-economic state of Sofia (capital) is the best, as can be seen by its position closest to the “perfect” region on the map. Varna, Burgas and Plovdiv regions are also close to it, but despite their relatively good development, they fall far behind Sofia (capital). This is depicted by the color on the cluster border between Sofia (capital) and the three other regions – a highly-saturated color, showing a big difference.

As per the development of the economy, the highly-saturated color in the lower left corner, where Sofia (capital) is located shows that it is the most developed. Varna follows, but even though it is the second in the country, it falls far behind Sofia (capital). The worst-developed regions are Silistra, Razgrad, Vidin and Shumen, since the color of the map in their location is not saturated.

Gabrovo has the most intensive dynamics when it comes to the development of infrastructure – 2010 is highly saturated in comparison with 2008.

Vidin, Lovech and Montana have the worst demographic state during the entire period – and the least saturated portions of the map. Gabrovo has very pronounced and worsening negative trends during the period.

The regions with the worst education systems are Sliven, Targovishte, Razgrad and Silistra (least saturated on the map).

The rather pale color of the maps demonstrates that Razgrad and Targovishte have the worst healthcare during the entire period.

The region with the most environmental issues during the entire period (as can be seen by the lowly saturated color on the map) is Stara Zagora. The rather saturated color on the map, showing good environmental conditions, denotes Gabrovo as the leading region in the country in this respect during the three analyzed years.

Unlike the other categories (economy, for instance), the social environment indicators have a more pronounced dynamics. The color saturation on the map shows that in 2008 Haskovo, Pernik and Gabrovo had the best social environment in the country. However, they demonstrate negative development trends, because in the following years their color of the map is less saturated.

The project “Regional Profiles: Indicators of Development” is carried out with the financial support of the America for Bulgaria Foundation.

IME Publishes Database on Local Taxes and Fees

In the spring of 2012 IME sent questionnaires to all 264 municipalities in the country. Our goal was to collect official information on the rates of local taxes and fees as well as on the development of e-services and one-stop-shops. The process of collecting the data, contained in the nearly 200 replies received from municipalities required no less than three months.

DOWNLOAD THE DATA

The data includes the rates of immovable property tax for legal entities, vehicle tax, license tax for retailers, waste collection charge for properties of legal entities, fee for the use of industrial goods markets per day, as well as the municipalities’ self-assessment of the quality of e-services supply and their degree of readiness regarding one-stop-shops.

The data presented here covers not only 2012, but previous years, too. Our comment on this data can be found in a thematic analysis, titled “Local Tax Policy”. The data was used for assessment of regional business environment, too.

In 2013 IME will once again send questionnaires to all municipalities in order to update the database. This year’s goal is to cover all the 264 municipalities in the country. We are looking forward to cooperating with the local authorities on this particular initiative.

The database is available in xlsx format here as well as on our data-related internal web page.

The project “Regional Profiles: Indicators of Development” is carried out with the financial support of the America for Bulgaria Foundation.

Yavor Alexiev

In the past few years, the state of the labor market in Bulgaria is mostly defined by:

• the huge number of jobs lost
• dropping employment rates and growing unemployment
• frequent increases in social security burden

A more comprehensive review of the state of the labor market on a regional level reveals troubling trends in certain regions.

To demonstrate these trends, we will divide the last ten years, of available regional labor market data in two periods. The first period is the pre-crisis years between 2002 and 2008, and the second one – the crisis years between 2008 and 2011.

The acceleration of economic activity in Bulgaria during the pre-crisis years is not an even process – the rise in overall employment leads to a widening �of the gap between Bulgaria’s regions.

The main factor for this process is the economic and demographic development of Sofia (capital). In the pre-crisis period the average employment in the country was rising because of the new jobs created in the capital. Employment in certain smaller districts such as Dobritch, Pazardzik, Smolyan and Yambol also rose rapidly before 2008, but a main reason for the latter is the drop in overall population in these regions as well as the small employment base in the beginning of the period. The effect of the increase of employment in these districts on the country average is quite negligible.

Regional employment in 2002 and 2011

In 2002. there are nine regions where the annual average employment is higher than the country average. In four of them – Blagoevgrad, Varna, Kardzhali and Sofia (capital) annual employment exceeds the standard deviation for the country.

Graph 1: Employment rates in the population above 15 years of age (2002), %

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Source: IME calculations based on NSI data

By the end of 2011 the regions where employment rate is higher than the country average are only five, while in two of them – Blagoevgrad and Sofia (capital) – employment is higher than the upper boundary of the standard deviation (Graph 3). This occurs against the background of an increasing annual average employment in the economy – from 40.3% in 2002 up to 45.6% in 2011.

Graph 2: Employment rates for the population aged 15 years and above (2011), %

Source: IME calculations based on NSI data

Sofia (capital) and Blagoevgrad have managed to keep their leading positions in employment levels. Employment in Blagoevgrad and in the capital is the highest in 2002 as well as in 2011. Sofia (capital) has kept its leading position due to its high economic activity, Blagoevgrad – due to its good business environment and partially due to its proximity to the capital. Pernik, Plovdiv, Sofia and Stara Zagora also perform well. In the same time, employment in the bigger regions like Burgas, Stara Zagora, Gabrovo and Sofia increases at slower rates than the country average and has fallen below the country average in 2011.

Graph 3: Dynamics of employment in the pre-crisis and crisis periods, p.p.

Source: IME calculations based on NSI data

As it can be seen on Graph 3, Targovishte is the only region in the country where employment rises in the end of both periods, respectively from 30.6% in 2002 to 43.1% in 2008, an later on up to 45.40% for 2011. Even though the highest employment rates are recorded in 2009 (45.6%), the crisis has a negligible effect on employment in the district compared to the other regions of the country. In the past 10 years Targovishte has turned from the district with the lowest employment rate in the country into the one with the sixth highest employment, reaching levels close to the country average. Among the main reasons for the region’s good performance are the low base at the beginning of the period, as well as the improving business environment, which has helped attract investment.

Kardzhali features as exactly the opposite case. The district is the only one which shows a drop in the employed population both during the crisis and in the previous period. An interesting fact is that in 2002 employment in Kardzhali is higher than that in the capital, with only employment in Blagoevgrad reaching higher levels. Despite that, in the past 10 years it has dropped by almost 10 percentage points, which leaves it well under the country average in 2011.

When it comes to employment, the crisis has destroyed all positive employment developments in Haskovo, Smolyan, Gabrovo and Varna.

What can happen in 2013?

The gap in economic activity between the regions is likely to grow bigger in the upcoming period. This is based on the negative demographic trends, relatively low foreign investment and increasing social security burden. The latter in particular has a negative effect on smaller districts, where due to lower economic activity and the limited local markets, wages in many spheres of the economy are close to the minimum �social security thresholds.

In the same time, the dynamics of the labor market in Kardzhali and Targovishte shows how important the efforts of the local administration are for the development of a better business environment. It is exactly the favourable business environment that increases the investment attractiveness of a district, which leads to an increase in economic activity and new jobs.

The project “Regional Profiles: Indicators of Development” is carried out with the financial support of the America for Bulgaria Foundation.

The recently published study “Regional Profiles: Indicators of Development 2012” has already caught the attention of policy makers and is being used in the preparation of strategic documents and reports. The results of the study have been quoted in this year’s�report�on management of EU funds, presented by the Parliamentary Committee on European Affairs and Oversight of European Funds.

The study has also been used in the preparation of some of the recommendations of the Committee on improving the allocation and utilisation of EU funds during the next programme period (2014-2020).

The project “Regional Profiles: Indicators of Development” is carried out with the financial support of the America for Bulgaria Foundation.

* Stoyan�Hristov

During the analysis of regional development, an interesting question arises: is the domination of different economic branches a factor when it comes to poverty levels or wealth in the region? In order to be able to answer this question, we are going to use data from the recently published survey “Regional Profiles – Indicators for Development”.

One of the ways to explore whether such a link exists is to use the gross value added (GVA) of each branch in the districts. The data for 2009 (the most recent data available) shows that the sector of services accounts for the largest portions of GVA in 24 of the regions. In the remaining four – Sofia district (62%), Stara Zagora (58%), Gabrovo (48%) and Vratsa (46%) – the leading branch is industry. In regions where large cities are present the trend is for services to take the largest part; here the city of Sofia features as leader with its services branch amounting to almost 79%, followed by Varna where services hold 68.6%.

Source: NSI

As expected, according to the data, agriculture makes for a rather small portion of GVA in all regions and the country as a whole. The next graph shows the interconnection between the size of the agricultural branch and the economic development of the region.

The main indicator for the degree of regional development is GDP per capita. The following graph shows the reverse relation between GDP per capita and the share of the agricultural branch in the economy of the region[1]. Given this negative trend, two separate groups stand out. The first group is comprised of regions with relatively well-developed agricultural branch and a GDP per capita lower than the country average. The second one encompasses regions with relatively underdeveloped agriculture and a GDP above the country average.

Source: NSI

This leads to two separate conclusions. The data show that regions with a higher portion of agriculture in their GVA – above the country average – have relatively weaker economies. Examples for this are regions like Silistra, Vidin and Razgrad, which have a relatively large agricultural branch and feature a rather bad economic state and negative demographic trends[2]. On the other hand, the number of regions in this first group is bigger. Put in other words, these are the less populated areas, which fall behind according to a big number of indicators. If we compare these data with the “Regional Profiles: Indicators of Development” survey, we will reach the same conclusion. The average score in the “Economy” indicator is “unsatisfactory” for the first group and “good” for the second one.

On the other hand, the economically well-developed regions have a relatively underdeveloped agricultural branch – below the country average. There is only one exception – Vratsa region – and even there the share of agriculture is above 14 per cent lower than the leader in this respect – Silistra. In other words, the most developed regions in Bulgaria, according to the majority of indicators, fall in the second group. According to IME’s survey, these regions are also the ones with the best environment for business development (Stara Zagora, Targovishte); they also have the best socioeconomic state (Bourgas, Varna, Plovdiv) and have the most promising development trends (Ruse, Sofia).

Does this all mean that the population of these regions is poorer? The results depend on how we define poverty: 1) As an absolute indicator (income) or 2) as the standard of living above the poverty level. The first option covers what we had just shown – the economic development of the regions – and the results are fairly similar. NSI provides us with a second option. If we look at the poverty and social inclusion indicators we are bound to notice that there is a connection – albeit not a strong one – between the relative share of the agricultural branch and the poverty line. The graph below shows that with an increase of the share of the agricultural branch the poverty line drops lower[3]. This is to say that a lower income is necessary to maintain a standard of living above the poverty line in these regions – the standard of living there is lower. Despite that fact, if we consider the share of the population living below the line of poverty, we will see that these numbers cannot be linked to the size of the agricultural branch.

Source: NSI

To summarize, we can safely say that despite the small share of the agricultural branch in Bulgaria it is obvious that it is inversely related to the socio-economic development of the regions. However, when it comes to poverty, this link cannot explain why certain regions are poorer than others or why the number of poor people is bigger. Still, we can state that in the regions with a better-developed agricultural branch the poverty line is lower, which is an indicator for the standard of living in these regions.

*The author is an intern at IME