News

Petar Ganev

Talks on changes in the social security system have started again, against the background of continuing protests in the country and the news of a possible budget revision. We have been hearing all kinds of extravagant and even unconstitutional suggestions, such as the proposal to “take away” money from the private pension funds, but yet again little attention is being paid to the influence of minimum insurance thresholds on employment levels in the country. Let’s not forget that neglecting this topic is an invariable criticism in the reports and statements of the EC[1] and the IMF[2]. We now have access to more data, which clearly show the size of the problem and have not been publicly available until now.

In the past year we published an analysis of the effects of social security and regulatory burdens on the labour force in the country. For the first time, using detailed data, we can prove that one out of every four people is insured on or close to the minimum threshold. Now, thanks to the work done by our colleagues from National Social Security Institute, we have 2012 data and a breakdown by regions[3]. It has been pointed out analytically more than once that this problem is mainly on regional level, but never before have had access to detailed regional data. And the statistics are more than alarming.

As expected, such a problem is more or less non-existent in Sofia – only 5% of those working in the capital are insured on or close to the minimum social insurance income. In other words, wages in Sofia are relatively high and raising the minimum insurance thresholds does have a serious influence. But the situation in the country is different. In Haskovo for example, almost 60% of all workers are insured on or close to the minimum. This means that raising the minimum thresholds automatically makes the labour of more than half of the employed in Haskovo more expensive, which inevitably pushes employment down.

Insured on or close to the minimum threshold (% of the insured by regions, 2010 – 2012)

Source: NSSI

*Data of the NSSI for the 16 economic activities for the period 2010 – 2012 have been used, which encompasses almost 1 million insured persons. We assumed insured persons on or close to the minimum to be all those, who are insured on or close to the threshold – with a tolerance range of 10% above the administratively specified threshold.

The same is true for other regions as well – in Blagoevgrad, Vidin, and Pleven 50% of the workers are insured close to the minimum. In Ruse and Varna, 40% are close to the minimum. In other words, if we exclude Sofia, minimum insurance thresholds play a crucial role in the country, because every change in them automatically influences at least half of the employed. Even more, in the past several years, the impact of the minimum thresholds is increasing. Varna was hit the hardest – in 2010 25% were close to the minimum thresholds, while in 2012 these were already close to 40%.

All of this is not quite surprising and just confirms the arguments already expressed. The system of minimum insurance thresholds has immense influence in the countryside, which is neglected in view of Sofia. The blind raising of minimum thresholds in times of crisis and decreasing employment has made it so that more than half of the employed in the country (excluding Sofia) are insured on or close to the minimum and every increase in these thresholds automatically depresses employment levels in many regions. This is one of the explanations behind the problems on the labour market and the lack of new jobs, which is also confirmed by international observers and institutions and the detailed regional data. Inexplicable is the desire of the institutions to comment on all kinds of topics, including unconstitutional ones, but persistently avoid all criticism against the system of minimum insurance thresholds and its effects on employment.

Petar Ganev

In mid-June 2013 for a second year in a row IME embarked on а tour of the 28 districts in Bulgaria as a part of the upcoming second edition of the study “Regional Profiles: Indicators of Development”. By holding meetings with representatives of non-governmental organizations, business associations and regional authorities, IME’s team aims to acquire direct impressions of the socio-economic environment in each district.

During the second part of our trip we visited the regions of Vratsa, Pleven, Lovech, Gabrovo, Veliko Tarnovo, Targivishte, Shumen, Razgrad, Ruse, Silistra, Dobrich and Varna. We will use our observations from these visits for the completion of each region’s profile in the upcoming second edition of our study. Some of the underlying socio-economic trends that we observed in the regions of Northern Bulgaria are:

• The main problems facing the northern regions are weak economic activity and shortage of workplaces. Leaving the economic predicaments aside, the social environment is still generally perceived as good. To put it simply: “It is nice to live here, but there is no work”;
• Throughout the past year a certain livening of economic activity was observed – despite the lasting prevalence of bleak perceptions spurred by years of decline in revenues and employment, the past year has given active enterprises a breath of fresh air;
• Our regional trip quickly disproved the familiar phrase: “There is no production. Nothing works anywhere.” In virtually every district there are foreign investments and active manufacturing firms, some of which enjoy good market positions abroad. However, the presence of a few strong businesses cannot provide economic revival or employment for all;
• There is a widespread perception that in recent years small and medium-sized enterprises have been put under a lot of pressure – centralized decision-making (e.g. minimum insurance thresholds) and malfunctioning institutions (due to corruption, heavy administrative burden, etc. ) have harmed smaller businesses in favor of larger ones;
• It is widely agreed that the levels of undeclared pay in active firms has declined – a growing number of workers demands insurance instead of money “under the counter”. The increase of minimum wages and social insurance thresholds has contributed to the rise in unemployment, especially among low-skilled workers;
• Businesses are subjected to constant institutional oppression – it would be sufficient to mention that we heard someone say “The Labor Inspectorate is more dreadful than the National Revenue Agency”. We have also confirmed our impression that institutions are putting a heavy burden on enterprises that actually work instead on ones that remain completely unregulated;
• There has been a decline in the number of high-skilled workers – in many places there is the paradox of high unemployment combined with lack of qualified personnel. These imbalances in the labor market are exacerbated by the fact that very often young people are not interested in working in the industrial sector;
• The activity of local authorities is crucial for investment on regional level. However, in many places their efforts are primarily focused on the absorption of EU funds, and not so much on attracting investors;
• In the past few months there has been a certain standstill in the work of institutions – because of the protests at the beginning of the year and the subsequent political woes, and also due to the change of key figures, the administration has distanced itself and maintained a stand-by position. This represents both a breath of fresh air – in the form of less pressure and control, and a problem for local businesses – because of delayed decisions and slow progress with projects depending on the administration.

IME would like to extend its gratitude to all of our partners and especially the representatives of the Bulgarian Chamber of Commerce and Industry (BCCI) for their cooperation in the organization of local meetings and workshops.

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

The usual methodology in the estimation of quality of life is to assess it on a national level, not on a regional one. With the exception of several publications, ranking the cities in various countries, there are no studies, which rank individual regions.

Studies on a national level can be divided into two types – objective and subjective. The latter ones use various public polls in order to calculate an estimate of the quality of life. The objective studies are based on different statistical data, combined into one final value, which measures quality of life. Such studies are for example The Economist Intelligence Unit’s Quality-of-Life Index from 2005, the popular Human Development Index, and the OECD’s Better Life Index.

The assessment “Quality of life in the districts”, drafted by the IME, is an attempt to combine the methodologies the globally recognised indices and apply them on a regional level in Bulgaria. The goal of the assessment is to be, as much as it is possible, yet another factor used when comparing the different districts in Bulgaria. In order to minimize subjectivity, the different indicators are given equal weights in the final result. This assessment is base on the IME’s study “Regional Profiles: Indicators of Development”.

Source: IME’s calculations

As is obvious from the districts ranking, the presence of a large district centre does not always mean a better quality of life. The traditionally cited as large and prosperous districts of Varna and Burgas give way to smaller ones, such as Gabrovo and Pazardzhik. The large difference between Sofia (capital) and the rest of the districts is due to its good performance in one indicator, but in several Sofia lags behind. This is one of the main strengths of the index – first place in one of the sub-factors is not enough to raise the district to a high level. Some other main conclusions, which can be drawn from the study, are:

• Sofia takes first place in five of the indicators and last place in the crime indicator;
• Pernik is in last place in three of the indicators;
• Stara Zagora loses a couple of places, because of its weaker (compared to other districts) performance in the indicator “Emissions of pollutants in the atmosphere”;
• Kardzali takes first place in three of the indicators and shows an overall good performance in the rest;
• Plovdiv has only one first place, while Blagoevgrad takes one second place, but the overall performance of the two district puts them on second and third place in the final ranking respectively;
• Varna and Burgas are in lower positions compared to the leaders, mainly because of their weak performance in the health, crime, and quality of roads indicators;
• Burgas shows a weaker performance compared to the rest of the districts in the average annual income indicator;

Methodology

When assessing the performance of the districts, we’ve used only data from the latest available. Because of the nature of the used data and the method of its collection, this year varies (2009 to 2012). You can see the specific indicators and their relevant years below.

The next step is to normalise the data. This way the data are equated to values close to one another. In our case, the normalisation takes the highest value as 1 and the lowest value as 0. The rest of the data is spread between these two values.

The resulting values are then averaged by the number of indicators (12). This means that they are effectively given equal weights.

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

The economic crisis continues to deepen the differences between the capital and the rest of the country’s districts. This is true not only for indicators such as unemployment and employment, but also for the levels of average annual income. In this case, we take a look at the total earnings, which include monetary income (salary and other income, pensions, social benefits, income from sales and other transfers), as well as quantified natural income.

For the period from 2001 to 2011, the average annual growth rate of income in the capital is 12.36%, while the national average is 9.05%. In 19 out of the 28 districts, income is rising at a rate, lower than the national average. The only districts, which shows a higher growth rate of the income, compared to the capital, is Stara Zagora – 12.54% per year. Despite this, the average annual income in Stara Zagora remains � less than that in Sofia (capital) in 2011, because of the lower base in the beginning of the period.

Graph 1: Average annual growth rate of the total income per household member in the period 2001 – 2011, %

Source: NSI, IME’s calculations

Note: We have defined the growth rate as “fast” in districts, where the latter is higher by at least 1 percentage point the national average. The “medium” growth rate is lower or higher by less than 1 percentage point. A rate lower by more than 1 �percentage point means that the district falls into the category of those with “slowly” growing total income.

If the average annual growth rate, observed in the period 2001 – 2011, stays the same, it would be impossible to catch up to the capital[1]. Because of this, in order to illustrate the lag in the level of income in years, we assume that the income in the different districts will continue to rise with same average annual rate as in the period 2001 – 2011. Also, we assume that the real rise in income in the capital stops in 2012 and from this point on it rises only with the rate of inflation.[2]

Graph 2: When the rest of the country’s district will catch up to the capital

Source: NSI, IME’s calculations

If the income in the capital stopped rising in 2012 and income in the rest of the districts kept its rate of increase, the first ones to catch up to Sofia would be Stara Zagora and Pernik (in 2014). Several years later, the same would achieve Smolyan, Ruse, Pleven, and Plovdiv. The last ones to do so would be Vidin (in 2033), Silistra (in 2037), and Pazarzhik (2039).

This dynamic is, of course, conditional, but it gives a good idea of the time lag between the levels of total income in the capital and the rest of the country.

We should also note the different way, in which the crisis has affected the growth rate of income in the individual districts. For example, in recent years, in districts such as Stara Zagora and Sofia (district) the average annual growth rate of total income is higher than the one in the capital. Despite the development of this trend, significant changes in the overall dynamics in the long term seem unlikely.

Working meeting in the Chamber of Commerce and Industry – Stara Zagora (June 18, 2013). The meeting was attended by the economists Kaloyan Staykov and Yavor Alexiev from IME, the chairman of the Chamber Oleg Stoilov, the CEO of the Regional Economic Development Agency Rumiana Grozeva, and representatives of industry and business organizations.

Starting from mid July 2013, IME began a tour of the 28 Bulgarian districts for a second year in a row, as part of the preparation of the forthcoming publication “Regional profiles: Indicators of Development 2013”. Through meetings with representatives of NGOs, the business and the administration, IME aims to gain insights of the socio-economic situation of the various Bulgarian districts and to identify the common problems and issues, which they have.

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

Yavor Alexiev

Starting from mid July 2013, IME began a tour of the 28 Bulgarian districts for a second year in a row, as part of the preparation of the forthcoming publication “Regional profiles: Indicators of Development 2013”. Through meetings with representatives of NGOs, the business and the administration, IME aims to gain insights of the socio-economic situation of the various Bulgarian districts and to identify the common problems and issues, which they have.

During the first part of the tour IME visited Pazardjik, Plovdiv, Stara Zagora, Sliven, Yambol, Haskovo, Kurdzhali, and Smolyan. IME’s observations will be used in the preparation of the individual district profiles in the forthcoming second edition. Some of the main trends, observed in the districts in the south-central and southeast regions are:

Operation of the administration: in most of the visited regions, there are still not enough traditions and examples of successful cooperation between the administration and non-government sector. The quality of the administrative services is gradually improving, but e-government and transparency continue to be a major problem. In a lot of districts personal acquaintances and contacts are seen as a necessary condition for quick and easy interaction with the local administration. At the same time, cooperation with the local administration is of crucial importance to the overall state of the business environment in smaller regions.

Business environment: micro and small enterprises in the smaller regions experience serious difficulties in their attempts to adjust their business to constantly changing laws. The lower turnover does not allow them to comply with the legal requirements quickly enough. Because of this, they are often targets of financial sanctions. The frequent changes in the regulations mean that investments are being made under certain conditions, while economic activities are being carried out under others. This interferes with the implementation of the business’ development plans and hinders loan demand.

Tax policy: A large part of the representatives of the business and non-government sector agree with the proposal to set the minimal wage and the social security thresholds on a regional level. Raising the level of the social security threshold has a negative effect on employment in the smaller and poorer districts. In many cases this leads to firms entering the grey economy.

Raising the tax assessment on properties led to an increase in costs covering the waste tax. In recent years property prices are falling, but tax assessments remains the same, despite the fact that properties are unsellable at these prices. The method of determining the tax assessment is improper, because it has nothing to do with generated waste and has a negative effect on investment activity.

European projects: Infrastructure in the region is gradually improving. A large part of the projects are in the area of urban development and are financed via European programmes. Programmes for improving the qualification of workers are seen as far more effective than those aimed at training the long-term unemployed. The business sees the latter as a clear manifestation of social welfare aid.

Education: There is a severe lack of professionals in many areas. The reasons for this lie not only in the falling interest in professional high schools (the ex technical schools), but also in the insufficient training of young people entering the market, who have actually graduated from such school. Businesses are often forced to re-train their employees, which takes time and resources and hinders development.

Public procurement: There are widespread infringements in the area of public procurement procedures. Reasons for these are not only the lack of necessary capacity of some districts to establish the parameters of these procurements, but also the purposeful misappropriation with the intent to benefit certain firms.

Working meetings of IME with representatives of the local business, non-government organizations, administration and media

IME participated several working meetings – in Stara Zagora, Plovdiv, Haskovo, and Kurdzhali.

Working meeting in the Chamber of Commerce and Industry – Stara Zagora (June 18, 2013). The meeting was attended by the economists Kaloyan Staykov and Yavor Alexiev from IME, the chairman of the Chamber Oleg Stoilov, the CEO of the Regional Economic Development Agency Rumiana Grozeva, and representatives of industry and business organizations. You can find more information about the meeting here: chambersz.com

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Working meeting in the Haskovo Chamber of Commerce and Industry (June 20, 2013). The meeting was attended by the economists Kaloyan Staykov and Yavor Alexiev from IME, Nikolay Nanev, temporary regional governor of Haskovo, Yancho Yanev, chairman of the Haskovo Chamber of Commerce and Industry, and representatives of the business, trade unions, banking sector and media. You can find more information on the meeting here:haskovo.net | infobusiness.bcci.bg | novinarug.com

IME would like to thank the Chamber of Commerce and Industry of Stara Zagora, Plovdiv, Haskovo, and Kurdzhali districts for their cooperation in organizing and conducting the working meetings.

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

Yavor Alexiev

A little over a month ago, IME traced the dynamic of the increase in income and unemployment levels in the different districts of Bulgaria.[i] The goal was to determine how the labor market in the various regions reacts to the combination of rising wages and continuously high unemployment. In that analysis, we divided the regions in four groups:

• Group 1: Districts with slowly increasing wages and falling unemployment in 2012: Burgas, Vidin, Gabrovo, Dobrich, Kyustendil, Pleven, Smolyan and Haskovo. In these districts unemployment in 2012 was falling, while at the same time the annual average level of wages increased at a slower rate than the national average.
• Group 2: Districts with slowly increasing wages and rising unemployment in 2012: Blagoevgrad, Varna, Veliko Tarnovo, Vratsa, Lovech, Pernik, Ruse, Sliven, and Yambol. The combination of low rate of increase in wages and the continuous rise of unemployment is evidence of the lack of flexibility on the labor market in these regions.
• Group 3: Districts with rapidly increasing wages and rising unemployment in 2012. In these regions the wages in 2012 have increased at a rate higher than the national average, which is accompanied by the rising unemployment. These are Montana, Pazardzhik, Plovdiv, Razgrad, Silistra, Sofia (capital), Stara Zagora and Targovishte.
• Group 4: Districts with rapidly increasing wages and falling unemployment in 2012 – there are only two districts, in which the rate of wage increases is higher than the national average, without negatively affecting the labor market. These are Shumen and Sofia (district).

Keeping these four groups, in the current analysis we will take a look at what happened with the annual average employment rate of the population above 15 years old.

In times of continuously high unemployment, monitoring the employment level is of crucial importance to the interpretation of the labor market processes, because it shows what part of the population in working age actually has a job. By itself, the fall in unemployment in some regions (if not accompanied by increase in employment) doesn’t show real recovery of the labor market.

Graph 1: Change in the employment rate in the districts with slowly increasing wages and falling unemployment in 2012 (Group 1), percentage points

Source: NSI, IME’s calculations

In seven of the eight districts, in which in 2012 wages increased at a rate that is lower than the national average we see a rise in employment. Burgas is the region with the largest number of created jobs – almost four thousand. In Dobrich and Smolyan, the number of employed has increased by 3.3 and 2.9 thousand respectively. Only in Kyustendil employment is shrinking and in 2012 the employed decreased by 1.7 thousand people.

This is also the group with the most favorable labor market development in 2012, manifesting itself in decrease in unemployment and increase in employment. The slower rise in income in these regions helps people keep their jobs and in the same time leads to creating new ones.

Graph 2: Change in the employment rate in the districts with slowly increasing wages and rising unemployment in 2012 (Group 2), percentage points

Source: NSI, IME’s calculations

In five out of the nine regions, in which in 2012 we see a simultaneous increase in unemployment and a slow rise in income, employment is also decreasing. This is evidence of a serious lack of flexibility in the labor markets in these regions.

Most worrisome is the situation in Sliven. The minimal increase in income in combination with falling employment and rising unemployment, can be seen as a sign that the labor market does not seem to be able to cope with the administrative increase of wages. This increase in wages affects most of all the districts with lower salaries, such as Sliven.

In addition to Sliven, the rate of increase of the average annual wages is lowest in Blagoevgrad, Veliko Tarnovo, Pernik, Ruse, and Yambol. These are also the districts that show the biggest improvement in terms of employment – in four of them employment increases.

Graph 3: Change in the employment rate in the districts with rapidly increasing wages and rising unemployment in 2012 (Group 3), percentage points

Source: NSI, IME’s calculations

In four of the eight regions, in which in 2012 income levels increased faster than the average national rate and unemployment also rose, we see a fall in the level of employment as well. Only Plovdiv shows a significant increase in the number of employed, but even this district is below the level of 1 percentage point. We also have to note here that in this group the districts that showed an increase in employment in 2012 (Plovdiv, Silistra, and Montana), are also the ones with the lowest deviation from the average national rate of wage increase. In the other five regions wages have a much faster rate of increase, which has a negative effect on employment.

Graph 4: Change in the employment rate in the districts with rapidly increasing wages and falling unemployment in 2012 (Group 4), percentage points

Source: NSI, IME’s calculations

In 2012 there are no significant changes in the rate of employment in the two districts with decreasing unemployment and rapidly increasing wages. Despite the increase in income and employment in Shumen, the district remains one of those with the highest unemployment.

Graph 5: Distribution of the four groups of districts according to the change in the rate of employment of the population above 15 years old in 2012, percentage points.

Source: NSI, IME’s calculations

As is evident, employment in 2012 increased by more than one percentage point only in districts with lower than the national average rate of monthly wage increase.

There is an increase in the employment level in 11 out of the 17 districts, in which wages in 2012 increased at a rate lower than the national average. The slow increase in income in some of the poorest districts in 2012 continues to aid the increase in employment in the same districts since the start of 2013. But in other districts, even the slow rise in wages cannot positively influence employment. In the same in five out of the ten districts, in which the increase in wages is higher than the national average, the average annual level of employment in 2012 waslower than the one in 2011.

Groups 1 and 2 (districts with slower rise of wages) include four of the six regions, in which in the first quarter of 2013 there was an increase in the number of employed in comparison to the end of the fourth quarter of 2012. These are Vidin, Gabrovo, Kyustendil, and Pernik. With the exceptions of Montana and Shumen, employment in the first quarter of 2013 fell in all of the districts of Bulgaria.