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Employment Strategy in Bosnia and Herzegovina

2010 - 2014

July 2010.

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Content Introduction 1. ECONOMIC AND SOCIAL CONTEXT AND SITUATION ON THE LABOUR MARKET

1.1. Macroeconomic Framework 1.2. Analysis of the labour market

1.2.1. Age structure of population 1.2.2. Structure of the labour force 1.2.3. Structure of the labour market by sectors 1.2.4. Informal economy 1.2.5. Unemployment 1.2.6. Gender Dimension 1.2.7. Youth 1.2.8. Older Population 1.2.9. Vulnerable Groups:

Persons with disabilities Minorities

1.3. Analysis of human resources in Bosnia and Herzegovina and education levels 1.4. Development of employment policies and labour administration 1.5. Employment services 1.6. Active and passive labour market policies 1.7. Policy Framework

2. KEY CHALLENGES ON THE LABOUR MARKET 2.1. Insufficiently strong and job-rich growth 2.2. Weak labour market outcomes particularly for vulnerable groups: low activity

rates and employment (particularly for women), high unemployment (particularly youth and unskilled labour force)

2.3 Low level of the labour force mobility 2.4 High level of employment in the informal economy 2.5 Inadequate human resources development 2.6 Limited capacity of policy and labour market institutions 2.7 Lack of social dialogue in the field of employment

3. OBJECTIVE, PRIORITY OBJECTIVES AND TARGETS OF THE EMPLOYMENT STRATEGY 3.1. OBJECTIVE 3.2. PRIORITY OBJECTIVES AND TARGETS

3.2.1 Promote an inclusive and job-rich growth and reduce the deficit of productive employment and decent work

3.2.2 Improve the employability of women and men, in particular the most vulnerable groups

3.2.3 Improve the effectiveness, efficiency and management of policies and labour market institutions

4. IMPLEMENTATION, MONITORING AND EVALUATION SYSTEM 5. FINANCING OF THE STRATEGY Annex 1

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Introduction Bosnia and Herzegovina (BiH) is still faced with severe deficiency of productive employment and decent work. As the situation on the labour market has somewhat improved in the past decade thanks to fairly high rates of economic growth, the results have been partially lost considering that the global economic and financial crisis has not bypassed BiH. The employment rates are still extremely low, almost half the rate of the European Union. This is mainly due to low rates of labour force participation with economically active age groups, as well as very high rates of unemployment, especially among the young population. The female employment rates are extremely low, which indicates significant gender inequalities in the labour market. The informal economy employment is large and increased as a result of the crisis. Human resources development is a challenge for the country. Total educational attainment of the population is low with large differences between the genders, and there is a mismatch between skills and labour market demands. Furthermore, vulnerable groups such as Roma and persons with disabilities are faced with particular challenges in terms of social inclusion and integration into the labour market.

Urgent need to solve these challenges and to promote productive employment and decent work led to the formulation of the Employment Strategy in BiH 2010-2014. While drafting the Strategy, Framework of EU employment and the obligations arising out of the Stabilisation and Association Agreement European partnership were taken into consideration. EU Employment Framework is presented in Annex 1 of this strategy. The aim of the Employment Strategy in BiH is to "widely improve productive and freely chosen employment for all" in accordance with the ILO Convention on Employment Policy, 1964, No. 122 that was ratified by Bosnia and Herzegovina.

The strategy consists of three parts. The first part analyses economic situation and the situation on the labour market in BiH, the second part elaborates set of policies identified by the authorities in Bosnia and Herzegovina and a third and final part describes the priorities and policy objectives and setting targets. The Strategy was prepared in accordance with the National Development Strategy 2010-2014, that states promotion of employment as one of the six strategic goals, and in accordance with the Social Inclusion Strategy 2010-2014.

This Strategy was drafted under the auspices and with the coordination of the Ministry of Civil Affairs of Bosnia and Herzegovina, and by the Coordinating Committee composed of representatives of relevant institutions in BiH and its entities and Brcko District (BD), as well as representatives of the organizations of employers and workers. The Coordination Committee (including representatives of: the Ministry of Civil Affairs BiH - the Department of Labour, Employment, Social Protection and Pensions and the Department of Education, the Ministry of Finance and Treasury of BiH, the Ministry of Foreign Trade and Economic Relations of BiH – the Department for Policy, Food and Agriculture Coordination, the Department for Entrepreneurship, the Directorate for Economic Planning of BiH, the Labour and Employment Agency of Bosnia and Herzegovina, the Federal Ministry of Labour and Social Affairs, the Ministry of Labour and Veterans and Disability Protection of RS; the Federal Ministry of Energy, Mining and Industry, the Ministry of Industry, Energy and Mining of RS; the Brcko District Government – the Department of Economic Development, Sport and Culture and Department of Agriculture, Forestry and Water Management, the Ministry

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of Agriculture, Forestry and Water Management of RS, the Federal Ministry of Agriculture, Water Management and Forestry; the Brcko District Government – the Department of Education, the Federal Ministry of Education and Culture, the Ministry of Education and Culture of RS, the RS Employment Institute, the Federal Employment Institute; the Employment Institute of the Brcko District of BiH, the BiH Trade Union Confederation, the Association of Employers of Bosnia and Herzegovina, (total 26 members), decided and coordinated the content of different parts of the Strategy. We express our special gratitude to the representatives of these institutions and social partners who have actively participated and contributed to the work of the Coordinating Committee by their great commitment and motivation. We also express our gratitude to the International Labour Office and its experts for comments, contributions and technical support in various stages of the process.

1. ECONOMIC AND SOCIAL CONTEXT AND SITUATION ON THE LABOUR MARKET

1.1 Macroeconomic Framework

Period 2005-2008 was marked by economic growth and macroeconomic stability: GDP in this period grew at an average amount of 5.6%. Such economic growth was initiated by the expansion in domestic demand and export. Domestic consumption was encouraged by the growth of wages and income per capita, as well as income of remittances from abroad. Banks have increasingly provided loans, both for consumption (to households) and investments (to private enterprises). Export growth was also strong, although still with higher imports - which resulted in increasingly negative trade balance. Country's macroeconomic basis was sound. The revenues collected from taxes are constantly rising while the external debt decreased. Financial stability was kept. Inflation has fluctuated slightly after the limit to 1.5% in 2007, again rose to over 7% in 2008 although this can be attributed to high fuel prices and food prices in the international market in the first half of the year. Global financial crisis has led to a drop in the stock exchange index and market capitalization in 2008 but its actual influence felt in the real economy in 2009. While growth was 5.8% in 2008. (Table 1) according to data from the Directorate for Economic Planning, the International Monetary Fund and the European Bank for Development estimated decline in real GDP by 3% in 2009 and a slow recovery is expected with almost zero growth in 2010. The economic crisis has quickly grown into a recruitment crisis that began in late 2008 which is noticeable in decline of paid employment in the formal sector and the rise of unemployment, the informal economy and poverty.

In the case of Bosnia and Herzegovina, the crisis had two main channels for transition: through export demand and the financial sector. The export significantly contributes to GDP in BiH. In 2008 a slowdown in export growth was recorded as the major trading partners, like Germany and Italy, recorded its weakest growth in 20 years. Given that these countries achieved a negative industrial growth in 2009, the export of basic metals, electricity, machinery and appliances (which together account for over 60% of export value), was exposed to loss.

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Another sector affected by the crisis was the banking sector. This was due to deep connections of BiH banks with the Western banks, and not because of internal factors1. The largest banks owned by zhe Western European banks have been affected by lack of funds for loans, so there was a reduction in loan growth in the mid-2008. This must have been directly reflected in the credit dependent industries like construction, automobile, and machine industries, etc. The reduction of activities in these industries expanded at their supplying sectors, such as metal sector, building materials, energy, etc. In addition to financial and export sectors, the decline in foreign direct investments and money transfers from abroad, due to the situation that abroad workers were left jobless, were also factors responsible for a dramatic slowdown in employment.

Table 1 Macroeconomic indicators for 2009 - 2012.

Indicator Official records

Estimates of DEP

Projections

2007 2008 2009 2010 2011 2012

Nominal GDP in millions of KM 24,335 27,331 26,846 27,386 29,787 32,561

Nominal growth in percentage 14.6 12.7 -1.8 2.0 8.8 9.3

GDP deflator (previous year = 100) 104.6 106.4 101.3 102.0 102.8 102.6

Real GDP in millions of KM 23,273 25,684 26 510 26,857 28,964 31,750

Real growth in percent (previous year = 100) 10.0 5.5 -3.0 0.0 5.8 6.6

Inflation measured by consumer price index in percentage

4.2 7.4 0.9 1.9 2.4 2.6

Consumption in millions of KM 24.470 27.761 27.416 28.238 29.998 31.860

Government consumption in millions of KM 4454 5077 5.101 5179 5438 5710

Private consumption in millions of KM 20,017 22,684 22,315 23,058 24,560 26,150

Investment in millions of KM 6830 8013 6026 6321 7443 8692

Government investments in millions of KM 745 1043 855 915 1126 1328

Private investments in millions of KM 5637 6555 5274 5515 6432 7484

National savings as a percentage of GDP 16.8 14.5 13.5 12.3 14.0 16.4

Government savings as a percentage of GDP 1.1 1.0 -0.7 0.6 1.0 1.5

Private savings as a percentage of GDP 15.7 13.5 14.2 11.7 13.0 14.9

The current account balance in millions of KM -2731 -4054 -2404 -2940 -3260 -3338

The current account balance as a percentage of GDP

-11.2 -14.8 -9.0 -10.7 -10.9 -10.3

The nominal growth of import 17.8 16.6 -19.1 8.3 9.9 10.5

Nominal export growth 14.3 12.5 -16.5 8.0 12.7 15.6

Source: Statistics Agency of BiH.

1 Total deposit in banks drop down suddenly and that happened due to mass withdrawal of public deposits

during mid of 2008 and not due to withdrawal of private savings

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* GDP, measured by expenditure approach, over 10% larger and growing much faster than the one measured by production approach. Bearing in mind many disadvantages of both approaches, the Directorate for Economic Planning, for the purposes of economic projections opted to use the expenditure approach for GDP due to its suitability for this purpose.

1.2 Analysis of the labour market According to the last census in 1991 4.377 million people lived in Bosnia and Herzegovina. The population declined dramatically as a result of the war: 250 000 lives were lost and about 1.2 million people emigrated, of which most working age population. This, of course, led to an increase of the relative number of dependent population.2

Regardless of the relative stabilization of the demographic situation in the past decade, the share of working-age population shows a negative growth of 5% from 2006 when labour market analysis was made for the first time. Also, although the gender representation in the working age population balanced, a lot more men are in the workforce than women. 1.2.1 Age structure of population

Changes in the age structure of population in BiH in recent decades have shown a disturbing trend of rapid population aging. The estimates of the Agency for Statistics of BiH in 2007 stated that the population younger than 14 years accounted for a half of this population from the time of the census in 1971. The share of working-age population has grown disproportionately slow, while the share of older population has tripled during this period, from 4.7% of the population in 1971 to 15% according to the estimates from 2007. (Fig. 1)

Figure 1 - The age structure of population in BiH 1971-20073

Gradual decrease in rate of population growth has resulted in reduction of the population younger than 14 years by 44 percentage points. Although it is the result of a combination of

2 Real coeficient of dependency: total unemployed population divided by employed population; Dependency

coeficient based on life age: work unable population (younger then 15 and older then 65) divided by number of work able population; The activity rate: Rate of involvement of labour force in work able population; The employment rate: percentage of employed in work able population; The unemployment rate: percentage of unemployed in labour force. 3 Numbes based on statistical data published in topic buletin The Demography 2008, topic bulettin Gender BiH

2007 and 2005

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factors (war, negative population growth4 and external migration), this represents a great

burden for the economy in BiH. The workforce, that is gradually decreasing, has to provide funds for the elderly population, whose number increases, which will further distort the balance of the dependency coefficient. Pension funds are exposed to great pressure to provide for a growing number of users, while reducing the inflow of contributions.

Therefore, in order to preserve the existing standard of living the base of the workforce must be renewed and increased, possibly by attracting many immigrants to return to the country and at the same time a stable and mutual increase of formal employment and productivity must be ensured.

1.2.2 Labour force structure

According to LFS 2009 date, working age population account for two thirds of the total population, half of them aged between 25-49, while 30% aged 50-64 years (Table 2). However, despite the currently favourable age structure with two thirds of the population of working age, the current ratio of dependency is high due to very low rates of employment, where a breadwinner serving 2.6 persons. Unemployment rate of persons in their most productive age between 25 and 49 is extremely high and is 25% and even with higher rates for women. Slightly lower unemployment rate for persons aged 50-64 appears to be associated with lower rates of labour force participation – the persons older than 50 years are prone to withdraw from the labour force.

Table 2 Share in the labour force in Bosnia and Herzegovina

Total 2006. 2007. 2008. 2009.

Total population (in thousands) 3372 3315 3211 3129

Working age population 15 + 2733 2725 2649 2594

The coefficient of dependence, current (%) 5 3.2 2.9 2.6 2.6

The coefficient of dependence, age (%) 6 0.2 0.2 0.2 0.2

Activity rate (%)7 43.1 43.9 43.9 43.6

Employment rate (%)8 29.7 31.2 33.6 33.1

Unemployment rate (%)9 31.1 29.0 23.4 24.1

Registered unemployment rate (%) 43.1 41.6 45.9

Source: Based on Labour Force Survey 2009, Table 1

The rate of activity in 2009 of only 43.6% (Table 3) was significantly low (41.6% in FBiH, 47.4% in RS and 38.1% in the BD BiH). The activity rate in BiH has increased by 0.8% during the period 2006-2008, then decreased again by 0.3% due to the crisis. Increasing the activity rate in the years preceding the crisis is mainly a result of the growth rate of activity in RS by

4 Human Development Report 2009 estimates population growth rate of 0,3% between 1990-1995 and 0,1%

between 2005-2010 5 Current coefficient of dependency: Totally unemployed population divided by employed population

6 Dependency coeficient, based on age: Work unable population (younger then 15 and older then 65)divided by

work able populaion 7 Activity rate: Labour force divided by work able population *100

8 Employment rate: employed persons divided by workable population *100

9 Unemployment rate: Number of unemployed divided by labour force *100

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3.7%, while in the same period it declined by 0.7% in FBiH and 0.8% in BiH BD(Table 3a).

Table 3 Share of labour force by age group and gender 2009

Age 15-24 25-49 50-64 15-64 15 +

Working age population (In thousands) 432 1040 617 2089 2594 Men 223 515 294 1031 1252

Women 209 525 323 1057 1342

In labour force (in thousands) 141 718 251 1110 1131 Men 90 438 162 690 703 Women 51 280 89 420 428

Age 15-24 25-49 50-64 15-64 15 +

Activity rate (%) 33 69 41 53 44 - Men 40 85 55 67 56 - Women 24 53 28 40 32

Employment rate (%) 17 53 34 40 33 - Men 22 67 45 51 43 - Women 11 40 24 29 24

Unemployment rate (%) 49 23 17 25 24 - Men 47 21 18 23 23 - Women 53 25 15 26 26

Source: Based on Labour Force Survey 2009, Table 2 * Source: Labour and Employment Agency of Bosnia and Herzegovina, http://arz.gov.ba

The employment rate in 2009 amounted to 33.1% (30.9% FBiH, RS and 37.2% BD 27%) with the female employment rate of around 10% which was lower than the employment rate of men (Table 3a). The employment rate in BiH is half the average rate of EU-27-(65.9% in 2008.), and it is quite lower than the EU target of 70%.10

Thanks to the increasing employment rate of 6.3% in RS, the total rate for BiH has increased by 3.4%, the lowest growth was recorded in the Federation of BiH (1.84% and 3.3% in BiH BD). Almost a quarter of the economically active population is unemployed: only two of the five working-age persons are actually employed (Table 3a). Differences between the genders are especially apparent in terms of labour force participation and employment rates - rates for men are more than double the rate for women. Inactivity rate of women varies among the entities, ranging from 64.1% in RS and 74.3% in BiH BD in 2009. This problem is not sufficiently analyzed in BiH. However, so high levels of inactivity are certainly attributable to the low level of education, as well as cultural factors and unequal access to the labour market.

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Eurostat

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Table 3a: Employment rate, unemployment rate, the rate of inactivity11 in BiH, according to year, sex and the entity12

BiH Federation BiH RS BiH BD

Employment rate Total M W Total M W Total M W Total M W

2006 29.7 39.9 20.0 29.1 40.3 18.8 30.9 39.6 22.7 23.7 33.7 14.0

2007 31.2 42.3 20.8 29.2 40.9 18.3 35.1 45.4 25.4 23.4 30.6 16.4

2008 33.6 44.9 23.1 31.8 43.3 21.1 37.3 48.0 27.2 25.1 34.9 15.6

2009 33.1 43.2 23.7 30.9 42.1 20.7 37.2 45.5 29.4 27.0 36.0 18.3

Unemployment rate Total M W Total M W Total M W Total M W

2006 31.1 28.9 34.9 32.4 29.5 37.5 28.0 27.6 30.0 37.1 32.8 45.2

2007 29.0 26.7 32.9 31.1 28.2 36.4 25.2 23.8 27.5 40.0 38.3 42.9

2008 23.4 21.4 26.8 25.0 23.1 28.3 20.5 18.2 24.1 31.9 28.6 38.2

2009 24.1 23.1 25.6 25.7 24.4 27.9 21.4 20.6 22.4 29.2 29.5 28.8

Inactivity rate Total M W Total M W Total M W Total M W

2006 56.9 43.8 69.2 56.9 42.8 70.0 56.7 45.2 67.6 62.4 49.8 74.5

2007 56.1 42.3 69.0 57.7 43.1 71.2 53.0 40.4 65.0 61.0 50.5 72.2

2008 56.1 42.9 68.4 57.6 43.6 70.6 53.0 41.3 64.2 63.2 51.1 74.8

2009 56.4 43.8 68.1 58.4 44.3 71.3 52.6 42.7 62.1 61.9 49.0 74.3

The BiH labour markets are severely affected by external migration: both the qualified and unqualified persons in their most productive age leave the country to seek more profitable employment. The migration has two sides - on the one hand, the migration impoverishes local human resource base, while on the other hand, cash remittances that migrants send to their families in the country make an important contribution to the economy of the country. A large number of BiH citizens works abroad, and it is estimated that cash remittances from abroad to Bosnia and Herzegovina on average make up about 17-20% of GDP.13

Remittances from abroad are an alternative source of income and may partly explain the high rates of inactivity in the country. 1.2.3 The structure of labour markets by sectors

Employment did not grow proportionately with the growth of the economy. Table 4 shows that 20% of employment growth is achieved in agriculture, which showed no sign of growth in productivity. This indicates that the employment in agriculture grew at the expense of productivity - that more hands worked in the fields than it was necessary.

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Calculated as a share of workable population 15+ 12

LFS (2009) 13

Still do not contribute to the GDP. More on cash remittances from abroad please see in Dilip ratha and Zhimei Xu, Migration and remittances factbook 2008 (Washington: The World Bank, 2008)

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Table 4 Value added of GDP by sectors and employment growth 2006-2008. Added value Employment growth

Agriculture 0.5 20.3

Industry14 39.8 50.6

Services 59.6 29.1

Total 100 100

Table 5 The elasticity of employment 2006-2008.

2006 2008

Agriculture 1 (11.08)

Industry 1 0.63

Services 1 0.38

Total 1 0.60

Source: Based on Labour Force Survey 2009, Table 7, pp. 38; National Account 2008, the BiH Statistics Agency, Sarajevo, 2009.

Among the employed, less than one third are employed in the secondary sector (mining, manufacturing, construction, gas, electricity and water), about a half is employed in various service industries in the private and public sector, while the remaining 20% found employment in agriculture (Table 6).

The industry, a sector with the most dynamic growth rose by a quarter between 2006 and 2008 (Table 7), which is to some extent contributed to employment growth. This sector is responsible for the healthiest elasticity of employment, measured as a percentage increase in employment due to the percentage increase in output (Table 5). About two thirds of production growth is the result of increased employment, while the rest is the result of productivity growth. This relation appears to be desirable in order to assist in coping with the dual challenge of increasing employment and productivity and return to work and the economy recovery.

Industrial production is mainly responsible for the growth recorded in the dynamic industrial sector. In 2006 76%, in 2007 65% and in 2008 38 % of growth in industrial production is generated. During the same period, the construction industry consistently provided around 30% of stimulation to industrial growth. Since the manufacturing industry is a sector that requires long-term commitments in terms of investment, infrastructure and similar, it is usually a sign of improvement of the economy sitation when sectors are growing. It is characteristic for the manufacturing sector that it provides fewer opportunities for the emergence of informal employment than other sectors.

The service sector has recorded a growth not initiated by employment but productivity, which is perhaps a sign of the decline of the informal nature of market, given that economic conditions enabled by the expansion of industry led to the reduction of underemployment and informal economy in services. Therefore, the service sector was marked by activities

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Industry here includes production, electrical energy, gas, water supply and construction (for more details check C+D+E+F of economic activities, NACE Rev 1.1, Eurostat)

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that included advanced technology and higher productivity. Table 6 provides an overview of the gradual reduction of employment in the service sector. The Reverse trend was recorded in 2009 that can be attributed to the global financial crisis - the expected outcome of the increase in informal economy in the labour market. Table 6 Distribution of GDP by sectors 2005. 2006. 2007. 2008. 2009.

Agriculture 10.1 10.3 9.8 8.9

Industry 25.7 25.4 26.4 27.4

- Production 11.5 12.6 14.6 15.4

- Construction 4.9 5,3 6.3 7.3

- Other 9.2 7.5 5.5 4.7

Services 64.2 64.3 63.9 63.7

Total 100 100 100 100

Distribution of employment by sectors

2005. 2006. 2007. 2008. 2009.

Agriculture 20.6 19.8 20.6 21.2

Industry 30.7 32.6 32.5 31.5

Services 48.7 47.5 47.0 47.3

Total 100 100 100 100

Table 7 Employment by sectors 2006 = 100

Employment 2006. 2007. 2008. 2009.

Agriculture 100 100.599 109.581 108.982

Industry 100 111.245 116.064 108.434

Services 100 102.278 105.823 102.785

In total 100 104.809 109.741 105.795

Index of value added in 2006= 100 2005. 2006. 2007 2008

Agriculture 95.516 100 101.630 100.865

Industry 97.749 100 110.914 125.646

Services 96.529 100 106.264 115.166

In total 96.735 100 106.970 116.360

Source: National Accounts 2008, the BiH Statistics Agency, Sarajevo, 2009 and the Labour Force Survey, 2009, Table 7, pp. 38

Analysis of the working age population by employment status shows that employees or paid employees (full-time employees who receive a salary) make up 72.8% of the economically active population and they dominate in the employment structure in BiH, out of which 35.8% are women.15

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Structure of employees in entities is as follows: in FbiH 78,8% of persosn are employees, in RS 64,1% are employees while in BD those are 31.4%. Women are 34,9% of total number of „employees“ in FBiH, 37,1%in RS and 44,4%in BD BiH. Source „LMS BiH 2009and LMS BiH 2006.

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Every fifth person in the labour force is self-employed (Table 8), of which one third are women.16

Self-employment is rather associated with a lack of opportunities for paid employment. Women are less prone to self-employment than men, but they are four times more willing to work as unpaid family members.

Table 8 Employment structure by sectors and status

% BiH Agriculture Industry Services Total

Self employed 22 55 14 31 100

Employees 72 4 38 58 100

Unpaid family members 6 95 2 3 100

Employment for a definite period (short term employment)

12 50 20 29 100

Source: LFS 2006, author’s calculations

1.2.4 The informal economy

The lack of opportunities for a dignified and productive employment has resulted in large informal economy, which is reflected in the difference of 21% between registered and actual unemployment by the ILO definition presented in the Labour Force Survey.17

The studies that are based on LFS 2006 show that one third of all employed persons (34%) had not paid contributions for pension and/or health insurance, which gives hints about the size of the informal economy in the country.18

Depending on the data sources and methods applied, underground economy in Bosnia and Herzegovina is generally estimated at about 30-50% of GDP.19

Agriculture is an important source of employment in informal activities (Fig. 2), and workers in this sector have least chances to move from informal economy to formal economy. Therefore, workers in rural areas encounter a greater possibility of much longer retention in the informal employment, than it is the case with workers in urban areas.

Persons who are informally employed in the service sector are more inclined to transition into employment in the formal sector (in accordance with the panel findings presented by Krstic and Sanfey in 2006, which are largely based on data in the Living Standard Measurement Survey, among informal employed persons in the service sector in 2001, over 50% made the transition to formal employment within the same sector in 2004).

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Selfemployed persons are 20,5% of total number of employed persons (FBiH 18,3; RS 23,4; BD 21,2). Information for BiH BDis not reliable. 17

Unemployed person, by the definition of the Thirteen internatiomnalconference of labour statistics (Geneva 1982) is a person above certain age, without employment during the period of time, presently available for job and searching for a job. For more details please refer to: http://laborsta.ilo.org/apply8/data/c3ehtml Labour force survey is primar source of information about situation on the labour market. The survey is convened once per year in BiHand last was LFS 2009. LFS objective is to present realistic situation in unemployment as it is expected from examinees to repoirt the facts on their employment. 18

LFS BiH 2006, authors calculations 19

Krstic&Sanfey (2006). Gorana Krstic and Peter Sanfey; Mobility, poverty and well-being among the informally employed in Bosnia and Herzegovina, (London: European Bank for Reconstruction and Development, 2006), URL: http://ebrd.com/pubs/econo/wp0101.pdf

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The informal economy provides vulnerable groups of population with short-term social protection and assists them to avoid poverty. However, the informal employment due to its unregulated nature odten offers unsecure employment and bad work conditions, and provides social security. While in the formal economy more than 90% of workers are in paid employment, in the informal economy less than half of workers receive a regular salary. Although there is little difference in weekly working hours (including those in formal employment who work a little longer), the formal economy has significantly higher earnings - 30% - compared with the informal economy (Krstic and Sanfey, 2006). However, it seems that a large number of employees are caught in the trap of informal employment (Krstic and Sanfey, 2006), probably due to the difficult access to labour markets, the slow creation of jobs in the formal economy and lack of skills required in the labour market. The share of women and youth in the total informal employment is higher than the share of non-qualified persons. The persons who have completed college or university have a better chance to get out of the informal economy and the transition to the formal employment (Krstic and Sanfey, 2006, pp. 11). Fig. 2 The distribution of informal employment by sectors and gender

1.2.5 Unemployment According to LFS 2009, unemployment in BiH is 24.1% (Table 2). The figure was unusually high, even two times higher than the EU 27 average rate that amounts to 9.5%. The highest unemployment rate of 29.2% is in the BiH Brcko District, and the lowest 21.4 percent is in RS

(Table 3a). By the end of 2008 there was a noticeable downward trend in unemployment rate of 7% in BiH, with no significant differences between the entities, which can be attributed to the moderate economic growth by 2008. Lower increase in unemployment that was observed in 2009 can be attributed to the global economic crisis. Furthermore, unemployment in the country is long-term: half of all employees are unemployed for at least five years, of which one quarter is unemployed for more than ten years and can hardly be considered as economically active (Table 9).

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Table 9 Unemployment by the unemployment duration and gender

% Men

Women Both gender

Found employment 1.2 0.1 0.8

Less than 5 months 7.4 8.3 7.7

6-11 months 9.2 7.3 8.5

12-23 months 9.8 11.9 10.7

24-59 months 21.5 25.7 23.2

60-119 months 23.3 20.2 22.1

120 months or more 27.6 26.6 27.2

Total 100 100 100

Source: Based on LFS 2009, Table 13, pp. 50

As indicated above, there is a significant discrepancy between the registered unemployment rate and unemployment rate as defined by the ILO, as the number of registered unemployed persons is almost twice larger than the number of actually unemployed. According to the data of the Labour and Employment Agency of Bosnia and Herzegovina, 510,580 persons were registered as unemployed on 31 December 2009 (Table 10), which accounts for 46% of the workforce. When it comes to women, this figure was higher than 60%. The system of social security, which provides unemployed persons with the right to health insurance, encourages the registration of unemployed persons with the unemployment registry offices, in order to acquire the status of the unemployed for the purpose of exercising certain rights during unemployment (i.e. health insurance and adequate compensation for years of employment).20

This creates a great concern especially in the country with limited resources of public and social security. On the other hand, one should bear in mind that unemployment data from the LFS underestimate underemployment - when many persons are employed in the informal economy and work on a temporary basis, or when self-employed persons perform the jobs that do not require their full engagement.

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In accordance to employment legislation in all entities (Federation BiH and RS) and Brcko district BiH, subisidies are provided from three months for employed persons or persons that have up to five years of working expiriences or up to 12 or 24 months (in FBiH) for persons with more then 25 years of working expirience. Subsidies in RS and BiH BDare up to 20% of average salary of the previouse month. In FBiH subsidies are 40% of the salary paid in previouse three months to unemployed perosn while working as it is published by the Federal statistics institute(CRI 2008, pages 42-43). For more information please see Law on Health Security FBiH (Article 19), Law on Health Security of RS (Article 10), Law on Health Insurance of Brcko District BiH(Article 18) and Law on Employment and Rights during unemployement of Brcko district BiH.

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Table 10. Unemployment rate by year, gender and entity

BiH FBiH RS BD

Total M W Total M W Total M W Total M W

REAL (ILO)

2006 31.1 28.9 34.9 32.4 29.5 37.5 28.0 27.6 30.0 37.1 32.8 45.2

2007 29.0 26.7 32.9 31.1 28.2 36.4 25.2 23.8 27.5 40.0 38.3 42.9

2008 23.4 21.4 26.8 25.0 23.1 28.3 20.5 18.2 24.1 31.9 28.6 38.2

2009 24.1 23.1 25.6 25.7 24.4 27.9 21.4 20.6 22.4 29.2 29.5 28.8 REGISTERED* 2006 44.6 - - 47.7 - - 34.6 - - 96.7 - -

2007 43.3 52.1 47.9 50.9 - - 29.5 - - 72.1 - -

2008 41.6 49.1 50.9 48.1 -- - 30.2 - - 63.4 - -

2009 45.9 49.8 50.2 52.6 33.1 55.8

Source: ILO Labour Force Survey 2007-2009. Sources of administrative data are Labour and Employment Agency of Bosnia and Herzegovina, the Federal Employment Institute of FBiH, the Republic Employment Institute of RS. * Administrative data on unemployment are based on statistics of registered unemployment in December each year, published by the Labour and Employment agency of BiH.

Registered unemployment in 2008 showed a significant decline of 6.7%, primarily in BiH BD, with a reduction in unemployment of -18.4%, which, due to the crisis grew again in 2009. (Table 11). The activities implemented by the labour inspections "Fight Against Undeclared Work" contributed to the reduction of unemployment through increased registration of workers and removing them from the registers of the employment institutes and services. Table 11 Percentage changes in the number of unemployed persons21

% (y/y) BiH FBiH RS BD

2006 3.3 4.3 1.2 0.2

2007 -1.2 1.4 -6.9 -23.9

2008 -6.7 -7.9 -0.8 -18.4

2009 5.7 4.7 9.3 -7.0

It is obvious that a structural rather than frictional unemployment is present in BiH. This fact indicates that large, if not the largest number of unemployed persons, is no longer in the labour market, since the inactivity can significantly reduce the possibility of finding a job. On the other hand, it is possible that many of the registered unemployed persons are engaged in activities aimed at generating revenues in the informal sector, especially when it comes to long-term unemployment. Great long-term unemployment indicates the need for additional measures for the reintegration of persons who have, for years, lost the confidence and skills needed for today’s job market. The share of long-term unemployed (persons seeking work for more than 12 months) in the structure of unemployment amounted to 83% in 2009. Nearly half of the unemployed in 2009 were seeking employment for more than five years (Table 9).

21

Based on the statistics about registered unemployment from December each year published by the Agency for Labour and Employment of BiH, http://www.arz.gov.ba/engleski/statistike.html

16

1.2.6 Gender Dimension

In Bosnia and Herzegovina there are large differences between the genders when it comes to employment rates, from low 43% among men to the very low 24% among women. Furthermore, the imbalance is observed in young population where the employment rate is low and amounts to 17%. Young men are two times more employed than young women, which means that only one of tenth of young women between 15-24 years are working. Moreover, the activity rate among women in BiH in 2009 amounted to only 31% which is significantly lower than among men (56%). Activity rate of women is the lowest in BiH BD amounting to 25.7% and highest in RS of 37.9% (Table 15, see Table 3a for data in the entities).

Women are mainly employed in the service sector without significant differences between the entities.22 Low participation of women in the workforce is partially a consequence of low levels of education: it seems that they lack the range of skills and qualifications needed to meet the demands of the labour market, therefore, most women with the lowest level of education do not even try to find a job. However, low levels of education and the differences between the genders in the level of education is not itself enough to explain the extent of gender disparities in employment rates. Among those who have only primary education, female employment rate is twice higher than for men, which suggests a significant gender inequality in the access to employment among those with low levels of education.

There are significant differences between genders in the sector structure of employment. The industrial sector is largely left to men. The industry employs only 16% of women compared to 40% of employed men (Table 12). In absolute figures, this difference is even more apparent if one takes into account the low participation of women in the workforce: in 2009 the industry employed 218,000 men and 52,000 women.23 Moreover, among persons who work for salaries (those who are 'employees' but not self-employed or paid family members, etc.), there are 28% of men more than women.

Out of the total number of women employed in the formal sector, 71% worked in wholesale and retail trade sector, education, healthcare, social protection, while the industry (processing industry) opened 21% of job positions for women.24

The structure of employment in BiH still indicates a strong traditional gender division of occupations, where women seek and find employment in typically female occupations.

22

LFS (2009) 23

Ibid. 24

LFS (2006)

17

Table 12 Labour force by economic sectors and gender, 2009 (%)

Activity Men Women Both gender

Agriculture 19 26 21

Industry 40 16 31

Services 41 58 47

All Industries 100 100 100

Source: Based on Labour Force Survey 2009, Table 7, pp. 38

There is a noticeable gap in wages between men and women.25 Analysis of differences in

wages through a gender perspective shows significant disparities between the genders in all salary grades, except in the highest (more than 2,500 KM) and the lowest salary grades (up to 200 KM), where the number of female and male employees is aproximately the same, without significant differences between the entities.26

The majority of employed women in BiH earns between 200-400 KM per month, while men earn between 300-500 KM. The difference in wages between the genders is greatest in non-industrial sector, and lowest among officers. 27 Although the difference in wages between the genders is present in all economies, the difference in BIH is higher than the EU average. Levels of education are the most obvious factors that affect gender inequality in income.

Table 13: Educational structure of the working age population - by gender and entities in 2009

Education BiH FBiH RS BD

M W M W M W M W

Primary and lower 34 57 31 56 39 56 44 62

Middle 58 38 61 38 53 38 47 33

Tertiary 8 5 8 6 8 6 9 * 5 *

In total 100 100 100 100 100 100 100 100

* Data is less secure Source: LFS, 2009

In 2009 the unemployment rate of women in BiH is higher (26%) than men (24%) without significant differences between the entities, except in BiH BD (unemployment rate of men

25

Gender gap in wages/incomes is diference between avarage monthly income of employed women and employed men showned as percentage of monthly income of man. Monthly gross incomes are related to amounts, mostly in cash, paid to employeed working full time and should be calculated in gross amounts. 26

Agency for gender equality BiH, UNDP Gender gap in BiH incomes (2007) 27

Agency for gender equality BiH and the Iniciative for Human development, „Gender gap in BiH incomes“, 2006

18

was 29.5% and 28.8% of women, where a lower rate of unemployment among women is explained by a very high rate of inactivity - 74.3%). Women, due to their roles in families, are often unable to seek employment, especially when they do not have the support of family or community. Services that would allow a healthy balance between family and professional life were poorly developed. Therefore, the issue of gender equality in the labour market in Bosnia and Herzegovina is ephasized and it deserves special attention.

1.2.7 Youth

Most of work-capable young people (15-24 years) are economically inactive, probably because they are studying.28 The employment rate among young people of 17% is extremely low, which is significantly lower than rates in other countries in the region and the EU

average (Table 14). This suggests that young people are faced with great difficulties to enter the labour market. Latest data on youth unemployment is estimated at 49% (54% in FBiH, 38.2% in RS and 50%29 in BiH BD). Although high, the rate is lower than in 2006 by 13%.

Table 14: The employment rate of working age population and employment rate of young people in 2008.

EU25 EU15 IRS SLO CRO RU TR BiH FBiH RS BD

Total 65.9 67.3 67.6 68.6 47.1 59.0 42.8 33.6 31.8 37.3 25.1

Youth 37.6 41.0 46.0 38.4 28.8 24.8 30.6 17.4 15.7 21.1 15.3 *

Sources: Employment in the EU (2008.) LFS B & H 2009. Data for Croatia and Turkey, the ILO data base 2007

The difference between genders is present even here, the employment rate of young men is 22% and only 11% for young women (Table 15). Poor education and lack of the necessary skills are often the cause of high unemployment. This is largely a result of discrepancies in education system, which is not in compliance with the European standards and the needs of the modern labour market.

Table 15 Participation in the labour force by age group and gender, 2009

Age 15-24 25-49 50-64 15-64 15 +

Activity rate (%) 33 69 41 53 44 -Men 40 85 55 67 56 -Women 24 53 28 40 32

Employment rate (%) 17 53 34 40 33 - Men 22 67 45 51 43 - Women 11 40 24 29 24

Unemployment rate (%) 49 23 17 25 24 - Men 47 21 18 23 23

28

According updated data on gross rate of enroling in high schools in BiH it amounts 89% (The World Bank Edstats) and 33,5% in tertiary education 29

Unreliable data

19

- Women 53 25 15 26 26

Source: Based on the Labour Force Survey 2008 and 2009, Table 2, pp. 26

1.2.8 Older Population

Older Population (persons 65 years and older) accounts for 15.1% of BiH population, with more women than men.30 The percentage of older population differs significantly by geographic areas. The highest percentage of elderly persons is in RS (18.5%), where one of five women is older than 65, and lowest number is in the FBiH (13.1% of the population).

In 2009 the employment rate of elderly persons between 50 and 64 years was 34%, which is almost ten percent lower than the EU average. This situation is mainly caused by post-war collapse of public enterprises, which were not accompanied by the programs of vocational education and training or other forms of reintegration into the labour market. This group is largely excluded from the labour market and it is necessary to pay special attention, to the greatest extent possible, to the reintegration of this group into the labour market. This is particularly important given that BIH population is rapidly aging.

1.2.9 Vulnerable groups:

Disabled persons

The total number of disabled persons in BiH is difficult to assess because of unconsolidated database. According to the administrative records31 (records of the relevant entity ministries on the beneficiaries on the various grounds of disability), there was 207 000 disabled persons in BIH, out of which 141 600 in FBiH and 64 500 in RS and one thousand in BiH BD. Other Data sources are based on the estimates of various disabled people associations in 200832 and these data show that 250 000 disabled persons are present in Bosnia and Herzegovina (war veterans, civilian victims of war and civilian disabled persons) after the rights of this category were expanded in FBiH in 2007 under the FBiH Law on Basis of Social Protection.

The data on the employment rate of disabled persons is unknown. Employment and unemployment of disabled persons is not registered in the registry of employment or

30

LFS BiH (2009) 31

The institutes for statistics have records about children and adults with disabilties (managed by disability type and gender) Data used in this analysis are registry of beneficiaries having rights on protection based on disability and led by relevant ministries (pensions of civilian and army war veterans). 32

Those are preliminary estimations of different associations of persons with disabilities for 2008. There is significant decrease comparing to estimations from November 2007 (165.000). This is consequence of law changes

20

unemployment. Disabled persons, as confirmed by the experience of many countries, have been further affected by poverty and social exclusion, which is also the case in BiH.33

Minorities

The Roma people are the largest of 17 national minorities in BiH. In the absence of census, the number of Roma population is estimated to 40,000 to 80,000 (data for the entities are not available), which amounts to about 2%.34

Official records of employees and unemployed persons do not monitor the status of Roma and the Roma themselves are rarely registered in the employment services as unemployed.

There are a very small number of members of the Roma nationality employed in the public sector. Unemployment is widespread, few have permanent employment, while there are only few enterprises and craft shops owned by the Roma. The main source of income of this national minority is self-employment mainly in the sector of collecting secondary materials and recycling waste. 35

Gloomy situation in the area of employment is mainly due to the very high rates of illiteracy in this group of individuals: only one out of five attended or completed primary school.36

1.3. Analysis of human resources in Bosnia and Herzegovina and education levels

Human resources basis in Bosnia and Herzegovina is inadequately developed and under-utilized. Uneven and often inadequate quality of education is a major barrier for employability and sustainable economic development. Although moderate reform happened in the educational system during the last decade, education is still exposed to the highly complex challenges such as the institutional framework and administrative divisions.

Funding and coordination of education in BiH is made at the level of entities and cantons. State budget funds for education are almost nonexistent. RS and FBiH spend about 4% and 6% of their GDP on education, while the budget of the Department for Education of BiH BD is 11.2% of the District budget.37

Despite the progress made in recent years, BiH lags behind its neighbours in school enrolment ratio38 with 89% of the gross enrolment ratio in secondary education versus 94% in Slovenia and Croatia, with lower ratios recorded only in Macedonia (Table 16). The

33

World Bank: Disability and poverty: Results based on Living Strandard measurement survey in BiH, S.Tsirunyan. Presentation at the World bank / Lotos conference „Disability and poverty in BiH“, Sarajevo 28 November 2005 34

Final Report „Conference on the state strategy for Roma in Bosnia and Herzegovina – Development of Action Plans“, 2006 35

Action plan for solving Roma issues in employment, housing and health protection. 36

For additional information please see http://www.undp.org/europeandcis/vulnerability 37

Strategic guidelines for development of education in BiH with implementation plan 2008-2015 http://www.erisee.org/downloads/library_bih/EducStrategy2008_2015_eng.pdf 38

Gross ratio of enrolement, accordining the deffinition of UNESCo institute for statistics is total enrolment in a specific level of education, regardless of age, expressed as a percentage of the eligible official school-age population corresponding to the same level of education in a given school year: (http://www.uis.unesco.org/glossary )

21

enrolment ratio of children who come from poor families where parents have a low level of education is much lower than average, which makes it difficult for them to create better preconditions for breaking out of poverty.

Table 16 Enrolment ratios in BiH and other countries of the former Yugoslavia, 2007.

Level of education Macedonia BiH Slovenia Croatia Serbia

Gross enrolment ratio, secondary, total 84.2 89.1 93.6 93.6 89.5

Gross enrolment ratio, tertiary, total 35.5 33.5 85.5 47.0 48.7

GPI, gross enrolment ratio, primary39 1 0.9 1 1 1

Pupil-teacher ratio, primary 18,3 16 15.6 16.7 16.6

Pupil-teacher ratio, secondary 13.7 14 10.2 9.3 10.3

Source: The World Bank Education Atlas

Although enrolment ratios in secondary schools are rather satisfactory, the ratios of educational attainment40

are still low with only 47.6 persons of working age who have completed secondary education, which is partly a consequence of the high school dropout rate (Table 17). This difference may also be explained by the migration of young people which seriously exhausts the base of human resources in the country.

The analysis of the working age population by level of education in 2009 reveals a disturbing fact: almost half of persons of working age or 45.3% have only primary education (it is 7 or 8 years of education) (Table 17). This is primarily the legacy of war, when the destruction of school buildings and ending of educational process led a number of persons with only primary education to leave school. 41

Therefore, the persons who enter the labour market since 1995 are the most affected.

Table 17 Ratios of educational attainment, 2009,percentages

Primary Middle Tertiary All levels

Working age population 45.3 47.6 7.1 100

- Men 34.2 57.5 8.3 100

39

Gender Parity Index (GPI) of 1 suggest equality between gender; GPI between 0 and 1 suggests inequality in favour of boys/young men; GPI higher then 1 suggest inequality in favour of girls, (UNESCO) 40

Educational atainement (finished school) is considered as the highest level of education achived or. Finalised regular school or adequat replacement school, passing exam in regular school or compleating course of unegular education that has ackoledged, according legislation, school degree (Agency for statistics of BiH). 41

Labour Market Review of Bosnia and Herzegovina, prepared by Zoran Pavlovic, Sahrudin Sarajcic, Ray Phillips, Anastasia Fetsi, henrik Huitfeldt and Urlike Damyanovic (Turin: European Training Fundation, 2006), page 23

22

- Women 55.7 38.3 6.0 100

In labour force 22.9 65.0 12.1 100

- Men 21.2 68.4 10.4 100

- Women 25.7 59.3 15.0 100

Employed 22.4 63.3 14.3 100

- Men 20.0 67.8 12.2 100

- Women 26.4 55.7 17.9 100

Unemployed 24.6 70.2 5.1 100

- Men 25.8 69.9 4.3 100

- Women 23.6 70.0 6.4 100

Inactive 62.7 34.1 3.2 100

- Men 50.8 43.5 5.6 100

- Women 69.9 28.4 1.6 100

Source: Based on the Labour Force Survey 2009, Table 4, pp. 32

The Labour Force Survey 2009 states that 78% of the working age population with primary education or below were out of the workforce, of which only 16.3% were employed (Fig. 3). A small number of unemployed was mainly the result of widespread discouragement42 of persons with primary or lower education, which arises from the low employability and has the effect of high rates of inactivity.

Chances for employment are significantly improved with completed secondary education - in 2009 two of the five persons were employed. This group shows a larger percentage of the population in the labour market, both with large numbers of the employed (44%) and unemployed (15.5%). Generally, those with tertiary education are in the best situation: three quarters of them are in the workforce and only 7.6% are unemployed.43

Figure 3 clearly shows the interdependence of education levels and status in employment: the higher the education level, the better chances for employment. Contrary to the general trend, there are more inactive men than women with tertiary education.

Figure 3 Participation in the labour market of the working age population by level of education completed, 2009, percentages of the working-age population

42

“Discouraged person“ is person in presently inactive persons as he/she considers job search effort without results. See paragraph: Discouragement as the most „damaging“ reason for inactivity in ILO Global Employment Trends for Youth, 2006 43

Presignifies that unemployment ratio of persons in labour force is 10%

23

Source: Based on the Labour Force Survey, 2009

The other side of the coin is that highly educated persons have better chances to find well-paid jobs abroad. So-called brain drain exhausts the base of qualified human resources of the country and puts the job market before another challenge. To prevent this trend, we need to improve opportunities for highly educated labour force in the national economy.

Looking at these presentations through gender issues, it is revealed a noticeable disparity in labour force participation and educational attainment. More than half of women of working age had completed eight grades of school, of which only 11% work. An absolute majority of these women (85.4%) are not economically active. For the sake of comparison, one third of men in the workforce has only primary education (Table 18 and 19) and only two thirds of those are inactive. Gender differences in employment rates are relatively lower for those with secondary education than for persons with lower education (Table 18 and 19 information by entities). However, half of working-age men with secondary education are employed compared to one-third of women.

Table 18 Characteristics of the labour force by level of education as a percentage of the working age population

Education Primary Middle Tertiary

Working age population 100 100 100

- Men 100 100 100

- Women 100 100 100

In labour force 22.0 59.6 74.5

- Men 34.8 66.8 70.2

- Women 14.7 49.4 80.0

Employed 16.3 44.1 66.8

- Men 25.2 51.0 63.5

- Women 11.2 34.4 71.3

Unemployed 5.7 15.5 7.6

- Men 9.8 15.8 6.7

24

- Women 3.5 15.0 8.8

Inactive 78.0 40.4 25.5

- Men 65.2 33.2 29.8

- Women 85.4 50.6 18.8

Unemployment rate 25.9 26.0 10.2

- Men 28.2 23.7 9.6

- Women 23.6 30.3 10.9

Source: Based on Labour Force Survey 2009, Table 5, pp. 34

Table 19 Employment, unemployment and inactivity - by the level of education and entity 200944

In 100% Primary and lower Middle Tertiary

BiH FBiH RS BDBiH* BiH FBiH RS BiH BD BiH FBiH RS BDBiH

Unemployed 24.7 23.7 26.3 29.8 70.2 71.9 67.7 61.2 5.1 4.4 * 6.1 * 9.0 **

Employed 23.3 18.1 28.3 28.3 63.3 66.0 59.7 59.4 14.3 16.0 12.0 12.3 *

Labour force 22.9 19.5 27.9 28.7 65.0 67.5 61.4 59.9 12.1 13.0 10.7 11.4 *

Inactive 62.7 61.1 65.4 68.6 34.1 35.9 31.0 27.3 3.2 3.0 3.6 4.0 *

* Data is less reliable **Data is not reliable

Dramatic differences in employment rates between the groups with different achievements in education indicate the importance of education and skills in the competition for jobs and access to the labour market. They further suggest that the importance of education in access to employment is significantly higher for women than for men. Consequently, the low level of education among a large part of the working age population is the main obstacle to their ability to find employment.

In recent decades, Bosnia and Herzegovina pass through fundamental social and economic transformation. Such a transition requires a highly flexible workforce that is able to adapt to changing market needs, especially because of the prospects for the EU accession. The lifelong learning system is crucial for the continuous adjustment of the human resources base to the market needs, given that the modern market economy requires a very different set of professional skills and competencies across all sectors, unlike the previous socialist economy.

To develop the human resource base in BiH, the educational system must be improved in terms of offers and in terms of its scope. Secondary education and vocational training should be adapted to the requirements of economy and labour market demands.

The concept of lifelong learning is very present in the European policy documents. Member States of the European Council were invited to develop national strategies for lifelong learning, and that education and training outlined in the Lisbon reform agenda is given the

44

Agency for Statistics BiH, Federal Institute for Statistics, RS institute for Statistics (2008), LFS (2009)

25

central place, through the development of Lifelong Learning Programme 2007-2013. Unfortunately, this type of education has not yet been systematically developed in BiH.

There is an obvious mismatch between supply and demand in the labour market arising from inadequate coordination of economic planning and the education system. Numerous reforms in the education system, such as the Law on Higher Education, provided positive results. However, since these reforms are implemented in isolation from each other and not together, hence no labour market needs are adequately specified. An interdisciplinary approach is required to meet the requirements of the labour market in the country.

1.4 Development of employment policies and labour administration

The importance of employment in economic and social policies has been recognized in two key Strategies: the Medium-Term Development Strategy and the Social Inclusion Strategy (2010-2013). The Directorate for Economic Planning coordinates the development of these two strategic documents. These two documents clearly identify the link between poverty reduction and employment growth. Employment is one of the strategic objectives of the proposal of the development strategy. Priorities are the development of small and medium enterprises, the functioning of labour markets and active labour market policies and the development of human resources. Overall 23 measures have been selected in order to achieve these priorities. Employment is also a priority of the social inclusion strategy, and priority is given to the inclusion in the labour market socially excluded categories through, inter alia, appropriate targeting of active labour market measures, the strengthening of social dialogue and better targeting of social transfers to the poor and vulnerable categories. The objectives and measures of the employment strategy are very consistent with those in the previously mentioned strategies.

Clear understanding of the existing structure of labour administration is important in order to successfully implement the Employment Strategy. The system is complex due to the existence of several levels of competence. The system is fragmented with the functions assigned to different administrative levels and little coordination both at the horizontal and the vertical level. The functions of the labour administration that fall under the jurisdiction of the Entities and BiH BD include 178 institutions. At the state level, the State Ministry of Civil Affairs and Labour and Employment Agency of BiH have a coordinating role. The

development, implementation and enforcement of legislation are taking place at the entity and BiH BD levels. Furthermore, issues related to collective bargaining, labour inspection, working conditions, occupational safety and health and wages, are also at the entity and BD BiH levels.

Moreover, in FBiH some matters (such as maternity leave) belong to the cantons and the Federation of BiH has no insight into the situation at the cantonal level. This additionally complicates the overall labour administration in the country. The functions in RS are centralized at the entity level. Successful implementation, monitoring and evaluation of policies and programs in such a complex administrative environment are a special challenge.

The functions of information and research in the labour market are underdeveloped with deficiencies at all levels of government. In this regard, some key challenges are related to the absence of state institutions, which would have the capacity to collect and analyze the

26

necessary data, the lack of methodology consistent with the ILO standards, differences in the capacities of different institutions at different levels of administration and lack of coordination in the provision of timely data collection.

When it comes to the labour legislation, the legal framework at the state level is provided by the following laws: a) The Law on Ministries and Other Bodies of Administrative which regulates authorities of the Ministry of Civil Affairs of BiH, b) Law on the State Labour and Employment Agency, c) Law on the Movement and Stay of Aliens and Asylum. The legal framework at the level of entities and BiH BD is presented in the tables below (Tables 20-22):

Table 20: Legal framework of the labour and employment sector in FBiH

Labour Law Official Gazette FBiH No.

1999/2000/2003

Cantonal labour laws

2001/2005 The law on mediation in employment and social security of unemployed persons

Law on strike 2000

Law on the employees council

2005 Law on occupational safety

General Collective Agreement for the territory of the Federation of BiH

The Law on Employment of Foreigners 1999

Law on the rights of demobilized soldiers and members of their families

Law on Inspections 69/05

Table 21: Legal framework of the labour and employment sector in RS

Official Gazette of RS, number:

Employment Law 54/05 and 64/06

Labour Law - clean text 55/07

Law on registries in the field of Labour and Health Insurance

18/94 and 64/06

The Law on Vocational Rehabilitation and Employment of Disabled Persons

12/09- clean text, 54/09 and 118/09

Law on the Rights of Veterans, Military Invalids and Families of Deceased Soldiers from Defensive War of RS - cleaned text

55/07

The law on employment of foreign citizens and stateless persons – cleaned text

24/09

Law on occupational safety 1/08

Law on the Protection of Civilian Victims of War 25/93, 32/94, 37/07 and

27

60/07

Law on Workers Council 26/01

The Law on Pension and Disability Insurance 106/05-clean text, 20/07, 1 / 09, 71/09, 106/09 and 118/09

Law on strike 10/98

The Law on Civil Servants 118/08

Law on General Administrative Procedure 13/02 and 87/07

The Law on republic administration 118/08

Table 22: Legal framework of the labour and employment sector in BiH BD

Official Gazette BD, number:

Labour Law 2000/2003/2004/2005

The Law on Employment and rights during unemployment

2004

The Law on Employment of Foreigners 2002

Without going into a deeper analysis of labour legislation, the key characteristics of the entity and the BiH BD laws on employment are:

Fees during unemployment, health insurance coverage and the use of health services depend on the place of residence and are awarded on the basis of place of living;

Federal law provides a broader definition of unemployment since the subsidies for unemployment can be extended even to those persons who do not fall under the category of "unemployed";

According to the laws of both entities in connection with the information delivery from employers to employment services, employers are not obliged to report on employed persons;

Law on Employment in FBiH mentions the function of collecting data on unemployed persons (not employed persons). The lack of data on employed persons does not provide a comprehensive and adequate labour market analysis.

In BiH, the situation regarding the legislation which protects the employment (EPL) is complicated due to the lack of an overall framework at the state level, as decisions on EPL are made at the entity and to some extent at the cantonal level in FBiH. In practice, however, regulations governing engagement and dismissal of workers are very similar in both entities and BiH BD. Table 23 provides a summary of the situation according to the OECD index of EPL and includes comparisons with neighbouring countries. As in other countries of the Western Balkans, the index of BiH is somewhat higher than the average EU index. This is particularly true for RS. The main difference between the entities in the EPL index is derived from differences in the regulation of temporary work contracts and contracts for a limited time. The relatively high index of RS is consistent with the finding of a

28

much larger informal economy. It can also be noted that stricter EPL does not follow a higher relative rate of unemployment among young people. The relation between the unemployment rate of young people and adults is in overall quite low in BiH comparing to other countries in the region. Moreover, RS, which has the strictest EPL - also has the lowest ratio in the unemployment rate among young people and adults.

Table 23 EPL indicators45 for BiH, neighbouring countries and EU 15

Country Year Indicators of Components Summary of EPL index Regular

contracts Temporary contracts

Collective dismissals

BiH

FBiH

RS

BD

2007

2007

2007

2007

2.0

1.9

2.1

1.9

2.9

2.6

3.6

2.6

3.3

3.3

3.3

3.3

2.6

2.4

2.9

2.4

Albania 2005 2.1 3.0 2.8 2.6

Bulgaria 2003 2.1 0.9 4.1 2.0

Croatia 2003 2.7 2.8 2.5 2.7

Romania 2003 1.7 3.0 4.8 2.8

EU-15 End of the 1990s

2.4 2.0 3.4 2.4

Source: ILO, Review of employment policy in BiH, 2008

1.5 Employment Services

The Public Employment Service in Bosnia and Herzegovina consists of the institutions at the national level (Labour and Employment Agency of Bosnia and Herzegovina), one institute in each entity (Employment Institute of FBiH and Employment Institute of RS) and one in BiH BD. The Federation of BiH has one employment service in each canton, and municipal employment bureaus. The RS Employment Service is organized into six regional services and sixty-three municipal employment bureaus.

The State Labour and Employment Agency was established in 2003 as an independent administrative organization and its activities are regulated by the Law on Agency for Labour and Employment of Bosnia and Herzegovina (BiH Official Gazette No. 21/03 and 43/09). The main responsibilities of the Agency are:

International representation and cooperation with international organizations including the signing of international agreements in the field of employment;

45

EPL is related to regulatory decisions influencing „employment and dismissal“, esspecialy those regulating unfair dismissal (ending of employment due to economic reasons, severance pay, minimum canceleration periods, managerial authorisation for dismisal and previous consultatioin with trade unions and/or representatives of labour administration. See ILO Review of labour policies in BiH 2008

29

Coordination of activities with the entity governments and the employment institutes on the issue of involvement in programs of interest to the entire Bosnia and Herzegovina;

Collect data on supply and demand of labour force and providing data to the entities' institutes;

The Federal Employment Institute has an autonomous legal status according the Law on mediation in employment and social security of unemployed persons from 2001. The same law provides for 78 municipal employment bureaus operating in the cantons and having special legal status. They perform the traditional functions of the employment services. In RS and BiH BD there is one employment service that is competent to perform the functions of the Employment Service. A number of projects for the improvement and modernization of employment services in different entities were implemented in recent years.

The system of financing also differs between the entities and BiH BD. The Employment Institutes of FBiH and RS are funded by the contributions from insurance against unemployment. The Employment Institute of BiH BD is funded from a wide range of sources including a budget of BD BiH. In FBiH, about 30% of funds are directed to the Federal Institute and 70% to the cantonal services. The Funds of the Employment Services are spent for the following purposes:

a) administrative costs of the institutes/services according to the annual financial plan,

b) insurance in case of unemployment,

c) active labour market programs, if funds remain after deducting the costs of a) and b)

The access to the employment services is universal and allows access to health insurance. This has resulted in a large number of unemployed persons who are registered in order to obtain the health insurance and that are not actively seeking for job. A large number of registered unemployed persons have resulted in inefficient and very poor service. Therefore, it seems that the primary function of employment services is to register unemployed, checks if they are entitled to compensation during unemployment and health insurance. Mediation in employment, professional orientation and counselling, implementing active employment programs and providing information on the labour market are functions that employment services in BiH do not perform entirely.

1.6 Active and Passive Labour Market Policies

Existing portfolio of active labour market policies (ALMP) in both entities of Bosnia and Herzegovina and BiH BD is quite limited. The emphasis is placed on funding for salaries and self employment, while the involvement of social partners in the development and implementation of ALMP is very limited. Furthermore, the majority of target users are young people with higher or university education that are generally easy to employ categories and have lower rates of unemployment and inactivity.

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Funds available for ALMP are very limited and data are available only for FBiH. Public spending on ALMP is very low, not only in absolute amounts but also as a proportion of GDP (Table 24)

Table 24 Expenditure on active employment measures

BiH FBiH RS EU27 EU15 BG HU SI

Expenditure on active measures

Employment (% of GDP)

- 0.11 - 0.525 0.544 0.432 0.197 0.196

Expenditure by program participants

(EUR)

- 1764.6 - - -

393 1191.7 2344.7

A report on the analysis of the situation, active employment measures in BiH, pp. 31, 2008.

The system of social protection in BiH includes benefits during unemployment, health insurance and pensions (old age, disability and family pension). Furthermore, the system in RS also provides child benefits and maternity benefits through the Child Protection Public Fund.

The benefit coverage during unemployment is lower than in other countries in South-eastern Europe. In BiH, according to data from 2006/2007, less than 1.9% of registered unemployed persons were included (2.2% in RS and 1.5% in FBiH). The system of unemployment benefits is considered inefficient and does not provide minimum social security to unemployed persons. Benefits are different in the three entities. In FBiH the benefit amounts to 40% of average net wage in the last three months prior to the termination of employment regardless of years of service. In RS benefits are ranging between 30% and 40% of the average wage of a person in the last three months prior to the termination of employment for the persons with ten or more years of service.

Approximately two thirds of registered unemployed persons in BiH have a free health insurance (55.17% in FBiH46). The right to free health insurance for the duration of unemployment stimulates stay in the informal economy and avoiding payment of social security contributions. The FBiH allocations for health insurance of the unemployed differ between cantons and they are suggested by the cantonal health insurance institutes. The

Law on the Rights of Demobilized Soldiers and Their Families in FBiH provides for the right to benefit during the unemployment, health care and includes measures for their better reintegration into the labour market.

The BiH pension system is managed by the entities. Both entities provide possibilities for early retirement for certain categories of workers with at least 40 years of payment of contributions. High coefficient of dependence and low rates of coverage, which is mainly the effect of low labour force participation, present a threat to the sustainability of the pension systems.

46

Federal Institute for Employment, RS Institute for Employment

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1.7 Policy Framework

Human resources development is a priority of the Development Strategy of BiH and has a key role in improving competitiveness and employment (that is a sub-objective of the objective related to competitiveness as well as the objective related to employment).

The process of education reform was going slow and with uneven dynamics. The National Strategy of Education (2008-2015) was adopted in June 2008 but the process of education reform mainly focused on making the appropriate legislation so far. The following laws were adopted at the state level: The Framework Law on Primary and Secondary Education (2003.), the Framework Law on Preschool Education, the Law on Higher Education and the Law on Agency for Preschool, Primary and Secondary Education (all adopted in May 2007).

The Bologna Declaration (signed in 2003) and the Convention on the Recognition of qualifications of higher education in the European Region (signed in 2004) influenced the reform process in higher education, which should lead to the international recognition of qualifications of higher education acquired in the country. The Framework Law on Higher Education adopted in 2007 includes the main principles of higher education that have been adopted or are in adoption process in the field of European Higher Education Area (EHEA). However, many amendments that have been incorporated into the final adopted version are hindering law enforcement and its application is slow due to the lack of implementation mechanisms. Higher education is still academic, and the rate of completion of academic studies is extremely low, indicating poor efficiency.

The access to education is still unequal. The national curriculum and the physical segregation of students in education are still crucial questions. The Framework Law on Primary and Secondary Education has introduced a common curriculum but it is not applied. Furthermore, the coordination is still not realized in order to ensure consistent curricula at the state level.

In relation to the vocational training, the Council of Ministers adopted the Strategy of Vocational Education and Training 2007-2013 in 2007, and the revised Framework Law on Vocational Education and Training was adopted in 2008. However, the quality of education and training is still a challenge, especially in terms of learning outcomes, accreditation of institutions that provide training and the process of teaching and learning. The reform process is still focused on the convergence of education and training to the labour market. Some progress was achieved in building institutional capacity, developing curricula and training teachers. In addition, the process of development of national qualification framework has started in 2007. The reform of vocational education and training has been rather limited by the initial system of vocational education and training, while generally little attention was paid to the existing vocational education and training and adults' education. Moreover, the complete strategy of lifelong learning has not yet been developed.

In general, the reform of education and vocational education and training is strongly obstructed by different speed needed for the implementation of laws and reforms in the country, as well as lack of mechanisms for the implementation, monitoring and evaluation of results. For example, the above-mentioned Law on Primary Education 2003 is still not introduced in the two Cantons of FBiH. In addition, the role of social partners, who have only

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recently been included in the reform process, has been limited. It is therefore important to increase their capacity, if they will have a crucial and equal role in the reform process.

2. KEY CHALLENGES ON THE LABOUR MARKET

In the period 2000-2008 Bosnia and Herzegovina has recorded positive economic trends. However, the economic and financial crisis adversely affected the economy of BiH and real GDP fell to 3.2% according to estimates for 2009. Despite the positive economic forecasts for 2010, the overall macroeconomic environment did not result in job creation at least in the formal economy. External imbalances, despite the progress made in recent years, and especially the trade deficit continue to pose a serious challenge to the macroeconomic management.

The labour market in BiH is characterized by high levels of unemployment especially among the younger population. Despite the significant decline in the unemployment rate in the period 2006-2008, the estimated unemployment rate was 23.4% in 2008 and 24.1% in 2009. Furthermore, unemployment is highest among youth between 15-24 years and it was in 2009 48.7% (46.4% for men and 52.7% for women). The labour market is also characterized by low employment rate (33% in 2009) and high inactivity, mainly as a result of lack of women participation in the labour market. Although precise data are not available on the size of the informal economy, the numerical assessment of the labour force survey gives a figure of 33.6% of informal employment (as for 2006). Another labour market challenges are related to high rates of long-term unemployment and low labour mobility. In addition, the social partners are weak and take only little part in the participation and shaping of the employment programs. It should be noted that differences between genders remain particularly acute and that this is a major challenge to be addressed by social and economic policy.

The key challenges were identified based on this review and analysis of the labour market, and the differences between genders should be taken into account in finding solutions for them, as follows:

1. Lack of a strong and rich employment growth; 2. Weak labour market outcomes particularly for vulnerable groups: low activity rates

and employment (especially for women), high unemployment (particularly youth and unskilled workforce);

3. Low level of labour force mobility; 4. High level of employment in the informal economy; 5. Inadequate human resources development; 6. Limited capacities of policies and labour market institutions; 7. Lack of social dialogue in the field of employment.

2.1. Lack of a strong and job-rich growth

High rates of inclusive and job-rich growth are necessary during a significant period of time in order to eliminate the deficit of productive employment and employment rate in BiH and bring labour incomes to the level of EU standards and objectives. Expressed economic

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activity in the years preceding the economic crisis had positive impact on employment and the labour market. As a small open economy Bosnia and Herzegovina was severely affected by the recent global economic crisis. Current economic slowdown has made significant influence on the growth of import and export, the inflow of foreign direct investments and remittances from abroad, and had serious negative effects on employment. Poverty rates are still worrying and likely to worsen due to the decline in employment as a result of the global economic crisis. Business environment and investment climate are not favourable. Business barriers are large, which prevents the establishment of enterprises and encourages informal economy and threaten the proper management. The main challenge is to achieve a quick recovery from the crisis and bring BiH on the path of high and sustainable job-rich growth. Given the serious lack of productive employment, it will require a strong and mutually supportive and coherent economic and employment policies.

2.2. Weak labour market outcomes particularly for vulnerable groups: low activity rates and employment (particularly for women), high unemployment (particularly youth and unskilled workforce)

The situation in the labour market, characterized by high unemployment and dominated by structural and long-term unemployment, is a big obstacle for faster and more extensive employment of certain target groups, especially vulnerable groups in the labour market. High rates of unemployment among women (25.6%) and youth (46.4% for men and 52.7% for women) are the subject of serious concern. There is no doubt that inactivity leads to poverty, and consequently to social exclusion. The problem is getting more complex when several categories of the population feel marginalized, or excluded from social currents, thus reducing their opportunities for integration or re-integration into society and creates a fertile ground for social tensions. When it comes to the inactivity, less than half of the working age population over 15 years is active with the noticeable differences between genders. Inactivity affects more than half of the working age population, particularly women, or nearly 70% of working-age women and mostly with primary and/or no education, or nearly 65%.

However, besides women and persons with disabilities, the Roma are often at risk from lifetime inactivity and a high rate of inactivity of young people exists - especially among young people with low and medium level of education.

A particular problem is the long-term unemployment because it eventually discourages people to look for a job, leading to social exclusion of persons seeking a job for more than 12 months and results in additional social burden in terms of social benefits and costs related to their reintegration into the labour market. There is a problem of obsolete professional skills with the long term unemployed workers and older workers aged 55-64 years, but also the inability or lack of readiness for training or acquiring new skills that are lower than the existing qualification. In this category of workers, except low occupational mobility, there is also low geographical mobility. On the other hand, the present trend of employers to give preference when hiring employees/workers of younger age should be emphasized. The educational structure of labour force in BiH in 2009 indicates that 22.9% of the working age population had only primary or lower education, which is a devastating fact.

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Although Bosnia and Herzegovina recorded the constant and strong growth of economic activities and GDP, this growth was not followed by an appropriate level of employment growth, on the contrary, there was a low level of increase in employment rates. The causes of this situation lie in the unfavourable industrial structure inherited from the pre-war period, which is based on low value added sectors, and on the domination of basic raw material industries, the destruction of production capacities, the transition process (privatization and the disappearance of large industrial complexes and their activity with low production capacity), structural reforms and business environment that does not provide sufficient incentives for businesses while encouraging the informal economy and undeclared work. Furthermore, the GDP growth was mainly the result of abroad remittances inflow which, if not used productively, does not contribute to the creation of productive employment opportunities.

The employment structure also shows a strong traditional gender segregation in occupations where women seek and find employment in typically female occupations. The difference or gap in wages between men and women is evident.

2.3. A low level of labour mobility

A low labour mobility is also one of the characteristics of the labour market in Bosnia and Herzegovina. The causes of poor mobility should be primarily found in a poor job creation, labour market rigidities, uncertainty of revenues, as well as the traditional immobility of labour within the country, in terms of people's unwillingness to work because of the need to leave their residence. Migrations of this type usually occur at low qualified labour and employees who temporary go to other parts of the country to establish and enable the business capacity or replace temporary absent workers. Other reasons for the low mobility of labour within the country are related to the differences between the laws of the entities in the field of social insurance, such as different contribution rates, eligibility criteria, the calculation of benefits and their duration. Furthermore, low levels of wages are also one of the obstacles in terms of enabling accommodation in another place as well as the increased cost of living in case of separated families. The European integration process emphasizes the importance of labour mobility, given that it imposes the full mobility of labour.

2.4. High level of employment in the informal economy

The informal economy in BiH is high and the majority of jobs in the informal economy is in the agricultural sector. When it comes to the informal employment or "undeclared work", the lack of the definition in the existing regulations is making it somewhat difficult to estimate its size. The problem is also that the notion of the informal economy encompasses informal economic units and unregistered workers. When it comes to unregistered workers, there is a difference between those who work in registered enterprises (formal economy), but part of their income they receive in cash or they are not registered at all, as well as self-employed workers who are not registered, i.e. they are not taxpayers and therefore not included in the basis used for calculating contributions to social security or are not registered at all, and those workers who are self-employed but not registered. Regarding the age groups, young people are disproportionally more represented in the informal labour market.

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The problem of workers in informal employment, which includes workers in paid employment and own-account workers consists in the fact that they are not covered or are inadequately covered by the law and legal and institutional arrangements in practice. Consequently, they are marginalized and excluded from economic and social trends.

2.5. Inadequate human resources development

Despite the progress made and recent reforms, the education system is facing significant challenges and it is therefore necessary to improve it from the lowest to the highest level. The enrolment rates in preschool education are the lowest in the region, while the enrolment rates in primary and secondary education are better, although below the satisfactory level. The lack of effectiveness of tertiary education can be supported by the fact that only 3% of the University of Sarajevo students complete their studies in time.

Persons with the highest levels of education have the lowest unemployment rate (in 2009 persons with tertiary education represented 10.1% of unemployment rate). Although data underscore that individuals with higher levels of education are presenting more positive labour market outcomes, it seems that the formal education system is not able to provide the skills required for a dynamic and modern labour market. The problem is two-fold: on the one hand, there is a mismatch between skills and labour market needs, on the other hand, there is a mismatch between the educational profiles and sectors which have increased demand for workers.

When it comes to the professional education and training, reforms are underway but they are slow. Planned extensive modernization of the education system and training still did not materialize. Most of the equipment available in schools for vocational training is outdated, the number of teachers trained in new methodologies of teaching is limited and opportunities for gaining work experience in companies are minimal. Relevance of the results of vocational training to labour market needs should be improved. Furthermore, the existing opportunities for lifelong learning are very limited and available only to a small number of working-age population.

2.6 Limited capacities of policies and labour market institutions

There are significant weaknesses in the design, implementation, monitoring and evaluation of interventions in the labour market. Management of the labour market institutions is weak and needs a strengthening of capacities at all levels. The enforcement of labour legislation presents a major challenge. Active policies and programs of the labour market (APPLM) conducted by the the Employment Institutes and Services in Bosnia and Herzegovina are mainly focused on co-financing of new employment, self-employment and training. Furthermore, APPLM has broad goals and is not reaching out to those clients that are most disadvantaged. There is an urgent need to assess the efficiency and effectiveness of active labour market policies (ALMP) as well as to establish a system of performance indicators, in order to monitor whether the programs were properly designed, targeted, linked and implemented. All key functions of modern employment services were not adequately covered. The coverage of professional advisory and assistance in finding employment for re-

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employment should be improved. Financial and human resources to develop and implement adequate APPTR are limited.

2.7 Lack of social dialogue in the field of employment

Except for areas related to employment which are traditionally included in collective agreements (for example, determining salaries and other conditions of employment), employers' and workers' associations are a little involved in the design of employment programs. They more openly emphasize their desire to be active participants in creation and implementation of economic and social policies and consequently those concerning employment. It implies the expansion of social dialogue on issues that are not only subject to collective bargaining, but also to their participation in the creation, implementation, monitoring and evaluation of policies. They also request the establishment of tripartite advisory committees in all employment services in Bosnia and Herzegovina.

3. OBJECTIVE, PRIORITY OBJECTIVES AND TARGETS OF THE EMPLOYMENT STRATEGY

3.1 OBJECTIVE

The aim of the Employment Strategy in Bosnia and Herzegovina is to improve a full, productive and freely chosen employment for all. Selected policy objectives provide preventive and curative initiatives for addressing the challenges of the Bosnian-Herzegovinian labour market. The overall objective of the employment strategy in Bosnia and Herzegovina is to increase the quality and quantity of jobs while promoting social inclusion and combating inequality between the genders.

3.2 PRIORITY OBJECTIVES AND TARGETS

Selected policy combination provides the interventions that also apply to labour demand (economic growth accompanied by employment) and to labour offer (human resources development), as well as managing the labour market (institutions, policies and programs).

First of all, by improving the capacity of the economy in order to enable a sustainable and strong and job-rich growth and improve quality of jobs is of utmost importance. Therefore, the first priority objective of the strategy is to promote inclusive and job-rich growth and reduction of deficit of productive employment and decent work.

Second, increase the relevance of education and training for acquiring skills and improving access to human resources development for more men and women can significantly contribute to moving toward greater productivity, increasing employment and income growth. Therefore, the second priority objective is to improve the employability of women and men, and especially the most vulnerable.

Finally, improving the institutional framework and capacity is crucial in order to secure development, monitoring and evaluation of appropriate employment policies

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and effective implementation. Therefore, the third priority objective would be to improve the effectiveness, efficiency and management of policies and labour market institutions.

The timeframe of the Employment Strategy in Bosnia and Herzegovina is four years 2010-2014. Th following general objectives are identified for this period:

2% annual increase in overall employment rates

2.5% per year increase in female employment Youth unemployment decreased to 30% by 2014

3.2.1 Promote an inclusive and job-rich growth and reduce the deficit of productive employment and decent work

Measure 1 - Improve the business environment and support the establishment and development of small and medium enterprises.

The lack of funds is still a major problem of the private sector and existing small and medium enterprises. It is therefore necessary to provide funds for capacity expansion of existing small and medium enterprises and favourable financial incentives from the state budget and loans (longer repayment period, grace-period, lower interest rates, etc.) which would provide funds for the investment in a certain number of workers. In addition, there is a need to simplify and shorten time of enterprises registration. To enable the expansion of existing enterprises, it is necessary to provide conditions for their growth and development. Therefore, it is necessary to establish entrepreneurial infrastructure in the form of business zones, clusters, incubators and technology parks. It is also important to continue with the reforms in the field of indirect taxation and social contributions in order to achieve a higher degree of harmonisations in tax legislation. The improvement of governance is also crucially important. The corruption imposes substantial economic costs to enterprises of firms and slows the overall process of economic development. Therefore, it is necessary to take measures for its elimination, primarily in the sphere of running business operations (registration of enterprises, etc.), as well as in relation to the commercial disputes in courts.

The enterprises in phase of establishment require the essential package of support and human resource development, especially free training or charged under reasonable terms. Therefore, it is necessary to develop support programs in the form of consulting services to create business plans, applying for a loan and financial incentives, training of entrepreneurs and employees, establishing a system of the international standards of business quality, promotions, etc.

Measure 2 - Reduce employment in the informal economy and facilitate the formalization

of economic activities

It is necessary to develop multi-layer package policies that include incentives, sanctions and preventive measures in order to facilitate a successful transition to formal economy. The incentives, on the one hand, could include fiscal incentives (e.g. unloading business

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operations in terms of reducing taxes and social security; adoption of comprehensive and 'transparent' and tax laws and simplifying accounting and business accounting regulations) and, on the other hand, the development of human resources. The sanctions for noncompliance with regulations may include provision of full implementation of legislative provisions relating to the social and health insurance, better working conditions, financial assistance, regular working hours. To improve compliance with these regulations, it is extremely important to improve the managerial capacities of the management of labour administration and labour inspection. Preventive measures could include organizing public education campaigns about the harmful effects of the informal economy in terms of budget losses and damages to the community.

Furthermore, specific targeted interventions should be developed in order to encourage enterprises in the informal economy to formalize their activities.

Finally, promoting a favourable business climate, including the removal of barriers as described above is of extreme importance for promoting the formal economy.

Measure 3 - Productive use of cash remittances from abroad

One could devise a special scheme to allow the use of remittances from abroad, for productive investments in key economic sectors that can contribute to job creation. The integrated approach should be adopted with schemes that include financial and fiscal support, as well as training and access to local business networks. The advocacy campaigns could be developed, possibly in cooperation with the countries of destination, to promote such schemes in order to effectively target migrants who are interested to invest in the country of origin and the local community.

Measure 4 - Foster local economic development (strengthen social dialogue at a local level)

Targeted measures should be developed for areas with the highest poverty rates and un(under)employment, to attract productive investment and stimulate job creation, poverty reduction and social inclusion. Such measures should be aimed at promoting local participation and dialogue, connecting people, especially persons from vulnerable groups and their resources for better employment and better quality of life. Workers and employers organizations should have a particularly active role in devising strategies of local economic development and outreach to the most vulnerable groups.

3.2.2 Improve the employability of women and men, in particular the most vulnerable groups

Measure 1: Synchronize the results of the vocational education and training system with the labour market requirements

Bosnia and Herzegovina will continue to make progress in reforming its education system, but it will continue to be fragmented with varying quality in the country.

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The mechanisms should be introduced to improve the integration of work and learning, and specialization should be reduced in order to prevent the capturing of students in narrow profile occupations. In addition, it is crucial that issues of gender equality are embedded in the system of education in order to avoid future professional segregation and encourage women's participation.

Modernized curricula were introduced in recent years based on learning outcomes, but there is no evidence on the effects of their use. Gender-sensitive evaluation mechanisms should be introduced in order to monitor the results and effectiveness of the reforms.

Quality of teaching and learning should be improved by the introduction of learning methodologies with pupil/student friendly principles and result-oriented learning and key competences.

Measure 2 - Implement the legal and institutional framework for establishing a system for adult education and training

The education and training of adults and lifelong learning are the needs of every society and one of the EU standards, including the BiH education system. Therefore, it is necessary to create legislative (legal) preconditions that would allow the establishment of institutions to address the education and training of adults. This means that this category of the population would receive quality training and education. The lifelong learning is an important assumption of integration into the labour market and its needs for new types of knowledge.

Measure 3- Include entrepreneurial education programs in educational programs

This measure predicts enrichment of curriculum (for youth and adults) with the contents which would create preconditions for the development of entrepreneurial culture, and it would still be an introduction to the promotion of awareness of self-employment, as well as the relationship between public and private partnerships.

Theoretical entrepreneurship as well as practical (training on writing business plans) should become an integral part of most high school and college/faculty curricula. It is necessary to introduce special development programs for youth, women, rural and social entrepreneurship.

Measure 4 - Establish the cross-sectoral cooperation of social partners in education

The social partners should be more involved in establishing and implementing the policies and programs of vocational education and training and educational plans. Employers’ and workers’ organisations can assist in identifying the most appropriate form of training for available employment opportunities.

This measure indicates that the education system must be closely linked with the needs of not only the labour market, but also all social partners in the country.

3.2.3 Improve the effectiveness, efficiency and management of policies and labour market institutions

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Measure 1 - Improve the preparation, monitoring and evaluation of interventions in the labour market

There is an urgent need to assess the efficiency and effectiveness of interventions in the labour market and establish a system of performance indicators in order to monitor whether interventions were appropriately designed and implemented. This system should measure the impact on individuals in terms of employment and income, compare results of different interventions and show what works for whom. The participation of social partners in this type of activity is of crucial importance.

Measure 2- Increase the availability of active measures especially for the long-term unemployed, disadvantaged youth and low-qualified persons

Well-targeted programs providing the expected results in terms of investment should be developed in order to solve the specific needs of different population categories. They could include:

o Subsidiary employment to enable the acquisition of work experience for the long term unemployed and groups separated from the labour market

o Self-employment programs targeted at disadvantaged youth and women supported by tax relief (breaks) and other incentive measures such as counselling and business training

o Assistance in developing business plans, etc.

o Support to social entrepreneurship through, for instance, raising awareness among key stakeholders, development of the appropriate institutional framework, building capacities and improving the legislative framework

o Interventions in vocational training for skills development and facilitating integration into the labour market of persons with low educational levels

o Labour intensive infrastructure investments in order to create higher levels of productive employment and combat unemployment

o Employment services for the long-term unemployed.

Measure 3 - Modernize and improve the capacity of employment services for the efficient and effective development and implementation of the labour market interventions

The existing organizational and administrative capacities of employment services do not facilitate efficient ALMP starting from programming and planning through implementation to monitoring and evaluation. The coverage of providing assistance in counselling in job search needs to be improved and the relationship counsellors/unemployed should be reduced. Due to the request to first settle the legal obligations regarding insurance during

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unemployment, planning of funds for ALMP is unpredictable. Therefore, it is also necessary to review the current system of funding and supervision over funds to finance the ALMP and for that purpose carry out the necessary reforms.

It is also important that the employment services do not deal only with the objectives related to the efficiency of the labour market but also with the issues of equality through the effective targeting of employment services and ALMP on those who are most disadvantaged. In this sense, they play an important role in promoting gender equality in the labour market because it is the key to improving women's access to ALMP. This includes improving the capacity of employment services in order to address the issues of discrimination in employment and occupation and the fight against occupational segregation.

Measure 4 - Activate passive interventions in the labour market

Passive measures such as subsidies during unemployment and disability should be followed by the active measures in order to prevent the separation from the labour market, avoiding dependence on benefits and encourage active job-seeking.

Measure 5 - Improve the statistical system with the purpose of improved creation, implementation, monitoring and evaluation of policies and labour market programs

Although significant efforts have been made on improving the functioning, type, quantity and quality of data collection, they were not sufficient for the adoption of policies and interventions in the labour market based on the data. Further efforts are needed to improve the existing statistical system of the labour market and bind and harmonize the information systems of various public institutions of the labour market that possess the relevant information for the labour market.

4. IMPLEMENTATION, MONITORING AND EVALUATION SYSTEM

The Institutions that would carry out the implementation of this strategy are the entity Governments and the Government of the Brcko District of BiH and their relevant institutions together with social partners. In this regard, especially because there is consensus on identifying problems in the areas of employment and setting priorities to overcome these problems, and that the labour and employment in Bosnia and Herzegovina belongs to the exclusive jurisdiction of the entities and Brcko District, action and operational plans to implement this strategy and its priorities would be adopted by the entitiy governments and the government of the Brcko District of BiH, in cooperation with the social partners. These action or operational plans can be developed for the entire period covered by this Strategy, two years or one year, and if required, in order to timely and efficiently undertake measures appropriate for the time and circumstances in the economy and labour market.

The Coordination Committee would meet annually, if necessary, more frequently to discus common problems and measures to address these problems in the areas of employment and common problems in the implementation of this Strategy. The Coordination Committee would be composed of two representatives of the Ministry of Civil Affairs of Bosnia and

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Herzegovina (one representative from the employment department and the other from the education department, provided that the Chairman of the Coordinating Committee is a representative of the employment department), a representative of the Labour and Employment Agency of Bosnia and Herzegovina, one representative of each entity ministry responsible for employment and employment Institutes, one representative of the Government of the Brcko District of BiH and one of the Employment Institute of the Brcko District of BiH, and two representatives of each social partner (two representatives of workers’ association and two representatives of employers' association at the state level). The technical assistance to the Coordinating Committee would be provided by the Ministry of Civil Affairs of Bosnia and Herzegovina.

The supervision over the implementation of this Strategy (and its actions/action plans) would be executed by the relevant labour and employment ministries of the entities and the Brcko District of BiH on an annual basis and the results would be submitted to the Ministry of Civil Affairs of Bosnia and Herzegovina.

The evaluation of this strategy (and its actions / action plans) would be made annually by the competent labour and employment ministries and the employment institutes of the entities and the Brcko District of BiH. The evaluation reports would be considered and adopted by the entity and Brcko District of BiH governments, and it would be submitted to the Council of Ministers of Bosnia and Herzegovina for the final evaluation through the Ministry of Civil Affairs of Bosnia and Herzegovina. Before considering the adoption of the final report on the evaluation by the Council of Ministers of Bosnia and Herzegovina, the same report would be submitted to the social partners (employers and trade unions) at the state level. Ex post evaluation of the overall strategy would be conducted in 2015.

5. FINANCING OF THE STRATEGY

This Strategy did not plan funds for financing the implementation of its strategic objectives. Funds needed for the implementation of certain strategic objectives will be established through the adoption of the action/operation plans of the entity and Brcko District governments.

Possible sources for funding the Strategy are:

Budget of Bosnia and Herzegovina

Entity and the Brcko District of BiH budgets, Budgets of local communities, pre-accession funds of the European Union, Donor funds.

Annex 1

EU FRAMEWORK

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In the case of BiH, a potential candidate for EU membership, the European framework of employment can be observed on a short-term and long-term basis. The short-term framework is derived from the Stabilisation and Association Agreement on the European partnership, the two documents that define the short and medium term objectives of the cooperation (duties and responsibilities) between Bosnia and Herzegovina and the European Union. The long-term framework is defined by the European Employment Strategy, a key document that ensures coordination of employment policies in all Member States. This framework is also used to ensure that candidate countries adapt their institutions and policies in accordance with the European Employment Strategy and thus enable the full implementation of the Accession Agreement related to employment.

The Stabilisation and Association Agreement

The Stabilization and Association Process (SAP) is a framework for Bosnia and Herzegovina on path to EU. In this process, BiH is stimulated to improve democracy, promote sustainable economic growth in order to achieve lasting economic, social and political stability which is guaranteed through closer ties with Europe, and finally, membership in the EU. The SAP process has the task of ... "Maintaining stable democratic institutions, ensure the application of the rule of law and maintains an open, prosperous economy based on European practices and standards. Strong relationships between each country and EU are established through three major mechanisms: (a) trade, (b) financial assistance, and (c) contractual relations. The Stabilisation and Association Agreement has been recently (June 2008) signed between BiH and the EU Member States. The Agreement promotes cooperation in the following areas:

• Promotion of free movement of goods;

• Creation of effective institutions;

• Development of market economy;

• Reducing crime and corruption;

• Promoting the higher education reform;

• Development of democracy, human rights and independent media, and

• Improvement of transport infrastructure in the region.

In realtion to the employment and labour market, the establishment of free trade areas, free movement of goods, services and workers are elements that will have an impact on the labour market situation in Bosnia and Herzegovina in the future. The following elements of the Agreement will affect future trends in the labour market in Bosnia and Herzegovina:

Establishment of industrial cooperation which aims to improve, modernize and restructure the industry and strengthen the private sector, and support the development of small and medium enterprises;

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Restructuring and modernization of transportation systems, improving the free movement of passengers and goods, improving market access and improve transportation links, including the energy sector;

Security of social and personal rights of employees working in Member States, and providing social protection to workers holding the citizenship of Bosnia and Herzegovina through the mechanisms of coordination and mutual transfers;

The Agreement obliges BiH to establish the effective and sustainable system of statistics in order to provide comparable, reliable, objective and accurate data needed for planning and monitoring the process of transition and reform in Bosnia and Herzegovina. The statistical system must follow the European Statistical Code;

Development of employment policies and adaptation of the social protection system in order to respond to new economic and social demands and to speed up the process of economic reform and social inclusion;

Improving levels of general education and particularly the system of vocational education and training and improving youth policy and youth employment policies, including the system of informal education. Achieving the goals of the Bologna Declaration is a priority for improving the system of higher education in the country;

Investment and preparation of the society for the digital age, improving the sector of scientific research and encouraging technological development;

Implementation of the public administration reform in order to achieve efficient and responsible public administration.

The Agreement on the European Partnership

The Partnership Agreement between Bosnia and Herzegovina and EU is an integral part of SAP and has the task of preparing Bosnia and Herzegovina for the higher level of integration with EU. The agreement defines the short and medium term priorities of cooperation between Bosnia and Herzegovina and EU. The Agreement was revised in 2007 and new priorities are adapted to the specific needs of the country at this stage of the EU accession.

In this regard, Bosnia and Herzegovina has made a plan to meet the priorities of the European partnership, along with specific measures and deadlines. The key priorities that affect the labour market and employment in Bosnia and Herzegovina within the European Partnership are:

Implement the Public Administration Reform Strategy 2006 and ensure adequate funding of ministries and institutions at the state level, and that those are operational and properly equipped, especially in terms of facilities and staff;

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Strengthening the administrative capacities in preparation for the implementation of commitments under the Stabilization and Association Agreement and Interim Agreement;

Achieve significant progress in creating a single economic space in BiH, which will support the free movement of goods, capital, services and persons;

Reduce structural inflexibility that impairs the functioning of labour markets, especially the taxation of labour, level of social welfare and mechanisms to determine wages in order to increase participation and employment rates;

Take measures to achieve a functional and sustainable institutional structures and better respect for human rights and fundamental freedoms, including the negotiation and adoption of the amendments to the constitution of Bosnia and Herzegovina, as required.

The Agreement also defines the framework for EU financial assistance. The priorities set forth in the Agreement include short-term priorities, which are expected to be achieved within the period of one or two years, as well as medium-term priorities, which are expected to be implemented in the period of three or four years. The priorities are related to the adoption of new legislation and its implementation.

The European Employment Strategy

Since its adoption (1997), the European Employment Strategy (hereinafter EES) has a central role in the coordination of EU policies in facing with the biggest challenge in the EU – creation of jobs for all or creating more jobs and better jobs.

EES was created to streamline and ensure the coordination of employment policies priorities accepted by each Member State at the EU level. This coordination of national employment policies is happening in one-year cycles based on the EU Treaty in 1998 which is integrated into a renewable three-year cycle since re-launching of the Lisbon Strategy in 2005.

The report of the Working Group "Work, work, work - creating more jobs in Europe" presented the greatest challenges and priorities for increasing employment in Europe: (i) increasing adaptability of workers and enterprises, (ii) providing conditions that employment becomes a realistic option for all through the strengthening of active labour market policies and targeting vulnerable groups such as women, older people and ethnic minorities, (iii) investment in human capital, especially in a system of lifelong learning, and (iv) increasing employment through the active involvement of all stakeholders, especially social partners in managing labour market dynamics.

Since the late 1990s, the European Commission's task is to ensure that candidate countries define employment policies that prepare them for membership in the European Union. The intention is that these countries progressively adapt their institutions and policies to EES, which still allows the full implementation of the Agreement relating to the employment since the accession to EU itself.

Guidelines for the employment policies of EU specify that, starting from the Lisbon Strategy, the EU employment policies have as the final objective:

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Full employment: Achieving full employment, reducing unemployment and inactivity by increasing the demand and supply of labour, which is vital for sustaining economic growth and social cohesion;

Improving quality and productivity at work: Efforts to increase employment should be accompanied by increasing the attractiveness of jobs, increasing quality jobs and increase of labour productivity and reducing the share of poor among the employees. It is necessary to achieve maximum synergy between the quality of work, productivity and employment;

Strengthening social and territorial cohesion: It is necessary to strengthen social inclusion, prevent exclusion from the labour market and support integration into the labour market of vulnerable group members and reduce regional disparities in terms of employment, unemployment and labour productivity, especially in less developed regions.

In the implementation of these activities, member states should establish a broad partnership in order to achieve the above mentioned objectives, through involvement of parliamentary bodies and other stakeholders, particularly the social partners, both at the national, regional and local level. In that sense, EU proposes eight guidelines for employment policies:

• Guideline no. 17: Implement employment policies aimed at achieving full employment, improving labour quality and productivity and strengthening social and territorial cohesion;

• Guideline no. 18: Promote lifelong access to work;

• Guideline no. 19: Ensure inclusive labour market, improve the attractiveness of work and achieve that work pays off for the people looking for employment, including members of vulnerable groups and inactive people;

• Guideline no. 20: Improve the coordination of supply and demand in the labour market;

• Guideline no. 21: Promote flexibility combined with job security and reduce the segmentation of the market, taking into account the role of social partners;

• Guideline no. 22: Ensure that the costs of labour and wage determination mechanisms are such that they contribute to employment;

• Guideline no. 23: Increase and improve investments in human capital and resources.

• Guideline no. 24: Adapt education and training systems to respond to new demands in the labour market.

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