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									Report No. 45258-MK

A Policy Note

September 2008

Human Development Sector Unit

Document of the World Bank

                          CURRENCY EQUIVALENTS

                               (as of September 9, 2008)
                          Currency Unit =      Denar
                               US$1.00 =       41.7950


ALMPs   Active Labor Market Programs
CEE     Central and Eastern Europe
EAR     European Agency for Reconstruction
EC      European Commission
ESA     Employment Service Agency
EU      European Union
FYR     Former Yugoslav Republic
GDP     Gross Domestic Product
ICT     Information and Communication Technology
ILO     International Labor Organization
IMF     International Monetary Fund
IPA     Instrument for Pre-Accession
LFS     Labor Force Survey
LMP     Labor Market Policy
MKD     Macedonian Denar
MoES    Ministry of Education and Science
MoLSP   Ministry of Labor and Social Policy
NAPE    National Action Plan for Employment
NES     National Employment Strategy
NGO     Non-Governmental Organization
OECD    Organization for Economic Cooperation and Development
PES     Public Employment Services
PIMS    Performance Information and Management System
VAT     Value Added Tax
VET     Vocational Education and Training
WAPES   World Association of Public Employment Services

                       Vice President:         Shigeo Katsu
                     Country Director:         Jane Armitage
                       Sector Director:        Tamar Manuelyan Atinc
                    Task Team Leader:          Gordon Betcherman



EXECUTIVE SUMMARY ................................................................................................ 4

I.       INTRODUCTION ..................................................................................................... 9

II.      CHARACTERISTICS OF THE POOL OF UNEMPLOYED .................................. 9


      3.1.     Organizational and legal framework ................................................................. 13

      3.2.     Staffing of the ESA ........................................................................................... 15

      3.3.     Financing of employment programs ................................................................. 16

      3.4.     Options for institutional reforms ....................................................................... 19


      4.1.     Active labor market programs .......................................................................... 21

      4.2.     Options for policy reform in provision of ALMPs ........................................... 23

V.       MONITORING AND EVALUATION ................................................................... 28

VI. CONCLUSIONS...................................................................................................... 31

REFERENCES ................................................................................................................. 36

ANNEX 1: Labor Demand in Macedonia ........................................................................ 39

ANNEX 2: Tables ............................................................................................................. 43

                              EXECUTIVE SUMMARY1

The former Yugoslav Republic of Macedonia has established two main employment
programs drawing on practices from other countries in Europe: (i) an unemployment
benefit (passive) program, providing temporary cash assistance to the unemployed; and
(ii) employment services and other active labor market programs (ALMPs). The
objectives of this policy note are to look at the employment services and active labor
market policies in FYR Macedonia provided by the Employment Service Agency (ESA);
identify key benefits and constraints of these programs; and to review the main
characteristics and features of successful policy interventions from other countries in the
region. Various policy options are discussed as ways to enhance the ESA which might be
relevant and suitable for FYR Macedonia given its macroeconomic and labor market

Labor market interventions have potential to improve labor market performance.
In particular, ALMPs are implemented to enhance labor supply (e.g., training); increase
labor demand (e.g., wage/employment subsidies, and public works); and improve
functioning of the labor market (e.g., employment services). Whether or not this potential
is materialized, however, depends on a number of factors, and innumerable variables that
intervene in the final outcome of their implementation. In addition to the quality of
design and implementation of the programs themselves, these variables include external
factors, such as stable macroeconomic conditions, a favorable investment climate and
enabling business environment, and a competitive product market. Experience in EU
countries confirms that macroeconomic, microeconomic, and employment policies go
hand in hand in delivering new and better jobs. While ALMPs are an important
component of labor market policy, especially in terms of helping jobless and otherwise
disadvantaged workers, they cannot be expected to have a significant impact on overall
unemployment or employment levels.

International experience confirms that ALMPs do not always have a positive
impact. They can have deadweight costs (program outcomes are no different from what
would have happened in the absence of the program) and also can have unintended
effects such as subsidized workers replacing unsubsidized ones (“substitution” effect).
Employers can sometimes manipulate programs, for example, by hiring subsidized
workers and laying them off once the subsidy period ends. Program administrators can
artificially inflate the net value of their programs by offering it to the most employable
job seekers (“creaming” effect). For all of these reasons, policy-makers need to carefully
assess the true impacts of ALMPs.

 This note has been prepared by Arvo Kuddo (ECSHD). Special acknowledgements are given to Gordon
Betcherman, Erika Jorgensen, Amit Dar, Milan Vodopivec, Evgenij Najdov, Johannes Koettl and Bojana
Naceva from the World Bank, Biljana Jovanovska, Director of the Employment Agency, and Nikica
Mojsoska-Blazevski from the Ministry of Finance of FYR Macedonia who provided valuable comments
and suggestions. This policy note complements an early research on public employment services in
Macedonia conducted by N. Mojsoska-Blazevski (2006).

The Employment Service Agency operates in a very difficult labor market situation.
According to the 2007 Labor Force Survey, the employment rate in the country was one
of the lowest in Europe, at only 40.7 percent (population aged 15-64). The unemployment
rate was 35.2 percent among the working age population, the highest in Europe except
Kosovo. The pool of economically inactive population of 533,600 individuals almost
equals the number of employed (582,600), and many of the inactive are de facto
discouraged unemployed. Following macroeconomic reforms, including improvements in
business environment and investment climate, as well as reforms in labor regulations, in
the last four years the Macedonian economy has created on average 17,000 new jobs (net
growth) annually, many of which are low-wage or unpaid jobs in the family business,
specifically in agriculture. This employment growth has not been sufficient to
substantially reduce the high unemployment in the country. The main problem remains
the lack of labor demand in the formal economy.

FYR Macedonia remains one of the few countries in the region in which the number
of registered unemployed drastically exceeds the number of survey-based
unemployed. This is due to strong incentives for many economically inactive or
informally employed individuals to register at the ESA. Therefore, an emerging objective
of ALMPs, besides putting people back to work, is to test the willingness to work of
those in receipt of benefits. This is particularly a concern in Macedonia which has large
informal sector, and in which eligibility and entitlement to certain benefits, such as health
care for noninsured individuals and social assistance are linked to registration on the
roster of unemployed. By the end of 2007, 245,000 registered unemployed (around three
quarters of the total) received their health insurance through the ESA, and 75,500 persons
had submitted a statement that they registered at ESA for the purpose of acquiring their
right to health insurance. It is likely that the true number registering for health insurance
coverage is actually considerably higher than that. In a separate policy note, the World
Bank is addressing this issue in detail.

Staff caseload is a critical constraint to ESA performance. In late 2007, the ESA had
on average 680 registered unemployed per one employee. What really matters for the
delivery of services to the unemployed is the proportion of staff that in direct contact with
these clients, i.e., caseworkers, and their workload. Out of the total staff of the ESA, only
53 percent are front-line employment counselors/advisors, and on average, one job
counselor/advisor has to deal with 1,300 registered unemployed. Moreover, ESA staff is
“burdened” with functions that are not typical to PES in most other countries. In addition
to the benefit and insurance registration issue discussed above, the staff is engaged in the
registration of newly opened employment contracts and termination of existing contracts,
as well as administration of health insurance coupons. The number of the new contracts
alone has increased from 112,000 in 2004 to 191,500 in 2007, partly reflecting the fact
that more employers choose to formalize contractual relationships with their employees.

Employment programs are geared towards activities with high unit costs and low
participation. In 2007, the biggest share of expenditures on ALMPs was directed to
wage subsidies for integration of the disabled (114 million Denars, over 50 percent of the

total budget on ALMPs, excluding services provided by ESA staff). But only 267
individuals got support from the program, with the unit cost of 428,000 Denars per
beneficiary. Other programs, such as public works, and wage subsidies to other
vulnerable groups are important sources of expenditures for ALMPs.
Although country-specific evaluations are not available, international and regional
evidence suggests that some resources should be redirected to interventions that are
more cost effective, such as job search assistance or on-the-job training programs.
This suggestion is based not only on the experience of industrial countries but also other
countries in similar situations. In this regard, job-search assistance – including job clubs,
job fairs, employer contact services, etc. -- is a core employment service. This assistance
is relatively inexpensive and by providing job seekers with better information on jobs, it
can also help in shortening unemployment spells. Provision of job search assistance or
placement services - which provide information on the labor market and job openings,
registration of job seekers, selection and referral of job applicants, and follow-up with
employers after referral – also help enhance labor mobility. It is important to note that, in
many countries, private employment agencies are now an important source for delivering
these types of services.

There are two major groups of job seekers that are especially vulnerable in
Macedonia’s labor market -- long-term unemployed and youth. Tackling long-term
unemployment is very difficult but combining training with active counseling and
information on job opportunities has proved relatively effective in a number of European
countries. In transition countries, where labor demand has been more sluggish, such
measures are often insufficient. As a result, temporary job creation through public works
or subsidized employment may be needed in combination with on-the-job training and
ongoing job-placement assistance. As a preventive measure for youth, comprehensive
career guidance and professional orientation can be a useful starting point. Other
countries are addressing young people‟s lack of practical experience through the
provision of training internships in the public or private sector, tax benefits and social
security exemptions for interns, or internships at low wages with public wage support.

Ultimately, the current weak labor demand needs to be considered in designing
employment policies, at least in the short run. Reforms in a number of areas, including
macro policy and the investment climate, will be critical for establishing more favorable
labor market conditions in the future. However, in addition to creating the foundation for
job creation in the future, there are strong reasons to consider measures that could have
more immediate impacts in terms of creating jobs and alleviating unemployment.
Admittedly, interventions to directly create jobs are controversial since they can have
significant costs and uncertain benefits, especially beyond the short-term. However, in
the case of Macedonia where there is so much slack in the labor market, there is a strong
case to seriously consider such options.

Policy-makers essentially have two options to immediately stimulate employment --
public works/workfare and subsidies on wages or social insurance. Public works
programs have proven to be an effective measure for creating short-term employment for
truly jobless workers if they are carefully targeted and if the wage is set below the

equilibrium wage for unskilled labor. See Subbarao (2003) and Betcherman et al. (2004)
for a stocktaking of these programs and their impacts. This may be an appropriate
intervention for needy prime-age workers who have little chance of finding scarce
private-sector jobs. On the other hand, wage or social insurance subsidies may be more
appropriate for young people, to get them into real workplaces (ideally with some
training) so that they can get a foothold in the labor market.

ALMPs need to be monitored and evaluated in order to ensure that scarce resources
are allocated towards the most cost-effective interventions. Unfortunately, the net
impact of ALMPs has not been assessed since 2002, when programs conducted with
support of the World Bank in 1996-1999 were evaluated. In the future, strengthening
monitoring and evaluation capabilities will be a key to increasing the contribution of
ALMPs to labor market performance.

Overall, this report recommends that greater resources will be needed for ALMPs
in the future. Although Macedonia spends significant resources on ESA activities, 1.43
percent of GDP in 2007, over 60 percent of these funds (0.90 percent of GDP) are
actually spent on pension and health insurance contributions for the registered
unemployed, followed by over 30 percent of the budget (0.47 percent of GDP) spent on
passive programs. Only 0.06 percent of GDP, or four percent of the total budget, is spent
on ALMPs. ESA expenditures on administrative costs are also among the lowest in the
region which hinders, inter alia, introduction and enhancement of more cost effective ICT
solutions to the business process. Additional funds may be found through redirecting
resources from passive programs, as described in the table below.
While ALMPs will not be a panacea for large-scale unemployment, greater capacity
in the ESA, a reorientation of program composition, some redirection of resources,
more private-sector involvement, and better monitoring and evaluation will
strengthen the role of ALMPs in improving the employment chances for job seekers.
Based on the review of international experience in provision of ALMPs, and an analysis
of the current activities and constraints in the ESA, a summary of policy options
proposed is shown in Table 1 (a detailed reform matrix of policy options is provided in
Table 8).

                        Table 1: Summary of ALMP reform proposals

      Reform area                           Recommendation                                 Expected outcome
Budgetary policies          Increase funds at ESA‟s disposal for ALMPs           Enhanced capacity of ESA to
                            from the current 4 percent of total                  fulfill its core functions in
                            expenditures to at least 20-30 percent of the        provision of improved
                            total, as well as ESA administrative                 employment services, including
                            expenditures, and focus mandate of ESA on            introduction of ITC solutions to
                            providing benefits and services to job seekers.      business process
                            The source of additional funding can be
                            through a reallocation of funds from passive
                            programs by merging or replacing extended
                            unemployment benefits for females aged 57
                            and males aged 59 who are receiving benefits
                            beyond the 12-month period under the social
                            assistance scheme, or by returning to the pre-
                            2007 level of overall funding of the ESA
Legal reforms               Make legislation more stringent in relation to       Reduced incentives for
                            defining “suitable work”, occupational               registering as unemployed by
                            protection, requirements for independent job         economically inactive or
                            search, frequency of contacts with the ESA,          informally employed individuals
                            and compulsory participation in programs
                            after a certain period of unemployment has
                            elapsed, to avoid benefit sanctions and
                            exclusion from the roster of registered
ALMPs                       Better rationalize resources available for           Better coverage of job seekers
                            programming by refocusing ESA activities on          with employment services and
                            programs deemed to be cost effective and             higher placement rates of
                            efficient, such as job search skills training, job   participants
                            clubs; vacancy and job fairs, employer contact
                            services, and on-the-job training. Increase the
                            opportunities for private employment and
                            training agencies deliver programs and
Unemployment benefits       Consider merging or replacing extended               More funds available for
                            unemployment benefits (beyond the maximum            alternative expenditures with a
                            of 12 months) with social assistance scheme.         higher social priority, such as on
Monitoring and evaluation   Introduce a variety of tools for systematic          Fine-tuning of employment
                            assessment of the impact of ALMPs and their          programs that are most relevant
                            cost effectiveness                                   to labor market situation
ESA staff                   Disentangle ESA staff from functions atypical        ESA staff will have more time
                            to PES, such as employment contract                  and resources for targeted and
                            registration, and administration of health           personalized employment
                            insurance coupons, and increase the number           interventions
                            of front-line employment counselors

                             I.      INTRODUCTION

Currently, employment services in FYR Macedonia are very limited and the
programs are under funded. The country must identify the priorities of programs that
can improve future employment and earnings prospects of beneficiaries in a cost-
effective manner. The most recent analysis of the impact of ALMPs in Organization for
Economic Cooperation and Development (OECD) countries suggests that an increase in
the intensity of spending on ALMPs (defined as the percentage of GDP allocated to
active policies divided by the unemployment rate) accounts for 10 to 20 percent of the
total increase in the employment rate observed during 1997–2002. The results of an
analysis using OECD‟s expenditure breakdown for ALMPs suggest that the expenditure
category with the most significant and positive impact on the employment rate is
spending on public employment services and administration (that is, job search
assistance). (EC 2005).

While some people may not require participation in an active measure at all,
ALMPs are essential for others to gain skills or work experience to achieve
sustainable integration on the labor market. However, even in EU countries with
much larger budgets for ALMPs and years of experience in provision of relevant
programs, there is still a high rate of return into unemployment or inactivity among those
who have been targeted by ALMPs. Lessons learnt from this phenomenon include the
need for early identification of job seekers‟ needs and the tailoring of ALMPs to these

This policy note focuses on three main topics: (i) institutional constraints in provision
of employment programs and ways to improve the capacity of the Employment Service
Agency (ESA); (ii) characteristics of ALMPs provided by ESA and ways to enlarge the
menu of more cost effective programs and/or enhance the existing programs; and (iii)
monitoring and evaluation practices in Macedonia. In conclusion, a summary of policy
recommendations is given.


FYR Macedonia is one of the few countries in the region in which registered
unemployment is far higher than the LFS-based unemployment. This can be
explained by the incentive for inactive persons and informal economy workers to register
as unemployed in order to be eligible for a free (state-provided) health care, when they do
not have other means of entitlement (e.g. employed spouse, employed parents, being a
pensioner, etc). Also entitlement to social assistance is linked to the registration at the
In recent years, the highest number of unemployed was registered in 2004, 391,072,
and since then, the number is declining. By the end of 2007, there were 357,200

registered unemployed (unemployment rate about 39.2 percent) but by the LFS survey
conducted in the fourth quarter of 2007, there were “only” 316,100 unemployed (age
group 15-64) at a rate of 35.2 percent of the labor force. (Figure 1). Typically in most
other transition countries, registered unemployment is lower than survey-based
unemployment since many jobless search for a job without registration, and do not have
strong incentives to register. Respectively, in Macedonia many informally employed or
economically inactive register themselves as unemployed. Out of 41,100 “excess”
registrations as unemployed, 30,900 people were in the age group 50-64, and 26,000 in
the age group 25-49, while youth “under register” themselves at the ESA as unemployed.

    Figure 1: Labor force participation rates, employment rates and unemployment
          rates in FYR Macedonia in 2004-2007, population aged 15-64; in %


                                                                                Activity rate
                             40                                                 Employment rate
                                                                                Unemployment rate

                                   2004      2005         2006     2007

             Activity rate         58.8       60.8        62.2      62.8
             Employment rate       36.8       37.9        39.6      40.7
             Unemployment rate     37.4       37.6        36.3      35.2

Source: State Statistical Office

According to the data from ESA, in December 2007, 75,508 persons had registered
themselves in the Employment Agency by submission of a statement that they
registered for the purpose to acquire their right to health insurance. The number of
registered unemployed for that purpose more than doubled from 30,197 individuals in
June 2006 when such a survey was launched for the first time. Most of these people
represent national minorities (Albanians, Turks, Roma, and Serbs), 62 percent, and the
highest share of this population (85 percent) were within the category of unqualified and
semi-qualified persons. 2

Many individuals not employed formally are also registering at the ESA as a
requirement for access to “social assistance” cash benefits administered by another
agency of the MoLSP – the Centers for Social Work (CSW). According to the Decree by
the MoLSP “On conditions, criteria, amount, manner and procedure to determine and

  By some estimates of the ESA staff, the actual number of persons registered to acquire the right to health
insurance might be close to 100,000 individuals. By the end of 2007, 245,000 registered unemployed, or
around three fourth of the total were insured through the ESA, while the rest of the unemployment pool
were insured through their employed or other eligible family members.

receive social monetary allowance”, the unemployed person not registered at the
employment agency are considered as members of the household when the total income
of the household is calculated but are excluded from the right to social assistance. So
nonregistration at the ESA by non-working but able bodied household members reduces
the total amount of social assistance allowance to eligible families. The total number of
households in receipt of social assistance is currently around 65,000, and presumably a
significant proportion of these are (or claim to be) unemployed. (Jackmann and
Corbanese 2007). Respectively, the mandatory requirement of “unemployed status” for
obtaining the status of social welfare beneficiary is also causing the registration of
persons who do not classify as unemployed according to international standards.

The pool of registered and survey-based unemployed has the following main
characteristics (end-2007):

       - Among the unemployed, males dominate with 58.5 percent share in total number
       or registered unemployed (December 31, 2007), and 59.4 percent share in survey-
       based unemployment (4th quarter of 2007). Nevertheless, gender differences in
       unemployment rates are marginal in all the age groups compared to major gaps in
       employment rates.

       - Youth unemployment rate tends to decline from 65 percent in 2004 to 58 percent
       in 2007 but it is still almost two-fold higher than the rate for middle-aged and
       older people in the labor force;

       - Typical to other countries, there is a significant gap in unemployment rates by
       education levels. While 19 percent of the university educated people in the labor
       force are unemployed, the rate is 44 percent for those with education levels below
       secondary general. This confirms that people with a low level of education are
       more affected by unemployment than those with higher qualifications.
       Importantly, 68 percent of the ESA clientele have education levels below
       secondary general, and only five percent of registered unemployed have
       university level education;

       - About 83 percent of the registered unemployed are long-term unemployed. High
       levels of long-term unemployment (defined as unemployment spells longer than
       12 months) are particularly detrimental from a social perspective, since the
       concerned individuals and their families are particularly threatened by poverty
       and social exclusion. Moreover, 30 percent of the registered unemployed are out
       of employment for more than eight years, and 37 percent, between two and seven
       years. By the 2006 LFS data, more than one-tenth of the registered unemployed
       have been seeking a job since 1990 and earlier, and one-third of them started their
       job seeking activities between 1991 and 1999.

There are two major groups of job seekers that are especially vulnerable on the
labor market: (i) long-term unemployed, and (ii) youth, and especially those groups
with low levels of education, and representing national minorities. De facto a

significant portion of long-term unemployed, if not working informally, have lost any
touch with the labor market. Moreover, employers highly value recent work experience
when recruiting workforce, and individuals with a long break in their work history, or
without any work experience, have little chances of being recruited in the current labor
market situation.

Young job-seekers (aged 15-24) form 15 percent of the pool of registered
unemployed, and are also in a difficult position as they are newcomers with little
experience and reduced productivity. Another factor coming into play is the reluctance
of employers to recruit inexperienced young people and individuals with a long break in
their work history, and to invest in their training. This group, with no vocational
education and experience, is so uncompetitive that even considerable improvements in
labor market conditions and employment growth may not improve their situation.
Unemployment early in a person‟s working life has been shown to increase the
probability of future joblessness and lower future wages.

        Table 2: Inflow and outflow of registered unemployed by causes in 2007

                                    Inflow of registered unemployed
      Total                                                Including:
                      Registering first        Previously         Previously erased   Other basis
                            time                registered          from records
      98371                27677                  39472                 29834            1388
                                   Outflow of registered unemployed
       Total                                               Including:
                        Found a job           Erased from             Other basis
     107756                55766                  49416                  2574
Note: the average number of registered unemployed in 2007 was 362,235 persons.
Source: ESA

Macedonia has quite intensive inflows and outflows from the pool of registered
unemployed: around 30 percent of the total for both annually. (Table 2). Moreover, in
2007 49,400 individuals were erased from the roster for noncompliance with the labor
legislation, mostly for not registering themselves periodically at the ESA, e.g., not
confirming their unemployment status. The number of unemployed who have found a job
during the year (mostly on their own) is also quite significant, 55,800, indicating that the
labor market is not so stagnant as the labor market statistics may point out.

                         EMPLOYMENT SERVICES

3.1.    Organizational and legal framework

Within the overall economic policy context, primary responsibility for employment
policy in FYR Macedonia rests with the Ministry of Labor and Social Policy
(MoLSP). The delivery of both active and passive labor market policy is mainly provided
by the Employment Service Agency (ESA) under the auspices of the MoLSP. The ESA is
responsible for all aspects of employment service provision – registering the unemployed,
paying unemployment benefits to those who are entitled, giving advice, guidance and
counseling to job seekers, and delivery of active labor market programs. Registered
unemployed are also provided free health insurance coverage. The Employment Agency
is governed by the Managing Board of the Agency comprising representatives of the
government and social partners. Thirty employment centers are organized within the
Employment Agency whose operation covers the entire territory of the FYR Macedonia.

Further development of the Employment Agency and the enhancement of
employment conditions is considered in several program documents, including the
National Employment Strategy 2010 (NES) and the National Action Plan for
Employment (NAPE) 2006-08.3 In particular, the NAPE aims to raise the employment
rate of able bodied population from 38 percent in 2005 to 48 percent in 2010. The
strategic policy directions are also highlighted in the Multi-Annual Operational Program
“Human Resources Development” of the former Yugoslav Republic of Macedonia as a
document for implementation of the national and European strategic priorities prepared in
line with the new Instrument for Pre-Accession (IPA) established by Council Regulation
(EC) 1085/2006 of 17 July 2006. One of the strategic goals of this program is to
modernize and improve services delivered by the Employment Service Agency and
develop and implement better active approaches for addressing the labor market failures.
(MoLSP and MoES 2007).

This work is proceeding with financial and technical support from the European
Agency for Reconstruction (EAR) under CARDS. Under phase 1 of its project on
employment policy reform which started in May 2003 with funding of €2.5 million, EAR
provided initial support for the restructuring of the ESA administration, and for

   Other employment related program documents include the National Strategy for Development of
Education 2005-2015; the National Strategy for the Roma Decade 2005-2015; the National Action Plans
for Roma 2006-2008 (education, employment, health, housing); the National Action Plan for Gender
Equality; the National Strategy for Development of Small and Medium Enterprises; the Action Plan for
Combating Grey Economy; the Government‟s Working Program for the period 2006-2010; the Strategic
Plan of the Government for 2006-2008; and the Strategic Plan of MoLSP 2006-2008.

upgrading local employment offices through provision of training and equipment. 4
These supports are continuing under Phase 2 of the project with further EAR funding of
€1 million. Other international donors, such as the World Bank, IMF, UNDP, PHARE,
Stability Pact, Social Council within the Council of Europe, ILO, European Training
Foundation, etc., have provided technical assistance to the MoLSP and ESA, and/or have
funded various employment programs.

In recent years in Macedonia, a number of legislative reforms have been initiated in
the area of labor markets and employment. The Law on Employment and Insurance in
Case of Unemployment (the Employment Law) was adopted in 1997, and the law has
been amended several times in the following years, including in 2006 and 2007. The
Employment Law sets up the legal framework in provision of ALMPs, as well as
eligibility and entitlement rules for unemployment benefits.

The Law on Agencies for Temporary Employment was adopted in 2006, with an
overall objective to reduce the informal labor market in Macedonia.5 These agencies are
expected to help regulate the temporary employment of workers and to prevent the
unemployed from engaging in the grey economy by regulating their legal employment
status, since many people were engaged in carrying out temporary work through youth
cooperatives or directly from employers without employment contracts. So far, 20 such
agencies for temporary employment have been set up. From the ESA data for almost two
year period (by May 2008), around 14,300 registered unemployed were placed in jobs by
the private agencies.

In July 2005 a new Law on Labor Relations was adopted which was the first
significant labor law reform since 1993. 6 The law which balances the need to protect
workers‟ rights with the need to increase flexibility in the labor market, and establishes a
more conducive environment for the creation of productive employment opportunities
and the enhancement of social dialogue, has contributed to the employment growth and
formalization of previously informal employment arrangements.

The Law on Employment Incentives was adopted in 2006 as a temporary active labor
market scheme under which the government, through employment agencies, aims to
improve the employability of older workers by offering to pay the pension and disability
insurance contribution if the employer employs workers from a group of eligible

  The first phase of the project also provided assistance to the Ministry of Labor and Social Policy in the development
of the National Action Plan for Employment, and monitoring and implementation of the NAPE continue to be
supported under Phase 2.
  Law on Agencies for Providing Temporary Employment for Carrying out Temporary Work (Official Gazette of RM
no. 49/06). The Agency for Temporary Employment provides a worker to an employer, for carrying out temporary
work in specific cases and for a period of, as a rule, not more than one year. However, Agencies for Temporary
Employment have to pay a regular VET at the rate of 18 percent which makes their services very expensive and lowers
the demand.
    Official Gazette of RM No. 62/05

3.2.      Staffing of the ESA

Public policies to combat unemployment largely depend on the capacity of relevant
institutions, as well as available funding. However, it is difficult to compare client/staff
ratios without knowing the exact composition of the services delivered. For example, a
PES that operates adult retraining programs, as in France, may have a higher staff/client
ratio than a country in which the PES simply contracts for adult training services, as in
Poland and Turkey. Available data, however, show wide variations in levels of staffing
among the countries in WAPES‟ database (Annex 2 Table 1).7 The differences are
explained by the types as well as quality of services offered.

According to the ESA Annual Report 2007, 525 persons are currently working in
the Agency (end-2007) of which 276 staff members are working on active labor market
policies (52.6 percent), 166 ESA staff are engaged in passive policies (31.6 percent), and
44 employees are support staff (8.4 percent). Out of total staff, 45 are working in the
central Agency and almost a quarter of the remaining staff (99) is employed at the local
centre of the city of Skopje. Employees of the ESA are well educated: 269 persons have
university education (51 percent); 75 individuals (14 percent) have graduated from a
college (visha-skola, or two-year post secondary school) but over 30 percent of the staff
have secondary education or below. Staff turnover is relatively low, thus the agency has
stable cadres. In 2007, only 21 employees left the agency, mostly due to retirement.
Staff caseload in Macedonia – the ratio of clients to employment counseling staff – is
a critical constraint to ESA performance. In late 2007, the ESA staff had on average
680 registered unemployed per one employee. What really matters for the delivery of
services to the unemployed is the proportion of staff that are in direct contact with these
clients, i.e., caseworkers, and their workload. On average, in Macedonia one job
counselor/advisor has to deal with 1,300 registered unemployed. Out of the total staff of
the ESA, only 53 percent are front-line employment counselors/advisors, while in many
other countries, over 80 percent of the staff of PES are caseworkers, such as in Germany,
86 percent, the Czech Republic, 84 percent, and Estonia, 83 percent. (Annex 2 Table 1).

This high caseload does not truly characterize the actual workload of the staff of the
ESA. In 2007, around 57,000 registered job seekers participated in ALMPs, other than
initial counseling and provision of basic information. This makes the caseload of around
200 participants in ALMPs per one job counselor working on active labor programs.
There were also 25,000 beneficiaries of unemployment benefits, with a caseload of 150
beneficiaries per one counselor dealing with passive policies. Both indicators are still at
an upper end compared to other countries in the region. High caseload limits regular
reporting and conformation of unemployment status by job seekers, as well as
opportunities for job counselors to monitor and encourage job search and deliver

As noted above, the unemployment register is inflated by a high number of people
who are not actively looking for work. Active job search is one of the key requirements

    WAPES - World Association of Public Employment Services.

to be considered unemployed. In Macedonia, the definition of active search includes
individuals with different job search intensities. Some individuals search jobs only by
registering in the Employment Agency. Other “semi-passive” seekers place an ad and/or
check for jobs with family/friends, while “more active” seekers undertake several
activities to seek employment.

By the 2006 LFS data, 82 percent of the unemployed register themselves at the ESA
but one third of the unemployed relied on being registered in the employment office
as the only job seeking mechanism, while 49 percent of the registered unemployed have
also used other tools for job search. If we look at the most active job search instruments,
such as those individuals who placed an ad, answered an ad, contacted employers, and/or
participated in job interviews, only 53 percent of the survey-based unemployed have used
such job seeking mechanisms. (Angel-Urdinola and Macias 2008).

It is the policy of the ESA to provide each registered unemployed person with an
“individual action plan” identifying the activities and responsibilities by the job seeker
for reaching of an employment target, though such plans if drawn up at all seriously are
highly labor intensive. Given the data on job search activities by the unemployed noted
above, caseworkers do not have the time and capacity to closely monitor these activities.
In most countries, services are „tiered‟, so that initially unemployed people are left
largely to fend for themselves, and only those who are unable to find work after some
period of time are provided with more intensive advice and assistance.

3.3.    Financing of employment programs

In the FYR Macedonia only employers make direct contributions to financing social
security. The contribution rate is 32 percent of gross salary (21.2 percent for pension and
disability insurance, 9.2 percent for health insurance and 1.6 percent for unemployment
insurance contributions). The tax wedge is therefore a disincentive for employers to
create job positions and for employment of employees. This increased the size of the
informal economy by concluding „civil law contracts‟ for which no social contributions
are payable. In this respect reforms in the tax policy have been undertaken by introducing
a flat tax with a flat tax rate for personal income and profit tax.8 It is believed by the
Government that the undertaken reforms will have positive effects on employment.

The main source of revenues for ESA is budgetary transfers providing over two
thirds of the total funding. Thereby, despite relatively high tax burden, contributions are
not sufficient to meet the obligations of the ESA, due to a low number of formally
employed and respectively taxed individuals. (Table 3). In recent years, the funds at the
disposal of ESA have become even more scarce, and in 2007, despite high

 Civil law contracts are legal contracts concluded according to the Law on Obligations. They are subject to
personal income tax. However they do not present employment in terms of Labor Law and no social
contributions are payable.

unemployment rates, only around 0.53 percent of GDP was spent on employment
programs, including 0.06 percent of GDP on ALMPs (12 percent of the total on
employment programs, and four percent of total expenditures, including funds for
pension and health insurance contributions), and 0.47 percent of GDP on passive
programs (unemployment benefits and early retirement scheme).9 This is one of the
lowest shares of GDP spent on relevant programs in the CEE and the Baltics. (Annex 2
Table 2). Estonia spent less than that, 0.19 percent of GDP on labor programs but its
registered unemployment rate is only two percent of the labor force. Reduction in the
ESA budget in recent years is in part explained by the reduction in the number of
registered unemployed, and in part by stringent budgetary constraints.

     Table 3: The budget of the Employment Service Agency in 2006 and 200710

                                           2006                                 2007
                            Denars, million             %        Denars, million          %
Unemployment insurance          1,371                  22.7          1,524               29.6
Budgetary transfers              4,305                  71.4          3,512              68.3
Other sources                     351                    5.9           110                2.1
Total                            6,027                 100.0          5,146             100.0
Source: ESA

In addition, from the budget of the ESA, pension contributions and health insurance
contributions for the registered unemployed were financed in the amount of 0.26
percent and 0.64 percent of GDP respectively, or almost two thirds of the total budget for
ESA. These are the largest expenditure categories in the budget of the ESA.

Budgetary expenditures on public employment services in Macedonia are especially
low when comparing expenditures of PES on ALMPs per one registered
unemployed. The relevant expenditures are US$37 in Macedonia, largely due to a large
number of registered unemployed, while the figure is US$ 1,029 in the Czech Republic,
US$712 in Hungary, and US$648 in Latvia. The same is true when comparing the
administrative budget of employment agencies per one PES staff. Macedonia spends
around US$10,000 annually on administrative expenditures per one PES staff, while in
Montenegro, the figure is US$32,000, and in Hungary, US$30,000. (Annex 2 Table 1).
Limited funding of administrative costs restricts capacity building in the ESA, including
ICT developments in the agency, as well as provision of ALMPs by the agency‟s staff.

Despite the fact that in Macedonia passive programs comprise around one third of
the total expenditures of the ESA, both the fraction of the jobless that receive
unemployment benefits, and the average size of the benefit are very small. By the
end of 2007, only 24,720 individuals received unemployment benefits, of which 21,291

   The budget of the ESA is formed from unemployment insurance contributions, and the government is
obliged to cover any deficit between the mandated expenditures and revenues from contributions.
   In 2008, the ESA budget equals 5,122 million Denars.

persons received the allowance beyond the maximum duration of 12 months. This means
that only 3,429 persons (less than one percent of registered unemployed) received the
“regular” unemployment benefit, while for rest of the pool of beneficiaries the scheme
provided early retirement allowance until they reached retirement age and are entitled to
old-age pension. The low number of beneficiaries is largely explained by the fact that
most of the unemployed have exhausted their eligibility for unemployment benefits, or
did not have sufficient insurance record in the first place. In 2007, the average benefit
was 4,975 Denars, or 34 percent of the average net wages in the country. The lower
replacement rate of the benefit is explained by the fact that prior to becoming
unemployed, many beneficiaries received wages that were below the average wages in
the country.

Publicly-subsidized early-retirement benefits are now rarely defended on the
argument that they can reduce unemployment in general. They are increasingly seen
as second-best solutions which are maintained because other policies to absorb older-
unemployed workers are ineffective or because they are acquired rights which are
politically hard to remove. In most countries, a process of phasing out these benefits has
begun. In Macedonia remaining financial incentives for early retirement should also be
withdrawn or scaled back significantly by merging or replacing relevant benefits with
social assistance schemes. Reforms would give the government greater flexibility and
financial resources to respond to new emerging social issues, otherwise there is a real risk
that the early retirement scheme will increasingly crowd-out alternative expenditures,
such as on ALMPs, which have a higher social priority.

There are two key factors to consider in defining financing alternatives and the
source of financing for the PES: (i) the level of development of the formal sector, and
the level of unemployment. A country with high unemployment or an undeveloped
formal sector will need to depend, at least initially, on central budget support for most, if
not all, employment programs. As the labor market matures, financing may be split
between the central budget and employer/employee contributions. As full employment is
reached, all financing may be shifted to employers and employees; (ii) in determining
how different programs are financed, particularly in countries with high or rapidly
growing unemployment rates, it is critical that a legal and budgetary distinction be made
between the source of financing for income support and that for other employment
programs. Without such distinctions, income support program expenditures (and
coverage of health insurance and pension insurance costs of the registered unemployed,
as it is the case in Macedonia) will "crowd-out" investments in employment service and
other active programs. (Fretwell and Goldberg 1991).

In a current labor market situation, budgetary transfers will remain a major source
of financing for the activities of the ESA. In order to protect the funding of ALMPs, in
February 2007 the National Assembly adopted an amendment to the Law on Employment
and Insurance in Case of Unemployment according to which stipulates that not less than
five percent of the revenues from unemployment insurance contributions should be spent
on active labor policies. Compared to other countries in the region, this is a very low
benchmark for expenditures on ALMPs.

3.4.     Options for institutional reforms

Given that a large number of registered unemployed are de facto inactive or
informally employed, Macedonia may consider to make the Employment Law more
stringent in relation to defining the following indicators to avoid benefit sanctions and
exclusion from the roster of registered unemployed: (i) “suitable work”, (ii) occupational
protection (i.e. allowing unemployed people to refuse a job offer that involves a change
of occupation), (iii) requirements for independent job search, (iv) frequency of contacts
with the ESA, and (v) compulsory participation in programs after a certain period of
unemployment has elapsed. Stricter rules for registration and participation in programs
can be used as a work test and as a means of helping the unemployed maintain contact
with the labor market.

Capacity building in the ESA and a more professional and efficient employment
service is essential to raising the intensity and efficiency of the job search efforts of the
unemployed, and thus leading to higher exit rates out of unemployment. Especially
upgrading of staff skills, competence and motivation are important areas of reforms. The
issue of ongoing training is especially critical for employment counselors being highly
skilled, working in different specialized areas yet, through job rotation, also able to
acquire broad experience in the longer term.

It is also essential to monitor and manage the performance of employment services
by setting up monitorable performance targets using the administrative data generated by
ESA activities (e.g., number of individuals served, types of interventions, follow-up, etc.)
at various levels. By using such information on a comparative basis, some internal
measurement of the effectiveness of ESA operations can be made. Quantitative targets
may include increasing the ESA market share of notified vacancies; reducing the
incidence of long-term (over one year) and very long term (two years and more)
unemployment, and so on.11 By measuring performance against such targets,
management tools can be applied – ranging from discretionary budget allocations to more
formal reward/penalty arrangements – to raise efficiency.

What makes workload of the ESA truly high is that in addition to primary
responsibilities in dealing with the registered unemployed, the staff is also engaged
in the registration of newly opened employment contracts and termination of the
existing contracts, as well as registration of new businesses.12 In the last few years,
this workload is being rapidly increased. While in 2004 the ESA staff registered 112,000
new employment contracts, in 2007 the number of new contracts increased to 191,000.
Moreover, the ESA staff is keeping track of recipients of health care beneficiaries. Both
tasks are typically not part of the activities of PES. In this regard it is expected that ESA

  Mojsoska-Blazevski (2006) provides for a more comprehensive set of monitorable performance targets.
  There are very few countries in the region, and mostly in the Balkans, in which PES has a task to register
employment contracts.

with assistance of USAID will introduce online application for registering employees by
March 2008. The reforms are also needed in simplifying the registration and re-
registration of unemployed as health care recipients by ESA so that they may transfer
some or all of these functions to other government agencies. ESA estimates that the
administration of health insurance requires up to 40 percent of total staff time.13

As suggested by the ILO, the key needs for the ESA are to abandon the attempt to
provide individual action plans for everyone registered as unemployed, to separate
out the placement and counseling work from routine administration, to develop the
professional skills of those involved in placement and counseling and to provide them
with greater responsibility and discretion to target interventions to local labor market and
individual needs rather than simply applying centralized guidelines. (ILO 2006).

High caseloads limit frequent reporting and confirmation of unemployment status
by job seekers, as well as opportunities for job counselors to monitor and encourage job
search and deliver information.14 The current number of ESA frontline
counselors/advisers is totally inadequate for delivering ALMPs, specifically effective and
personalized mediation services. Efficiency and quality of service could also be improved
markedly by getting more ESA staff on the front line dealing with clients.

One of the ways to combat human resource and budget constraints is to move away
from costly face-to-face interactions and towards the extension of self-service
facilities for job seekers and employers who can contact each other through these self-
service systems without the intervention of placement officers. The most common
development is the nationwide vacancy register which can be easily accessed via work
stations (often equipped with touch screens) in local labor offices, or which can be
consulted on-line over the Internet. In some countries, call centers for various types of
contact are established. Given low Internet penetration rates in Macedonia, such work
stations can be established also in other public premises, such as shopping centers,
libraries and schools. In such a way ESA staff is able to switch from traditional job-
brokering activities to providing intensive assistance to hard-to-place and severely
disadvantaged individuals who cannot find jobs through the electronic services.

Early interventions could include profiling of job seekers to identify which one of
the individuals or groups of unemployed, such as youth, are susceptible to long-term
unemployment. Profiling systems attribute a “score” to the inflow of new registrants,
which in principle reflects the risk that they will become long-term unemployed and
allows to determine what level of service will be offered to them. 15 Additional labor
market assistance is then targeted to individuals who score above a certain threshold level
(with the threshold level itself adjusted so that referrals cover the capacity of the
additional assistance). In some countries the classification of jobseekers into different
groups depending on their placement prospects is based on the judgment of PES officers.

   Short-term policy options to reform health insurance for the unemployed are discussed in Koettl 2008.
   By the Employment Law, an unemployed person is obliged to report to the ESA each six months and to
inform the agency about the activities that he/she has undertaken to find work.
   Profiling techniques in Germany, the Netherlands and the United Kingdom see Tergeist and Grubb 2006.

In other countries, PES officers may describe certain unemployed as being not job-ready.
In Macedonia, with stringent resource constraints, profiling in some form has the
potential to provide a systematic basis for allocating scarce finances, and improve
targeting of ALMPs on condition that caseload of employment counselors be
significantly reduced, thus allowing to monitor the outcomes of the programs.

Macedonia may consider encouraging even more active involvement of the private
sector in the provision of labor market services such as training, job brokerage and
other services, as an integral part of ESA reform. Contracting out is the most frequently
used method for making PES activities contestable at least to some degree. It allows for
lower pressure on public budgets and provides a wider array of options for a diverse
range of clients. Many countries in the region, for example, Poland, Slovenia, Bulgaria,
Hungary, Serbia and Romania, purchase training programs from various providers
through public tenders. The same principle can be applied to other types of employment
services while separating purchasers, in this case the ESA, from providers of services.
Also core job matching and career counseling activities are increasingly outsourced and
subcontracted with private providers and NGOs in Poland, Romania, Bulgaria, as well as
Turkey (with support from the World Bank projects). Therefore, public employment
services (PES) might not be the only agency involved in provision of active labor market

                         AND SERVICES

4.1.     Active labor market programs

Besides different spending levels discussed above, the EU countries, including new
Member States, have different priorities in provision of ALMPs. Other than general
labor market services provided by the PES, such as job counseling, provision of labor
market information and job search assistance, Bulgaria makes an emphasis on direct job
creation programs while spending over 70 percent of the total for ALMPs on a workfare
(“From Social Assistance to Employment”) program; the Czech Republic spends most of
the funds for ALMPs on employment incentives (wage subsidies) to vulnerable groups
and on integration of the disabled; Poland is focusing on integration of the disabled and
on training of job seekers, etc. (Annex 2 Table 2).

In Macedonia the biggest share of expenditures on active labor programs is spent on
wage subsidies for integration of the disabled, 114 million Denars in 2007 (over 50
percent of the total budget on ALMPs) but only 267 individuals got support from the

program, with the unit cost of 428,000 Denars per beneficiary.16 Other programs with
high unit costs and low participation, such as public works, and wage subsidies to other
vulnerable groups dominate in the expenditure structure for ALMPs. On-the job training
programs organized for known employers had relatively low unit costs of around 13,000
Denars per participant but relatively high gross placement rates of over 70 percent on
average, and consumed one fourth of the total budget for ALMPs. (Table 4).

           Table 4: Main active labor market programs in Macedonia in 2007

Name of the program                            Number of      Budget for the program,     Unit costs per
                                               participants           Denars               beneficiary,
1. Public works in the units of local self-        976               19,791,585              20,278
government (municipalities)

2. Public works (construction, environment         418               20,229,755               48,397
projects) for unemployed from the most
underdeveloped regions

3. Support to self-employment
                                                  18318              6,682,500                36,516
a) family business
b) support for first employment of persons
of up to 27 years of age – no data

4. Wage and other subsidies to
                                                   69                4,773,067                69,175
a) single parents
                                                    3                 210,600                 70,200
b) youth without parents
                                                   267              114,145,698              427,512
c) disabled

5. Training and retraining                        3,866              52,097,796               13,475

6. Employment promotion                            …                  630,321                   …

TOTAL                                                               218.552.312
7. Professional orientation services:
a) provision of labor market information         15,996        Provided by the staff of          -
b) job counseling and orientation                 6486               the agency                  -
c) job selection                                 2,639                                           -

8. Job clubs                                     26,006        Provided by the staff of          -
                                                                     the agency

   Disabled job seekers and employees are supported from the Special Fund. Grant funds are allocated for
procurement of equipment, adaptation of work places, and training of employed and unemployed
handicapped individuals.
   Information on only planned participation available: 600 persons to be included, with total costs of 15
million Denars (4 million Denars from the ESA and 11 million Denars from UNDP).
    183 individuals (out of total of 410 selected and contracted self-employed, financed from the
Government budget) is the number of self-employed who completed procurement of equipment by the date
of issuance of the ESA report for 2007.

Source: ESA

On-the-job training program delivered by the Employment Agency is solely
demand-driven, that is employer-specific. This secures high placement rates of
participants. The program may last up to 3 months. During the training, beneficiaries
receive 4,000 MKD (around 25 of the average wage) and are entitled to health and
disability insurance whereas employers receive a fixed amount of 2,000MKD per worker
as a contribution of ESA to training costs and bear the costs of transport and food for
trainees. Starting from April 2005, employers are obliged to employ a minimum of 70
percent of all trainees that successfully complete the training for an indefinite time (open-
ended work contract). In 2007, 2,751 persons completed training, and 2,526 trainees, or
91.8 percent of the total were placed in jobs. Training is mainly delivered by the
employer as on-the-job training or by training contractors.

In 2007, the Macedonian government launched a new program for self-employment
to provide technical support and some start-up capital for unemployed people
wishing to set up a business venture. The program will be targeted for the very long-
term unemployed and those from the least developed regions of the country. Importantly,
most beneficiaries of ALMPs get assistance through the services provided by the staff of
the ESA, e.g., through professional orientation services and job clubs program. These are
the most cost effective interventions per se.

4.2.       Options for policy reform in provision of ALMPs19

Currently FYI Macedonia experiences a labor market situation which can be
characterized as lack of demand for labor. Especially in such situations labor market
interventions may not be particularly successful, or the programs and their unit costs per
beneficiary might be especially high to have a meaningful impact on the ground. Various
cost effective policy options can be proposed on how to enhance public employment
services which might be relevant and suitable for Macedonia given its macroeconomic
and labor market situation. The emphasis should be put on improving the design and
effectiveness of ALMPs, rather than on increasing spending levels only. (Summary of
impacts of ALMPs based on the experience of EU countries see Table 5).

High unemployment in Macedonia is compounded by its long duration. Many of
these jobless have no qualification, and/or a low level of education. They may have
multiple employment barriers, including cognitive and health-related barriers, and
difficult home lives (for example, lack of transportation, many children, child care
problems, domestic violence), which makes their employability a problem. To tackle
long-term unemployment, a policy mix combining training opportunities with active
counseling and information on job opportunities has proved quite effective in a number
of European countries. However, the experience of some transition countries shows that
such measures are often insufficient. The long-term unemployed should resort to a

     See also Mojsoska-Blazevski (2006).

combination of temporary employment (public works or subsidized employment), on-the-
job training, and regular job-placement assistance. (Egger 2003).

           Table 5: Impacts of ALMPs Based on Experience of EU Countries

Intervention          Summary       of    overall   Comments
Job-search            Significant positive impact   Improved outcomes when: (i) combined with
assistance (job       on the transition from        monitoring and enforcement of criteria, on which the
brokerage and         welfare to work               receipt of unemployment benefits is conditioned; and
counseling)                                         (ii) job search activities linked with participation in
                                                    other programs, such as training.
(Re)training for      Effective for some target     Following features enhance programs effectiveness:
unemployed            groups (adult women), but     (i) small scale; (ii) targeted at disadvantaged groups;
                      not for others (adult men     (iii) close partnership with local employers; (iv)
                      and youth)                    training certified, and certificates recognized and
                                                    valued by the market.
Youth measures        Disappointing results         Interventions such as pre-school facilities, measures to
                                                    reduce early school-leaving, and improve basic skills
                                                    and the relevance of competencies provided by the
                                                    education system seem to pay better dividends.
Employment            Positive effects on the       Cost effective to target employment subsidies at
subsidies             probability   of   future     specific groups (young men with high levels of
                      unsubsidized employment       education), and combined with counseling services.
Direct job creation   Positive results rare         Should be short duration and targeted at the most
                                                    disadvantaged groups, if used.
Source: EC (2006).

As a preventive measure, Macedonia needs a good and comprehensive career
guidance and professional orientation system to provide assistance to the unemployed
individuals but also to students and other groups of population in determining appropriate
work fields and employment opportunities.20 There is a limited access to reliable
information about the labor market demand by youth. Additional investments are needed
for early professional orientation in schools, and the creation of career development
centers in all universities. Providing information to young people on labor market
opportunities, and pay-offs to different levels and modalities of schooling would allow
them to make educated guesses about their future returns, producing efficiency gains.

Youth unemployment and difficulties in successfully integrating young people in the
labor market remain a challenge for most European countries. Even in the EU,
despite an increasingly better-educated youth population, young people in many Member
States still face considerable problems in making the transition from education into
employment. As it is stated in “Employment in Europe 2007”, “Youth in precarious jobs
or long periods of inactivity are especially at risk of economic and social exclusion.
   Currently a limited number of pupils and students also receive professional orientation and career
guidance services.

Addressing school failure and familiarizing youth with working life are needed... …along
with effective activation strategies and removing obstacles to hiring young people.” (EC

The countries in Europe are addressing youth employment in multiple ways. A
number of EU Member States concentrate on improving the provision of guidance and
counseling in general, for young people or for specific target groups (long-term
unemployed, groups with multiple disadvantages). Another focus is put on improving the
access to training, especially for low-qualified young people who do not have sufficient
skills and competences to enter a mainstream vocational training path. Other countries
are addressing the lack of practical experience due to school-based vocational training or
university studies. Such measures include: provision of traineeship places in the public or
private sector (Hungary and Latvia, among the transition countries), tax benefits and
social security exemptions for traineeships (Hungary), internships with minimum wage
and wage support (Latvia). Some countries are introducing ALMP packages addressing
youth unemployment. (See Betcherman et al 2007).

Given that many of the registered unemployed may not be genuinely unemployed,
PESs in Europe and elsewhere are refocusing all its efforts on activation policies.
(EC 2006; EC 2007). This approach might be relevant in Macedonia as well. Activation
policies encourage certain unemployed individuals to step up their job search after an
initial spell of unemployment, with a later obligation to participate in various programs.
Eventually, the activation principle makes the receipt of benefits (in case of Macedonia,
also staying on the roster of unemployed) conditional on participation in programs,
including in job search activities. (Summary of the impact of various ALMPs in some of
the transition countries see Annex 2 Tables 3-7).

Job search assistance and counseling have been found to be the most cost-effective
labor market measures for the general population of the unemployed. That is, they
achieve similar results as other interventions, however at a significantly lower cost. Job
seekers should have stronger incentives to look for new jobs, even in other occupations
and in other regions of the country. This would require a more intensive follow-up of the
individual cases by the front-line job counselors than at present.21 Currently a job
counseling program in Macedonia is limited to a relatively small group of registered
unemployed. (Table 4).

Given staff constraints in ESA, job counseling may be improved by focusing more
on group-based activities, such as collective sessions on: (i) labor market information in
which unemployed people can obtain information about the local and regional labor
market situation, including jobs offered and the qualifications needed to apply for them;
(ii) job counseling in which the unemployed participants are counseled about the skills
and qualifications they need to improve in order to increase their employability, and

  In Macedonia in late 1990s, in the World Bank/Government Social Support Project, participation in the
counseling program approximately doubled a person‟s probability of being employed compared to the non-
participants in the control group. The average cost of relevant improved services per participant was US$9
and the unit cost per employed was US$37.

obtain information about education, training, and alternative job opportunities; and (iii)
job search skill training programs which offer practical assistance to the unemployed in
their efforts to find new employment, such as in drafting job applications and succeeding
in job interviews. Collective sessions can save valuable staff resources.

One of the cost-effective ways for job search assistance is through job clubs that
encourage the unemployed to become more motivated and skilled in looking for jobs.22 In
Macedonia, around 16,000 unemployed participate in the program annually but there is
room to expand this program. These clubs are recommended for those with low self-
confidence, who have been unemployed for extended periods of time, or who are
displaced. Job clubs help individuals in a methodological way to regain self-confidence
and maintain an active role in their job search. The participants are trained in developing
methods of self-presentation for employers, preparing resumes; applying for jobs; filling
out job application forms; using newspapers and other documents in a job search; and
conducting interviews.

One of the new programs that can be suggested to ESA is vacancy and job fairs that
are aimed at making it easier for those participating to find new jobs, by presenting
unemployed and other job seekers with specific professions, skills, abilities, and
employers with needs to employ new workers that are in demand in the labor market. A
job fair is an event usually held in urban areas once to several times a year where a
number of employers and job seekers come together for the purpose of applying and
interviewing for jobs, and it is the most appropriate for youth. Defined more precisely, a
job fair is an employment strategy to fast-track the meeting of job seekers and employers.
Companies participate in job fairs to screen candidates for existing or future job
openings. Companies also participate to introduce themselves as a desirable place to
work and to promote their company. At the very least, companies will get exposure at
job fairs, while at the most they can make rapid hires of highly qualified applicants.
Among the critical activities for the ESA staff is employer contact services to meet
employer needs and promote continual use of employment services. Although job
counselors spend a significant amount of time on the service, still most jobs are in the
“hidden job market,” and are not known to the local employment offices.23 Also by the
2007 Survey of the Needs for Skills data, around one fifth of the surveyed firms
reportedly said that they were having problems in finding the appropriate labor force,
mostly because of lack of relevant work experience by applicants. (Annex 1).
Understanding employers‟ needs and working to solve their problems will forge long-
term partnerships based on common goals: workforce quality, enhanced productivity, and
economic competitiveness. This involves establishing and developing good relations with
employers and the gradual transformation of the employment agencies into a genuine

   In Serbia having unemployment rate above 20 percent, in 2005 the following gross placement rates of the
most cost effective ALMPs were registered: virtual enterprises, 28 percent; job clubs, 25 percent, job
search training – 15 to 20 percent, job fairs – 10 percent. (SEOR 2006).
   According to the 2005 Law on Labor Relations, only a public institution, public enterprise and other
legal entity that performs public services, governmental authority and body of the local self-government
unit are obliged to publish a job advertisement in at least two newspapers but all the entities are obliged to
record new employment contracts at the ESA.

service enterprise (modernization of the range of services, creation of specific enterprise
and sector desks, improvement of its public image, use of information technologies, and
so forth).

Vacancy registration and advertisement is one of the main activities for PES. In most
OECD countries between 10 percent and 50 percent of all new hires in the economy are
preceded by the registration of a vacancy with the PES. (OECD 2000). In order to
achieve its objectives, both in terms of effectively working labor markets and social
equity for disadvantaged groups, it is often considered vital for the PES to register as
many vacancies as possible. Experience from EU member countries suggests a number of
factors increase the quantity and quality of vacancy registrations. In addition to marketing
and services to employers to increase vacancy notifications discussed above, the
employment service can register vacancies advertised elsewhere, as it is the practice in
Macedonia as well.

The more expensive active job creation programs, such as wage subsidies or self
employment grants should be specifically targeted at the depressed areas, or left to
specialized financial institutions. These programs must be limited and carefully targeted
to the vulnerable groups because of high unit costs and considerable evidence that they
have no impact, and often negative impact, on post program employment and wages.
While these programs serve a social objective, it is difficult to design subsidies that
actually meet the goal of creating jobs in a cost-effective manner. They are often
associated with deadweight losses. They also can have unintended effects such as
subsidized workers replacing unsubsidized ones (“substitution” effect) or employers
hiring subsidized workers and laying them off once the subsidy period ends.

In several countries in the region (Ukraine, Azerbaijan) in which the PES possesses
training centers, the training contractor provides flexible modular training
recognizing that the unemployed need to schedule their training and have different skill
levels. The PES provides only the premises and covers operating and other related costs.
Using the existing network of professional education establishments, in Macedonia a
significant number of training modules can be prepared depending on the demand, and
provision of training to job seekers which can be contracted out to private or public
training providers.

One of the new cost-effective forms of training especially for youth in the region, in
particular in Slovenia and Serbia, is virtual enterprises (a Practice Firm or simulation
models of a business enterprise) which aims to improve interactive learning, obtain and
develop business skills for work in operating a real enterprise, and introduce job seekers
and students into the day-to-day business life and labor market reality.24 It provides a
transparent view of internal business processes, external business relationships and other
business practices. In some countries, such as in Austria, the virtual firm as a place of
learning is a compulsory part of the curriculum in all schools and academies of business,
and is recommended for business training in all schools. A virtual enterprise (basically it

  The license for operating a model of a virtual enterprise cane be obtained from the EUROPEN
Association – a network of virtual enterprises.

is a software/training program on simulation of a small business, including firm‟s
financial management, bookkeeping, accounting, marketing, sales and purchases, human
resources, taxation, etc.) is the most optimal method of business education and training
since it enables direct connection between the theory and practice following the principle

                    V.       MONITORING AND EVALUATION

For the Government it is important to carefully evaluate labor market programs
and introduce interventions on the basis of what works in Macedonia. Properly
evaluated programs are less likely to lead to positive assessments of impact and
effectiveness than judgments based on “non-scientific” methodologies. In the absence of
such evaluations, policy-makers are likely to overestimate the benefit of their
interventions and, as a result, allocate resources inefficiently. The findings of various
reviews of ALMPs imply that the programs are not a panacea for large-scale
unemployment and that expectations must be realistic. (World Bank 2007; Betcherman et
al 2004). In the meantime, ESA can begin to shift emphasis to programs, which
experience has shown in other countries to be the most effective in reducing

     Table 6: Net impact of some of the ALMs on employment in transition countries
                               (% of increase in net employment)

                                 Training                    Start-up allowance          Wage subsidy
                                                            (lump-sum payment)
Estonia              7 % – one year after graduation;               24 %                      20 %
                     15 % – two years after
Czech Republic                    8%                                 11 %                      9%
Hungary                          10 %                                13 %                    - 10 %
Poland                           10 %                                30 %                      N/a
Bulgaria                        10-11 %                             42.7 %                   38.7 %

Source: Leetmaa et al 2003

Commonly in transition countries, the level of program evaluation has been weak,
and in around ten countries, net impact analysis of ALMPs provided by the PES has
been conducted. (See Table 6; Annex 2 Tables 3-7).25 Depending on the design,

  The recent World Bank study on youth employment programs in the world revealed that for almost 40
per cent of programs included in the inventory, no evaluation information at all on outcomes or impact
could be found. An additional 35 per cent have studies which cover only gross outcomes, and do not use a
methodology (e.g., based on a control group) to estimate net impact. In other words, only about one-quarter
of all programs included have some evidence on the net impact. Of these 172 programs, 132 (78 per cent)

targeting, and implementation, similar programs may have reverse outcomes in different
countries in terms of the key impact indicators, such as post-program employment rates
and earnings. (Wilson and Fretwell 1999; Fretwell et al 1999). There are many different
types of evaluations for the PES to select from: (i) process evaluations focus on how a
program operates and on activities undertaken in delivery; (ii) performance monitoring
provides information on the extent to which specific program objectives are achieved
(e.g., number of unemployed trained); and (iii) impact evaluations focus on the issue of
causality to see whether a program has its intended impact. (World Bank 2002).

In particular, the central questions for ALMP impact evaluations are:

        -   What are the impacts of program participation on the future labor market
            outcomes of participants?
        -   What is the cost-effectiveness of programs?

It is difficult to conduct a thorough benefit-cost analysis of ALMPs because of
problems in identifying long-term fiscal return from the programs to individuals
and society, and because of possible displacement and substitution effects. The
impact evaluation studies usually include information on program participant costs,
temporary income support savings, the net impact on reemployment and average monthly
earnings. However, other crucial information is usually not available: downstream wage
impacts, and returns to society (tax revenues, productivity gains, long-term income
support payments required by non-participants). The only survey of that kind in the
region was recently done in Estonia which indicates that each Kroon (currency unit in
Estonia) invested into training and retraining program of unemployed individuals returns
to the society 3.7 Kroons. (Leetmaa et al 2003).

Unfortunately the last time a net impact evaluation of a number of active labor
market programs in Macedonia, including job counseling, training, public works,
incubators, and small business assistance, was conducted in 2002.26 The evaluation
established that the programs that address unemployment had a positive impact on
employment and income. (See Table 7).

were rated as having had a positive impact in terms of the employment and/or earnings of participants.
When only programs with net impact evaluations were considered, the share with demonstrably positive
labor market impacts for participants was 60 per cent. (World Bank 2007).
   The cost of these programs was US$ 5 million, financed by the World Bank and the Macedonian
Government. They were implemented by the Agency for Privatization during the period from April 1996 to
September 1999. The net impact analysis was conducted by PLS RAMBOLL Management (USA). In
2007, an assessment of some ALMPs was also conducted but limited to UNDP-supported programs only.
See Jackmann and Corbanese 2007.

        Table 7: Costs and benefits of programs addressed to the unemployed in
                                Macedonia, 1996-1999

Type          of    Total costs      Number of           Net impact (%)     Net impact      Unit cost per
program              (US$)*          participants                           (number of       job created
                                                                          jobs created)**       (U$)
Counseling               104515          Appr.2500              14           Appr.350         Appr.299
New                     2428624             6684                72             4812              505
Institutional            315398             2285                54                1234        256
Public works             927970             1211                34                 412       2252
* - excluding cost of managing the program;
** - the net impact is calculated as the difference in average employment between the treatment and the
control group multiplied by the number of people participating in the program.
*** - on-the-job training combined with a few lessons of theory.
**** - institutional training was carried out by private and public service providers..
Source: MoLSP 2002.

Some of the conclusions and recommendations of the report might be acute even
today. In particular, based on the impact figures, it was recommended that:

         the counseling, institutional training and new employment (on-the-job training)
          programs are to be continued;

         in the case of small business assistance, the impact has been modest: only 6
          percent of the participants were able to set up their own enterprises after
          participating in the training. This relatively low impact was due to difficulties in
          obtaining access to credit;

         integrating the counseling program with training programs for people who need
          new skills and qualifications in order to be employable should be considered;

         in the institutional training program, a user fee of 20 percent was levied. The high
          net impact of the program suggests that the user fee had an impact. For many
          participants the user fee constituted a large amount of money, giving them an
          incentive to select training programs carefully and only to participate in programs
          and courses which they strongly believed would significantly improve their
          employability. The user-fee system will probably exclude some people from

         it was recommended continuing the system of job-placement target rates; and

         it was suggested to reconsider whether public works should form part of an active
          labor market strategy.

Although impact evaluations are especially costly and can be done infrequently, the
MoLSP must assess from time to time the programs supported currently by the
ESA. A net impact assessment is a rather expensive undertaking, and can be repeated say
only once every five years, but there are less costly alternatives to evaluation of programs
developed in other countries in the region, such as Performance Information and
Management Systems (PIMS). The PIMS can provide real time information on key
performance indicators, such as (i) program enrollment by client characteristics, (ii)
expenditures by program category, (iii) job placement rates after program participation,
(iv) cost per participant, (v) cost per placement, in regional disaggregation.

                               VI.     CONCLUSIONS

Active labor market services, in and of themselves, do not create jobs. In reviewing
international evidence on the impacts on employment outcomes of different
interventions, including in transition countries, in general it is a favorable investment and
business climate, and rapid economic development that is key for job creation.

The impact of ALMPs on aggregate employment depends highly on the context. A
higher employability of the unemployed as a result of ALMPs is not sufficient to create
more jobs. This also depends on factors like wage flexibility, the incentives for the
unemployed to accept jobs, the attractiveness of the country for foreign investors, etc. If
owing to these other factors aggregate employment is more or less fixed, ALMPs can
only contribute to less inequality in the labor market, a reduction in long-term
unemployment and an easier filling of the existing vacancies. The impact on macro
unemployment is in that case likely to be small.

In transition countries, the much larger informal labor markets and weaker
capacity to implement programs may limit what some programs can achieve in
terms of creating formal employment or increasing wages. On the other hand, some
other programs, such as youth training programs or job counseling programs have much
more positive impacts than are seen in industrialized countries. It may be that such
programs in these labor markets have more potential because abundant supplies of skilled
workers are not available.

Some other key lessons learned from operation of active labor market services
include a need to:
        - Given current fiscal and financial constraints, ensure sufficient financing at the
onset so programs do not have to be terminated early with subsequent social and political
        - Assess and screen applicants before entry in programs to increase impact and
cost effectiveness;
        - If appropriate and possible, use performance based contracting (i.e. negotiate job
placement or business start-up rates) with service providers to maximize impact and

         - Implement ongoing gross impact evaluation, perhaps through the introduction of
a Performance Information and Management System, and infrequent net impact
evaluations (at least once in five years, using for example donor funds);
         - Limit the use of temporary community employment, and wage/employment
subsidy programs as their impact on downstream employment may be negligible or
negative, and the programs are very expensive;
         - The nature of services financed should be determined by the characteristics of
the community and groups of job seekers involved, e.g., the programs should be strictly
         - Experience elsewhere has shown that the development of partnerships of key
stakeholders at the local level – for example, municipalities, education/training
institutions, regional development agencies, NGOs – can result in the development of
imaginative and effective approaches to ALMPs (locally developed solutions for local
         - Be careful in generalizing from research on impact of programs from other
countries, instead evaluate ongoing programs and adjust as necessary;
         - And realize that well designed and targeted programs may have a positive net
impact, but poorly designed and targeted programs probably will not have any economic
impact. Careful program targeting can help also eliminate “creaming” whereby program
operators select the best participants, as opposed to those who may benefit the most from
the program, to help ensure observed program success.

Based on a review of international experience in provision of ALMPs and analysis of
the current activities and constraints in the ESA, a summary reform matrix of
policy options is provided. (Table 8).

   Table 8: Suggested institutional reforms in provision of employment services: a
                                    reform matrix

     Area of intervention          Proposed reforms                    Expected outcomes

1. Legal reforms:

(i) The Law on Employment   Make legislation more stringent     Reduced incentives for
and Insurance in Case of    in relation to defining “suitable   registering as unemployed by
Unemployment                work”, occupational protection,     economically inactive or
                            requirements for independent job    informally employed individuals
                            search, frequency of contacts
                            with the ESA, and compulsory
                            participation in programs after a
                            certain period of unemployment
                            has elapsed, to avoid benefit
                            sanctions and exclusion from the
                            roster of registered unemployed

                            Merge or replace extended           Greater flexibility and financial
                            unemployment benefits for           resources to respond to new

                                females aged 57 and males aged         emerging social issues, and more
                                59 receiving benefits beyond 12-       resources on ALMPs
                                month period with social
                                assistance scheme

(ii) The Law on Agencies for    Consider abolishing VAT tax on         Demand for services will increase
Temporary Employment            services provided by Agencies for      and placement rates of job
                                Temporary Employment                   seekers will improve

(iii) The Decree “On            Consider abolishing mandatory          Reduced incentives for
conditions, criteria, amount,   requirement of “unemployed             registering as unemployed by
manner and procedure to         status” for obtaining the status of    economically inactive or
determine and receive social    social welfare beneficiary             informally employed individuals
monetary allowance”

2. Staff management and         Increase the number of front-line      Efficiency and quality of services
work organization               employment counselors/advisors,        and ESA operations will be
                                including through job rotation         improved, and more frequent
                                                                       contacts of unemployed with
                                Continue upgrading of staff            counselors will lead to better
                                skills, competence and motivation      placement rates

                                Move away from costly face-to-
                                face interactions and towards the
                                extension of self-service facilities
                                for job seekers and employers

                                Set up monitorable performance         Improved internal measurement
                                targets for ESA staff using the        of the effectiveness of ESA
                                administrative date generated by       operations
                                ESA activities

                                Introduce online application for
                                registration of newly opened
                                employment contracts and
                                termination of the existing
                                contracts, as well as registration
                                of new businesses, and transfer
                                the function to other government

                                Transfer the registration of health
                                insurance beneficiaries by the
                                ESA to other government

3. Budgetary policies           Split financing of employment          Lower labor costs; and
                                programs, in addition to the           respectively better incentives for
                                central budget, between employer       hiring new employees; better
                                and employee contributions             linkage between employee
                                                                       contributions and unemployment

                                Separate more strictly income          Avoiding "crowding-out"
                                support program expenditures           investments in employment

                       (and coverage of health insurance     service and other active programs
                       and pension insurance costs of        in favor of passive programs
                       the registered unemployed) from
                       other budgetary expenditures on
                       employment programs – in order
                       to increase the share and amount
                       of expenditures in favor of

                       Increase funding of                   Enhanced capacity building in the
                       administrative costs of ESA,          ESA, including ICT
                       including for ITC solutions           developments, as well as
                                                             provision of ALMPs by the
                                                             agency‟s staff

II. REFORMS IN ALMPs   Introduce profiling of job seekers    Profiling has the potential to
                       to identify which one of the          provide a systematic basis for
                       individuals or groups of              allocating scarce finances, and
                       unemployed are susceptible to         improve targeting of ALMPs
                       long-term unemployment

                       Apply “individual action plan”        Better coverage of job seekers
                       only those who are unable to find     with efficient and cost effective
                       work after some period of time        services leading to higher
                                                             placement rates
                       Enhance career guidance and
                       professional orientation services
                       to provide assistance not only to
                       the unemployed individuals but
                       also to students and other groups
                       of population in determining
                       appropriate work fields and
                       employment opportunities

                       Focus counseling and information
                       services more on group-based
                       activities, such as collective
                       sessions on: (i) labor market
                       information; (ii) job counseling;
                       and (iii) job search skill training

                       Expand job clubs program and
                       employer contact services, and
                       introduce vacancy and job fairs

                       Improve marketing and services
                       to employers to increase vacancy

                       Encourage more active
                       involvement of the private sector
                       in the provision of labor market
                       services such as training, job
                       brokerage and other services

                     Restrict wage subsidies or self-
                     employment grants programs, or
                     if any, target them at the
                     depressed areas, or leave them to
                     specialized financial institutions

                     Establish partnerships on labor
                     market issues between a wide
                     range of governmental and non-
                     governmental organizations

III. MONITORING OF   Continue with Skills Needs           This allows to identify labor
THE LABOR MARKET,    (employer) surveys by expanding      demand, and key constraints to
AND IMPACT           the scope of industries covered      job creation
EVALUATION           and including a representative
                     sample of micro enterprises

                     Implement ongoing gross impact       Fine-tuning of those labor market
                     evaluation, and conduct              programs that are the most
                     infrequent net impact evaluations    relevant to the labor market
                     (at least once per 5 years)          situation in Macedonia

                     Introduce an advanced
                     Performance Information and
                     Management System (PIMS)

                     Conduct a tracer survey of VET       Survey would trace changes in
                     and university graduates some        labor market status of graduates
                     years after graduation, as part of   (earnings, employment compared
                     labor market monitoring              to unemployment, career
                                                          developments), depending on the
                                                          educational status of workers or
                                                          unemployed individuals, and will
                                                          lead to adjustments in relevant


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                   ANNEX 1: Labor Demand in Macedonia

The labor force participation rate provides an indication of the relative size of the
supply of labor available for the production of goods and services. The LFS 2007
showed the economically active population to be 907,100 people (population aged 15+).
This is an increase of nine percent (from 832,300 individuals in the labor force)
compared with the situation reflected in the 2004 LFS. This trend is mainly linked with
the growth of the number of employed population while the number of unemployed has
been stable. Overall female participation rate has picked up considerably from 46.7
percent in 2004 to 50.5 percent in 2007 (aged 15-64) but the gap compared to males
remains significant, with 70.5 percent of males in 2004 and 74.9 percent in 2007 in the
labor force respectively.

As far as labor demand is concerned, paid employment is the main way of
protecting the population from poverty. In the last few years, employment in absolute
terms slowly began to increase. In 2004, by the labor force survey data, there were on
average 523,000 employed individuals in the country (aged 15+), while in 2007 the
number of employed increased to 590,000. By type of workers, an increase in
employment occurred in all categories: salaried employees from 394,000 to 427,000;
self-employed from 53,000 to 71,000 individuals, and unpaid family workers from
45,000 to 60,000, while the number of employers remained basically the same, 31,000 in
2004 and 33,000 in 2007. Respectively, in the last four years the Macedonian economy
has created on average 17,000 new jobs (net growth) annually, many of which are unpaid
jobs in the family business. This employment growth has not been sufficient to offset the
high unemployment in the country.

The number of employed in private sector has increased, by the LFS data, from
297,000 on average in 2004 (56.7 percent of total employment) to 407,000 in 2007 (69.0
percent of total employment). Privatization of the economy has been carried out by late
1990s completing the ownership restructuring in more than 95 percent of socially-owned
enterprises: almost 1,700 enterprises out of 1,750 enterprises have been privatized.
Majority of the remaining 50 companies are actually in the process of bankruptcy or
liquidation and some of them are liquidated. Most lately, de novo private firms (mainly
small enterprises) are the main driving forces behind the modest employment growth.

The structure of economic activities in the country has changed substantially during
the transition period. The share of industry in total employment dropped considerably,
and accounts for 23 percent of employment (2007). With a share of around 59 percent of
employment, services are now dominant in the structure of the economy, with major
contributions coming from public and civil services, trade, transport, and
telecommunications. Agriculture still accounts for 18 percent of total employment. As for
sectoral demand on labor is concerned, between 2004-2007 there is a steady growth of

employment in manufacturing and trade, and especially in 2007, also in transport and
communication, financial intermediation, and communal, social and public services.

The main problem remains the lack of labor demand in the formal economy,
combined with very limited amounts of foreign and local investments. The private sector
jobs that have been created during the transition period have been low skilled, while
offering low wages. There has been no pronounced movement of labor from sectors of
low growth and productivity to sectors with higher levels of growth and productivity.

Besides modest employment growth, there are some other positive trends in
employment. As a result of liberalization of labor legislation, especially with the
adoption of the new Law on Labor Relations in 2005, and improvements in business
environment in general, the number of newly registered by the ESA employment
contracts has significantly increased from 112,000 in 2004 to 191,500 in 2007 (of which
54 percent were fixed-term contracts) reflecting also the fact that more employers choose
to formalize contractual relationships with their employees. Respectively, the share of
informally employed tends to decline. By the end of 2007, according to the ESA and
Pension Fund data, there were 432,052 formal sector employees, and 459,794 insurees
paying social contributions. Comparing these data with the employment statistics from
the LFS, one can conclude that the formal sector accounts for 72.7 percent of total
employment, by the number of employed, and 77.4 percent, by the number of insurees. In
2006, the share of formal sector employment equaled 65.1 percent. 27

Estimates of short-term demand for labor can be obtained from the 2007 (March-
April) Survey of the Needs for Skills that was conducted by the EU CARDS
Employment Policy II Project. (ESA 2007). The 1,445 interviewed companies that
answered the questions fully employ a total of 108,998 employees.28

There are relatively large differences in the fluctuations of the number of employees
in the surveyed eight industries. In the course of the previous year, the number of
employees increased in processing industry, by 3.4 percent, trade, 3.3 percent, finance,
7.1 percent, and real estate and services, 4.1 percent. In absolute terms, the biggest
increase in employment was observed in processing industry where the number of
employees increased for 2,369 persons. In the last 12 months prior to the survey,
employment was shrinking in construction, transport, agriculture, and in hotels and

   By the 2007 LFS (4th quarter), there were 594,054 employed people in the country. However, the LFS
may underestimate the total number of employed, by the reasons mentioned above.
   The sample of 1523 firms included 4.9 percent of the total number of companies employing 52.0 percent
of the employees in the eight interviewed industries; 69.1 percent of the sample were small companies (10-
49 employees); 24.5 percent were medium companies (50-249 employees), and 6.4 percent were large
companies (over 250 employees). The sample excluded micro enterprises, i.e. those with less than 10
employees based on the fact that although the share of companies with less than 10 employees in the total
number of firms is very high (around 95 percent) but they have relatively small share in the total
employment (27 percent). An international experience confirms that especially micro enterprises are the
most active in job creation but also in job destruction, and thus should be included into a survey sample.

catering activities. Expected increases in employment in the next 12 months in the
surveyed enterprises are presented in Table 1.

         Table 1.1: Expected and projected new employments in the interviewed
                    companies in the following 12 months; by the 2007
                           Survey of the Needs for Skills data

                                                                                Estimation of
                                                                             projected number of
 Business activity/              Expected new            % of employees in    new employments,
 Industry                        employments                 the sector       including covered
                              in the following 12          covered with      firms and those not
                                    months                  the survey             covered
 Agriculture                         245                        61.8                396
 Processing industry                 9253                      68.6                13488
 Construction                        526                       50.0                 1052
 Trade                               899                       18.2                 4940
 Restaurants/Hotels                  250                       25.2                 992
 Transport                           278                       51.9                 536
 Finance                             171                       61.6                 278
 Real estate/services                340                       29.5                 1153
 TOTAL                              11962                      51.9             22835
* Expected new employments in the following 12 months x 100/ % of employees covered with the survey
Source: ESA 2007

In the sample of surveyed firms, an industry will be the leading business activity
from the perspective of absorption of new employment. In the following 12 months,
of the surveyed enterprises, approximately 9,300 persons were expected to be
additionally employed (and 13,500 new employees in the whole sector), or over three
fourth of the newly planned jobs. Also, most of the new employment is expected to be for
skilled labor, 4,108 persons, and semi-skilled labor, 3,520 persons, e.g., for workers with
work experience and technical training but not necessarily with secondary education and
above.29 There is a relatively smaller demand in surveyed firms for workers with
completed secondary education, 2,629 persons, and for unqualified workers, 853 persons.
The demand for workforce with completed college and university education in surveyed
industries is quite low, only 763 persons. Regarding the requirements for specific
knowledge and skills of persons who will be employed in the forthcoming period, the
analysis showed that in addition to the primary occupation, the most required skills are
knowledge of foreign languages, mostly English, as well as knowledge of IT technology
and basic computer applications.

   Unskilled (SCED 0-2): not completed elementary school; semi-skilled (SCED 3): elementary school
completed, 3-6 months in-service training; skilled (SCED 3A): secondary school not completed, 3-6 month
technical training.

There are still vacancies that cannot be easily filled in. Out of 1,523 surveyed
companies, 1,231 firms (81 percent) responded at they did not have any problems filling
vacant positions, while the remaining 292 firms (19 percent of the total) said that they
were having problems in finding the appropriate labor force, mostly because of lack of
relevant work experience by applicants. Among the surveyed industries, mainly this is an
issue in food processing industries and real estate services. This indicates that ESA
should place more emphasis on traditional job brokerage activities, including employer
contact services and various job search programs in identifying suitable applicants, as
well as hidden vacancies. Respectively, despite high unemployment rates in the country,
there is still quite a significant demand for labor, and in the sample of surveyed
enterprises, there is a demand for mostly manual, blue collar occupations.

                                                             ANNEX 2: Tables

      Table 1: The main indicators of activities of Public Employment Services in some of the European countries in 2006

             Population   GDP per      Number of     Total    Number of       Staff      Ratio of     Annual        Annual      Administ-   Administ-
               1000‟      capita in    registered   number    PES staff     caseload    front-line   budget for    budget for    rative       rative
                            US$       unemployed    of PES    in contact               counselors    ALMPs in     ALMPs per     budget in     budget
                                         1000‟       staff     with job                  to total      1000‟          one        1000‟       per PES
                                                               seekers                 PES staff,       US$       unemployed      US$        staff, in
                                                                  and                       %                       in US$                     US$
Bulgaria           7385          9600          368         2825  2099               175      74        131337       357           16486      5836
Croatia            4495          12400         301         1185   723               416      61         27979        93           28849      24345
Czech R.          10235          20000         480         5007  4202               114      84        493724      1029          136341      27230
Estonia            1324          17500         18          289    239                75      83          6504       361           3952       13674
Hungary            9981          16300         407         3500  2280               178      65        289806       712          105384      30110
Latvia             2275          13700         74          679     …                 …       …          47946       648           6679       9836
Macedonia          2051          7800          363         505    311              1167      62         13323        37           5248       10392
Montenegro         631           3800          43          342    285               150      83         20205       470           11056      32327
Serbia             9396          4400         911*         1807  1151               791      64         11555        13           23926      13241
France            60876          29600       2425**       27118 21749               111      80       1438492       593         1911402      70485
Germany           82422          30100        4467        74099 63419                70      86       17884077     4003         5282137      71285
Ireland            4062          41100        153**        530    274               558      52         42154       276           44788      84505
Sweden             9017          29800         211        11206  8715                24      78       3188668      15112         651758      58162
* - mid-2006
** - 2005
Staff caseload – the ratio of registered unemployed to employment counseling staff
Source: population and GDP: CIA “World Factbook”; registered unemployment: ILO online; PES data: ILO/WAPES online.

   Table 2: Expenditures on active and passive labor market measures in some of the European countries, % of GDP in 2005

Measure                   EU-27      EU-15       Bulgaria    Czech R.     Estonia      Hungary      Poland     Romania      Slovakia    Slovenia      Mace-      Denmark
(categories)                                                                                                                                          donia
Labor market               …          0.243       0.072        0.130       0.022        0.094         …          0.036       0.171        0.111        …           0.155
services (1)
Training (2)              0.203       0.212       0.066        0.013       0.034        0.039       0.103        0.013       0.024        0.045       0.015        0.509
Job rotation and          0.003       0.003         -            -           -            -          …             -           -            -           -            -
sharing (3)
Employment                0.125       0.130       0.041        0.042       0.008        0.100       0.044        0.055       0.028        0.041       0.0002       0.446
incentives (4)
Integration of disabled   0.089       0.090       0.009        0.035          -           -         0.161          -         0.009        0.013       0.034          -
Direct job creation (6)   0.074       0.075       0.310        0.028         -          0.058       0.025        0.039       0.081        0.080       0.013        0.000
Start-up incentives (7)   0.032       0.033       0.007        0.004       0.005        0.000       0.027        0.000       .0.049       0.017       0.002          -
Out-of-work income        1.271       1.334       0.213        0.242       0.120        0.383       0.306        0.395       0.174        0.406       0.472        1.833
support (8)
Early retirement (9)      0.087         0.079           -            -           -    0.008         0.554         -          0.095         -             …          0.681
Total LMP                   …           2.200         0.717       0.494        0.189  0.682           …         0.538        0.610       0.713        0.5362        4.102
(categories 1-9)
Total ALMPs               0.525         0.544         0.432       0.122        0.047  0.197         0.359       0.108        0.170       0.196        0.0642        1.433
(categories 2-7)
Total passive             1.357         1.412         0.213       0.242        0.120  0.391         0.859       0.395        0.269       0.406         0.472        2.514
measures (categories
Categories: (1) – general services for job seekers provided by the public employment services; (2) training programs; (3) programs that facilitate the insertion of
the unemployed or other target groups into a work placement by substituting hours worked by an existing employee; (4) programs which facilitate the
recruitment of unemployment persons and other groups, or help to ensure the continued employment of persons at risk of involuntary job loss; (5) programs that
aim to promote integration of disabled persons into the labor market; (6) programs that create additional jobs; (7) programs that promote entrepreneurship by
encouraging the unemployed and target groups to start their own business or to become self-employed; (8) cash benefits to compensate for loss of wage or salary;
(9) programs which facilitate the full or partial early retirement of older workers.

Source: Eurostat online; ESA.

          Table 3: Direct program delivery costs, by country and approximate
                  unit costs per participant served (in US$, late 1990s)

                       Czech Republic             Hungary                Poland                 Turkey
Employment                   12                     25                     30                     17
Training                      265                   500                   300                     200
Public works                  625                   1200                  800                     N/a
Wage subsidy                  885                   950                   560                     N/a
Self-employment               885                   1000                 2830**                   N/a

* - costs include all administrative costs, including administration of unemployment benefit program;
** - figure represents the gross costs of a micro-credit program, net will be reduced since 50 % of credits
are repaid (with interest) by the recipients

Source: Fretwell et al 1999

            Table 4: Overall impact of training programs in some countries30

                       Czech Republic            Hungary*                Poland                Turkey
Initial employment        positive                positive               positive            no impact**
Current                  no impact                positive               positive              negative
Initial earnings              N/a                  positive                N/a                    N/a
Current earnings            positive               positive              positive               positive
Unemployment              negative***              positive              positive                 N/a

* - individual and group training
** - impact of self-employment was positive
*** - negative means significantly more unemployment benefits were paid to participants

Source: Wilson and Fretwell 1999

                      Table 5: Overall impact of wage subsidy programs

                                    Czech Republic              Hungary                    Poland
     Initial employment                positive                  negative                  positive
     Current employment               no impact                 no impact                  positive
     Initial earnings                    N/a                    no impact                    N/a
     Current earnings                  negative                  positive                 no impact
     Unemployment                      negative                  negative                  negative

Source: Wilson and Fretwell 1999

  Initial employment – ever reemployed in a normal job; current employment – employed in a normal job
on the survey date; initial earnings – average monthly earnings at the start of the first new job; current
earnings – average monthly earnings in the current job on the survey date; unemployment compensation –
the amount of unemployment compensation payments.

                     Table 6: Overall impact of public works programs

                                           Czech Republic          Hungary          Poland
Initial employment                           no impact              negative        negative
Current employment                            negative              negative        negative
Initial earnings                                 n/a                positive          n/a
Current earnings                             no impact              negative       no impact
Unemployment compensation                     negative             no impact        positive

Source: Wilson and Fretwell 1999

                  Table 7: Overall impact of self-employment programs

                                   Czech Republic           Hungary            Poland
Initial employment                    Positive              positive           positive
Current employment                    Positive              positive           positive
Initial earnings                        N/a                 negative             N/a
Current earnings                     No impact              negative           positive
Unemployment                          negative              negative           negative

Source: Wilson and Fretwell 1999

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