About the government employment programs
During the first few days of the year something that induced discontent among the people and particularly among the municipalities’ managers happened. These are social ministry’s employment encouragement programs funds for which were reduced or redirected to the district administrations. At the end, something that IME forecasted at the initiation of these measures happens and when the program is over the temporary employees will be unemployed again.
What is the purpose of employment encouragement measures? These measures were taken when the rate of unemployment was very high due to restructuring of the economy. During the privatization process, many inefficient jobs were cut thus leading to higher unemployment. However, during the last few years the economy accommodated to the new conditions, part of the workers changed their occupations and shifted to other industries. As a whole, there is a tendency toward higher share of the value added from the services sector at the expense of industrial sector and this implies different requirements to the companies’ personnel in terms of skills and qualification.
Given these circumstances, it is natural that some persons cannot adjust so easily and lose their jobs. However, as the economy has evolved and there has been a stable (although not so high as we wish to be) growth, persons have gradually started to find jobs and the rate of unemployment has fallen. At this moment, the government interferes with its employment encouragement programs which actually create subsidized unproductive jobs. Its purpose is to disguise social aids as compensation for a work with doubtful benefit. Most of the persons employed in these programs were not motivated to do their particular job and the results were unsatisfactory.
The costs on these programs were BGN 217 mill. (EUR 111 mill.) in 2003, BGN 141 mill. (EUR 72 mill.) in 2004, and in 2005 they are expected to reach BGN 127 mill. (EUR 65 mill.), so the total is around BGN 485 mill. (EUR 248 mill.) for the three years. For this money, however, not a single job is created actually because when the programs stop the temporary employment will disappear. This is to happen in 2006 because the programs are projected to continue for three years.
Moreover, the real long-run effects of these programs are negative to the persons involved. In the short run it seems to them they have a benefit as they take some money. However, during this period, they work at low productive or, even, unproductive jobs. The program continuation generates expectations that it would not be terminated at all and, thus, discourages people to search for another job that could be permanent for them.
According to businessmen, such programs have a negative influence over the seasonal employment. Workers are discouraged to accept seasonal job that could add more value because it prevents them participating in the subsidized programs due to the legal requirements.
Another reason for seasonal employment denial is that larger efforts are needed there because if a particular activity is not aided by the government the employer cannot afford to pay as many as in a subsidized program. The effect is that inefficient government or quasi-government sector employment has crowded out the efficient private sector employment and has impeded creation of new productive jobs.
Major loser from the funds reduction for the program are the municipalities and therefore they oppose to this heavily. As a beneficiaries of this money they could use it to finance some local activities. Logically, when some persons in the municipality are dependent on it as an employer they can easily be attracted to vote for the active majors and municipal counselors. However, during this pre-election period, the ruling coalition having not sufficient number of majors is trying to expand its influence through transfer of program activities to the district administration that are directly subordinated to the central government. In such case, the government is seen as an employer and a reorientation of votes is expected if program is continued. There is an option, of course, that it would not happen and the effect could even be opposite to the desired of the ruling coalition and a proof of it is the public outcry in some regions.
Another consequence could be drawn if an analysis of the opportunity cost is made. In 2005, these BGN 127 mill. could be saved to the taxpayers in the form of corporate income tax reduction to the rate of 10 per cent. It would create a strong incentive for investment in Bulgaria from local and foreign sources and capital inflows. The 10 percent corporate income tax would make Bulgaria one of the most attractive places for investment and would imply creation of real productive jobs outnumbering these from the program. Thus, the purpose of job creation would be fulfilled in the best way. This employment would not be temporary and would not be paid by all taxpayers, and would add value to the economy instead of redistribution of funds from working and enterprising persons to non-working ones thus restricting the economic growth.
As a conclusion from this reasoning can be said that the cutting of funds on this social program would have positive effects for the whole economy and has to be done as quickly as possible.
