Economic Policy Review ISSN 1313 - 0544

Labour Market “Active” Measures 2000 – 2011

Author: Zornitsa Slavova / 11.05.2011
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Government's efforts to increase employment again seem more than “necessary” since the negative effects of the crisis continue to affect unemployment.

There are many ways, in which the state can respond, but the basic approaches are two:

  • to leave people and businesses to find a solution themselves or
  • to intervene and offer a solution.

The preferred option by the Bulgarian government is always the second – millions are spent annually – the total amount spent on labour market active measures since 2000 is more than 1,2 billion levs.

Note: The amount of funds for active policy is according to the reports for each year - almost all reports cover the period from January to September.

 

During the first years of this period the expenditures for active measures increases steadily, unemployment is at levels above 10% and there is pressure on government to take measures. 

Consequently, with the reduction of unemployment, the government more difficultly justifies the huge spending and reduces the cost of subsidized employment programs. It should be noted that in the period 2003-2008 the economy grew by an average of 5% annually, which logically leads to the reduction of unemployment and it is very difficult to claim that it reduces because of government's measures. The economy creates jobs, not the bureaucrats. Although unemployment has fallen, we see that government has steadily increased its activity and spending.

Since 2009, mostly because of the crisis, a new approach is adopted in the financing of the active measures on labor market, which reduces the share of funding from the state budget, but compensates for this reduction with European money.

Thus, the expenditures in the budget for 2010 are reduced to 52 million, at the expense of 134 million under the Operational Program "Human Resources ". Under the same scheme for 2011 are laid down 73 million from the state budget and 367 million in OP HR.

The results of the measures from 2002 to 2010 according to the reports of the National Action Plan for Employment is that 740 thousand people did worked and nearly 240 thousand undergone some training.

We should not repeat the mistake made ​​by many institutions regarding the benefits of creating and filling jobs. The mechanic creation of jobs should not be object of economic policy. Employment can be increased significantly without any concrete economic benefit. Here is an appropriate example of hiring someone who digs a hole every night and the next fills it: two jobs are created, but no economic benefit.

Indeed, the provision of subsidized employment, and part of the measures in training and retraining are associated with enormous costs and, unfortunately, do not lead to lasting results and economic growth.

Most often in Bulgaria when determining the programs and measures to be carried out there is no specific response to a number of simple questions:

  • What are the expenses? – Usually the programs indicate the direct costs, but omitted the costs of administration that will implement the measures and controllers.
  • Are the benefits greater than the costs? – To justify the costs the public institutions provide studies of the type of “cost-benefit” where the numbers of jobs are presented as benefits. In fact, these are costs - direct (the spent money) and indirect (because of the opportunity cost of labour of these workers). In practice the benefits are expressed in the added value that employees create, not in the static number of employed.
  •  To what extend will the expenses justify the means? – Centralized decisions about what kind of training or retraining the unemployed need have never shown a particular efficiency or adequacy. The market is changing so fast that the big and reactive administration can not address the demands of staff. With regard to direct employment creation – usually it lasts until the very last government program. This does not justify the funds, because it does not create a long and significant effect on the economy ... but it leads to greater spending.
  • What are the alternative expenses? – The question here is whether these costs are used more efficiently than would be used in other programs of the administration or if they remain in the hands of taxpayers.

The general conclusion of the review of administrative activity on the labour market shows that significant amount of funds are spent, which in most cases do not lead to desired results, but deprives taxpayers of part of their earnings in the form of taxes that finance these policies.