Labour Market Stagnation Continues throughout 2024
Throughout 2024, labour market stagnation continues – unemployment is low, but so are job vacancies. The past year is essentially in terms of reform, so this result is largely prescient – after the turbulent dynamics of the pandemic and the recovery after it, structural labour market problems are once again coming to the fore. However, this is becoming a key constraint on economic growth in the medium term.
After the labour market crisis in spring 2020, triggered by the COVID-19 pandemic and the restrictions on business, travel and social life, unemployment in Bulgaria has gradually returned to its usual seasonal dynamics – an increase in winter and a decrease in summer, thanks to seasonal hiring in tourism and agriculture. Since mid-2021, the unemployment rate has floated between 4% and 6%, which corresponds to around 140-165 thousand registered unemployed – significantly lower even compared to the period before 2020. This suggests that unemployment has reached its natural minimum, as those who are able to work have already found a job and most of those who cannot have moved into inactivity. Although employers report serious labour shortages, the remaining unemployed find it difficult to find employment – usually due to a mismatch between their skills and market requirements or limited opportunities in their region.
However, the winter peak in unemployment in 2024 is more pronounced than in 2023, and the level remains slightly higher throughout the year. At the same time, labour demand as measured through vacancies remains subdued, and the summer peak in demand associated with tourism, agriculture and construction is somewhat weaker. This corresponds visibly to the economic situation in both periods; while 2023 was still feeling the positive effects of the post-crisis recovery, 2024 is a year of contracted exports, subdued manufacturing and slower economic growth, which is invariably felt in the labour market. There are also implications for employers’ adjustment to the reality of a labour market already chronically short of trained staff.
Part of the reason for this is the profile of many of the unemployed. The number of people under 29 registered with labor bureaus has fallen significantly – down to 15-18 thousand in different months of 2024, compared to over 40 thousand at the peak of the pandemic. The decline in the long-term unemployed has been less pronounced – down to 30 thousand people. To the extent that these two groups face particular difficulties in finding employment, the likelihood of them leaving the unemployed group in the near future seems relatively small.
The current state of the labour market is most clearly described by the Beveridge curve[1]. According to this approach, almost all months of 2024 are characterised by both very low supply and low demand for labour – in other words, the labour market remains in its state of stagnation and lack of any significant change that began in the second half of 2023. The slowdown in the labour market has significant implications for both short-term wage dynamics and economic activity as a whole. Reduced competition for labour may weaken the pressure on employers to increase wages, especially in the context of reduced demand in the high-tech sector. At the same time, slower employment growth risks missing out on opportunities for economic growth by making it more difficult for businesses to realise their expansion plans. Labour shortages also have an impact on investment activity, as access to trained personnel is among the important conditions for attracting new foreign firms to the country.
Over the last year and a half, the labour market has been in a phase of waiting. The margin for employment expansion is virtually exhausted and the volatile political situation limits the scope for addressing structural problems that could unlock the potential of still excluded working age groups. However, to the extent that there is a government now, several reform orientations should be on its agenda as a matter of relative urgency: on the one hand, improving both schooling outcomes and the qualifications of the unemployed; on the other, activating the available inactive; and on the third, introducing measures to boost investment, technological transformation and improve labour productivity.
[1] Comparison of the unemployment rate with the number of vacancies relative to the total labour force. The resulting indicator serves to determine the timing of the business cycle through labor market dynamics, with recessions characterized by high unemployment and lower labor demand, and periods of economic growth characterized by low unemployment, many job vacancies, and correspondingly high competition for workers.
