UNEMPLOYMENT AS A SOCIAL COST OF TRANSITION IN CENTRAL AND EASTERN EUROPE: Applicability for the Republic of Macedonia

Suzana Saveska
Junior Teaching Assistant, Institute of Social Work and Social Policy, SS. Cyril & Methodious University, Faculty of Philosophy, Skopje, Macedonia
and
Ron Brown Alumni at the Global Affairs Institute, Department of Public Administration - Executive Education Maxwell School of Citizenship and Public Affairs Syracuse University, Syracuse, NY, USA
Abstract
Starting in the 1980s, and especially after the beginning of the 1990s when the socialist system collapsed, unemployment has been perceived as a growing economic and social problem, and has been a dominant theme on the policy agenda of many Central and Eastern Europeans countries. This paper discusses unemployment in those countries and elaborates policies undertaken to address the issue. First, it provides an overview of the transition countries, analyzing the main factors that affect the process of transition. Second, it addresses the issues of passive and active labor market policies. Next, the promotion of small and medium-sized businesses is discussed. Finally, the case of the Republic of Macedonia is elaborated and several recommendations are advanced as possible alternatives for future policy formulations in the country.

1.  Unemployment in Central and Eastern European transition countries
1.1  General Overview of the unemployment situation 
The end of the 1980s and the beginning of the 1990s witnessed the turning of a new page in world history. The majority of the communist regimes collapsed. The process of transition towards democracy and a free market economy promised an increase in living standards, more individual freedom and the protection of individual rights. However, it did not take long for the optimism and enthusiasm to diminish. 
Countries in transition faced many obstacles, varying from country to country and often within each country as well. This is not surprising, because although all of these countries had had similar political regimes in the past, they did not start the transition at the same level of economic and social development. They inherited different human and capital resources, policy instruments, and experiences in market oriented reform (some of them had none). This had significant implications for the choice of policies implemented in the region (Zecchini, 1991, p. 28).
Despite differences in intensity, the social costs of transition in the region are similar in nature. All of the transition economies have experienced a decline in real wages and living standards, an increase in poverty, and struggles with inflation and related trends, including a sharp and rapid rise in unemployment (Deacon and associates, 1996, p. 2).
Before the transition, centrally planned economies pursued the “socialist” vision of full employment. However, compared to market economy standards, socialist “full employment” could hardly be considered to be true full employment. Due to extensive labor hoarding within state-owned enterprises, labor productivity and wages were generally low. In addition, not only was it impossible to select a particular job, but the decision to work at all was not a matter of free choice. Instead, everything was centrally planned and imposed by the state (World Employment 1996/97, p. 107).
Socialist employment strategy ended with the collapse of the communist regimes, as the labor market dynamic began to change. The pre-transition concentration of the work force within fairly large enterprises in heavy industry could not be sustained. The collapse of the Council for Mutual Economic Assistance (CMEA) meant the loss of the production market, and new markets had not yet been established. A successful transition towards world markets would have required technological upgrading and new production methods for quality assurance.  At the same time, the end of the 1980s brought recession and a weakened market in several western market economies. Due to a parallel recession in Central and Eastern European countries, there was a significant contraction of demand, causing the collapse of domestic markets. This kind of situation meant a decline in employment, especially industrial employment, for economies in transition. For example, in the Russian Federation, employment in the engineering industry fell from 9.8 million in 1989 to 5.3 million 1994 – a decline from 51.5 percent to 41 percent of the total manufacturing industry. In Bulgaria, employment in engineering industries declined by 50 percent between 1989 and 1993 (Ibid., p. 120). 
The collapse of regionally concentrated industry caused large regional differences in unemployment rates within the countries of Central and Eastern Europe. For example in Czechoslovakia, in December 1991, the unemployment rate in Prague was 1.6 percent, while in northern Moravia it was 6.17 percent. Unemployment in Bratislava was 6.53 percent, while in western Slovakia it was 13.31 percent (Porket, 1995, p. 99). In Poland, depending on the region (regardless of heavy industry), unemployment rates ranged from 5 to 30 percent. In Hungary in 1991 and the Russian Federation in 1992, unemployment rates were up to 10 times higher in regions that had housed heavy industry. 

Table 1.1 Registered unemployment in selected transition economies, 1989-1995
(Percentage of labor force)

Country | 1989 | 1990 | 1991 | 1992 | 1993 | 1994 | 1995
Albania | | 9.8 | 9.4 | 26.2 | 20.2 | 18.0 | 12.9
Armenia | | | -3.0 | 5.0 | 6.6 | 6.0 | 8.2
Azerbaijan | | | 0.1 | 0.2 | 0.3 | 0.9 | 1.1
Belarus | | | | 0.5 | 1.7 | 2.1 | 2.8
Bulgaria | 0.0^* | 1.8 | 11.5 | 15.6 | 16.4 | 12.8 | 11.8
Croatia | | 8.0^a | 14.1 | 17.8 | 16.6 | 17.3 | 16.8
Czech Republic | 0.0^* | 0.7 | 4.1 | 2.6 | 3.5 | 3.2 | 3.0
Estonia | | | 0.1 | 1.9 | 5.0 | 5.1 | 1.8
Georgia | | | | 1.0 | 2.0 | 3.8 | 3.1
Hungary | 0.5^* | 1.7 | 7.4 | 12.3 | 12.1 | 10.4 | 11.4
Kazakhstan | | | | 0.5 | 0.6 | 1.0 | 2.1
Kyrgyzstan | | | | 0.1 | 0.2 | 0.8 | 2.9
Latvia | | | | 2.1^b | 5.8 | 6.5 | 6.6
Lithuania | | | 0.3 | 1.0 | 3.4 | 4.5 | 6.1
Macedonia | | 17.1^a | 24.5 | 26.8 | 30.3 | 33.2 | 35.6
Moldova | | | | 0.7 | 0.7 | 1.0 | 1.4
Poland | 0.3^* | 6.1 | 11.8 | 13.6 | 16.4 | 16 | 14.9
Romania | | 1.3 | 3.1 | 8.2 | 10.4 | 10.9 | 8.9
Russian Federation | | | | 0.8 | 1.1 | 2.1 | 2.2
Slovakia | 0.0^* | 1.6 | 11.8 | 10.4 | 14.4 | 14.8 | 13.1
Slovenia | 3.2^** | 5.3^a | 10.1 | 13.3 | 15.5 | 14.2 | 13.7
Tajikistan | | | | 0.3 | 1.1 | 1.8 | 2.0
Ukraine | | | | 0.3 | 0.4 | 0.3 | 0.3
Uzbekistan | | | | 0.1 | 0.2 | 0.3 | 0.3

Sources: UN/DESIPA, based on International Labor Office (ILO) and ECE data as presented in the Report on the World Social Situation 1997, p. 126. ^*OECD Economic Outlook, various issues; OECD, Short-Term Economic Indicators: Central and Eastern Europe, various issues; Eurostat, Unemployment, various issues; Statistika rocenka CSFR, 1992, p. 208; Statisticke prehledy CSFR, various issues; Biuletyn statystycczny, Warsaw, various issues; EIU, Country Reports, various issues, as presented by Porket, 1995, p. 99. ^**Europe, Budapest conference papers and ILO, 1995, as presented by Godfrey and Richards, 1997, p. 5. 
^aAnnual average; ^bPercentage of working age population.

Based on information in the UN Report on the World Social Situation (1997, p. 125), data from Table 1.1 should be viewed with caution, especially for the Commonwealth of Independent States (CIS), because of deficiencies in registered unemployment statistics. Although registered unemployment in those countries is very low, comparisons with data obtained through labor force surveys (LFS)^1 in the UN Report, implementing International Labor Office (ILO) methodology, show that actual unemployment in the Russian Federation was 7.5 percent in 1995 – more than three times higher than the quoted 2.2 percent. Similar situations existed in other CIS countries, as the UN Report suggests, primarily because many unemployed people were not motivated to register.  They did not expect the official labor offices to help them find jobs, and the unemployment benefits were so low as to be unattractive. Many were absorbed by the growing informal sector, especially a large number of redundant workers (Ibid.). According to the UNDP Human Development Report for Europe and the CIS, the informal economy as a portion of GDP in 1997 was judged as follows: Russia, one quarter; Moldova and Ukraine, over half; Hungary, 30 percent; and Macedonia (in 1996), just under 40 percent (1999, p. 9).
Even taken with caution, Table 1.1 shows that all countries experienced rising unemployment in the first years of transition. Although some countries experienced a decline in 1994-95, the rates remained high, usually in the double digits, in Albania, Bulgaria, Croatia, Poland, Slovakia and Slovenia. In Macedonia there was a constant increase, to 35.6 percent in 1995. 
Data from Table 1.2 show other important features of unemployment in transition economies in 1995.  In particular, it is clear that youth and women were most seriously affected, and that long-term unemployment was rising.

Table 1.2 Features of unemployment, selected transition economies, 1995

Category | Bulgaria | Czech Rep. | Hungary | Poland | Romania | Slovakia | Slovenia
Sex
Male^a | 18.6 | 3.7 | 12.5 | 13.6 | 7.5 | 14.3 | 7.6
Female^b | 19.8 | 4.8 | 8.8 | 16.1 | 8.6 | 14.5 | 7.0
Age
Youth^c |
Male^a | 42.6 | 8.2 | 26.0 | 31.7 | 18.8 | 29.2 | 18.3
Female^b | 41.8 | 8.7 | 15.8 | 35.9 | 23.1 | 24.8 | 19.6
Prime age |
Male^a | 16.0 | 2.8 | 10.8 | 12.2 | 6.3 | 11.4 | 6.8
Female^b | 16.9 | 4.5 | 7.8 | 15.2 | 8.3 | 12.8 | 5.2
Older |
Male^a | 13.1 | 1.9 | 7.2 | 8.8 | 3.4 | 9.3 | 3.7
Female^b | 13.5 | 2.5 | 4.7 | 7.7 | 2.4 | 8.9 | 2.9
Education
Higher^d | 6.7 | 1.2 | 2.9 | 4.2 | 2.2 | 3.4 | 2.1
Secondary^e | 17.1 | 3.4 | 10.2 | 16.2 | 11.4 | 13.1 | 7.6
Primary^f | 30.4 | 10.7 | 16.7 | 16.4 | 5.2 | 30.0 | 9.5
Duration^g
< 1 month | 2.3 | 14.8 | 6.9 | 6.2 | 2.7 | 5.0 | 4.9
1-6 months | 19.4 | 38.1 | 24.7 | 28.1 | 38.5 | 26.0 | 19.5
7-12 months | 15.8 | 20.0 | 22.8 | 24.0 | 13.5 | 16.3 | 17.1
> 12 months | 62.2 | 27.1 | 45.7 | 41.7 | 45.3 | 52.8 | 58.5
Long-term
Male^a | 61.7 | 26.2 | 46.0 | 38.2 | 46.2 | 49.8 | 59.0
Female^b | 62.8 | 28.0 | 46.0 | 45.1 | 47.9 | 53.4 | 48.4
Youth^h | 51.7 | 18.5 | 32.3 | 29.0 | 41.7 | 40.0 | 62.5
Older^i | 31.1 | 28.6 | 42.2 | 44.8 | 48.4 | 62.7 | 100.0

Discouraged 
workers

Male^a | 27.2^1 | 5.6 | 26.9 | 8.8^2 | 63.8 | 2.4 | NA
Female^b | 22.8^1 | 5.8 | 19.2 | 9.1^2 | 37.4 | 3.0 | NA

Sources: OECD-CCET: Labor market database, No. 2, 1995; Short-Term Economic Indicators, No. 1, 1996, as presented in table 4.2 in World Employment, 1996/97, p. 113.
^11993; ^21994; ^a % male labor force (LF); ^b % female LF; ^c under age 25; ^d % LF with higher education; ^e % LF with secondary education; ^f % LF with primary education; 
^g % total unemployment; ^h % youth unemployment; ^i % older unemployment; NA indicates data not available.

Middle-aged and older workers who are victims of the break-up of oversized companies and the decline in industrial production are particularly vulnerable to long-term unemployment (Ibid., p. 130). This explains the need for immediate economic measures to secure economic recovery of these countries, as well as to build new market institutions, and design and implement labor market policies appropriate to the specific situation of each Central and Eastern European country.
1.2  Employment policy
All of the economies in transition formulated new employment strategies after the collapse of the communist regime, aimed at overcoming restrictions of the free movement of labor and building a genuine labor market that would fulfill free market economy requirements.
In the Czech Republic, from the very beginning of the transition process, employment policy was incorporated into the overall economic and social strategy, which regulated economic and social development, and influenced the choice of measures and instruments within state monetary, fiscal, structural and wage policies. Its long-term goal to achieving full productive and freely chosen employment involved a transformation in the social and educational systems (Nesporova and Uldrichova, 1997, p. 60). 
Unlike Czech policy, Hungarian employment policy was initially less comprehensive. Because of a misunderstanding of the concept of full employment, the Hungarian government did not consider it to be a goal. The government believed that full employment could be achieved only through massive direct state intervention, which did not reflect the basic principles of the free market economy they wanted to achieve. This perspective retained the socialist notion of full employment as excluding any kind of unemployment, in contrast to the free market belief that certain types of unemployment, such as frictional or structural unemployment, were inevitable (Frey, 1997, p. 80). However, Hungarian employment policy focused on the narrow task of unemployment management, with the goal of moderating labor market tension. 
In 1993, the Report on a Comprehensive Employment Strategy was completed at the request of the Council for the Reconciliation of Interests (CRI). The report defined broad policy objectives, including a decrease in unemployment growth and the provision of employment to people who wanted to work. It stressed increasing labor demand, decreasing labor supply, improving labor market mobility and flexibility, and developing employment services and active labor market programs, as well as creating social safety nets. Despite these broad objectives, the report did not go beyond a narrow interpretation of employment policy. Though ministries besides the Ministry of Labor were charged with taking responsibility for introducing employment-friendly measures, tasks such as developing infrastructure and a housing program – which would have increased labor demand – were not included. In addition, little attention was paid to creating tax allowances, investment subsidies, or state guarantees that would help promote exports. After the second half of 1993, however, Hungary started to implement broader programs after suffering the negative consequences of its narrow employment policy (Ibid., p. 79). 
State employment policy in the transition countries is designed and implemented through a network of labor market institutions. For example, the Ministry of Labor and Social Affairs in the Czech Republic is responsible for preparing drafts of legislation and implementing laws after they are approved by the government. The Ministry is also responsible for labor inspection. Czech employment policy is fairly decentralized (Nesporova and Uldrichova, 1997, p. 61). This is not the case in Romania, where a high degree of centralization was further increased after the revolution (Zamfir, 1997, p. 141). In the Czech Republic, passive and active labor market policy is implemented by the regional labor office, which makes it easier to track and respond to rapid changes in the labor market, particularly in relation to the growth of the private sector (Nesporova and Uldrichova, 1997, p. 62). 
Responsibility for the organizational aspects of employment policy in Hungary in the 1980s lay with labor departments, called councils, of the local governments. In the mid-1980s, as unemployment increased, the administrative assistance function was moved to special organizational units, called labor exchange offices, still under the auspices of the councils. Finally, in 1991, an employment act laid out the legal framework for establishing a national labor organization. 
The Hungarian labor organization was established based on German and Swedish models. It includes a national labor center, county labor centers and local offices. The national labor center has professional control over the county labor centers and operates an information system for the whole organization, as well as providing professional training. The 20 county labor centers are responsible for 200 local offices, which provide services such as unemployment compensation, placement and counseling. Collaborating with subcontractors, they also operate active labor market programs, as specified in the employment act (Frey, 1997, p. 94).
The organizational structure of public employment services is similar throughout the region in terms of their levels of operation (national, regional or county, and local).  This is particularly true in the countries already mentioned, as well as Slovenia, Poland, Ukraine and Bulgaria (Gora, p. 124; Yatsenko, p. 200; Drobnic, p. 167; and Bobeva, p. 32). Of course, on a practical level, differences in the degree of decentralization are visible. As mentioned earlier, Romania remains centralized. Similarly, local authorities in Bulgaria are not explicitly responsible for implementing labor market policies; municipal councils do not employ labor experts, which in effect means that local offices work directly for the Bulgarian Ministry of Labor and Social Welfare (Bobeva, 1997, p. 32). In Hungary, the job-matching system is not a state monopoly because private employment agencies exist. Employers make independent decisions about hiring or firing except when there will be major layoffs; these must be announced in advance to allow employment services adequate time to respond appropriately (Frey, 1997, p. 94).
Another common feature of employment policy is the intention to develop tripartite negotiation among state officials, trade unions and employers’ associations as part of the legal and institutional framework. The Czech Republic had an established social partnership until 1994 when, as a result of a serious dispute about amendments to the labor code, the government attempted to withdraw by explaining that state involvement was no longer necessary. The other social partners opposed that attempt, believing that the state still had a significant role to play in transition development (Nesporova and Uldrichova, 1997, p. 61). Slovenia faced problems because of ideological tensions between trade unions that viewed their roles differently, which diminished their authority and political power (Drobnic, 1997, p. 165). In Bulgaria, frequent changes in government and the national bodies of the social partnership created instability in round-table negotiations. This was particularly difficult at the national level, because dialogue was often politically motivated (Bobeva, 1997, p. 32).
Despite differences in employment policies in the transition countries, all of them tried to establish a legal and institutional framework that would serve as a basis for implementing concrete passive and active labor market policies. 

1.3  Passive labor market policies
According to OECD terminology, passive labor market policies are aimed at providing employment opportunities to job seekers and employers, offering financial assistance to job seekers, and reducing the labor supply (Nesporova and Uldrichova, 1997, p. 62). Although each country has outlined distinct criteria the unemployed must meet in order to be covered by passive labor market policies, the same range of policies exist in all of the countries. 
The package of passive labor market policies normally includes registering job seekers, collecting information about vacancies from enterprises, providing job counseling as well as professional guidance and assistance, collecting information about available employment programs, managing unemployment benefit payments, and in some cases, supervising early retirement schemes as well. 
Measures related to registering and placing the unemployed are relevant in all transition countries and serve as a foundation upon which other passive labor market programs can be built. Labor offices are responsible for registering the unemployed and facilitating new job placements. Each country has laws that clarify who can register the unemployed. In both the Czech Republic and Hungary, both public labor offices and private agencies help with placement. 
In Poland, by contrast, a law forbids private employment agencies; similar laws are in force in Spain and Denmark (Fretwell and Jackman, 1994, p. 176). When the law was enacted, Poland faced more difficulties with placement than either the Czech Republic or Hungary. There were fewer vacancies and fewer labor office staff, most of whom were preoccupied with administrative responsibilities and could not dedicate sufficient attention to placing job seekers (Gora, p. 125). Poland and other transition countries also encountered problems with registering placement successes because there were no strict rules about the process, which made the rate of unemployment inconsistent (Ibid.).
Two types of passive policy activities were designed to reduce labor supply. One type was to undertake subsidized activities.^2 Governments of transition economies, through either implicit or explicit subsidies, or by delaying enforcement of bankruptcy laws, tried to maintain the labor surplus in state enterprises. Godfrey and Richards argue that such subsidies should be given to firms that are suffering temporary difficulties, but have the potential for future competitiveness. Unfortunately, such an approach was not adopted in most countries. In Romania in 1993, for example, subsidies kept inefficient enterprises alive, prolonging the process of restructuring, and using 33 percent of unemployment funds to support the “technically unemployed” who were still registered with these enterprises as “employed”. Ukraine faced a similar situation. From 1990 to 1993, unemployment fell to under 10 percent while real GDP fell by 36 percent, which reveals that there had been cases of high subsidies and labor hoarding. Another phenomenon was increasing unpaid leave and short-term work, which in 1993 affected 40 percent of employees (1997, pp. 4-5). 
Another activity to reduce labor supply was creating early retirement schemes.  This was popular in the Czech Republic, Hungary, Romania, and Slovenia (Ibid., p. 8). The early retirement scheme in the Czech Republic was introduced in 1991, when Czech authorities doubled the payroll tax of workers who had reached retirement age. In the Czech Republic, these schemes were possible only for redundant workers (Nesporova and Uldrichova, 1997, p. 64), while in Hungary they were restricted to those who had been unemployed for at least six months (Frey, 1997, p. 99). Criteria were regulated by law.  In Hungary, candidates had to have a minimum of 20 years of work experience, be within three years of the regular retirement age, and be unable to find a suitable job – even through the labor office (Ibid.). In the Czech Republic, candidates had to have a minimum of 25 years of work experience, be within two years of the regular retirement age, and be unable to find a suitable job – even through the labor office (Nesporova and Uldrichova, 1997, p. 64). In the Czech Republic, approximately 100,000 people entered early retirement annually in 1992 and 1993. In Hungary, 20,011 people retired early in 1992 and 29,752 in 1993. Czech schemes were covered from social insurance funds rather than employment policy resources, while Hungarian schemes were funded by pension insurance transfers from the Solidarity Fund (Ibid.). This measure was struck down by the Czech courts in 1993 (Kramer, 1997, p. 91). 
Slovenia’s early retirement scheme was similar to Hungary’s and was particularly popular in 1990-91.  Its cost was evenly divided between the state and employers. Although the retirement scheme was politically and socially accepted in Slovenia at first, it became costly and inefficient as an instrument of coping with unemployment in the long run (Drobnic, 1997, p. 173). Until the end of 1994, Poland had a similar policy, called a “pre-retirement benefit”. It was introduced for older, laid-off workers who lived in depressed areas and had worked a certain length of time – 30 years for men, 25 years for women. The number of people who received pre-retirement benefits in 1993 was 20,000, which is less than in the Czech Republic but similar to Hungary (Gora, 1997, p. 126).
The unemployment benefit system was a passive labor market policy that received large amounts of money from employment funds in nearly all of the transition countries. Ukraine was a notable exception, where a significant part of the employment fund remained unused due to low unemployment. Only 5 percent of the fund was devoted to unemployment benefits, while 44 percent was spent to finance active labor market policies. In 1993, 38 percent of the fund’s financial resources remained unused (Yatsenko, 1997, p. 200).  Another exception was the Czech Republic, which, as already mentioned, had few jobless compared to other transition countries. Its 1990, its generous unemployment benefit system increased the number of registered unemployed, which in 1992 led it to modify the benefit system, making it one of the most restrictive in Europe. This allowed the Czech government to shift resources towards active labor policies with the result that, in 1992, it spent more on active policies than on passive ones (Kramer, 1997, p. 90).
Unemployment benefit systems are complex and differ across the region in terms of entitlement period and benefit formulae (Table 1.3). While there are differences in eligibility, in general, eligibility requirements are the “involuntary termination of employment, registration at unemployment offices, willingness to undergo job training, and no refusal of suitable offers” (World Employment, 1996/97, p. 127). The duration of benefits depends on the amount of previous continuous employment, and in some countries on age as well. To determine the amount of benefits, countries use previous earnings, minimum and average wages, or a flat rate, as in Albania and Estonia. 
Table 1.3 shows that some countries had unemployment benefit laws prior to 1989, though they were usually not enforced. Real implementation started when countries faced an increase in mass unemployment, which forced them to modify and reintroduce laws.

Table 1.3 Unemployment benefits in transition economies

Country | Law | Source of funds (%) | Qualifying conditions | Benefits
| First | Current | Worker^1 | Employer^2 | | Level | Duration
Albania | 1993 | — | 0 | 6 | 61 year contribution | Flat rate of minimum subsistence, of 1920 leks/month | 12 months or 365 days
Bulgaria | 1925 | 1989 | 0 | 7 | 6 months of employment in the previous year | 60% of average earnings in the previous 6 months, ranging from 90-140% of the minimum wage | 6-12 months

Czech 
Republic

1991, 1992

—

0.75

2.25

12 months of employment in the previous 3 years

50-60% of earnings, but not less than 3300 crowns/month

6 months

Hungary | 1957 | 1991 | 1.5 | 5 | 48 months of employment before loss of job | 50-70% average net earnings, ranging from 100-200% of the minimum wage | 2 years
Poland | 1924 | 1991,  1994 | 0 | 3 | 180 days of employment in the previous year | 36% of the average national | 12-24 months
Romania | 1991 | 1994 | 1 | 5 | No income higher than half of the minimum wage | 50-60% of earnings,  not less than 75% of the minimum wage | 270 days
Slovakia | 1991 | — | 0 | 0 | 12 months of employment in the previous 3 years | 50-60% of earnings | 6 months
Slovenia | 1927 | 1991,  1992,  1993 | 0.7 | 0.7 | Employment in previous 9 months or 12 months in the previous 18 months | 50% of average earnings | 3-24 months
Estonia | 1991 | 1994 | 0 | 0 | 180 days of employment in a period of 12 months | Flat rate of 180 krooni | 180-270 days
Latvia | 1991 | — | Pension contributions | Income lower than the  minimum wage | Ranging from 70-90% of the minimum wage | 6-12 months |
Lithuania | 1919 | 1990 | 0 | 1.6 | — | 50-70% of the average wage at the last job | 6 in any 12 months
Belarus | 1921 | 1993 | 0 | 1 | — | 50-70% of earnings, ranging from 1-2 times the minimum wage | 26 weeks
Russia | 1921 | 1991,  1992, 1994 | 0 | 2 | Employment for 12 weeks in the last 12 months | 45-75% of average wage in the previous year, ranging from minimum wage to average wage | 12-24 months within 36 months
Ukraine | 1921 | 1992 | 0 | 3 | No income exceeding minimum wage | 50-75% of average wage in the previous job, ranging from minimum wage to average wage | 12 months in 3 years

Kyrgy
zstan

1921

1991, 1994

0.5

1.5

—

Ranging from 100-150% of the minimum wage

26 weeks

Uzbe
kistan

1921

—

0

3

No employment income

50% of the previous average earnings, ranging from the minimum wage to the average wage

26 weeks

China | 1986, 1993 | — | 0 | 0.6-1 | 1 year in covered employment | 120-150% of local public assistance benefit | 1-2 years

Source: US Social Security Administration, Office of Research and Statistics: Social security programs throughout the world – 1995, as presented in Table 4.8 in World Employment 1996/97, p.126.
^1Percentage of earnings; ^2 Percentage of payroll.

Graduate unemployment assistance, similar to unemployment benefits, was introduced in Hungary as a way of addressing the problem of youth unemployment. Graduates of secondary school or higher, who register as unemployed within 18 months of graduation, are entitled to this type of assistance. The benefits last a maximum six months and consist of 75 percent of the minimum wage. This measure contributed to an increase in the rate of youth unemployment, which is higher than adult unemployment (Frey, 1997, p.99).
Another important issue is how laws in transition countries deal with the period after entitlement, in particular with the long-term unemployed. Few countries, among them Hungary and Slovenia, provide social assistance to those who are no longer eligible for unemployment benefits. In Hungary, unemployment assistance was introduced in 1993 for those who had exhausted their entitlements and whose family income per head did not exceed 80 percent of the minimum retirement pension. There was no time limit, which meant that people could receive this type of assistance as long as the conditions were met. Costs were divided between local governments and a central fund. In 1994, a new rule required beneficiaries to accept public work offered by the local government as a condition for this assistance, or benefits could be suspended for six months (Ibid.). This rule combined unemployment assistance as a passive labor market policy with the public works programs of active labor policy (these will be elaborated later). Unlike Hungary, unemployment assistance was time-limited in Slovenia. Initially it was available for up to three years, but in 1994 the period was reduced to six months (Drobnic, 1997, p. 169).
Attempting to address the problems of people whose benefit entitlements had terminated, Poland introduced a free health care program. It provided free health care for the unemployed and their families, regardless of whether they claimed benefits or not, thus attempting to reduce the negative social impact of the shortened duration of unemployment benefits. However, this policy contributed to an increase in the registered unemployed and became yet another burden on the state budget (Gora, 1997, p. 126).
Unemployment benefit systems and unemployment assistance are often criticized as instruments that cause disincentives to work and promote dependence. Some countries, particularly Hungary, have been criticized for being too generous. However, some analysts argue that, due to the inflationary environment – especially in the first years of transition – and the fact that benefits are rarely fully indexed, the benefits are less generous in reality than they initially appear. Moreover, every new amendment to unemployment benefit law serves to further restrict eligibility and cut benefits (World Employment, 1996/97, p.  127). 
1.4  Active labor market policies
The main goals of active labor market policies are “ to facilitate restructuring and to anticipate, shorten, and alleviate unemployment to the extent that doing so is feasible and cost-effective”, while at the same time increasing labor productivity, especially for the economically disadvantaged and unemployed (Fretwell and Jackman, 1994, p. 169). 
Active labor market policies normally consist of a variety of programs. Different programs, or a mix of programs, have been implemented in the transition economies, depending on the specific labor market in a country or region and the targeting of job seekers. Of the transition countries, the Czech Republic dedicates the most attention to developing active policies; more than half its total expenditure on unemployment is via active policies. Unlike the Czech Republic, other Central and Eastern European countries spend only 10 percent of their funds for the unemployed on active policies (Ibid.).
Training and retraining programs are some of the most widely implemented active labor market policies in the transition economies. In the Czech Republic, training programs aim to improve trainees’ chances of finding new jobs. Czech training programs include carefully designed courses that meet actual labor market needs; with a good match between trainees and courses, jobs are found more rapidly after retraining (Nesporova and Uldrichova, 1997, p. 65). However, Czech training courses are available free of charge only for the registered unemployed, and exclude employees threatened by redundancy and employees of enterprises that are undergoing restructuring (Ibid.), which diminishes their chances of finding a job afterwards.  
A similar problem exists in Bulgaria, where a number of disadvantaged groups, including unskilled youth and the long-term unemployed, are excluded from free training programs. According to Bulgarian legislation, only unemployed people who receive benefit payments are entitled to the free training that is organized by labor offices (Bobeva, p. 38). 
Poland offers training programs similar to those in the Czech Republic. In Poland, labor offices offer courses for the unemployed who are unskilled, have skills that are no longer in demand, or have lost their ability to use their skills. If they are receiving unemployment benefits and enroll in a training program, their benefit increases by 15 percent (Gora, 1997, p. 129). 
In Hungary, training programs are very popular among trainees. In 1994, some 94,000 people took part in training. One explanation might be that Hungary generously supported training, by providing a subsistence allowance to the unemployed that equaled 110 percent of the unemployment benefit due in the first phase of entitlement. In contrast to the Czech Republic, where labor offices did not offer training courses for the employed, they received a generous supplementary allowance in Hungary. In Hungary in 1993, counties spent 30 percent of their decentralized employment fund on training, while Budapest spent double that amount (Frey, 1997, p. 102). However, the cost effectiveness of such programs has been questioned. Frey argues that these kinds of programs are appropriate for frictional and structural unemployment, but not for unemployment due to lack of demand, which was predominant in Hungary (p. 102). However, 20 to 30 percent of trainees obtained jobs immediately after the program, 20 to 25 percent after one or two months, and only 15 to 25 percent registered as unemployed (Ibid.).
Job creation programs represent a broader concept, involving activities in “socially purposeful jobs” that are intended either for the unemployed or for specific groups of job seekers, including disabled people, graduates, or those interested in starting their own businesses (Nesporova and Uldrichova, 1997, p. 65). 
In Poland, measures to create jobs through job subsidies are called “intervention works”. Labor offices refund part of the unemployment compensation to employers who hire the registered unemployed for a limited period of time, not exceeding six months. Additional funding is available if the employer decides to keep the worker. This kind of program is targeted towards vulnerable groups, such as the long-term unemployed, graduates, women and the disabled (Gora, 1997, p. 129, and 131). 
Hungary has two types of programs aimed at job creation. The first type of program, called “aid for employment promotion”, gives employers who hire the long-term unemployed a wage subsidy for up to one year.^3 This program offers employers a choice of three forms of subsidies from the employment fund: 100 percent of the employee’s wage, the total value of the social insurance contribution, or up to 50 percent of total compensation expenses. The program also requires employers to prove that they have not dismissed anyone from similar jobs in the previous six months and that they will not dismiss anyone from this type of job in the next three months (Frey, 1997, p. 106). 
The second type is entitled “subsidies for job creation”, which aims to employ people who are excluded from the labor market. The state offers a tender for creating new jobs. Applicants are chosen based on the number and type of unemployed they intend to employ, and other criteria. The employer must create the jobs within a year of signing the contract and ensure that the jobs are filled by people who have been referred by the labor centers. Labor centers offer several types of subsidies: a non-refundable contribution to capital, which is available to applicants who employ people with reduced working ability; a refundable interest-free contribution to capital; a reimbursement of interest; and a reimbursement of the costs of a loan guarantee (Ibid.). Although this mechanism seems promising, some weaknesses have appeared in practice; new jobs have generally been created in areas with low unemployment, while high unemployment areas have not been able to produce sufficient demand for the program (Ibid.). 
Some transition countries, including the Czech Republic, Poland, Bulgaria, Slovenia and Romania, created a type of subsidy for job creation to focus on youth unemployment. Programs varied in terms of the amount of the subsidy, the length of the program, and the type of program. Specifically, subsidies were offered for apprenticeships in Poland, internships in Slovenia, employment in Romania, and combination employment-apprenticeships in the Czech Republic and Bulgaria. The Bulgarian government had high hopes for the youth employment program when it was introduced in 1991.  This was especially true because there was no early retirement scheme in Bulgaria; in fact, late retirement was encouraged, in order to meet a condition set by the World Bank for loan eligibility. Unfortunately, however, the program was unsuccessful. At the end of 1991 there were only 70 young people in the program, with the number slowly increasing to 450 in 1994. The failure was attributed to an inefficient dissemination of information and labor offices’ lack of interest in ensuring that the scheme was properly applied  (Bobeva, 1997, p. 37). 
An interesting active employment program in Bulgaria was a mobility support program, which aimed to address the problem of regional differences in unemployment levels. The program covered travel and moving costs of families who accepted jobs in other regions of the country. Unfortunately, the incentive was modest and not sufficient to encourage migration towards areas with higher unemployment (Ibid., p. 39).
Hungary introduced employment companies to address high regional unemployment, particularly in local communities where large enterprises were liquidated. The goal was to avoid massive and sudden increases in unemployment and social tension by providing temporary employment and training for dismissed workers. By 1994, Hungary had developed two organizations of this kind. One was set up in Ozd, where, due to the reduction of heavy industry, more than 15,000 people had lost their jobs; the other was set up in a similar area where, because of the closing of a large metallurgy company, 4,000 jobs were endangered. Although modest, the results were positive (Frey, 1997, p. 109).
Public works programs exist in almost all the transition countries. Their main goal is to keep the unemployed active, preventing them from feeling discouraged and dependent, by allowing them to carry out some socially valuable activities. In Slovenia, public works include broad activities such as involvement in social services, public administration, education, culture, ecology, agriculture and communal infrastructure. Participants in this program may attend training and have a better chance of finding employment. Data show that in Slovenia in 1992, some 268 people participated in the program, and in 1993, 410 participants found permanent employment (Drobnic, 1997, p. 172).  In Hungary in 1991, the public works program only offered physical labor, but recently has moved towards offering more qualified jobs, as in Slovenia (Frey, 1997, p. 103). 
Unfortunately, public works programs are not well organized in other transition countries. In the Czech Republic, for example, though activities in public works schemes cover some seasonal work that does not require special skills, they does not include training or assistance in finding new jobs.  As a result, they were not popular among the unemployed. This kind of program is often linked to passive unemployment benefit programs, to recruit participants who would otherwise lose their unemployment benefits (Nesporova and Uldrichova, 1997, p. 67). 
The promotion of small and medium-sized enterprises (SMEs) is among the more popular active programs in transition economies. Bulgaria, the Czech Republic, Hungary, Poland and Slovenia have created programs that offer support to the unemployed by encouraging them to develop their own businesses. In fact, in the Czech Republic, which implemented such a policy in 1992, support is available regardless of employment status. It is aimed at facilitating access to capital, providing information on relevant legislation, making tax concessions to new entrepreneurs, giving advice on planning and accounting, as well as providing training to new business owners. The Czech government takes this program seriously. Evaluations are conducted annually and government approval is necessary in order to continue old programs or initiate new ones. The Czech program includes two discrete activities:  one program regulates the development of SMEs in general, and the other promotes specific fields of activity or the development of a depressed region. These programs offer “guarantees for commercial credits, contributions to cover interest on commercial credits, or guaranteed payment on different terms” (Ibid., p. 68). The government provides some funding, which is complemented by international SME development programs within the framework of EU PHARE^4, other international organizations and western governments. Moreover, a special bank, called the Czech-Moravian Guarantee and Development Bank, was created to provide credit guarantees for small and medium-sized enterprises (Ibid.).
In Bulgaria, this kind of program was introduced in 1991 to encourage unemployed people to start their own businesses. Individuals who submitted a self-employment project received funds equivalent to their total benefit payments for the entitlement period. Response to this policy developed slowly. In 1991, only 27 people applied for the program. In 1992, the number of applicants rose after legislative changes based the amount of support on the total number of unemployed family members who were entitled to compensation. By 1992, 4,000 individuals had begun their own business, and in 1993, some 6,000 people started businesses. In 1994, the number of applicants fell to 911 people (Bobeva, 1997, pp. 41-42).
Hungary offered a variety of forms of assistance to unemployed people starting their own businesses. The program offered loans equal to the sum of unemployment benefits for six months, 50 percent of the costs of establishing the enterprise, 50 percent of training costs, and 50 percent of insurance costs for up to one year (Frey, 1997, p. 105). From 1991, when 1,071 people participated in this program, the number increased to 13,000 by 1994. Because 98 percent of the 13,000 program participants requested an extension of their benefits, Frey suggests that many of them participated in this program as a way of extending their benefits for an additional six months. However, this program in Hungary was relatively inexpensive. In 1993, counties spent only 5 percent of their decentralized employment fund on it, subsidizing 6 percent of all participants in active labor market programs (Ibid.). 
When Poland introduced start-up loans in 1990, the program was one of the most important active labor market policies. However, due to the budget crisis in 1991, expenditures for this program were sharply cut. Another reason was the labor offices’ lack of preparation for this kind of activity; they were overwhelmed with other administrative responsibilities. Nor were the banks strong enough to provide sufficient support to labor offices in this area. Though expenditure increased in 1993 and 1994 as compared to 1991 and 1992, it was still lower than the amount devoted to this program in 1990 (Gora, 1997, p. 131).
In Slovenia, promotion of self-employment has two stages. Employment offices are responsible for providing basic information to people who show an interest in developing their own businesses. After they present a concrete project, help is provided by a specialized agency through a voucher system. The cost of services rendered by the specialized agencies is reimbursed after the unemployed become self-employed. Data for 1992 show that, of 3,840 people who participated in the program, 833 became self-employed (Drobnic, 1997, p. 172).
Based on the above information, it is possible to conclude that active labor market policies play an important role in addressing unemployment. They attempt to help the unemployed to find jobs by means of counseling and disseminating information. They facilitate labor mobility by training and relocation. They keep individuals active by involving them in temporary jobs, and reduce abuse of the unemployment benefit system by introducing public works programs. However, in reality, active labor market policies have had limited success throughout the region. They are costly, and the already limited budgets of the transition countries cannot provide much incentive for these types of policies. In addition, these policies cannot be implemented in isolation. In order for them to operate properly, economic expansion and stability must support the growth of the private sector, so that the economy can absorb the unemployed who have been prepared through the active labor market policies. 
1.5  Promotion of small and medium-size businesses and entrepreneurship
Promoting entrepreneurship and developing SMEs are important elements in facilitating growth in the private sector. Changes in the first years of transition, including macroeconomic and structural reforms and the creation of a new legal framework, encouraged citizens to start developing their own businesses.  This proved to be a major source of new jobs, entailing at the same time major modifications in economic structures throughout the region (Report on the World Social Situation, 1997, p. 122). 
At first, businesses were mostly family-owned sole proprietorships that focused on retailing, services such as automobile repair, and dining. However, the focus has shifted towards wholesaling, manufacturing and transportation, and the number of newly created limited liability companies has increased (Crane, 1995, p. 37).
Data from Table 1.4 show an impressive growth of private business in Poland and the Czech Republic in the period 1989-1994. A striking fact revealed by data from Table 1.4 is that the Czech Republic entered the post-communist period with a negligible number of small businesses, but by 1994 a total of 1,064,850 business organizations were registered. According to Frydman and associates (1997), this ratio represents approximately one registered entity per 10 citizens (p. 80), though they suggest that these data should be accepted with caution because not all registered businesses are active. 
In 1994, for example, 33 percent of private enterprises registered in the Czech Republic were inactive (Ibid.). Despite that, there has still been a significant growth of small business in these two countries, as well as in other transition economies. For example, in 1992 Romania had 196,306 new private businesses, while 1,783,900 private businesses registered in Poland in the same period (Crane, 1995, p. 37).

Table 1.4 Number of registered business organizations in the Czech Republic and Hungary by selected legal form

Period | Total business organizations^a | Private entrepreneurs non-agricultural^b | Shared or limited liability firms^c | Joint-stock companies at end of period
Czech Republic
1989 | 18,837 | — | NA | 43
1990 | 178,993 | 124,455 | 3,034 | 658
1991 | 955,647 | 891,872 | 23,112 | 2,541
1992 | 1,118,637 | 982,075 | 39,495 | 4,076
1993 | 1,250,216 | 995,054^e | 60,376 | 4,813
1994^d | 1,064,850 | 804,784 | 82,279 | 5,763
Hungary
1989 | 391,099 | 320,619 | 5,086 | 307
1990 | 495,250 | 393,450 | 25,407 | 646
1991 | 652,230 | 507,655 | 65,906 | 1,027
1992 | 785,925 | 602,423 | 101,537 | 1,712
1993 | 925,863 | 677,264 | 145,210 | 2,375
1994 | 1,001,973 | 755,543 | 183,246 | 2,896

Sources: Czech Statistical Office (1993, 1994); Central Statistical Office of Hungary, National Bank of Hungary (1994).
^aIn addition to data shown, this figure includes cooperatives, independent farmers, and budgetary and contribution-based organizations; ^bIn the Czech Republic, “private entrepreneurs, non-agricultural”, refers to entrepreneurs registered under the Law on Private Business passed in April 1990 (No. 105/1990). Prior to 1990, about 1 percent of the employed population (70,000 people) were private entrepreneurs, usually small craftsmen; ^c“Shared or limited liability firms” include general and limited partnerships, limited liability companies, and joint-stock companies; ^dThird quarter 1994; ^eThird quarter 1993; (NA) indicates data not available.
As presented in Table 3.13 by Frydman, Rapaczynski, and Turkewitz, 1997, p. 81.

With the growth of small businesses, the employment share among larger companies and small enterprises has changed. In Hungary during the period 1989-1995, the share of companies with over 300 employees declined from 19.3 percent of the total number of companies to 0.2 percent. In the same period, the proportion of enterprises with fewer than 21 employees increased from 37.6 percent to 97.7 percent of the total number of companies. In 1995, Poland had 2 million registered enterprises.  Of these, 92 percent employed five or fewer workers, 6 percent employed six to 50 workers, and only two percent employed more than 50 workers, while small and medium-sized enterprises employed about 60 percent of the total workforce (Report on the World Social Situation, 1997, p. 122).
Despite the noticeable increase in new private business across the region, many obstacles continue to limit enterprise creation and growth. In the period 1992-1993, a series of surveys of the private sector were done in the former Czech and Slovak Federal Republics, Hungary, Poland, and St. Petersburg, which identified a number of similar constraints for small business development (World Employment 1996/97, p. 129). Although obstacles vary from one country to another, all of the transition economies face challenges such as inadequate financing and unclear and unstable regulations. 
One factor that contributes to financial problems is the lack of access to credit because of excessively high interest rates. In Poland, for example, while short-term loans are relatively easy to obtain, private businesses are discouraged from committing to long-term loans because, in addition to high and unstable interest rates, administrative procedures are cumbersome. 
Moreover, financial problems arise when businesses collaborate with SMEs. Frequently they cannot collect money for services provided. If a business depends on large orders from SMEs, they may have to wait months to be paid, even though turnover taxes have already been charged and, if inflation is high, late payments do not have the same value. 
The legal framework regulating timely payment is weak, and many private businesses have neither the time nor the confidence to pursue legal action in this area. In addition, the unclear legal and regulatory environment makes it difficult for private businesses to prosper. Entrepreneurs across the region are often faced with rapid and unforeseen changes in regulations or budget allocations. They are frustrated by red tape, paperwork and fees, as well as by bribery and corruption. On top of all this, entrepreneurs complain about high tax rates, which cramp the sector, or worse, provoke businesses to avoid paying their taxes in full (Ibid.)   
High taxes and the other obstacles cited above clearly indicate that governments should rethink incentives to develop the private sector, as an effective way of absorbing a significant portion of the labor market supply.

2.  The case of the Republic of Macedonia
2.1  Country overview 
The Republic of Macedonia is a former Yugoslav republic that gained independence in 1991 without violent conflict.  It is a small, landlocked, mountainous country of some 26,000 square kilometers and home to approximately two million people. Two-thirds of the residents are Macedonians, about one-quarter are Albanians, and the remaining 10 percent are made up of Turks, Roma, Serbs and other ethnic groups. Macedonia has suffered from many of the same problems as other transition countries in Central and Eastern Europe that have aimed to develop free market economies, and has been aggravated by additional difficulties resulting from historical circumstances and a hostile external environment. 
During the period 1991-1995, GDP decreased by almost 50 percent, so that in 1996, annual per capita income was only US $920. Total investments fell by about two-thirds and employment decreased by more than one-third. The number of unemployed rose continually, reaching more than 30 percent in 1995 and making this one of the country’s biggest concerns (Nacionalen Izvestaj, 1997, pp. 56-57).
One factor that influenced the slow transition was the fact that, historically, Macedonia has been an underdeveloped country (Nacionalen Izvestaj-National Report, 1997, p.21). Its pattern of economic development was affected by the country’s history under Turkish rule for five centuries. While the rest of Europe was industrialized, the Turkish Empire kept Macedonia predominantly agricultural and rural. This situation started to change after 1948, especially during the 1970s and the 1980s, when forced and planned industrialization in Yugoslavia led Macedonia to develop heavy, large industries such as steel, construction and mining (Doing Business in Macedonia: Guide for Investors, 1996, p. 4). 
The regional conflict in Bosnia limited positive economic reform and had a significant negative impact on Macedonia. Because 80 percent of Macedonia’s transport to Europe went through Serbia, sanctions imposed on Yugoslavia during the war were costly. Monthly costs were estimated at US $80 million, which equaled 85 percent of the country’s export earnings (Bookman, 1995, p. 660).
The country’s poor economic performance was compounded by the economic embargo imposed by Greece, which objected to the use of the name Macedonia, the “vergina” symbol on its flag, and the country’s constitution – which was perceived to contain territorial claims. This embargo seriously affected the economy. Macedonia had enjoyed a central position at the gateway of trade and tourism between western and eastern Europe; the border crossing with Greece had been one of the busiest in Europe. With its embargo, Greece blocked access to Greek markets, which comprised one-third of the Macedonian sales, as well as access to the port of Thessaloniki, which had provided an important route for Macedonian imports and exports. The embargo was estimated to cost some US $50-60 million per month. Moreover, it indirectly impacted Macedonian development; Greece was able to delay international recognition of Macedonia until 1994, which resulted in a reduced inflow of capital (Ibid.).
A greater concern is the recent conflict in Kosovo, which had a serious impact on the country’s fragile economic and political stability. As a result, the economy deteriorated, many existing small businesses collapsed, foreign investors became increasingly hesitant, and increasing numbers of refugees required policy responses that created additional burdens on the budget. The annual costs due to the Kosovo crisis are estimated at US $1.5 billion, with industrial production, agriculture, tourism and transportation the most seriously affected sectors. Transportation costs increased after the Yugoslav route was closed because of the need to travel longer distances through other countries, such as Bulgaria or Romania. Several analyses show that transportation cost increases alone total more than US $100 million. Furthermore, some 60 factories stopped production because they had relied on raw material inputs from Serbia. More than 40,000 employees went on “involuntary unpaid holiday”, and approximately 120,000 employees did not receive regular salaries for two or more months (Ibid.).
2.2  Unemployment in the Republic of Macedonia
Unlike many other transition countries, which faced registered unemployment during the transition process for the first time, this was not a new problem for Macedonia. As a part of the former Yugoslavia during the period 1950-1989, Macedonia underwent several social and economic reforms, and lived through a so-called “self-management” system in the context of decentralized market-socialism (different from the Soviet Union’s communist regime), which had a tendency to push up both inflation and unemployment rates.

Table 1.5 Dynamics of Unemployment in the Republic of Macedonia, 1976-1996

| Unemployed-total | % | Previously employed | First-time job seekers
1976^* | 98,114 | 22.04 | 32,643 | 65,471
1980^* | 117,151 | 21.82 | 25,935 | 91,216
1985^* | 135,857 | 21.65 | 27,876 | 107,981
1990^* | 156,323 | 23.55 | 26,910 | 129,413
1995^** | 197,968 | 35.69 | 41,455 | 156,513
1996^*** | 246,978 | 31.65 | NA | NA

Sources: *Statisticki godisnik na R. Makedonija, 1994 (Statistic Yearbook of the Republic of Macedonia); **Data for January 1995 from the State Employment Bureau; ***Republicki Zavod za Statistika: Anketa za Rabotnata Sila 1996, Skopje, Dekemvri; 1996 (State Statistic Bureau: Survey of Labor Force 1996, Skopje, December 1996); As presented in Velkov, 1998, p. 105, Table 4.1.  
NA indicates data not available.

As Table 1.5 shows, Macedonia has suffered from significant unemployment since 1976. Data for the period 1976-1985 show high, stable unemployment rates that rapidly increased during the period 1990-1995, reaching 35.69 percent in 1995. It should be noted that data for 1996, showing 31.65 percent unemployment, do not signify a decrease; the percentage merely reflects a calculation according to new international standards, made in collaboration with the ILO. If calculated according to the old national methodology, the rate would have been 38.8 percent (Nacionalen Izvestaj, 1997, pp. 56-57).
A rapid increase in unemployment is correlated with the transition process. Bearing in mind that Macedonian employment was heavily dependent upon large-scale industry, one can assume that a decrease in employment, especially in the industrial sector, would lead to an increase in unemployment. In 1991, for example, the total employed population was 468,372, of which 381,924, or 81.5 percent, were in the “economic activity” sector, and 86,448, or 18.5 percent, were in the “non-economic activity” sector^5 (Ruzin, 1994, p. 180). In 1996, total employment decreased by 33.02 percent as compared to employment in 1990. Despite the decrease in employment in economic activity, this sector still comprised the largest share in total employment, including 255,659 people, or 75.23 percent, of which 127,604, or 49.91 percent, were employed in industry. At the same time, the non-economic sector employed some 84,165 people, or 24.77 percent of the total employed, which shows an increase in participation in this sector when compared to the 18.5 percent it employed in 1991 (Nacionalen Izvestaj, 1997, p. 56).  
Although high unemployment exists throughout the country, strong regional differences exist, as in other transition countries including Poland or the Czech Republic. In Macedonia, unemployment is less pronounced in the southern and eastern regions, where agriculture and tourism contribute to the economy, while regions with high concentrations of industrial activity have higher rates of unemployment. Unemployment is particularly high in the northwestern part of the country, especially in some cities such as Debar with 41.84 percent, Kicevo with 31.19 percent, and Gostivar with 30.07 percent  (Velkov, 1998, p. 108).
Macedonia is part of a group of countries with high female unemployment. When calculated as a percentage of the total labor force, 28.80 percent of males were unemployed in April 1996, while 36.00 percent of females were unemployed during the same period (Ibid., pp. 110-111).  A greater concern is female unemployment among ethnic minorities, reaching 85.20 percent among Romas and 68.64 percent among the Albanian minority. The influence of specific ethnic, cultural, traditional and religious values that prevent females from actively participating in many domains of social life, including education and the labor market, explain this situation to some degree (Ibid., pp. 111-112). Though women register with the State Employment Bureau, they are not necessarily looking for work, but may do so to obtain unemployment benefits; therefore, data from the State Employment Bureau should be interpreted with caution.
It is important to note unemployment by ethnic structure for both genders as a percentage of the total labor force and economically active population.  In 1996, the figures were as follows: Macedonian, 63.47 percent; Albanian, 21.4 percent; Roma, 5.22 percent; Turkish, 4.08 percent; Serbian, 1.64 percent; Vlach, 0.25 percent; and other ethnic groups, 3.93 percent. The higher unemployment rate for Macedonians and Albanians is due to their higher participation in the labor force, which is 77.84 percent for Macedonians and 12.32 percent for Albanians, while only 2.29 percent for Roma, 2.56 for Turkish, 1.76 for Serbian, 0.62 for Vlach, and 2.62 for other ethnic groups. If unemployment is viewed as a percentage of the total number of representatives of each ethnic group in the labor force, the picture is different.  In this case, unemployment among Romas is 42.5 percent, followed by the Turkish minority with 25.3 percent, Albanians with 21.22 percent, Macedonians with 15.32 percent, Serbians with 14.82, and other ethnic groups with a smaller percentage (Ibid., pp. 115-117). 
A common feature that Macedonia shares with other transition countries is a high unemployment rate among youths 15-24 years old. According to the 1994 census, youth accounted for more than one-third of the total unemployed population in Macedonia, or in other words, 69.79 percent of the youth population was economically active. Bearing in mind that the highest employment participation (72.82 percent) is among those aged 25-49, young people will have to wait a long time to replace them. Youths have little hope of jobs being created through new investment because of the country’s low level of economic development, which leads Macedonia to experience “brain drain”, or the emigration of highly educated people. Though no concrete data prove that “brain drain” is increasing, there are some indicators. According to the 1994 census in 1994, of a total of 125,962 Macedonians living abroad, 19 percent were 15-24 years old, 32.76 percent had a high school education, and 8.29 percent had a university education or higher (Velkov, 1998, p. 127).
No less of a concern is the fact that Macedonia, like other transition countries, has struggled with long-term unemployment. Data from Nacionalen Izvestaj show that, in 1996, 44.52 percent of the total unemployed had been looking for work for more than four years (p. 58).
Taking into account these features of unemployment, as well as the specific circumstances of the country, it is clear that policy makers in Macedonia face a complex task when creating and implementing policies to adequately address this problem.   
2.3  Labor market policies
The Republic of Macedonia has the constitutional and legal obligation to create policies that are aimed at freely chosen, full employment. Employment services are provided through the State Employment Bureau and its 30 regional labor offices. In principle, the legislature and the Bureau have established broad objectives for addressing unemployment, including nearly every possible passive and active labor market policy. In practice, however, the Bureau deals mainly with passive policies, such as unemployment benefits, registration and placement issues, and the assistance system. 
The unemployment benefit system is designed to assist people whose employment was involuntarily terminated. Benefits received equal 50 percent of the recipient's average wage during the previous three months, but less than 80 percent of the minimum wage for state sector employment. According to United Nations Preventive Deployment Force (UNPREDEP) estimates for 1996, the average unemployment benefit was about 36 percent of the country's average wage, and only 20 percent of the registered unemployed were entitled to benefits. Others could not meet the requirement specifying the length of previous registered employment. Regardless of the beneficiary status, however, all registered unemployed people in Macedonia receive health insurance benefits for themselves and their family members (Country Policy Paper, 1997, p. 27).
In addition to the unemployment benefit scheme, a social assistance scheme covers some of the registered unemployed. This system provides assistance either to people who are unemployed but not entitled to receive unemployment benefits, or to those whose entitlements have expired but whose household income is below the established poverty threshold (Saveska, 1997, p. 2).  
Real, positive results in employment growth have been achieved by the recent Law to Increase Employment, passed in 1998. This law increased subsidies to employers by exempting them from paying pension, disability and unemployment insurance for their employees. Data from the Macedonian daily news show that, between January and September 1998, this law resulted in 26,135 new jobs with 9,327 employers. Most employment growth showed in the production and service sectors. This meant the first decrease in the unemployment rate since 1991; it went down by 3 percent, falling to 27.9 percent in 1998 (Nova Makedonija, September 17, 1998).
Implementation of standard, active labor market policies in Macedonia began in 1995, when the government created the Project for Social Reform and Technical Assistance, with support from the World Bank. Responsibility for implementing this project was delegated to the Agency of the Republic Macedonia for the Transformation of Enterprises with Social Capital. The Agency initiated activities to implement the re-deployment program, such as the following: job counseling and employment advice, training and retraining, public works, counseling and advice for entrepreneurs, incubators for new micro-businesses and small entrepreneurs, and planning regional economic development through small business and job creation.  
In summary, from 1995 to 1997, this re-employment program worked with 8,600 unemployed from 35 municipalities in Macedonia. Mandated through 1999, it is considered a pilot program for developing other, similar types of programs (Privatization Report 1997, 1988, pp. 23-26). 
2.4  Promotion of small and medium-sized businesses and entrepreneurship
Although small and medium-sized businesses strengthen the private sector and absorb the labor force surplus, the Macedonian government did not actively support this sector's development until the beginning of 1997. Despite government ignorance, however, a considerable small business sector had started up automatically when ideological and legislative barriers were removed in 1991, and by 1993 there were more than 90,000 registered individually owned businesses (Vaknin, 1996, p. 1). However, in a stagnant business environment, many of these businesses collapsed soon after they had been started, or circumvented legislative and tax obligations to survive, thus making a minimal contribution to the state budget (less than five percent) (Deacon, and associates, 1996, p. 6). 
Finally, in 1997, the government introduced measures to stimulate this sector, such as credit options and technical assistance for new entrepreneurs (Nacionalen Izvestaj, 1997, p.28). These measures fell within the framework of the World Bank supported Project for Social Reform and Technical Assistance.
The Project for Small and Medium-Sized Enterprise Development, a part of the European Union – PHARE National Program for Macedonia, was incorporated into the overall government strategy for addressing this issue in 1997. The Macedonian government also enacted the Decision to Establish a National Agency for Developing Small and Medium-Sized Enterprises (NEPA), to operate under the auspices of the Agency of the Republic of Macedonia for the Transformation of Enterprises with Social Capital. The NEPA was to be responsible for implementing government policy to develop new enterprises, as well as providing comprehensive programs and services to facilitate the process. The plan called for the creation of five regional centers, which, in collaboration with the NEPA, would be responsible for providing services. In 1997, however, these measures were still being developed; therefore, this component needs significant attention from policy makers in order to meet the needs of new entrepreneurs in Macedonia (Privatization Report, 1997, p. 30).   

3.  Applicability of analysis and recommendations for the Republic of 
     Macedonia

Based on the above analysis, several recommendations will be made that could have a positive impact on unemployment in the country. The recommendations will be explained and prioritized, and their feasibility in Macedonia will be evaluated, based on the current domestic situation. 
   	 These recommendations are inspired by other transition economies’ experiences, and constrained by Macedonia’s particular weaknesses. In short, the recommendations are to enhance passive and active labor market policies, and to strengthen the private sector – by attracting domestic and foreign investment, as well as by supporting small and medium-sized businesses. 
First, let us examine passive and active labor market policies. Despite the trend in other transition countries – especially the Czech Republic – of cutting expenditures on passive policies and emphasizing active labor market policies, the literature suggests that both are important and should be equally developed. A simultaneous implementation of these policies makes sense. A passive policy of registering the unemployed has little effect if it is not linked to active policies of training, counseling and other services to help the unemployed become more mobile and competitive in the labor market. Temporary unemployment benefits not only satisfy basic needs, but also facilitate an active job search or participation in training programs. Active labor market policies, on the another hand, make passive labor market policies more efficient, limiting the possibilities for abusing or becoming dependent on the benefit system. This argument is inspired by the ILO’s recent critique of calling these policies “active” or “passive”, elaborating different negative and positive connotations related to it (Chernyshev, 1997, p. 64). 
Active labor market policies have recently taken root in Macedonia, and currently have achieved only modest success. Thus, the author recommends that passive labor market policies continue, but that they stay closely tied to emerging active policies. The Privatization Agency, which is responsible for implementing active policies under the framework of the World Bank supported Project of Social Reform and Technical Assistance, should increase cooperation with the State Employment Bureau, which is mainly responsible for passive labor policies. In this way, the State Employment Bureau would have an opportunity to implement active policies, which they have not yet done. Bearing in mind that the World Bank project, under which these policies are being implemented, lasts through the end of 1999, both agencies should expand the program and seek to develop it so that it becomes self-sufficient. 
One viable way of doing this is to encourage existing non-profit agencies – or establish new ones – to become direct providers of these services. The non-profit sector in Macedonia is just developing, with few agencies involved in unemployment issues, but the need for them is understood and there is a willingness to expand the non-profit sector. 
Of the few NGOs dealing with unemployment issues, the Macedonian Center for International Cooperation has already implemented some local projects to promote employment and build civil society. This Center was established in 1993 as a joint venture between local initiatives and Dutch Interchurch Aid (http://www.mcms.org.mk/dodatok1_eng.htm). Because this agency has already undergone international training for its programs and gained experience, it could play an important role in implementing the previously described World Bank project. With financial support from the World Bank, it could expand its employment promotion project by reaching out to more local communities (in 1994 it had four projects in three cities and one village) (Ibid.). Through its project to strengthen civil society and by increasing cooperation with other international NGOs in Macedonia, it could offer technical assistance and professional support to encourage the establishment of new non-profit agencies that would provide passive and active labor market services in the local communities. 
Local non-profit agencies would have to work closely with state labor offices and local employers, but as in the Czech Republic, local non-profit agencies would have the advantage of being able to carefully design their programs after assessing the community’s labor market needs. Collaboration with labor offices and local employers would give them the opportunity to develop a local database system, including information on job seekers and vacancies. Depending on the types of jobs available and the existing skills of the unemployed, these agencies could develop activities that would match the requirements of the local labor market. The agencies could also develop evaluation methodology for their programs, for which they could seek training from experienced international organizations. 
Evaluation methodology should be outcome based, meaning that it would include not only numerical information about the number of program participants and resulting job placements, but also the impact the program had on participants, their families and the community. This type of evaluation would provide useful information about what works and why, and would improve program creation, the targeting process and implementation. This entire process could be considered an investment for establishing effective active labor market policies in the long run. 
Assuming that non-profit agencies would become experienced in this matter, they could then write grant proposals to different donors that would enable them to continue the project. 
To increase interest in investment, the government should develop a national strategy to make Macedonia more visible in the international market. The advantages of the country’s natural and human resources, as well as its sound infrastructure, should be emphasized.  This kind of information should be disseminated through agencies that specialize in international communication, as well as through diplomatic and consular posts around the world. Since Macedonia is small, with a small market and limited purchasing power, investment should focus on export-oriented businesses. According to a Commission of the European Union (PHARE) study on improving export capabilities, several components have particular export potential.  In particular, those include: finished textiles, leather goods, shoes, lamb, fruits and vegetables, processed foods, wines, automotive accessories, vehicle and bus assembly, telecommunications equipment, electric motors, metal fabrications, steel piping, construction, and tobacco and cigarettes (Doing Business in Macedonia: Guide for Investors, 1996, p. 28). This classification shows that there are many investment possibilities, but the fact remains that some foreign investors do not feel comfortable doing business in Macedonia. They have reservations about whether the legislative framework provides a stable business climate, and feel uncomfortable with the region’s political instability. 
Parallel with a national strategy to attract foreign investors, the government could strive to increase the general investment level by involving the Macedonian diaspora in the country’s economic development.  This recommendation was inspired by Vaknin’s article, Equity, Europe, and Investment – Three Wrong Orientations in the Macedonian Economy (1996), in which he posits that many countries maintain close ties with their expatriate communities.  He gives Israel or China as examples, where most foreign investment comes from people of Jewish or Chinese origin who live abroad. Because almost 750,000 Macedonians live outside the country (p. 2), there should be sufficient motivation for the government to increase contact with them. Perhaps a special agency could be established to develop and maintain relationships with potential Macedonian investors living abroad. 
The next recommendation is to promote small and medium-sized businesses by improving government stimulation measures. As with active labor market policies, government measures to promote small and medium-sized businesses should take effect at the local level, allowing regional disparities in unemployment to be more effectively addressed. 
The final recommendation, which is both long-term and broad, is to involve educational institutions in the country’s general employment policy.  It would require major reforms in the educational system to adjust to the labor market dynamics and knowledge and skills that are needed in the present. This could, however, go a long ways in helping to ensure the achievement of the goal of “full employment” for the next generation.

End Notes
^1  Countries with market economies use Labor Force Surveys (LFS) as a main instrument of data collection on employment and unemployment. However, not all transition economies have implemented this statistical methodology. Countries that have already introduced an LFS include: Bulgaria, Estonia, the Czech Republic, Hungary, Latvia, Lithuania, the Republic of Macedonia, Poland, Romania, the Russian Federation, the Slovak Republic, Slovenia, and Ukraine. Belarus, Croatia, and Moldova are preparing to launch such a survey (Chernyshev, 1997, pp. 32-33).

^2  Some subsidized activities are also considered active labor market policies, particularly if they are intended to create new jobs.

^3  This is a sign of Hungarian generosity, which is sometimes criticized. The length of the subsidy is longer than in Sweden and Germany (Frey, 1997, p. 106).

^4  PHARE is an abbreviation for the European Community/Polish and Hungarian Aid to Reconstruction of the Economy  (EC/PHARE) http://WWW.ERC.MsState.Edu/~vkire/faq/economy/econ.overview.html  

^5  The Republic of Macedonia used a different statistical methodology in defining sectors of the economy than the OECD. In OECD countries, the economy is divided into three sectors: primary, including agriculture; secondary, including industry, construction, and public activities; and tertiary, including transportation, services, trade and administration. In Macedonia, the economy is divided into two sectors: economic activities such as industry, mining, agriculture, construction, traffic, trade, tourism, and financial and technical services; and non-economic activities, including education, science, culture and information, health and social welfare, and social-political organizations (Ruzin, 1994, p. 177).

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