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| THE LABOUR MARKET POLICY IN BULGARIA (1990 - 1993)
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EMPLOYMENT SERVICES AND
PROGRAMMES
The success of the LMP - its scope and objectives, as well as its
effectiveness, depend to a large extent on whether it does reach
those in real need of it - the truly unemployed. The concept of
unemployment has not been defined by the Bulgrian legislation yet,
and the compromise sollution attained by the social partners led to
an overly broad interpretation of the concept, which allows for a
number of employed to be treated as unemployed and even be entitled
to compensation. In order to be included into the group of
unemployed one should register with a labour office and sign a
delaration that he/she is in active search for a job and is
available to the labour offices whenever a job offer is made. The
declaration should be renewed on a monthly basis and the unemployed
should appear at the labour office whenever summoned.
1. The unemployment benefit system
The unempoyment compensation system was introduced late in 1989 and
has undergone three revisions so far, the major tenency being
towards simplification and widening of the range of those entitled
to compensation. The following forms of income support for the
unemployed are being offered at present:
- firstly, those insured against unemlpyment ( who have made
contributions to the Professional training and unemployment fund)
receive unemployment benefit if made redundant on the employer's
initiative in the absence of faulty behaviour or after the
expiration of the labour contract, in cases when the employee has
worked for a minimum of six months during the twelve-month period
prior to dismissal. The benefit amounts to 60 percent of the
average monthly salary for the last six months. This system came to
replace a rather complicated system insufficiently based on the
actual wage the employee received prior to dismissal. the
calculation basis in the latter was the minimum wage in the
country. 20 percent of the difference between the received wage of
the employee and the minimum wage in the country was added to that.
The system introduced in mid 1992 adopted lower and upper benefit
limits . The lower was set at 90 percent of the minimum wage; it
follows definite social welfare objectives. It makes sure that the
loewst benefit will exceed the social assistance. If that were not
the case, unemployment would have been an additional heavy burden
to the social assistance system. The upper limit is 140 percent of
the minimum wage. It was introduced with the purpose for benefits
not to exceed monthly salaries in order to stimulate the unemployed
in their search for jobs.
The benefit entitlement term depends on work experience and the age
of the unemployed, the minimum being 6 months and the maximum - 12
months, and the amount received is a constant throughout the entire
period. With a March 1993 Regulation of the Council of Ministers
redundancy payments cover an additional 13th month of income
support, that is benefit payments begin at the end of the first
month after the employee was made redundant.
Not entitled to benefits are persons involved in economic activity
as defined by the Partnerships and Companies Act, those working
under labour contract, members of cooperatives, farmers in
agriculture, artisans, free-lancers, those registered as providing
services, those entitled to pensions, full-time students, soldiers
drafted in the army and persons with permanent monthly incomes
under civil contract which amount to 150 percent and higher of the
minimum monthly salary. The latter allows for loop-holes which in
essence undermine the entire benefit system. A person can receive
benefit and be considered unemployed if working full-time under
civil contract given that he/shereceives up to 150 percent of the
minimum wage. It encourags the avoidance of labour contracts and
the accompanying social security measures at the expense of civil
contracts as they are cheaper to the employer. It could be argued
that a considerable portion of the unemployed in Bulgaria work, and
the lack of a control system encourages these practices.
Therefore, a major disadvantage of the income support policy for
the unemployed is that legislation allows for those working to
receive unemployment benefits.
Secondly, high school and university graduates who have registered
with the labour offices as unemployd and have not started work
within a period of one month after the completion of their studies
are entitled to receive social assistance for unemployment (or a
job search allowance) amounting to 80 percent of the minimum wage
for a respective period of three months for high school graduates
and six months for university graduates. In contrast to
unemployment benefits these social assistance payments come from
the state budget because these young people have not made any
contributions to the unemployment funds. Also entitled to such
asistance payments are young men leaving the army, provided that
they register with the office within a period of one month.
Thirdly, unemployment
benefit compensations against inflation. A grave challenge to the
unemployment compensations system is high inflation and the
consequent need to protect benefits against inflation. The benefit
is then considered a "social payment", subject to compensation
togehter with pensions, social assistance payments and student
stipends. One reason for the introduction of a new mechanism for
calculating benefits in 1992 was that it does not require
protection against inflation and additional payments, as it is
determined wholly on the basis of the prior salary. As the minimum
wage changes, only the lower and upper benefit payments limits
change and, therefore, only the amount of the lowest or the highest
benefit payments possible changes. Due to the lack of inflationary
compensation of the wages for a period of eight months
approximately, starting from July 1992 when topped 60 percent and
higher, the compensation of benefits together with all other social
payments and pensions was required. Social assistance payments for
the young unemployed were also compensated against inflation. The
source of these additional payments is the same as for the benefits
themselves, namely, the Professional training and unemployment
fund.
Fourthly, partial unemployment benefits are paid to part-time
employees made redundant. The amount of the benefit is calculated
in proportion to working time.
Redundancy payments and compensations to workers whose employers go
bankrupt are paid directly by the employr and are not included in
the employment benefit system. There is no permanent solution to
the problem of social insurance for the unemployed as yet. As the
social insurance fund is not an independant financial institution,
the benefit entitlement term is added on to the period of work
experience, without this requirng social security contributions to
be made. But when the social security fund is to become a separate
institution sources of social security contributions paid for the
unemployed will have to be found.
2. Employment services
Employment services are offered by private and public labour
offices.
Functions of the Labour Offices
The major functions of the public labour offices are provided for
by Regulation 57 of the Council of Ministers:
- registration, calculation and payment of
unemployment benefits
-
- - placement and information services
provided for job-seekers and employers
- labour market analyses
- administration of labour market programmes
- job-search counselling and related training
- organizing training and retraining services
- monitoring the adequate implementation of the employment
regulations and the equity of benefit payments.
The basic function of the labour offices is still registration and
payment of benefits rather than placement. Some 5,000 of those
registered in the labour offices start work each month, while those
giving up registration are about six times more.(Table 5). This is
greatly due to the stagnation of the labour market and low demand
of labour.
It is very difficult to assess the market share of the public
placement operation. Studies indicate that the central job-finding
mechanism are personal contacts and connections. The importance of
newspapers ads is on the increase. Some 30,000 unemployed per month
drop registration, which amounts to 7 percent of the total amount
of registered. The majority find jobs individually, a portion give
up the labour office services, yet another retires, etc. It could
be argued that the share of registered unemployed in Bulgaria as
compared to the total number of unemployed in Bulgaria is very
high. One of the reasons being that is that in order to receive
unemployment bebfits one should seek activly for a job ( register
with the labour office). On the other hand, this is partly due to
the introduction of an obligatory requirement for persons receiving
social assistance payments under the social assistance scheme to be
registered with the labour offices and be active job-seekers. It
makes a considerable number of needy individuals register with the
offices in order to receive social assistance payments. Moreover,
protection against redundancy for a second family member as
provided for by the Labour Code is only granted on condition that
the first member has registered as unemployed. It is, therefore,
the complicated administrative technicalities rather than active
placement, which is the reason for unemployed to register with
public labour offices.
With the help of the British Know-How Fund the first Job club,
where a number of job search courses and intensified career
counselling are being conducted, was opened in March 1992. The
model is expected to duplicate.
All of the above mentioned services are offered free of charge
within each individual labour office. The wide range of functions
requires numerous staff and ample working space. Neither is easy to
provide.
Staff Number and Qualifications
The optimum number and qualifications of staff in the labour
offices depends on two factors - funding and working space. Funding
for the National Employment Service was among the subjects of
heated dispute within the tripartite employment commission. It is
currently provided from the Training and Unemployment Fund which is
formed entirely by employers'contributions. Employers insist on it
being transfered to the state budget with the argument that the
National Employment Service is a state institution. However, such a
step would result in reduction of staff, insufficient as it is,
incurred by budget restrictions. Consequently, further restrictions
on LMP will be imposed. 2136 staff work in the labour offices at
present. That is, one staff member services an average of 271
unemployed, there being five to 100 employees per labour office.
The average staff per employment office is 18, the staff of public
employment services per 1,000 of working age population is 179.
Labour office expenditures are on the increase both in absolute and
relative terms.(Tabl.6)
Basic expenditures cover equipment and premises. In 1992 the PHARE
programme sponsored the purchase of computers worth 850 000 Ecu.
After the adoption of the restitution law a number of offices had
to give away their premises, others were forced to pay exhorbitant
rents with the resulting increase of the overall maintenance costs
of the labour offices. The problem has not been satisfactorily
solved yet. The office staff is appointed by competition and head
nominations are consulted with the trade unions. Stability of
tenure is hardly possible at the present low-level wages.
Recruitment is difficult with the lack of relevant course
programmes and university majors to train experts.
Private Employment Agencies
112 private ‘intermediary and information employment agencies’ were
reistered with the Labour Ministry by the end of March 1993. They
cover the entire country and are very common in big cities. These
agencies are established after registration as provided for in the
Partnership and Companies Act. The rule based on regulation 110 of
the Council of Ministers treats the registration procedures for
these agencies and does not have a sanctioning force, that is
agencies which operate without having registered with the Ministry
cannot be sanctioned. The confusion resulting from cartain blank
spaces in legislation incurres serious damages to the image of the
private employment agencies. Numerous fraud cases have been filed
in by individuals against the employment agencies whose major
function is export of labour. They caused a number of diplomatic
scandals. Although the Regulation sets price limits for those
services it is not certain whether they are actually enforced as to
the amount fee charged for them.
If the status and the functions of the private offices are kept
unregulated we could expect the public to explode and pressurise
for their close-down.
3. Youth Employment Measures instead of Early Retirement
Measures
Apart from the early retirement age (60 for men and 55 for women),
a reason for the relative share of retired persons to be that large
is that in 1990, through the pressure of a series of strikes a
number of professional groups achieved even earlier retirement
age.
The demographic situation being rather unfavourable , and with the
budget burdened with retirement spending, all early retirement
measures were suspended, what is more, current lagislation
encourages late retirement. The tendency is of a gradual increase
of the retirement age, which is also a condition set by the World
Bank in order to extend its credits.
Retired employees are preferred by employers for the lower cost of
labour they offer and also because employers save up on social
expenditures when employing retired employees. We could therefore
expect that the labour market behaviour of the retirement age
population will exert influence on labour supply in the future as
well. Low pensions and high inflation force an increasingly large
number of retired to go back to work, and those who reach
retirement age to continue work.
This is a pressure on the labour market and a grave challenge to
the policy aiming to regulate labour supply. Retired people
constitute a large portion of the electorate as well. It is hardly
unlikely therefore that political powers will oppose their demands
to work apart from receiving pensions, the result being an
increasingly disadvantageous position of young people on the labour
market. LMP will eventually have to strike a very difficult balance
between the generations of labour force.
It is interesting to note that legislation identifies only two
youth groups as disadvantaged. Those are skilled blue collars (high
school graduates with vocational training) and white collars
(university and semi-higher education graduates). They are entitled
to social assistance payments (27 864 received such payments in
February) and to free-of-chargetraining and retraining. Regulation
110 of the Council of Ministers introduced specific measures for
the encouragement of youth employment. Employers who hire young
professionals and skilled blue-collars for adequate positions are
entitled to 80 per cent of the minimum wage for the country in the
course of three months for each high-school graduate and six months
for each university graduate. The employer should add on to this at
least 20 per cent of the minimum wage. This measure was intended to
work as a form
apprenticeship
, being at the same time a form of
subsidised employment
. Nevertheless, it is not popular. It was introduced in June of
1991 and by the end of the same year only 70 young people came
under this scheme, and their number in 1992 was 125. In March 1993
76 young people received subsidised wages.
The failure of this measure to bring about a change in youth labout
market is assigned to insufficient information available to both
employers and young people,and to the absence of rea
lintermediaries in the labour offices to make sure this legal
possibility is appled.
Promotion of youth employment should be among the LMP top
priorities. Both the unfavourable unemployment tendencies and the
need for the social integration of young people in a country
undergoing transition call for this choice. Youth emigration, crime
and allienation are a serious threat to social integrity. The
policy so far has been passive and not really well targetted.
Certain very broad rights were provided for by the existing
regulations that almost nobody exercised. Nobody sought to find the
main reason for youth unemployment wihch was in the conservative
nature of the system of education unprepared to acknowledge let
alone respond to the challenges of the emerging labour market. The
standing of young people on the labour market could be improved
only as a result of concerted measures aiming to bring education
closer to the labour market demands, as well as to encourage
employers to hire young people. The unwillingness of private
employers and close downs of state enterprises make it even more
difficult for young people to enter the market as it is occupied by
the retired. A very important job source for young people is
self-employment and entrepreneurship. There are unfortunately no
preferential credit schemes or specific funds to help them start
up.
Data indicate a wide regional variation in youth unemployment,
somewhere replaced by a pronounced labour deficit. Evidently, there
is an urgent call for a differentiated approach to young people:
varying professional, ethnic, etc. groups require different
policies.
Youth unemployment is not the only problem, however. An equally
grave problem is youth employment. They are hired mostly for
unskilled jobs , very often by oral contract, at best by civil
contract, that is with no social insurance paid.
The priority of the problem of youth unemployment was accounted for
through the preparation of a youth employment programme, cuurently
being discussed by the Council of Ministers. Its targeted cost is
2mln leva. With a state budget deficit of 8 per cent estimated for
1993 it is not clear where funding for the programme will come
from. The attempt to make use of the World Bank TAL credit and
other external sources was not successful.
4. Training the Adult Unemployed
The centralised system for planned training and retraining began to
disintegrate in 1989. It consisted of school-based and enterprise-
based training centres, and a network of professional training
centres attached to the Ministry of Labour. They were all funded by
the predessessor of the present Training and Unemployment Fund.
With the crisis in the economy, as well as with the ineffective
functionning of these centres mass close-downs began, and the
public retraining system practically does not exist. A free market
of training services came to replace it.Private and non-profit
adult-training organisations started registering with the the
Mininstry of Labour. 400 have registered so far.
In 1991 labour offices provided free training
6
to a mere 20 155 unemployed, or 4.8 per cent of all registered.
The respective number for 1992 is 16 618, or 2.8 per cent. These by
no means satisfactory results are assigned to a number of
shortcomings within the system:
- there are a lot of eligibility restrictions, in essence
contradicting lagislation, such as a signed contract between the
unemployed and hisher future employer certifying that heshe will
work for this employer after the course. It certainly undermines
the entite system of retraining.
- under Bulgarian legislation all unemployed on benefit payment are
entitled to free training through the labour offices. It leaves out
a number of disadvantage groups such as cases of long-term
unemployment, unskilled youth, etc. who have to pay for training.
The implication is that training does not reach those who need
it most
.
- labour offices are understaffed and this makes counselling and
training more difficult. The preferences of the unemployed are
often not satisfied. There is no training marketing, nor analysis
of labour demand. Courses are organised in a very cumbersome way.
- There is no training customised for young people. One very
significant disadvantage of youth policy is the lack of priorities
and priority groups, there is no such thing as a selective approach
to beneficials.
- the unemployed are not encouraged to take part in courses as they
receive the same benefit as those who have chosen not to
participate. This is done away with Regulation 65 of the Council of
Ministers of March 1993. Training course participants receive an
additional 15 per cent of hisher benefit payment, provided that
the course programme consissts of at least 30 instruction hours per
week and upon successful completion.
The employees at risk of losing their jobs are not considered a
target group for free training through the labour offices. A
compromise solution was found for those working in a cooperative of
the disabled, in need of additional training after the
restructuring of the cooperative. An pilot employment and training
programme for the disabled was designed which covered 112 course
participants who at the same time received their benefit payments
without actually being unemployed at the time. Experience has shown
that the approach is very successful.
5. Mobility Support
Studies indicate that the distribution of unemployment in Bulgaria
is very uneven. Two groups of measures could improve the situation,
namely, mobility support and regionalisation of labour market
policy. Mobility support covers travel and removal costs for the
families of the unemployed. There are a numvber of restrictions,
however, the support sahould not exceed the minimum wage, the
destination they are moving to should be no further than 100 km and
there should be a labour contract for a minimum of six months.
These modest incentives did appear to be cost-effective to the
extent that they were used. They are certainly not strong enough to
encourage mass migration from the regions of highest unemployment
to regions where there is less unemployment. The overall economic
crisis on the other hand leaves those who move to take up jobs in
other localities still insecure. Local authorities are not very
supportive of inward mobility. High rents are yet another reason
for the relative ineffectiveness of these encouragement measures.
Over 80 per cent of the population live in their own
apartments/houses, and moving out to different places would incur
an additional expense to many.
There were only 2 persons who exercised their right to mobility
support in 1991, in 1992 they were 284. The increase of incentives
will hardly activate this measure - Bulgarians are in principle
rather 'immobile'. They prefer to emigrate instead of changing
their living area.
As it is, an important LMP priority is the pursuit of regional
employment programmes. These include a number of employment
incentives, such as through education and training, credit
extension on preferential terms, regional funds, stimulating
entrepreneurship, etc.. Two pilot projects under the PHARE
programme geared to these objectives are already under way. Four
programmes have been prepared for regional development
restructuring and employment in the regions where ore and uranium
extraction enterprises are being closed down and as result
unemployment is very high. They are submitted to the Council of
Ministers for approval and will be put into effect very soon. Apart
from the direct effect on regional labour markets these programmes
are promote the establishment of regional institutional LMP
structures where social partners, municipal authorities and labour
offices can concert their efforts. The overall success of the LMP
is in its essence dependent on the success of the regional
employment programmes.
6. Public Works Scheems
The increase in the number of unskilled unemployed , as well as in
the number of long-term unemployed receiving no income support
brought the preparation and adoption of a Temporary Work Programme
(Public Works programme). It was prepared with the assistance of
experts from the British Know-how Fund and started in November
1992in three pilot regions. 224 job vacancies were created in three
towns by the end of the year. The programme is being implemented in
82 towns and villages and covers 3167 unemployed, that is the full
group of entitled individuals. The annual quota, calculated on thew
basis of the estimations for the unemnployed is 24396 jobs.
The programme is pursued locally through the joint proposal of the
labour offices and the municipal authorities for the creation of
job vacancies in the public works, with a wide range of municipally
managed activities identified as relevant. The unemployment fund
pays the respective employer organisation 90 per cent of the
minimum wage for each employee hired under the scheme for a period
of at least five months. The employer is obliged to pay at least 10
per cent of the minimum wage, social insurance and the operational
costs of the programme. The crucial disadvantage of the programme,
however, known even befcore the programme had been initiated, is
that it covers only municipal and non-profit organisations. A
reason was the mechanistic duplication of other countries'
experience. The programme turned out to be a mechanism for patching
up the municipal budget and funding municipal activities from the
unemployment funds. A mistake was committed by not admitting
private employers to the programme.It could have been organised on
a competition basis and the employer offering the most favourable
conditions (higher additional payments to the wages) would have won
it. The programme definitely needs to be improved in this respect.
It is managed trilaterally both at the national and the local level
with thwe purpose of avoiding traditional disadvantages, such as
tansforming permanent jobs into temporary, etc.). THe success of
the programme depends on the involvement on the part of the local
authorities.
The required funding is very reasonable. If the cost per
participant in the training programme in 1992 was 1 112 leva, the
cost per participant in the public works programme is 1 530 leva.
7. Subsidised Credits
A controversial measure stimulating the creation of new job
vacancies are subsidised credits. Funding is provided by the
Training and Unemployment fund and amount to 3 per cent of the
annual fund revenues. The MLSW sets up competitions among the
enterprises which open up job vacancies using bank credits.The
criteria are: number of job vacancies, employment terms and stages,
the amount of credits extended, etc. 950 jobs were created in 1992
witht he help of subsidised credits. The cost of each individual
job covered by the fund was 3 812 leva. At the face of it, it is
quite easy to create job vacancies htiw way. It should be noted
that companies open these vacancies because they need them all the
same, and not because of the incentives offered by the programme.
This measure goes counter to the principles for the establishment
of a new banking system because it introduces an additional credit
line.
8. Suport for the Unemployed to Start Business
A major LMP priority in the transition period is the stimulation of
entrepreneurship and small business. The population is highly
motivated in this respect, as indicates thye number of private
companies registered after 19889: 250 000, which implies that one
in every three households has established a company of sorts.
Something to be noted, however, is that a number of these do not
function.
In 1991 a measure aiming to stimulate the unemployed to start their
own business was introduced. Individuals who submit projects for
self-employed business are paid a lump sum equalling the total of
benefit payments for the entire entitlement period. It marked a
complete failure for 1991, with only 27 persons applying for the
programme.In 1992 certain legal changes were introduced to simplify
the procedure and do away with the disadvantages.If a second family
memberis also unemployed and will be able to work under the
proposed project, then this member is entitled to a payment
amounting to 5 times the minimal wage. Unfortunately, this measure
is again very complicated which will reduce the expected effect. On
the other hand, it requires highly skilled and motivated labour
offices staff which is not always available. Nevertheless, in 1992
a total of 4000 individuals started their own business after having
received the lump amount of their benefit payments. This is
definitely a cost-effective measure, paying the whole amount of
thge benefit payment right away to which unemployed are entitled
all the same.
The priority of entrepreneurship in the course of the economic
reform requires additional incentives for self-employment for the
unemployed. Increasingly worthwhile in this respect are the PHARE
projects, which encompass training and consultancy, but also
granting small credits at reduced interest rates. Pilot projects
indicate that the establishment of separate enterpreneurship funds
for the unemployed are very successful. It is a possible
alternative to create such funds within a future unemployment
fund.
9. Measures for the Disabled
A basic LMP problem is the protection of the employment of the
disabled. Prior to 1989 there were two mechanisms: the Labour Code
stipulated an obligatory percentage of disabled staff and the
appointing of a large number of disabled in special enterprises.
The disabled benefited from a number of tax breaks, credit
prweferences, etc., which was a form of subsidised employment.
These measures became unfeasible with the general crisis during the
last two years. An increasing number of non-disabled staff were
hired in the enterprises and the state could subsidise a decreasing
portion of their activities, and those specialised enterprises lost
their markets.
The 1992 amendments to the tax laws introduced tax breaks to
enterprises for the disabled once again. These, however could not
solve their major problems, namely, what should be produced and how
to market it. Which is generally an essential problem for all
Bulgarian enterprises. Regulation No. 110 of 1991 introduced an
additional preferential term for employers hiring disabled people
above the required number. They are paid a lump sum amounting to
the annual minimum wage. Conversely, employers who fail to meet the
requirement are charged a fine of the same amount
These rules, no matter how solid-sounding, are inapplicable,
because state enterprises are increasingly cutting down on staff,
and some 50 000 go on unpaid leave each month because there is
nothing to do. The sanctions envisaged are clearly inapplicable.
The problem with the disabled deserves to be approached separately.
Consequently, the MLSW has initiated the preparation of a programme
for the employment of disabled people. Prior to this a
comprehensive analysis of the employment of disabled people was
carried out and the overall activity of the enterprises hiring them
was reviewed. A disabled persons fund is planned to be
established.
Protection of the domestic labour market
The LMP also encompasses the protection of the domestic labour
market and the protection of Bulgarian citizens working abroad.
Working visas were introduced, departments were set up within the
labour offices and the regional immigrant departments of the
ministry of internal affairs. LMP will benefit from the
anti-illegal immigration agreement signed by the European countries
in February 1993.
A successful regulatory mechanism in migration are bilateral
agreements. Bulgaria has signed such an agreement with Germany.
Further agreements are negotiated with other European countries.
LMP surveys indicate that almost the entire range of traditional
components has been introduced. They have not been sufficiently
developed, being something new and unfamiliar to the Bulgarian
environment. There was no unambiguous legal, institutional and
information framework for their application. It is not clear how
successful the components of the policy will be and what form the
active measures will take. Progress has definitely been made in
this respect, as data on the employment fund expenditures indicate.
Only 0.92 per cent were spent on active policy in 1991 and 2.56 per
cent in 1992, 0.58 and 0.76 per cent of the GDP respectively.
There are two groups of active LMP measures in this country:
- set forth in laws and regulations, such as the unemployed can
exercise having to fulfill no additional requirements, e.g.
mobility support, adult training for the unemployed, subsidies to
the unemployed starting their own business, etc.,
- those taken under specific programmes where eligibility is
restricted to target groups, e.g. training of ethnic groups in
specific regions, preferential terms credits for the unemployed in
some regions, etc.. The latter was stressed on during 1992:
priority was given to the individual approach to groups of
unemployed in depressed regions. There is a need, however, for the
measures to be targeted more specifically to the beneficiaries.
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