Active Measures of Employment in Serbia: More Social Assistance

 Belgrade Fund for Political Excellence JELENA JOVICIC/MINA LAZAREVIC Active Measures of Employment in Serbia: More Social Assistance than Anything Else “Generally, I think the subsidies are for people who are already employed and that it does not pay off at all for beginners.” Active Measures of Employment in Serbia: More Social Assistance than Anything Else Mirjana 1. INTRODUCTION This brief draws attention to the realities regular jobs, and create new jobs and experiences of young, previously through a self-­‐employment stimulus. officially unemployed people starting new businesses. It shows that lack of quality training and after-­‐care, high state taxes and the unwillingness to cope with the shadow economy, put state goals to enhance self-­‐employment out of reach. In this paper, we explore whether job-­‐
creating stimulus measures, in particular those dedicated to young unemployed people (between 16 and 30 years of age) work. Collected personal testimonies of program In the framework of the EU accession beneficiaries shed light on the effects process, Serbia is committed to of the measure ‘subsidies for self-­‐
strengthening the competitiveness of its employment’, signaling a mismatch economy and to reducing unemployment. between official ‘rosy’ statistics and During the recent explanatory screening the realities experienced by young in Brussels on Chapter 19 (Social Policy entrepreneurs. and Employment), it was strongly underlined that active labor market policies need to be designed and realized to transform undeclared work into 2
Three groups of questions are of particular interest: a) What are the measures that the Serbian state proposed to help ‘hidden’ workers and unemployed youth integrate into the regular labor market? b) Who are the young beneficiaries of the state subsidies for self-­‐employment? In which sector do they work? W hat w as their situation prior to registering as unemployed? What are the common challenges faced? How long did they last in their businesses? c) W hat employment and social policy priorities do these findings signal? 2. OFFICIAL UNEMPLOYMENT: RECENT TRENDS AND THE SERBIAN STATE’S RESPONSE The informal sector is a widespread problem w ithin the European Union as w ell as within countries aspiring to membership. Unregistered workers pay no taxes, therefore reducing government income and increasing budget deficits, w hich then elicit higher taxes, which in turn tempts more people into the shadow economy. More importantly, this phenomenon seriously affects Serbian citizens. The extent of the Serbian ‘shadow economy’ is hard to measure, given the varying methods in use. Findings of the USAID and FREN Survey from 2013 show that informal activities amount to 20% of the official gross domestic product.3 The estimated number o f undeclared workers ranges from 400,000 to a million. If these workers received an o fficial average salary instead, the state would gain between 1 and 2.7 billion euros in taxes and contributions.4 The reasons for the existence of the shadow economy in Serbia range from fiscal causes and features of the labor market to o ther institutional and economic factors (such as high administrative burdens, low quality of the regulatory environment and legal insecurity). The same survey showed that entrepreneurs, new start-­‐ups and construction businesses are more likely to engage in the shadow economy, by employing workers informally or making payments in cash.5 Accompanying losses to the state is the problem of seriously infringed rights of ‘undeclared’ workers, as they work w ithout health insurance or provisions for retirement. There is currently no aggregated data on undeclared work in the EU. However, official assumptions from At the same time, the Serbian economy is generating Brussels in 2014 state that the shadow economy is increasingly fewer jobs, w hith economists expecting taking about 1 5-­‐20% of the European gross d omestic that growth and hiring in the public sector will product.1 In 2014, an EU wide platform was created to continue to slow down. Diminished demand for Serbian fight against ‘undeclared work’. New EU campaigns and products and services resulting from the 2008 strategies will be initiated to transform undeclared economic crisis has sharply reduced labor demand and work into regular employment, thus boosting formal many businesses are forced to downsize. Furthermore, job creation. As a consequence of these debates, the EU the Government, which is the biggest employer in the soon became concerned about the size of the shadow country, adopted a decree on the upper limit of staff in economy, the official unemployment rate and the the public administration in 2013. It is estimated that budget deficit of its new-­‐candidate country Serbia.2 up to 21,000 jobs in several Ministries in the administration are frozen by this legislation.6 3
The rise of unemployment does not hit all citizens The primary rationale w as addressing the large equally. The risk of unemployment is more extreme number o f officially unemployed people, especially within certain vulnerable groups. Those most at risk among vulnerable groups. However, grants are often include young people (16-­‐30 years of age), older workers only sufficient to cover the recipient's health, pension (50-­‐64), women and the Roma population.7 In particular, benefits and taxes for twelve months. The total amount youth unemployment in Serbia rose from 3 2.6% in 2 008 of the grant is equivalent to 1 339 EUR. The main to 49.4% in 2013 and 51.8% in the first quarter of 2014.8 critique is that this measure only helps the Young workers are also strikingly overrepresented in unemployed to receive pension and health insurance some of the work fields that are most hit by recession benefits, and that these ‘forced’ entrepreneurs to enter (e.g. tourism and hospitality, retail and sales). into the market with little practice, knowledge, or The risks to youth can result in lasting damage. First, jobless young people tend to emigrate and seek opportunities elsewhere more readily than other age social capital, which makes their businesses more vulnerable.10 groups. Second, economists claim that young people 3. STATISTICS OF THE NATIONAL EMPLOYMENT unemployed for a long time are channeled into ‘non-­‐
SERVICE regular’ jobs where income is low and career opportunities few. The combination of brain drain and taking ‘any work’ is obviously a vicious circle. What is the Serbian state doing to reverse these trends and stimulate job-­‐creation for young people? We inquired if active labor market policies had any effects on reducing official unemployment, decreasing the number of ‘undeclared workers’ and integrating young people into ‘regular’ jobs. To answer these questions, we looked at the National Employment Service as the largest job market intermediary and its subsidies for self-­‐
employment as one of the largest and best-­‐funded programs.9 The overall budget of the National Employment Service (NES) for 2014 amounts to 298.084.611 EUR. The revenues come from social security contributions, donations from international organizations, transfers from other levels of government and transfers among mandatory social insurance agencies. International donations contribute 5.163.776 EUR, on projects for increasing employment opportunities for vulnerable groups, municipal economic development, self-­‐
employment measures and skills development for young people (donors: IPA, GIZ, EU Progress, UNDP/SDC are among the largest).11 Out of the total budget of 298.084.611 EUR, social insurance rights w ill In 2008, an initiative of the National Employment Service account for 80% of all expenditures (237.801.503 introduced financial support for start-­‐up businesses. EUR). O ut of this amount, programs and active labor Termed ‘subsidies for self-­‐employment’, the program market policies will be covered with 5.021.500 EUR. aimed at job seekers who have been unemployed for at These funds significantly decreased w hen compared to least a month. figures o ver the last three years. 4
Programs and active labor market policies that are As a result of funds accorded to beneficiaries, being implemented in 2014 are: measures of statistics show that 80% o f those businesses that employment mediation (career guidance and started in 2012 are still active one year after their counseling); traineeship programs (additional creation. The National Employment Service monitors education on the request of the employer or whether economic activity is performed by the preparation for the labor market); measures for beneficiary of the subsidy over the course of one year entrepreneurship, self-­‐employment subsidies and only, a period during which beneficiaries must subsidies for job creation; and finally the organization regularly pay their taxes. No follow-­‐ups are made of public w orks. after the expiration of the one-­‐year contract, which Out of the 5.021.500 EUR, 25% go to measures for leaves room for concern.14 entrepreneurship: subsidies for ‘self-­‐employment’ and The fact that 80% of businesses that started in 2012 subsidies for job creation.12 were still active after twelve m onths however does not The National Employment Service also claims that the interest of applicants has increased over the last three years.13 The total number of applicants for ‘subsidies imply that they survived after their one-­‐year contract with the National Employment Agency expired. for self-­‐employment’ in 2013 w as 7,117 out of w hich 4. THE TRAINING PROCESS 1,681 were successful (a success rate of 24%). Just one NES counselors offer additional training and year earlier, 5,640 people applied for 1,956 contracts education to all newly registered unemployed, (with a success rate of 35%). W hile the total number o f aiming to better prepare them for the labor market. applications significantly increased between 2012 and This training varies and includes English language 2013, there was a nearly 10% drop in the number of courses, web design, a vocational training and approved subsidies. Even with this decline, at first training for start-­‐ups. Completing the latter is a sight the measure shows success beyond doubt. formal requirement for applying for ‘subsidies for Women make 44% of all successful applicants, a higher self-­‐employment’. Training participants can also rate than in the general population of entrepreneurs in apply independently, while no pre-­‐selection o f Serbia. The majority of successful applicants fall into participants is conducted, and the applicants are the age category of 30-­‐49 (60%), while the youth (18-­‐
dealt w ith o n a ‘first come first served’ basis. 30) share in successful applications is only 12%. All educational levels are w ell represented, with the most common being vocational or secondary education. A successful applicant tends to be registered as unemployed for more than one year (59%), compared to 40% that are registered for less than a year. A serious problem that affects the training for start-­‐
ups is under-­‐staffing. Only two trainers cover the capital o f Belgrade, and the total number of trainers in Serbia is not known.15 These few trainers are in turn expected to manage large and diverse groups. In Belgrade, they can amount to 50 -­‐ 60 people.16 No segregated data is available based on other Participants’ profiles are widely differing w ith regard characteristics. The share of people with disabilities, to their educational backgrounds, socio-­‐economic single mothers or Roma, who are all defined in the positions and age ranges. What unites them is the point system as vulnerable, is not known. fact that they need to resolve some existential problem. 5
“Entrepreneurship in Serbia still prevailingly serves as 5. COMMON PROBLEMS EXPERIENCED BY welfare. People registered at the National Employment YOUNG ENTREPRENEURS Service start businesses to solve existential problems.” This claim matches the findings of another study, which found that subsidies for ‘self-­‐employment’ are allocated as last resort employment attempts and as such represent a social policy measure more than a measure of stimulating sustainable entrepreneurship.17 “When it comes to motivation, 30% of participants come only to fulfill the requirement for applying for the subsidies.” The young beneficiaries of subsidies for self-­‐
employment who shared their stories with us indicate that the actual experiences of young entrepreneurs differ from the picture painted by official NES statistics.18 While this sample group does not provide representative results, repeated encounters with specific problems are certainly indicative. Beneficiaries point at substantial problems on all three levels of the subsidy program: the application process, granting the subsidy and support, and the supervision stage after the business is established. The point system used for affirmative action The fact that no pre-­‐selection procedure is set up towards groups such as w omen, young people, implies the lack of motivation, negative attitudes and ethnic minorities etc. is not clearly explained to skepticism that often obstruct discussions, as explained applicants. The taxation that applies upon by trainers. commencing business is introduced too vaguely, The curriculum of the course consists of business planning tools, introduction to necessary regulations and basics of accounting. The trainers, however, are unable to teach business plan writing and instead merely go through its major components – partly due to time constraints in the course, but possibly also because they lack any practical experience in business. The failure of the program as a motivational tool for future entrepreneurs is clear at all levels: the trainers claim that up to 30% of participants are exclusively motivated by the conditionality of the training; prior to the submission o f a business plan people drop o ut; and finally after opening their businesses a sizeable percentage of people give up and close. resulting in fear among potential beneficiaries. Once their applications are approved, the beneficiaries perceive businesses operating in the black or grey economy as their toughest competition. The persistence of a large number of youth remaining in the gray zone of employment creates skepticism about starting up a legal business. O ne beneficiary shared that once her one-­‐
year contract for the subsidy expired, she decided to go back to the unofficial sector. The taxation system w as underscored by all of our respondents as a key obstacle. W ith no tax reliefs in place for new businesses, it is not surprising that beneficiaries find the small subsidies barely sufficient to cover the administrative expenses of running a business. 6
For one of our respondents, the amount of subsidy Jelena had substantial w orking experience in (160.000 RSD or approximately 1339 Euros) w as different fields such as in the NGO sector and sufficient to cover approximately first three months of journalism (both undeclared) before deciding to the basic expenses of his new lawyer's office, even with open her own business as a fashion designer. Many the VAT exemption granted to lawyers. Beneficiaries in obstacles came up, the most important being fields such as cosmetics or fashion businesses found it discouragement from NES officials who hinted at the difficult to survive. necessity of political connections for being granted Subsidy beneficiaries feel that the NES follow-­‐up support system is poor or non-­‐existent. NES trainers, who claim that continuously shrinking staff resulted in cancelling counseling services for successful beneficiaries, share this view. The non-­‐existence of the aftercare stage is a major reason for businesses failing the subsidy. The amount o f subsidies is so low that one would need to w ork 24 hours a day to maintain a zero balance, Jelena explains. She has ‘frozen’ her company work until she goes to Switzerland and pays off the debts brought on by her start up business. immediately after the expiry of the twelve month Jelica is a professional masseuse and her main supervision by the National Employment Service. It incentive was to take over the family business run appears that young, previously unemployed or by her mother. She wanted to start working ‘undeclared’ workers can hardly compete on the formally and create working conditions that would market and be self-­‐sustainable without continued enable her to enjoy social security programs advice. through paying taxes. Despite having existing 6. DIFFERENT TESTIMONIES OF YOUNG ENTREPRENEURS equipment and customers prior to the subsidy, Jelica decided to close down the salon in 2012 and go back to w ork from home (the unofficial sector). She points to the inability to continuously pay taxes The individual stories of aspiring young entrepreneurs as the main reason for going back to the black may be w orth hearing. market. Miroslav is a lawyer who was unemployed for seven Mirjana worked in the NGO sector on Roma issues, months before applying for subsidies. His father runs a and after her contract ended she applied for public lawyer’s office and supported him throughout the subsidies directed to Roma entrepreneurs. Her main process. His main motivation was to become drive w as greater economic independence. The independent from his parents, w hom he lived and business training was done in five days, w hich worked with. The only useful thing he learned during Mirjana felt was too short. She argues that her the training was how to outline a business plan. The assigned mentor seemed interested but subsidy money was used to equip the already existing incompetent to help her. Mirjana advises that in the office space and help cover the tax expenses. Miroslav future tax reliefs should be introduced to subsidized maintained his business up to this day; however, he businesses. Additionally she stresses the absence of mentions the struggle to expand his business due to the cooperation and interactive support between Roma competitiveness of his field. women entrepreneurs, which could be one of the essential help strategies. 7
Ivana is an experienced accountant with extensive 3) Recommendations for employment and social previous knowledge in her field. She w as a documented change should be developed after further research. worker until she lost her job. At the time o f the However, at this stage w e would like to call for interview Ivana was attending the two-­‐day business more transparent procedures, more readily training, which she thought w as generally useful. available statistics on outcomes and more space for Making a business plan is a “serious science”-­‐ it cannot further representative sample research. W e w ould be mastered in a few hours, she emphasizes. The point also like to call for longer trainings for the system was fairly clear although she had a few applicants, more services in the after-­‐care phase questions during the training. She w as optimistic about and better assessment o f sustainability of future being granted the subsidy since she applied as a person businesses. with a disability. 7. CONCLUSION AND RECOMMENDATIONS ACKNOWLEDGMENTS Many thanks go to each of our interviewees. The 1) The system of self-­‐employment subsidies time we have spent conducting the interviews was demonstrates several serious failures. No tax incentives the most inspiring part of the research. Also, our are set up to attract entrepreneurs to remain in gratitude goes to the administration of the National business legally or to motivate them to retry. The Employment Service w ho provided us with impression is that the money is spent on short-­‐term statistics and allowed us to conduct field fixes, temporarily altering the grave unemployment observations. statistics. At the very least, the program on its own has not been sufficient to counter the continued rise in youth unemployment in recent years, or to accomplish major achievements in combating the ‘shadow’ economy.19 This research w as supervised in all of its phases and generously commented on by our supervisor Cornelius Adebahr, as w ell as by Theresia Toeglhofer and Natasha Wunsch. Their comments and support throughout the process were of 2) Subsidy beneficiaries greatly vary in their immense value and we wish to thank them for this educational and professional background. Our small help. Our reviewers Irena Cerovic, Marko Savkovic sample, however, showed some common problems and Damjan Malbasic read, wrote, talked things despite this diversity. The majority o f respondents over and provided us with extremely useful worked ‘unofficially’ prior to applying for subsidies. comments. W e would also like to thank George They started w ith some prior experience, very often Winter for his research assistance and hard work actually continuing already set up family businesses. on editing and proofreading. No clear conclusion can be made about the growth or sustainability of their businesses, which is a direct consequence of the lack of serious advising for the successful beneficiaries. Finally, we want to thank our supportive colleagues at the Belgrade Fund for Political Excellence and the team of the German Council on Foreign Relations (DGAP) for their research and financial support. 8
ENDNOTES 1
Group of authors (2014, April 10). Brussels mulls steps to curb EU shadow economy. Euractiv. R etrieved from www.euractiv.com 2
For an overview of undeclared workers in Europe see Hazans, M. (2011). 17
See A vlijas, S., Radisavljevic,M., & Popovic Pantic,S. (2012). Gender Impact A nalysis of Selected Support M easures for Entrepreneurship in Serbia. UNWomen, pp. 16. 18
On methodology: Since the National Employment Service could not provide us Informal workers across Europe: Evidence from 30 countries (No. 5871). with names and contacts of beneficiaries, we used social media and p ersonal Discussion paper series//Forschungsinstitut zur Zukunft der A rbeit. contacts to find our respondents. The d anger of this approach is that those unhappy 3
Group of authors (2013, March). The Shadow Economy in Serbia. New Findings and Recommendations for Reform. USAID and FREN, available at http://www.bep.rs/images/gallery/2013_03_20/the-­‐shadow-­‐economy-­‐in-­‐
serbia-­‐study.pdf 4
See Bulatovic, S. (2012, May 12). Grey Economy and Black Wages. Vecernje Novosti. R etreived from www.novosti.rs 5
Group of authors (2013, March). The Shadow Economy in Serbia. New Findings and Recommendations for R eform. USAID and FREN, available at http://www.bep.rs/images/gallery/2013_03_20/the-­‐shadow-­‐economy-­‐in-­‐
serbia-­‐study.pdf 6
See PWC Report on Tax and Macroeconomic Point of View on the 2014 Budget of the Republic of Serbia, available at http://www.pwc.rs/en/news/assets/10-­‐
minutes-­‐issue-­‐1.pdf 7
with the results m ight be more prone to criticize the procedure and outcomes and thus more r eady to respond to our survey/interview. However, out of these stories, 2 were so far successful start ups, 2 unsuccessful, 1 person was about to apply. We wanted to p resent a diverse group of young people (age, gender, education level, type of business, success vs. unsuccessful etc.) and by providing a small but diverse sample we emphasize the problems that all of them have encountered.. 19
According to Eurostat figures for Serbia, in 2013 the youth unemployment rate was 49%, compared to 51% in 2012 and 50% i n 2011. Retrieved from epp.eurostat.ec.europa.eu. See Government of Serbia, Team for Poverty R eduction and Social Inclusion (2014). Second National Report on Social Inclusion and Poverty Reduction, pp. 28. 8
See Government of Serbia, Team for Poverty R eduction and Social Inclusion (2014). Second National Report on Social Inclusion and Poverty Reduction, pp. 117, line 5.1.20 9
State support for entrepreneurship include self-­‐employment subsidies implemented by the National Employment Service (targeting only sole proprietors); start-­‐up loans implemented by the Republic Development Fund (targeting both sole p roprietors and enterprises); innovation subsidy implemented by the Ministry of Economy and Regional Development (targeting only enterprises); competitiveness subsidy implemented by the National Agency for Regional Development. 10
See Vladisavljevic, A. & Nikolin, S. (2014). Job Creation for Youth and Improving Youth Employability. Government of Serbia, Team for Poverty Reduction and Social Inclusion, pp. 41. 11
All stated statistics are from the Labour Market Survey 2013, National Statistical Office, if not stated differently. 12
Rationale for National Employment Service Financial Plan for 2014 submitted to the Parliament, available at www.parlament.gov.rs/upload/archive/files 13
The data is not available on Internet, but was accorded to us by the administration of the National Employment Service via email. 14
There is no doubt that more i n-­‐depth research is necessary to learn what difficulties young entrepreneurs face when p erforming economic activity. That This policy brief has been prepared in the frame of the TRAIN Programme 2014 (Think Tanks Providing Research and Advice through Interaction and N etworking), which is supported by the is why we have decided to combine the available statistics with testimonies of German Federal Foreign Office (Stability Pact for South East young entrepreneurs and p erceptions shared by the trainers of the NES. The Europe) and implemented by the German Council on Foreign sample is not representative, but it shows the realities of the process from training, applying and obtaining the subsidy to r unning business after the Relations (DGAP). contract has expired. 9