WESTERN BALKANS REGULAR ECONOMIC REPORT No.17 | Spring 2020 The Economic and Social Impact of COVID-19 LABOR MARKETS “You and me” by Tanja Burzanovic (Montenegro) The RER No. 17 is a collection of notes on the Economic and Social Impact of COVID-19 that will be pub- lished in three parts. The first part was launched on April 29 and focused on the macroeconomic impact of COVID-19. This second part shows how the macroeconomic impact affects the people in the region. It discusses the social impact of COVID-19 in the Western Balkans in six separate RER notes on poverty and welfare, labor, health, education, air pollution, and social protection. The third part, to be launched in early June, will focus on specific economic policy response areas—fiscal, external, and financial sector—and the crisis impact on the private sector as reported by firms. THE ECONOMIC AND SOCIAL IMPACT OF COVID-19 Western Balkan Labor Markets and the COVID-19 Shock1 • Before the COVID-19 crisis began, the Western Balkans had record-high employment and record-low unemployment. • The COVID-19 crisis has already wiped out part of the labor gains in the Western Balkans: by April 2020, 40 percent of the 2019 unemployment reduction gain was lost. • The total employment impact is expected to be unprecedented and broad-based and all Western Balkan countries have moved to support enterprises to retain jobs and protect unemployed. • As recovery phase starts, authorities should not lose sight of addressing longer-term challenges as acute shortages of labor and skills, and low productivity. Measures to protect lives will adversely affect during the recovery phase can be found in the labor markets in the Western Balkans. companion RER notes, especially the note Restrictions on movement and social distancing “Social Protection Responses to the COVID-19 have affected labor supply and demand, Crisis in the Western Balkans.” transport and travel in unprecedented ways. Whole sectors of national economies have been shut down—restaurants, hotels, nonessential As the COVID-19 crisis began, the retail trade, tourism, transport, and much Western Balkans had record-high manufacturing. Despite government support employment packages, businesses throughout the economies In 2019 employment rate in the region grew are suffering losses that threaten their operations to a historical high of 45.6 percent for age and solvency. The most affected are small and groups 15+,  up by 1.4 percentage points (pp) medium-sized firms2 and informal businesses. from 2018. At year-end, Kosovo had the largest The impact on income-generating activities is increase in people employed—6.7 percent especially harsh for unprotected workers and year-on-year (y-o-y). Employment growth the most vulnerable groups in the informal was around 4 percent y-o-y in Bosnia and economy. Where informal, temporary, and Herzegovina (BiH), North Macedonia, and self-employment is disproportionate, labor Serbia, and 3.1 percent in Albania, but in markets are likely to see more job destruction, Montenegro, it slowed to 0.3 percent y-o-y. In which will need to be addressed by social 2019, 190,000 new jobs were created in the safety nets. Detailed policy options to support Western Balkans, more than a third of them in the unemployed and (newly) vulnerable as Serbia. By year-end, employment in the region the social impact of the crisis unfolds and was 7.7 percent higher than in June 2008, when the last global financial crisis began, 1 This note, which was prepared by Sanja Madžarević-Šujster, and the region had experienced five years of benefited from the comments of Stefanie Brodmann, Marc Schiffbauer, Edith Kikoni, Enrique Blanco Armas, Jasmin Chakeri, uninterrupted employment growth averaging and Gallina Vincelette. 2.8 percent a year. 2 See also the companion note “Covid-19 Vulnerability in the Western Balkans: A Firm-Level Perspective.” Labor Markets  |  1 WESTERN BALKANS REGULAR ECONOMIC REPORT NO.17 WESTERN BALKAN LABOR MARKETS AND THE COVID-19 SHOCK Employment had grown so much in the still a large untapped pool in the labor market. region that it generated labor shortages Montenegro recorded the highest level of gross and wage pressures. Before the crisis, labor wage, more than €780, but labor cost differences shortages were already pronounced in Serbia are narrowing: in 2017, Montenegrin gross and North Macedonia in manufacturing and wage was more than twice that of Albania; it is transport, and Montenegro needed more now 1.8 times higher. workers in tourism. In the last two years increases in the minimum wage had pushed The unemployment rate dropped to up the average wage by over 12 percent. Since historical lows in the Western Balkans. In 2017, gross wages in euro terms had gone up by 2019 it declined to 13.4 percent, 2.3 pp less 25 percent in Serbia, over 21 percent in North than in 2018, with drops in Kosovo and North Macedonia, 18 percent in Albania, and about Macedonia of more than 3.5 pp. In Albania 10 percent in BiH; in Kosovo and Montenegro it reached a new low of 11.5 percent; in BiH wage growth was above 2 percent. In Kosovo, it fell to 15.5 percent. In Q4 of 2019, the although employment grew most there, there is unemployment rate in the region dropped Figure 1.  Employment rate increased Figure 2.  …and job creation even accelerated throughout the region in 2019… in 2019 Q4. Employment rate, 15+ years, percent and 2018–19, Employment index, Q2 2008=100 percentage change 12 20 +1.4 WB6 10 +1.3 15 ALB 8 SRB +1.4 6 10 +1.2 4 MNE 5 2 +2.2 MKD 0 0 +1.1 BIH -2 -5 +1.3 -4 KOS -6 -10 -15 ar-16 ep-16 ar-17 ep-17 ar-18 ep-18 ar-19 ep-19 10 20 30 40 50 60 Sep M S M S M S M S J 2019 J 2018 ▬ ALB ▬ BiH ▬ MKD ▬ MNE ▬ SRB ▬ WB6 ▬ KOS, rhs Figure 3.  Unemployment rate reached new Figure 4.  ...and participation rose as more lows… women joined the labor force. Unemployment rate, 15+ years, percent, and 2018–19 change, Labor force participation, percent, December 2019 or latest pp 80 -2.3 WB6 70 -2.3 SRB 60 -0.8 ALB 50 -0.1 MNE 40 -2.7 30 BIH -1.7 20 MKD 10 Jun-18 Jun-19 -3.9 Dec-19 Dec-19 Dec-19 Dec-19 Dec-19 KOS 2015 2015 2015 2015 2015 2015 0 0 5 10 15 20 25 30 ALB SRB MNE MKD BIH KOS J 2019 J 2018 Q Female LFP Q Male LFP Source: National statistics offices and World Bank staff estimates. 2  |  Labor Markets THE ECONOMIC AND SOCIAL IMPACT OF COVID-19 even further, to 12.7 percent, and in Serbia to The COVID-19 crisis has already wiped a single digit, coming closer to the EU level of out part of the labor gains in the 6.1 percent. In 2019 in the Western Balkans Western Balkans there were 163,000 fewer unemployed than in Employment contraction is already very 2018, half of them from Serbia, and 20 percent evident in the Western Balkans. Data on of which were young people, bringing youth labor market performance by April suggest that unemployment down by 4 pp to less than the largest annual increase in the number of 29 percent—the lowest on record. unemployed so far in 2020 has been in Albania, up by 25 percent, and North Macedonia, by Still, up to the COVID-19 crisis labor force 11 percent.3 Partly this reflects the formalization participation was still low. In 2019 it had gone of informal workers who registered to access up very slightly (up 0.3 pp) to 52.7 percent in health insurance and other benefits. Except 2019, much of it due to more women entering for Serbia and Kosovo,4 the administrative the labor market. The improvements mostly unemployment data already show a y-o-y occurred in Albania and Montenegro, where increase in the number of unemployed. the participation rate went up by more than Since January there were some 63,000 newly 1 pp. However, when the crisis began, almost registered at employment bureaus. Further, in half of the working-age population in the 2020 Q1, job vacancy data for Montenegro region were inactive. In Kosovo, inactivity had showed a drop of 75 percent and a drop in even increased pre-crisis; 70 percent of Kosovars Serbia of 48 percent, suggesting a further labor entered the crisis without a job. market deterioration ahead. The gender gap in labor force participation Companies moved quickly to defensive further narrowed in 2019. Participation of measures: c hanges in working hours,  women rose by 1.4 pp to more than 42 percent temporary reductions in working time, forced in the region, although with large variations leave, unpaid leave, and finally layoffs or even across the Western Balkan countries. Albania forced shutdowns to cope with the falling led the gender inclusion effort; its female operations.5 According to the Serbian Chamber participation rate reached a new high of of Commerce, by March 31, about 77,000 53.3 percent. Montenegro followed the rate workers were on forced leave due to suspended neared 50 percent, as maternity benefits of production, and about 1,000 companies had unlimited duration are gradually abolished. their accounts blocked due to inability to pay Although Kosovo is still far behind, initial 3 In North Macedonia, firms were allowed to rehire workers and successes raised the female participation rate apply for wage subsidies for April and May, which will likely lead to above 22 percent of working-age women. to a downward adjustment of the number of unemployed. 4 In Kosovo, firms have registered a much higher number of workers Region-wide, the participation gap between as newly unemployed than their formal workers, suggesting that the employment support provided to formal sector workers as part men and women narrowed from close to of the government’s Emergency Fiscal Package has contributed to a 19 percent in 2018 to 17.4 pp difference—but formalization of employees. 5 According to the North Macedonia Finance Think survey in mid- due in part to male participation rate declining April, about 43 percent of businesses were forced to close due to measures preventing movement and interactions, and 40 percent in all Western Balkan countries except Albania of businesses expected a plunge in revenue. The impact on micro- and Serbia. businesses was particularly strong; the percentage of businesses being forced to close has been about 55 percent and those with severe shortfalls in revenue about 50 percent. Labor Markets  |  3 WESTERN BALKANS REGULAR ECONOMIC REPORT NO.17 WESTERN BALKAN LABOR MARKETS AND THE COVID-19 SHOCK what they owed. Workers with fixed-term delay before the impact of the slowdown contracts were let go first. According to the on employment was clear. In the current early April survey by the Economic Chamber of crisis, lockdowns have made the employment North Macedonia, only 19 percent of firms had impact more immediate, although rigidities in put workers on forced leave and only 0.8 percent labor regulation did not allow for faster labor of firms had fired employees. Many had enough shedding. The magnitude of the impact will liquidity to protect jobs temporarily and were likely take time to emerge. It depends on waiting for the announced government wage subsidy support. Still, some 29,000 jobs were in y the evolution of the crisis—whether jeopardy after most bars, restaurants, and hotels recovery is V-shaped, L-shaped, or closed on official lockdown orders. A business U-shaped; association in Kosovo found that 84 percent of firms surveyed had either closed entirely, y the heterogeneity of economic structure reduced capacity, or reduced work schedules, of each country and how COVID-19 and about 29 percent had reduced the number impacts specific sectors; of workers.6 y how quickly labor markets respond to the Unemployment will be further affected by changing economic trends; and returning migrants. In 2017 about 3.7 million Western Balkan workers lived in Europe.7 As y how effectively government measures containment measures and demand shocks protect jobs and firms (from “whatever it affected European labor markets, migrant takes”’ approaches to targeted and fiscally workers on short-term labor contracts were contained packages). among the first to be laid off. Many decided to return home to reduce living costs in The sectors most affected by a drastic fall host countries where they had no access to in output are accommodation and food social insurance or unemployment benefits, services, some manufacturing, wholesale but official data are not yet available. If only and some retail trade, and real estate and 10 percent return, this would increase the Table 1). They are labor business activities ( number of unemployed by one-third. intensive and often employ low-paid, low- skilled workers, particularly accommodation and food services and retail trade. Workers The total employment impact is engaged in activities deemed essential (e.g., expected to be unprecedented and food distribution, pharmaceuticals) continued broad-based to work but their occupational health risks Following economic contraction with some are high. There will be differential impacts delay, the employment adjustment will likely in manufacturing—pharmaceuticals, agro- intensify; in 2009, there was a two-quarter processing and food production, some paper and textile will continue their activities, but 6 See also the companion note: “Covid-19 Vulnerability in the workers in car-supply chains were asked to Western Balkans: A Firm-Level Perspective”. stay home as production ground to a halt. 7 https://www.un.org/en/development/desa/population/migration/ data/estimates2/estimates19.asp. Transport, storage, and communications have 4  |  Labor Markets THE ECONOMIC AND SOCIAL IMPACT OF COVID-19 Table 1. Sectors at Risk - Heatmap ALB BIH KOS MKD MNE SRB Education Human health and social work activities Public administration and defense; compulsory social security Low Utilities Financial and insurance activities Information and communications Agriculture; forestry and fishing Low- Mining and quarrying Low-medium medium Transport; storage and communication Manufacturing Medium-high* Construction Accommodation and food services Real estate; business and administrative activities Wholesale and retail trade; repair of motor vehicles and High motorcycles Arts, entertainment and recreation, and other services Source: Adjusted per the ILO Monitor 2nd edition: “COVID-19 and the World of Work.” Note: Heatmap shows the assessed risks of adverse labor market adverse impact for each sector. seen some workers negatively affected (e.g., in and because of the different professions they the airline industry); while others continue to occupy most. In Kosovo, the pre-existing meet the increased demand for online retail. gender gap suggests that only 13 percent of Agriculture has been largely unaffected, except workers affected will be women. It will be for constrained supply of imported materials important to ensure that gender inequalities and agricultural inputs due to border closures. do not widen during and after the pandemic and that the gains in female accumulation of human capital, economic empowerment, and The COVID-19 labor crisis will most voice and agency painstakingly achieved in affect male workers over 30 years old decades, are not reversed. Three-fourths of with secondary education and jobs in likely affected workers are aged 30‒64. For the SMEs with permanent contracts region as a whole, two-thirds have secondary Applying the sectoral risk assessment to education, but in Albania the share is less than the labor force data of the Western Balkan 50 percent. About 34 percent of those affected countries suggests that male, older than 30, have only primary education. About 23 percent with a secondary education, and working in of all those likely to be affected are self- SMEs on a permanent contract will be most employed, while the majority (three-fourths) affected by the COVID-19 impact. Around two- are employed in SME firms on permanent thirds of workers likely to be affected are men, contracts (two-thirds). because more men than women are employed Labor Markets  |  5 WESTERN BALKANS REGULAR ECONOMIC REPORT NO.17 WESTERN BALKAN LABOR MARKETS AND THE COVID-19 SHOCK Figure 5. Profiles of the Likely Affected Workers8 Percent 100 100 90 90 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 ALB BIH KOS MNE MKD SRB ALB BIH KOS MNE MKD SRB J Male J Female J Employee J Self-employed J Non-paid employee 100 100 90 90 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 ALB BIH KOS MNE MKD SRB ALB BIH KOS MNE MKD SRB J Age 15–29 J Age 30–64 J Temporary J Permanent 100 100 90 90 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 ALB BIH KOS MNE MKD SRB ALB BIH KOS MNE MKD SRB J Primary education or less J Secondary education J Firm size 1–10 J Firm size 11–49 J Firm size 50+ J Post-secondary education Source: National statistical offices, World Bank staff estimates. Note: Labor Force Survey (LFS) 2017 data for North Macedonia and Serbia. LFS 2018 data for Albania, Kosovo, and Montenegro. For BiH, LFS 2019 data; calculations by the World Bank and the BiH Agency for Statistics. Not surprisingly, private sector employees will come from large firms. In the Western will bear the brunt of the crisis (88 percent. Balkans, one-third of all affected workers work Only in Kosovo will more temporary than in wholesale and retail trade. permanent workers lose jobs but that is due to the pre-crisis labor market structure. Half of the affected workers will be in small companies 8 Calculations done by Ana Maria Oviedo (Albania), Trang Van (up to 10 employees), although in North Nguyen (Serbia and Montenegro), Anastasia Terskaya (North Macedonia), Stefanie Brodmann (Kosovo), Leonardo Lucchetti Macedonia over 38 percent of affected workers with the Agency for Statistics of Bosnia and Herzegovina (BiH). 6  |  Labor Markets THE ECONOMIC AND SOCIAL IMPACT OF COVID-19 Table 2. Labor Protection Support Programs Across the Western Balkans Herzegovina Montenegro Bosnia and Macedonia Fiscal measures Albania Kosovo Serbia North Subsidies/waivers for social security payments √ √ √ √ √ Private sector wage subsidies √ √ √ √ Unemployment benefits with relaxed eligibility √ √ √ √ √ √ The magnitude of the rise in y Facilitating alternative employment or unemployment will also depend on how employability for those out of work; effective the policy measures to boost labor demand are y Providing income protection for those Immediate policy responses need to that do lose jobs and livelihoods; provide relief to workers and enterprises to protect livelihoods and economically y Shielding businesses from immediate viable businesses, particularly in hard-hit bankruptcy because of demand shocks, sectors, thus laying the ground for a prompt, disrupted supply chains, and lockdown; job-rich recovery once the pandemic is under and control. Public resources should first be used to provide temporary targeted relief to hard- y Supporting worker retention through hit sectors. Experience from previous economic employment subsidies.11 downturns suggests that wage subsidies can help retain jobs.9 Negative assessments of wage All Western Balkan countries have moved subsidies usually relate to programs targeting to encourage enterprises to retain or create the disadvantaged or promoting job creation jobs. By April 2020, a month after lockdown in “normal” economic times. However, getting and containment measures were introduced subsidy programs up-to-speed can take time. throughout the region, all the governments Effective communication, social dialogue, and had adopted programs to save jobs and firms. clear government commitments are critical to In addition to health protection measures, tax limiting job losses now.10 reliefs, guarantee schemes, subsidized credit lines, and social assistance measures, there were The following short-term policies have often also measures to save jobs through partial or been applied to protect affected people and full compensation for wage costs, and stronger help to preserve jobs in otherwise viable unemployment benefits with relaxed eligibility businesses: criteria (Table 2). While measures announced by governments are still being put in place; it is important to monitor the effects and make 9 See, for example Cahuc (2019) for a review of short-time work adjustment to measures as needed. compensation schemes and Bruhn (2016) for Mexico. 10 See the following note for wage subsidy design principles: https:// www.jobsanddevelopment.org/wp-content/uploads/2020/05/ 11 See the companion notes: “Covid-19 Vulnerability in the Western WB-Design-and-Implementation-Practices-for-Wage-Subsidies- Balkans: A Firm-Level Perspective” and “Social Protection during-COVID-19.pdf. Responses to the Covid-19 Crisis in the Western Balkans.” Labor Markets  |  7 WESTERN BALKANS REGULAR ECONOMIC REPORT NO.17 WESTERN BALKAN LABOR MARKETS AND THE COVID-19 SHOCK While the effects of the crisis are still unfolding, there are faint signs of at least temporary easing in some countries. Authorities should therefore not lose sight of such longer-term challenges as acute shortages of labor and skills, and low productivity. Opportunities from near-shoring, services out- sourcing, and digitalization are worth exploring. Long-term, Western Balkan countries also need to both step up investment in skills and broaden access to skills development. To lower the threat of automation and improve the quality of jobs, the region needs to boost investment in foundational skills and in such modern, “new economy” skills as ICT, problem solving, creativity, communication and people skills, so that current and future workers can adapt more easily to rapidly changing labor markets.12 12 World Bank and wiiw (2020): Western Balkans Labor Market Trends 2020. 8  |  Labor Markets Western Balkans Regular Economic Report No.17 | Spring 2020 Labor Markets View this report online: www.worldbank.org/eca/wbrer You and me by Tanja Burzanovic (Montenegro) Dr. Tatjana Burzanovic has a wide experience in the fields of graphic design, graphics in architecture, interior design. She has worked as an art editor, interior designer and graphic designer at various levels. Many of her art exhibitions have taken place at different places. She has received many awards for her arts and literary works. She has published a book with a title The Interrelation between Art Worlds, with the support from the Embassy of India for Austria and Montenegro in Vienna. Her artistic philosophy includes displaying of interrelationship between art worlds (spatial and temporal arts). The artist thus meditates between nature and the sprits and yet stems from the absolute idea and serves the goal of realization of absolute sprit. ‘Grasping the meaning through the form’ is a task of the art set by a contemporary thinker to demonstrate that building forms and creating sense are two simultaneous, intertwined, and absolutely inseparable processes in Arts. Without that recognition it is not possible to take any further step in investigating the nature of art and literature. She believes that art is a way to search the truth. Art is inseparable from searching the truth. People forge ideas, people mold dreams, and people create art. To connect local artists to a broader audience, the cover of this report and following editions will feature art from the Western Balkan countries.