Report No. 1615a-YU DILt: 1u r l Yugoslavia: Self-Management Socialism and the -,I 1A I I ir_jq,ges of I*"qC: l IL (In Six Volumes) VoUlumeI V I Pvutuii !!!:D Irv-irnnt Icenc I 1.45 L. III. * ~% VVI I 1-I~I ILI.)JI March 21, 1978 Europe, Middle East and North Africa Region FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Before January 23, 1971 1 US dollar = 12.5 dinars 1 Dinar = 8 US cents From January 23, 1971 to December 22, 1971 1 US dollar = 15.0 dinars 1 Dinar 6.67 US cents From December 22. 1971 to July 12, 1973 1 US dollar = 17.0 dinars 1 Dinar = 5.89 US cents S.ince july 12, 1973 sler DwnarU Llsa L)tten J.oatiALLr,g. The rate of December 31,1977 was 1 US dollar = 18.445 dinars 1 Dinar = 5.42 US cents FOR OFFICIAL USE ONLY - 280 - YUGOSLAVIA: SELF-MANAGEMENT SOCIALISM AND THE CHALLENGES OF DEVELOPMENT PART III--DEVELOPMENT ISSUES V. EMPLOYMENT 5.1 The adequate provision of gainful employment 1/ opportunities remains one of the least tractable problems facing Yugoslavia during the current plan period. Despite an actual decline in the resident active labor force in the past decade and in spite of rapid sectoral shifts in labor use, notably from the private agricultural sector to the social sector, the labor market 2/ in Yugoslavia continues to be characterised by considerable imbalances. First, the market has, and continues to be, divided into a modern, social sector with high productivity and incomes, and a traditional, private agricultural sector with low incomes. Although it is notoriously difficult to define and deter- mine the extent of surplus labor 3/ in the traditional sector, the large productivity differences between the sectors point to a pool of workers that could be more effectively utilized through shifting them from low productivity activities to the modern sector. Meanwhile the large income differentials have created a large demand for social sector employment which has been an imnortant element in the ranid migration from the agricultural sector. Second, the labor market in Yugoslavia has tended to be regionalized. With t-he exception nf o lnuvenia, all Repniihlir have pontckets- of tr2ditional seoror employment seeking modern sector work. This, combined with the cultural differences bet.ween Republics, have tended to restrirt interrepublican migra- tion, resulting in considerably differing employment opportunities between the various Republircs. Thtrd, nfter the 1Q96 reformcs an increasinglV important role was played by external migration in absorbing workers. With the new restrictions placed odn external migra tion in host countries, this vent has not only been closed but has led to a considerable reflux of Yugosla workers, accentuat-th eix_sing iTmh1Incesr Fourth, depnitP the rapid structural changes that did occur in the labor market, there are indica- tions that sections of the working-age popolaion hanv withdrarwn from t-he 1/ This chapter departs from the Yugoslav definition, according to which "employer.t" r.l nntyver recipier.ts of "p-ersnnal incnTome" (in t-ha scriain sector) ar contractual wages and salaries (in the private sector) and incl Ude all thos earnirg 4come as "self-e.mployed". . "w comprises both categories, unless otherwise specified. 2/ Labor market in this chapter is used as a shorthand for labor supply and Tduand. 't 's not use' to Adenote an actual marketplc where labor is Ut_iaii . L L u L _L U L. ~ t ~ ai aL ua -L *. ~ --L . pL L W. -. -o .L' ~ actually transacted, a fact which would run counter to the basic philo- sophical premises ol the Yugoslav systeml. 3/ Labor with zero or very low marginal proauct. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. '0 1 Z-£01 labor force due to the difficulties in obtaining modern sector employment. Finally, using input-output tabies we observe a significant decilne in iabor requirements for all sectors due to changes in production technology i.e. falling labor output ratios. Furthermore, this has been accentuated by a strong shift in the pattern of final demand away from primary agricultural produce to other commodities with lower labor inputs. 5.2 The new economic system has foreseen novel instruments and insti- tutional arrangements to encourage a faster growth in employment in the modern sector. A rapid growth in employment is crucial if the natural in- crease in the labor force, returning migrants, and the currently unemployed are to be gainfully employed. In addition there will be a continuing need to provide opportunities for migration out of low productivity work, in the agricultural sector. Although the new measures bear considerable promise the nature and magnitude of the employment problem preclude a rapid solution. This is particularly apparent if one considers the large regional dimension of the employment problem. The lesser developed Republics, most notably Kosovo, will continue to have large reserves of labor in the agricultural sector well beyond the current plan period. Characteristics (i) Dualism 5.3 One of the main features of the labor market in Yugoslavia is the large income differentials between the traditional (private agriculture) and modern (social and private non-agricultural) sectors. The disequilibria in the labor market can be more clearly seen through analysing such differen- tials rather than attempting to estimate surplus labor in the agricultural sector. Numerous estimates of surplus labor in the agricultural sector have been made over the years. Most studies indicate a surplus of between 20 to 30 percent. 1/ One of the most comprehensive studies was undertaken by the Economic Institute of Skopie University in 1970, estimating the labor require- ments in the agricultural sector and comparing these with estimated labor supply. The study found average annual surpluses of around 30 percent of the active population in agriculture. Aside from methodological shortcomings, 2/ such estimates are concentuallv. difficult to interpret. First, there is no consensus on what constitutes "surplus labor". Second, the effects of techno- logiral pnrnores 2nd indivi4dil pnrefprnces to work are diffiriilt to determine in anything but a static framework. Earlier estimates of surplus labor prior to the war and imm-rdiat-ely after also indicate sirpluses of around nnp-thihrd 1/ IBRD Studies on the less developed Republics and Provinces of Yugoslavia c oanfir me1his Yr. ths se cific istane, a lthoug Lh the laoh Cdmand est;me-S of tho x ...E;v L LI vv L I _ L^W _ j-. vv L. - _ - _v _ . study are sound the supply of labor appears to be overestimated on two gro-.LULs. First, thLIe stUAy Aoes not consider the a structure of the agricultural population. Second, the study includes workers temporarily empLoyeud aroadu as part of tie labor force. - 282 - of the agricultural population despite the major structural changes since. Estimates for any one year thus provide little guidance to the likely change in the size of the surplus labor force as much will depend on changes in tech- nology as well as individual preferences to work. Thus it would seem more fruitful to view the government's employment objective 1/ as an attempt to redress the large income differentials between the private and social sectors, through provision of gainful and productive employment opportunities. This would facilitate a transfer of labor from less productive occupations (even though they may have a positive marginal product and are not surplus in the strict neoclassical sense) to these, while at the same time, increasing the land/labor ratio, and hence, indirectly fostering an increase in private agricultural sector incomes. 2/ 5.4 If the labor market is analysed in terms of income differentials between the traditional and modern sectors, a number of features can be observed. First, there have been. and continue to be. significant differences in the average income levels of workers in the traditional and modern sectors. Second. one of the imoortant consecuences of the 1965 reforms was to con- siderably increase these differentials. Finally, although there has been a tendencv for inromp disnaritips to decrease in reeant years, nrincinallv as a result of a rapid depletion of the labor force in the agriculture sector, there has, on the nther hand, been a tpndpnrv for thp nunmhbr of registered unemployed to rapidly increase. Thus in part, at least, migration out of the -aririiltui,ral ctri-or, has bee.n narcompnipd hv an incrrPqasP in the rinks of the registered unemployed, rather than a transfer of workers from low to high productiv i4 ty omnloymer 5.5 The Institute of Stat ci -4 . ha recer.tly mod stiat of total personal incomes in the agricultural sector. Active labor force in agricul- ture has been estimated independently in this study, treating the sector as a residual employer of the active labor force (see Appendix VII). 3/ Using these dlerive=d fgrsaseisof ir.dica-ive personal in4come figures can be LLI~~ UCL..V JU.L.LULC:, a 0O_lm.~ iJJ.. £LLLL.OCL_LV~ F~A.O-~LLC.- ~L~--U Jl - r-6. O .a, SJ obtained and are summarized below in Table 1. 4/ _t Fator example the "Otl-lr, of a -Coo--.--. Di14-for T LMg-Term nt in Yugoslavia until 1985", Belgrade, 1974 discusses the objective of atta'LrinLig "fU.L empLUymer.Lt uy 1985. 2/ As a rule, tne maximum farm sie fot: fOr a- pLiVL-te LdfUa fauiliy s 'IV tetares of land. This limit however, does not appear to be a problem. In 1971 for example, there was an estimated 2.7 hectares oL arable land per active in the private sector. In 1969, 47 percent of all cultivable land was in farms of less than five hectares. 3/ Official estimates of the number of active in tne private agricuiturai sector do not exist except for the census years 1961 and 1971. Even these census figures need to be adjusted. 4/ Results obtained are consistent with published Yugoslav estimates; see "Employment and Temporary Unemployment", M. Nikolic, Yugoslav Survey, 1974, p. 16. He estimates a wage differential between social sector and private agricultural workers of 3 to 1 for 1971. - 283 - Table 1: ANNUAL PERSONAL INCOMES PER WORKER IN THE SOCIAL SECTOR AND PER ACTIVE IN PRIVATE AGRICULTURE, 1962-75 (Dinars) 1962-64 1966 1968 1970 1971 1972 1973 1974 Social Sector Average 3,552 8,760 10,740 15,000 18,168 21,120 24,384 30,408 Unskilled - 5,928 7,920 9,696 12,468 15,036 17,808 20,076 Private Agriculture 1,400 3,400 3,220 4,720 5,970 7,760 10,410 13,610 % of Average Social Sector 39 39 30 31 33 37 43 45 % of Unskilled Social Sector - 57 41 49 48 52 58 68 Sources: Statistical Yearbook of Yugoslavia and data provided by the Federal Institute of Statistics. On average for the period 1962-74, private agricultural incomes have varied from less than one-third to under one-half of average social sector personal incomes, and between 41-68 percent of the income of an unskilled worker in the social sector. 1/ Private agricultural personal incomes relative to social se tor incomes fell sharply immediately after the 1965 reforms. In the period immediately preceding the reforms, incomes in private sector agriculture were i*st uinder 40 Dercent of average earnings in the social sector, but by 1968 this had fallen to 30 percent. The principal reason for this large deteriora- tinn in relAtive incompe is. acuntent-d for bv the threefold increase in nominal personal incomes in the social sector, a result of the rapid increase in pro- ductivity in the period immediately after 196S *ombined with thp distribhtion of a larger share of enterprise income to personal incomes. 2/ Meanwhile modern sector employment actually fell, curbing rural-urban migrationn Thus it is hardly surprising to observe the large increase in the rate of migration from the agricultural sector after 1968 sse p aragraphs Ins-5 A 14) when mnra 1/ LTe above figures are somewhat miladn sinc the --iulua labor force has a somewhat higher ratio of very young and elderly. Table 5.6, for example, attached at the end of this chapter, (all table nos. pre- fixed with "5" can be found at the end of this chapter) shows that, while some 65 percent of the agricultural labor force are between 15-49 years old, in other sectors the percentage is 75. However, even allowing for this, the differentials remain very high. Z/ See paragrapn 1.11, Chapter I, Part III. - 284 - social sector jobs became available and opportunities for external migration increased. Between 1968-74 there was a gradual improvement in relative incomes, principally as a result of the rapid decline in the agricultural labor force. In spite of this, differentials remaiLn large and comparable to those of the pre-1965 reform period. (ii) Regional Differences 5.6 The employment situation in Yugoslavia has an important regional dimension. With the exception of Slovenia, all Republics have pockets of low income private farmers seeking social sector employment. Such a demand for social sector employment in all Republics has led to considerable intra- republican rural-urban migration, whereas opportunities for inter-republican movements of workers have been fairly limited. Consequently, the labor market has tended to be regionalized with employment opportunities differing con- siderably between Republics, reflecting differences in the size of the private agricultural sector as well as in demographic characteristics of Republics. 5.7 An indication of the large differences in employment opportunities between the Republics can be seen in the large differences in registered unem- ployed rates summarized in Table 5.4. 1/ There are three striking features. First, there has been a continuous and rapid increase in unemployment rates 2/ for Yugoslavia as a whole, rising from 6.7 percent (3.0) in 1971 to 10.4 per- cent (5.3) in 1975. Second, there are large differences between the Republics. Thus, while Slovenia is for all intents and purposes experiencing full employ- ment, Kosovo has a registered unemployment rate of around 25 percent. All the less developed Republics have higher than average unemployment rates, three of the four have the highest of all Republics (the only exception is Macedonia which has a slightly lower rate than Serbia Proper). Third, with the exception of Slovenia (which has low and falling unemployment rates) all the developed Republics have fairly high and rising unemployment rates. This suggests that the unemployment problem is not specific to the lesser developed regions but is one faced by all Republics except Slovenia. 1/ Table 5.4 is attached to the end of this chapter (all table nos. prefixed with "5." can be found at the end of this chapter). 2/ RDatio of registered unemnloved to social sector employment plus regis- tered unemployed. Figures in brackets related registered unemployment to total lOalbor force. - 285 - Table 2: PERSONAL INCOMES IN PRIVATE AGRICULTURE AND SOCIAL SECTOR PER ACTIVE WORKER BY REPUBLIC, 1971 (Yugoslavia 100) Incomes in Social Share of Labor Private Sector Force in Agriculture Average Social Sector Bosnia-Herzegovina 76 95 39 Montenegro 109 87 49 Macedonia 101 83 43 Kosovo 80 83 31 Less Developed Republics 85 90 40 Croatia 120 111 49 Slovenia 145 115 67 Serbia Proper 83 93 37 Vojvodina 171 97 49 Developed Republics 106 104 46 Yugoslavia 100 100 44 (Dinars per month) 597 1514 Sources: Federal Institute of Statistics and Table 5.17. 5.8 The regional aspect of the employment issue can also be seen through looking at the structure of employment in the various Republics. Table 2 sum- marizes the structure of the labor force. The differences between Republics are quitlarge witlh the share of the social sector ranging from 67 percent in Slovenia to 31 percent in Kosovo. Given the large income differentials between the socialo sector nnd the nrivate agricultural sector the differences in the share of the labor force in the respective sector is an important factor in accounting for the large differences in the standards of living between the Republics. These large interregional differences in the relative size of the social sector nrnvi rip a rruide indircation of the relative size of the "surplus" labor which could be shifted to more productive activities. This structural feature is accenriint-ote Hv differenres in the incomes of private farmers in the various Republics; the least developed Republics not ~~ ~ b-4 ,,knr r.bnrn n-F nr4naia f~~~~~~~~~~~~rn,c hut nlcn h~IL~n vi C onlty having a i4g.er share of prinate farms, but alo havi-g 1wer incomes per worker in the private sector. As Table 2 shows these differentials in private sector incomes teAd to be most pro.ourced in t leasn t deovloped Republics while for the social sector, the inter-regional spread, although following a similar patterrn, Ls rnarrower. - 286 - 5.9 Finally, the existing structural differences between Republics is accentuated by the much faster natural increase in population and labor force in the lesser developed Republics. At the extreme there is Kosovo with a growth in population of 2.6 percent per annum as compared to Voivodina with 0.5 for the period 1961-71. (iii) Migration and Labor Mobility 5.10 The large differences in earnings between the modern and traditional sectors. and between labor market conditions In the various Repub]ics led to a rapid movement of the labor force out of the agricultural sector. Thus while the growth in the lahor forre between 1961 and 1975 has been a relat4ive]v modest 0.66 percent, during the same period, active population in private sector agriculture declined sharply at an annuinl rate of over 3 percent, accelerating to a peak of 6.0 percent per annum between 1970 and 1975. As a reii1t, f-r t-he perio a a.,whole, tlha number of workerc leaving the agricul- tural sector was more than twice the natural increase in the labor force. Durin gmuch of this period, external m,gration provided ar. ext impo vent for workers seeking non-agricultural employment. However, with the restricti-ons placed on externa' .mwigr-ion Iby labor-i,m.prtngcontie ate 1973, migration out of the agricultural sector has been associated with a rapid i.cLLLase Lir oJpen ULA.pl1j±LUy"=ULeI. Table 3: LABOR MOBILITY, 1961-71 % oL -'Lean Average Population Per Annum 1961-71 Intrarepublican Migration 102,500 Inter-republican Migration (Net) 23,950 0.1 External Migration Ai (Net) 71,300 0.4 /1 1963-71. Source: "Internal Migration," D. Breznik, Yugoslav Survey, Vol. XVII, No. 1, 1976. 5.11 Although there has been considerable mobility in the labor force, such mobility has had a number of notable characteristics. First, inter- republican migration has been very low by comparison to intra-republican - 287 - migration and external migration 1/. Between 1961 and 1971 net inter- republican annual migration amounted to 0.1 percent of the population, being negative as one would expect for all the less developed Republics, ranging from 0.5 percent in Bosnia to a marginal outflow in Macedonia. Yet during the same period intra-republican, rural-urban migration, equalled 0.5 percent of population and external migration 0.4 nercent. neveloped Republics, despite being net recipients of inter-republican population flows, also tended to have high rural-urban migration within their own territories reaffirming the dis- equilibria within even the more developed Republics. As a result, the role of inter-republican migration hs hbeen modest nnd is likelv ton remain an, long as pockets of "surplus" labor in search of social sector employment exist in all Repnuhlics. Social and rultural differenrcs have also been important factors, reducing inter-republican mobility.2/ 5.12 Second, with the increase in income disparities in 1965 and the …Prrlinc: in S:oCnmrl -an-'moyent - ----- t.n.J. -'o workers became external migration. In 1964 around 138,000 workers are esti- ma-ted to- have been tem.porarily employed zbroad; Iby 1968 this had ------ to .....v..... ~ y UfLJ.yu ~ Ly LJUU tLiLJ_ LIdU L_L~teLl LU 401,000. However, in the five years between 1968 and 1973 the number rose by nearly three times to a peak of 1,100,000 in 1973 or by 700, 000. During the same period the natural increase in the labor force was only just over ann~~~~~~~~~~~~~~~~~~~~~~~- nnn A n fl 7 Sn r __ I 300000 there was aJLn i LL C re aSe Lin sULLca stLectL o Wr epLuoyeitL of 1'4V,UVU ana an outflow from the agricultural sector of 1.2 million. Although the role of external migratior. was clearly very important, its regi---- incidence was uneven and did not, for the most part, correspond to the relative needs of the various Republics. TIe limportance ofU externaA L miLgratL onU as a residual absorber of labor seeking jobs outside the traditional agricultural sector, can be gauged best by analyzing labor supply absorption in 1961-75. Labor supply is defined here as the number of job-seekers during the period under consUideratiLon. It tilus consists of the natural increase in the labor force plus declines in the level of employment in any sector. In practice, this latter eelle,ient reduces to the number of workers leaving the agricultural sector, For analytical purposes, the period 1961-75 is divided into a number of subperiods. 1/ It should be noted that sectoral shifts in employment do not necessarily imply rural-urban migration. One of the features of the Yugoslav labor market is that there is considerable commuting between rural and urban areas. 2/ For an interesting study of cultural barriers to migration using data for the period 1953-61, see Oli Hawrylyshyn, "Ethnic Affinity and Migration Flows in Postwar Yugoslavia", Economic Development and Cul- tural Change, Volume 26, No. 1, 1977. - 288 - Table 4: LABOR MARKET BALANCE, 1961-75 (percentage) 1961-65 1965-68 1968-73 1973-75 Labor Supply Agricultural Outflow 62 11 80 44 Demographic Increase 38 56 20 21 Other /1 - 33 - 36 Total 100 100 100 100 Labor Absorption Social Sector 73 - 48 79 Private Non-Agriculture 4 9 4 4 External Migration 18 76 46 - Unemployment 5 15 3 17 Total 100 100 100 100 Labor Supply as Proportion of Labor Force 1.7 1.1 3.5 3.1 /1 Deplinp in gori21 sprtnr emnlnvment in thp nprind 1966-68, and returning migrants 1973-75. Source: Table 5.2. 5.13 The period 1961-65 reflects the basic trends in the immediate pre- reform era. Alreadv diiiring this nprinod a qizi7phle p nortinor (6n npreF ni) of the labor supply was accounted for by the outflow of workers from the private agricul1-tur,a-1 scator.* Tha Qocril sRecor coiildt not ahborh nll fihp lahor supinnlv but did provide just over 70 percent of all employment opportunities. The period !965-68 cshnws clerly tho implicatjonc of the 19Q6S fornrm for the labor market. Social sector employment opportunities actually declined slightly during the per4iod. Thisa decline 4n social scntory amploymeont, largerlxy achieved through attrition, reflected the objective of the economic reforms to increase labor productivi4t andA the- competitivene of Yugoslav goods. The role of temporary employment abroad became increasingly important, absorbing sm pe cn of lAbo A -Asupply.. T .,.r wa hA ^ -- A_1QoQhn A;nslA atu, , 1 U LLI -JA _ .tJU O|-UjPPJjJ . L *Lt * G wa A a _ L ° ployment during the period while the share of those seeking private non- agricuiltural employment also rose significantly. -.n the post-adjustment period to the reforms, 1968-73, the agricultural sector again became the main source oL lauor suppLy. SocLaL sector empLoymenti increased but only absorbe just under 50 percent of job-seekers. During this period temporary employment abroad again was a principal source oL employment absorbing 46 percent of - 289 - labor supply. The period 1973-75 is characterized by the sharp reversal of work opportunities in Western Europe leading to a net return of workers. Social sector employment rose rapidly during the period but was inadequate to absorb the labor supply leading to a sharp increase in unemployment, whose ranks absorbed some 17 percent of the labor supply during the period. 5.14 The effects of the curtailing of external migration on open unem- ployment have been significant. After arn initial rise in the rate of regis- tered unemployed after the 1965 reforms, the unemployment rate had declined between 1968 and 1971. Between 171 and 1973 thLere was a grauual increase in unemployment from 6.7 percent to 8.1 percent despite the high rates of external migr4ation and social sector Job creation. This trend accelerated sharply after 1973 rising to 10.4 percent in 1975. These figures must be interpreted cautiously as they 'nc'uae not only those that are openly unem- ployed but also private sector farmers seeking social sector employment and some students. i/ VNevertheless, such figures do reflect the broad trends for open unemployment and above all indicate a revealed preference for social sector employment. Thus they provide a useful measure of the disequilibria in the labor market. (iv) Behavioral Trends 5.15 Despite the rapid structural transformation of the labor market in recent years, tne differences and specific changes in participation and activity rates of the population indicate that considerable additional reserves of labor may exist. These differences, particularly evident in the less devel- oped regions, point to a sizeable share of the working-age population which has, either never sought employment, or has withdrawn from the labor force due to inadequate work opportunities and prospects of securing suitable employment. If this facet of the labor market is also considered, the size of the employ- ment problem is considerably increased. 5.16 The first feature to note is the decline in working-age and crude activity rates. Between 1953 and 1971 working-age activity rates 2/ have declined from 67 percent to 63.7 percent or in terms of crude activity rates, from 45.6 percent to 43.3 percent. The change in the crude activity rate can be analysed through a standardized age structure, thus breaking down changes of the activity rate into changes due to shifts in the age composition, and labor force activity rates (see Table 5). What emerges very clearly is the very different pattern between the two censorial periods. In the first period both changes in the age composition and participation rates contributed equally towards a decline in the crude activity rate. However, in the second period the age composition, reflecting the aftermath of the postwar baby boom, had a 1/ Open unemployment is estimated to be about 60 percent of the total registered unemployed. 2/ Economically active population as a ratio of total population of working age. - 290 - strong positive effect, while on the other hand, participation rates declined sharply, leading to an overall fall in the crude activity rate. The large increase in the size of the working-age population at a time when already some one-third of the working-age population was inactive may have been an important factor contributing to the declining participation rate (particularly pronounced for males). Although such trends need to be treated with caution since the non-active include students, housewives and early retirees, they do, nevertheless, point to considerable and increasing reserves of labor. Table 5: ESTIMATES OF THE EFFECTS OF AGE COMPOSITION AND LABOR FORCE PARTICIPATION ON CRUDE ACTIVITY RATE, 1953-71 ----------- Due to ------------ Changes in Labor Force Activitv Rates Age Structure Participation Total Population 1953-61 - 1.2 - 0.7 - 0.5 1961-71 - 1.1 + 1.5 - 2.6 Male Population 1953-61 - 3.0 + 0.4 - 3.4 1961-71 - 2.2 + 2.5 - 4.7 Female Popaior.~4n 1953-61 + 0.3 -1.3 + 1.6 1961-71 + 0.1 + 0.95 - 1.05 Source: The Determin.ants of the Labor Force P-rticipation in Yugoslavia, Economic Institute, Belgrade, 1974, prepared for ILO. 5.17 The second feature to note is the differences between regions. The lesser %developed Re--ic have 4 cosierbl lower woki.gag -ctviyrte ~~ U~~V U4JJ~. L%~_FUU L.L_ LUQY~ ~ ULWQ%4-LU XL ~ .LJy ~W~ WVLr I. Lr,C11 L%ULV . LL A. &L~ than the developed Republics and these have been declining more rapidly, thus widening Ile gap over -le 1953=73 per4od. IThese A4ifferences are par-ti cu l- arl y WJ.u LLL Ltl VL. LII .LIL7J.JI ~JL 1U. LLL~~ U.L L J. =L~ FJLLa.UL apparent with crude female participation rates, and most pronounced in Kosovo (e Table 5.UJ. Furthermore, bUetween 1961 an,u 1971' female participation rates actually declined in the less developed Republics while they continued to riLse in thLe ueveloped Republics. These trends support further the hypo- thesis that considerable reserves of workers exist, particularly in the less developed Republics and amongst females. - 291 - Tabl 6:0 S-TRC-FS OF CHANGE IN LABOR USE 1966-72 (Thousand Workers) Actual -------CIANGE IN EMPLOYMENT DUE TO: ---- Change in Level of Composition Employ- Fin.al of Final Production ment Demand Demand Technology " ' (9' (3) (4) Industry 228.3 537.3 108.4 -417.4 (235) ( 47) (-183) 1 i0 .- A) -)qq A aLl I Agriculture- -1,110.0 2,004.1 -2,25.0J -861.1 (-181) (203- (78)1 Forestry1/ -13.2 23.0 -6.3 -29.9 e.-1 (48) (227) Construction 97.0 198.1 90.9 -192.0 (204) (94) (-198) Transport and Communication 78.4 11v. 15.2 -53.7 (149) (19) (-69) Trade and Catering 184.5 163.1 143.0 -121.6 (88) (78) (-66) Handicrafts 32.0 76.0 2.5 -46.4 (237) (8) (-145) Total-' -503.0 3118.5 -1899.4 -1,722.1 (100) (-620) (378) (342) Note: Figures in brackets are the sources of changes in labor use in the period 1966-72 as a percentage of the actual change. Thus, for example, if the technological effect had been neutral, employment in the industrial sector would have been 283 percent of the actual change observed. 1/ Since both agricultural and forestry registered negative employment growth, the Percentage figures in the brackets need to be interpreted cautiously. A positive sign for the technological effect implies that employment was reduced as a result of the change in technology. Since the denominator is negative (actual employment declined) the coefficient is positive whereas in other cases such as industry where the denominator is positive the technological coefficient is negative, although the effect is precisely in the same direction. - 292 - 5.18 A number of other features should also be noted. First, during the second intercensorial period. there was nuite a sharn dRcline in m partic- ipation rates for those 44 years and over. This reflected the large increase in the number of pensioners during the neriod 1/. mainly a cnnsequence of special circumstances during the period, notably early retirement through facilities awarding snecial benefits for lpnath of seruir- Second, the impact of the baby boom on the labor market can be clearly seen for the 15-24 age grotin which fniind incrrasing difficrultxy in ecu'irinc , mnlnmtm..t- opotunJ- ties. 2/ Registered unemployed among that group increased from 36 percent of a11 unemployed in 1961 to 49 nprrcnt- in 1971 and 53 percent in 1975. '/ In addition, between 1961 and 1971 the number of 15-24 year olds declaring them- selves as "other dependents" (i.e. neither housewife, student, nor child) in the census incieased from 28,000 to 159,000. (v) Structure of Demand and Labor Requirements 5.19 Despite a continued rapid increase in GDP after the 1965 reforms, one of the striking features of the post reLLorm period was a decline in thLe size of the active resident labor force between 1965 and 1975, signifying a considerable decline in the labor output ratLo Uuring tat period. The factor underlying this, was the large external migration of the labor force iLn search of temporary eip'UUoymeiLt dULUdU . DCeLWeuIe 19U daU 1975J Lthe labUo force grew at an annual rate of around 0.7 percent, yet the resident labor force declined at an annual rate oL 0.3 percent. A number of factors affect the observed change in the resident labor force. To identify the demand-side factors behind tne cnange and to measure their relative influence, a "sources of change analysis" of labor use was carried out for the period 1966-72 based on the Yugoslavia input-output tables. Tne details of the metnodology used, and the results obtained, are summarized in Appendix VIII, Section C. In short, the approach attempts to explain the changes in sectoral employment in terms of changes in the level of net final demand (equal to domestic final demand plus exports minus imports), changes in the composition of net final demand, and changes in production technology (which include changes in both labor coefficients and input-output coefficients). The indirect employment creation generated by adjustments of intermediate goods production neces- sitated by each of these factors is attributed to the respective factor which caused the initial change. Thus, the effects measured under this approach are 1/ Pensioners increased from 533,000 to 1.1 million between 1966 and 1971 or from 2.5 percent of the population to 5.5 percent. 2/ Employment associations place first those job-seekers in greatest need, e.g. with large number of dependents, and those that have waited longest, thus tending to increase unemployment among the young in a tight labor market. 3/ Based on end of year figures. - 293 - the total effects which include both direct and indirect impacts on employ- ment of each source of change. The results of the analysis are summarized in Table 6. 5.20 Column I in Table 6 shows the observed change in total domestic employment. Between 1966 and 1972; this actually declined by 503,000 Columns 2, 3 and 4 indicate the relative contribution of changes in the level of net final demand, composition of net finnl dema and production technology to the change in employment between 1966 and 1972. Column 2 indicates the effect on emnloyment of the change in the level of net final demand assuming that between 1966 and 1972 there had been no change in technological coeffi- ciepnts and comnositinn of net final Aemand, but merely a proportional growth in net final demand equal to the observed aggregate growth of net final demand between 1966-72. Under such circumstances, employment would have increased in all sectors, amounting to a total increase of about 3.1 million. The dis- crepancy between this "predicted" change in employment based on assuming no change in the composition of net final demand and technology and the actual change can be explained in termL s ofL changes in th1Le composition of dlemand and production technology, as shown in columns 3 and 4. The contribution of these factors is about equal in the aggregate, t on a sectoraL basis, there are significant differences. The technological effect is negative and quite large for all sectors, and equaL to about 20-30 percent of tle labor force in each of the non-agricultural sectors. In turn, the effect of changes in the composition of net final dermand is positive for all sectors except two: forestry, and above all, agriculture. In sum, for the sectors other than agriculture andu Lorestry, the changes in the ie-vel and composition of net final demand contributed significantly to increasing sectoral employment, but this was partly offset by reduced labor requirements due to technological factors. The result has been a net gain in employment in all of these sectors. 5.21 The effect of compositional change in net final demand is modestly negative for forestry but is extremely large and negative for agriculture. However, this large negative effect for agriculture should be viewed cautiously as is the large positive effect of changes in the level of net final demand for the same sector. Statistics indicate that, during the 1966-72 period, consumption of agricultural commodities decreased by 31 percent in real terms. This decline was more than offset by increased consumption of processed food, whose deliveries to final demand increased by more than twofold. Thus, deliveries to final demand of both sectors combined, actually increased by 11 percent in real terms. However, this would mean that there had been a tre- mendous shift in consumption from primary to processed foodstuff during the period, the ratio being reversed from 3:1 to about 4:5. Such a drastic shift in consumption, however, is quite unlikely to occur during a six-year period, and prompts us to suspect that some production activities which had formerly been included in the agricultural sector are now reclassified into the food processing sector. This suspicion is further strengthened by looking at production figures. Despite an increased consumption of primary and processed foodstuff combined, agricultural production actually decreased in real terms during the period, while production of processed food increased by nearly threefold. With a relatively minor increase in agricultural imports during - 294 - the period, it is difficult to understand how the rapid growth of the food processing sector was mnde nossible without an associated increase in agri- cultural production. These considerations strongly point to the possibility that some agricultural production activities werp rrclassi fied into the food processing sector. 5.22 With the available information, the above supposition cannot be exam.ined in a straightforward manner. However, it offrs a qiiite plauisihl explanation of the unusually large figures for agriculture in Table 6. That is, if the consumpi-on of agricultural commodities in 1966 is expanded proportionally to the growth of aggregate net final demand and compared to the actuaL consumption of agricultural goods in 1972, which exclude some of the major items formerly classified in the agricultural sector, the latter will fall far short of the form-er, and this, together w4ith a large labor- output ratio in agricultural sector, would give rise to an unrealistically large effect on agricultural employmrent oL the compositional cha.nge in final demand. A similar consideration explains the large positive effect of the change in the level of net final demand o,, agricultural emaployment. Actually, the two demand effects offset each other to a large extent and together they explain only about 23 percent of the decline in agricultural employment during the 1966-72 period, the rest being accounted for by tech- nological factors. 5.23 Considering the possibility that agricultural and food processing sectors have been reclassified between 1966 and 1972, a better approach would have been to combine the two sectors together in the above labor use analysis, though this has not been done. However, the major reason for the significant decline in agricultural employment being identified as the technological factors, the above analysis then points to a conclusion that the.decrease in aggregate employment during the 1966-72 period is largely attributable to changes in technological coefficients which more than offset the increased labor requirements due to changes in the level and composition of net final demand in all the non-agricultural sectors. Labor Absorption 5.24 The broad structural evolution of the employment situation outlined in the earlier part of this chapter, indicated three principal sources of labor absorption in non-traditional activities, namely: social sector employ- ment; temporary employment abroad, and finally private non-agricultural em- ployment. Below, the principal features of each of these are analyzed in greater depth as a basis for assessing-the plan targets in subsequent sections. (i) Social Sector Employment 5.25 The principal source of growth in non-traditional employment oppor- tunities has been the social sector. In 1953 the social sector employed 1.8 million workers or 23 percent of the active labor force. By 1975 this had increased to about 4.7 million or over 50 percent of the active population. Table 7 summarizes the distribution of the social sector labor force between different activities. Industry accounts for nearly 40 percent of total employment followed by trade and catering with 15 percent. and construction- 12 percent. In addition to the above there are some 780,000 (18 percent of social sector employment) that are emnloved in governrent- socinl sprvicep and banking. Table 7: SOCIAL SECTOR EMPLOYMENT, 1974 Total Number Employment 0Thusads '{) Industry 1777.9 0. T nr vi rx 1 7 7 . L Metal Products36.82 Textiles 298.0 6.7 Food Products 164.1 3.7 Wood Products 162.0 3.7 Elect-rical Machinery and Appartus1!.25 Chemicals 96.4 2.2 L ~~~~~ ~ ~ ~~~~~~~~~~JU~J.'41J Agriculture 1807.9 n. Forestry 60.4 1.4 ConstructIio 5L4L. 12.3 Transport and Communications 309.9 7.0 Trade 654.6 14.8 Handicrafts 84.6 1.9 UUbliC Utilities 21.5 0.5 Tota'l 364i.4 82.3 Other /I 780.0 17.6 Total 4421.4 100.0 /L Government, social services and banking. Source: Statistical Yearbook of Yugoslavia, 1976. 5.26 The 1965 reforms resulted in a considerable change in the pace of employment creation in the social sector. The annual growth rate of emnlov- ment was virtually halved in the post-, as compared to the, pre-reform period, declining from 6.0 percent to around 3.5 percent per annum. This sharn decline is, however, deceptive. It reflects partly a once-and-for-all adjustment to the 1965 reforms and partly the subsequent decline in the growth rate of the - 296 - economy, rather than a change in the employment generation capacity of the snri21 spetnr nor se. As already nnted, scrinl sectnr emnlonyment growth stagnated between 1965 and 1968. One of the objectives of the 1965 reforms was to rationalize production methods to increase labor productivity and to facilitate a redistribution of income towards personal incomes through higher wages without adversely affecting the competitiven.ess of Yugoslav commodities. Consequently, many workers were encouraged to seek early retire- ment with their vacant positio.s being only partially filled by new workers. Since the above reflects a once-and-for-all adjustment to the inherited production structure, it ls best di4scounted lin anallyzing the basic underlying_ .JtAI..LAAJL OL IL. L!. ' , L tO uc .LLOIU LU .I La.L).x I .LIU uaO LL ULIC! .LYLJ trends of the pre- and post-reform periods. The growth of employment after 1968Q, still however, remains considerably below that of the period 1956-65. L2vuU -L-LJL iUWVL , t LL1 LUILU LiU.Ly U~L UW Li~ Ut LLi -~LLU JI7JU UJ. This however, is nearly completely accounted for by the decline in the growth rate OL socLaL sector production. Tile emLployment output elasticity ifn thie pre-1965 and post-1968 periods was virtually unchanged at around 0.7 1/. Thus Li-te euployment generation capacity of Lhe econoimy, if viewed iLL Ltis silitPlibLic form, does not seem to have deteriorated with the reforms and indeed compares favorably with that of other countries. 2/ Table 8; SOCiAL SECTOR EriPLOYMENT: GROWTH AND ELASTICITIES, i956-75 /1 Employment- Growth Rate Output Elasticity 1956-65 6.0 0.71 (+0.8) 1968-75 3.5 0.67 (+0.5) /1 Social sector employment calculated on the basis of least square growth rate, i.e. LOG Y = a + b log T Figures in brackets show confidence interval at 95 percent confidence level. 1/ In Table 5.28 employment-output elasticities are calculated on the basis of a 29 sector breakdown. Individual sector elasticities are considerably less stable, the stability of the aggregate elasticity has to be viewed with this proviso in mind. 2/ For example the aggregate employment elasticity for all Latin American countries between 1969 and 1974 was 0.6, with manufacturing 0.4. See, Economic Survey of Latin America, 1968, New York, United Nations, 1970. - 297 - 5.27 A second aspect of employment generation is the investment cost per work place created; in this respect, reforms did have a significant effect on capital cost per new job. Throughout the postwar period there has been a tendency for capital intensity (defined as fixed assets per employee) to in- crease. However, after the reforms, even allowing for the adjustment period 1965-68, there was significant acceleration in the growth of fixed assets per employee. The above can be clearly seen by considering employment fixed asset elasticities for the period, summarized in Table 5.28. The elas- ticity of less than one signifies an increasing capital intensity while the decline in the overall elasticity indicates a tendency for capital intensity to increase at a more rapid rate. The interesting feature here is that with very few exceptions there was a tendency for capital intensity to grow more rapidly for all sectors after 1965. Part of the overall acceleration in capital intensity could have been due to a shift in the structure of produc- tion to sectors with above average capital intensity. To determine the importance of structural shifts, capital intensity for 1974 was calculated using 1974 fixed asset-employee ratios, but with the 1970 relative weights of fixed assets between sectors. The results indicate that, in fact, the pattern of resource allocation during the period tended to reduce the overall capital- labor ratio by some 13 percent. Thus in the period after 1968 there was a near iinivPrqq1 tendencv for crpinit-l intensity to incrPqeas a tendency which would have been even more pronounced were it not for a relative shift in the Illocaqt-ion nf resourres toiwa-rds- sPrt-ors with lonwer t-han average fixed asset employee ratios. 5.28 Of interest is also the significant and consistently different expe- rience bet,ween the developed and less developed public Tabla Q summariz- e these results. In the less developed Republics the employment-output elastic- ity i,s consistently higher than -in the developed Republic- , --ing from 0. 0 to 0.86, with elasticities in the developed Republics ranging from 0.60 to 0.3I. T.he resultst r ea3llay vajld if the total i.s dlsaggregated into four major sectors; again with few exceptions, the less developed Republics tend to exhfi-ibit hligher ellasticit-ies. Given the considerable labor absorption problem in the less developed Republics, a more rapid generation of jobs per Ullt iUcLease iS value-added ca, be ba imapctat fa-tor in redressing the imbalances that exist between the Republics. 1/ The factors underlying the differences in employment performance uL tIhe variouu Republics is not r. In part, the differences may be due to differences in the output structure of the Republics, however, more important, seems to have been the greater pres- sure on the less developed Republics to employ workers. Another factor could be that investment rates have been considerably higher in less developed Republics, without necessarily leading to a correspondingly faster increase in output. Under such circumstances higher investment rates could have led to growth in capacity and employment, without a full use of either. To test this 1/ Though clearly at the expense of a higher growth rate in labor produc- tivity. hypothesis employment/fixed asset elasticities were calculated; these again proved to be uniformly higher for the lesser developed Republics. i/ Tnus, the employment performance of the less developed Republics has been more Table 9: REGIONAL EMPLOYMENT PERFORMANCE, 1969-75 EMPLOYMENT ELASTICITIES WITH RESPECT TO: Value Fixed FIXED ASSET PER EMPLOYEE ('000 Dinars) Added Assets Social Sector /1 /2 Total Industry (a) (b) a/b /3 1969 1974 1969-74 /4 1969 1974 1969-74 14 Bosnia- Herzegovina 0.86 0.64 1.34 112 128 184 133 151 219 Montenegro 0.94 0.66 1.42 153 171 243 189 201 246 Croatia 0.56 0.47 1.19 120 144 274 112 138 296 Macedonia 0.94 0.52 1.80 91 120 197 130 140 160 Slovenia 0.60 0.50 1.20 120 147 261 116 141 256 Serbia 0.58 0.42 1.38 95 121 253 107 138 290 Proper Kosovo 0.86 0.63 1.37 127 151 214 178 202 257 Voivodina 0.36 0.33 1.09 103 126 336 105 124 208 YUGOSLAVIA 0.63 0.48 1.31 110 134 243 116 142 253 /1 1969-75. /2 1969-74. /3 Equivalent to fixed asset/value-added elasticity. /4 Incremental. Sonirrce Statistirnl Year Book of Yugoslavia. 1976. 1/ Due to lack of data these were calculated for 1969-74 based on points estimtes. mployaer.tfixed asst elast-icitiesQ for intdust-rv nan total social sector, respectively were: Bosnia 0.65, 0.64; Montenegro 0.80, A)rr -e- non-i.a 0.3 0.52; Slvei n-&Q n-S0 0 .6; Croatia 0-41, 0.47; Mac Serbia 0.41, 0.42; Kosovo 0.74, 0.63; Vojvodina 0.49, 0.48. favorable as compared to the developed Republics, although the capital cost per unit of output growth has tended to be somewhat larger. 1/ However, elasticities hide one important feature, namely the average values of the parameters. If we consider the average capital/labor ratios in the various Republics (see Table 9), it can be seen that these were, in 1969, and con- tinue to Ue, uniformly higher in the lesser developed Republics, though the incremental capital/labor ratios are, with few exceptions, uniformly lower (Lreflecting the higher employment fixed asset elasticity). Thus, although historically the less developed Republics have evolved with a more capital- intensive economic structure, the current trend is towards a reversal of this feature. 5.29 In conclusion, the growth of employment in the social sector has, if viewed in relation to the growth of output, been fairly impressive. Furthermore the employment has tended to grow relatively more rapidly in the less developed Republics that have been most in need of modern sector work places. This growth in employment has however, been secured through rapid increase in the investment costs per work place, a tendency that is likely to be accentuated by the sectoral priorities of the current five-year plan (see paragraph 5.72). 5.30 Despite this impressive performance, there have been a number of factors that have hampered the sector's capacity to generate jobs. First, labor turnover rates have been extremely low, 2/ as only under exceptional circumstances (generally only if the worker consistently fails to do his work) can a worker be asked to leave his work. This, though socially desirable, has several implications. It reduces the flexibility of the system to adjust labor needs to cyclical fluctuations in economic activity, though in part, the adverse effects of this might be mitigated through same cyclical variation in earnings. A low turnover also reduces the access of the unemployed to social sector jobs, while the lure of the security of social sector jobs, reduces the attractions of other sources of employment, notably the private sector. Job security is, in addition, combined with relatively high earnings in the social sector as compared to the alternative of the private sector. Second, all contributions to social services, paid by enterprises are assessed on total personal income. Consequently the true cost of labor to the enterprise is considerably higher than the gross earnings of the worker. For example, in 1974 such direct contribution equalled nearly 40 percent of net personal incomes. Thus the difference between gross social and private sector incomes is probably in the order of six to one. 3/ The high cost of labor in the 1/ If the corresponding implicit fixed asset-output elasticity is calculated, all ratios are above one (i.e. the marginal capital/output ratio is above the average) and furthermore, those of the lesser developed Renublics are uniformly higher (i.e. their marginal capital/output ratios are higher) than those in the develoned Republics. 2/ Data published in the Statistical Yearbook indicate annual termination of employment based on monthly averages, is equal to around 1.2 percent of those empnloyed This has bheen conicallv declininQ since 1966= 3/ See Table 1 for a comparison of net social and gross private sector incomes. - 300 - socril sector employment may thus be an important factor in inducing capital- intensive production. Third, the level of capacity utilization is generally low. Capacity utilization is notoi I dff t however, indi- cations are that currently, capacity utilization is at about 74-75 percent as compared to - poenia -9ata, on -v shifts worked, also indicate that there is considerable room for improvement. i/ 5.31 Finally, it is important to note that the social sector in Yugoslavia is hi4glly concentrated Li4n large enterpr ises, with a very smial periphery of small-scale industry. Table 10 provides a glimpse of the extent ol i-ndUustrial concentratioL iin Yugoslav ia. WI ILthin tLhe Lndus tri al sector, transportation, construction, and trade, between 85-97 percent of employment anIu fLxeu assets, are iL enterprLses whlich employ over 125 workers and those operating within any of ten subsectors (see Table 5.11) as well as all workers in the handicrafts sector. Under this definition small-scale industry would account for about 9 percent of total social sector employment, 4 percent of social sector fixed assets, and 7.6 percent of materiai product. This nigh degree of concentration in Yugoslav industry has a number of implications. First, entry into industry may have been hampered, particularly given the close links that have existed between large enterprises and banks limiting the initiative of workers to create new work places. Second, large enterprises have tended to opt for more capital-intensive techniques of production. Table 5.11 summarizes fixed assets per worker for small-scale industry and industry as a whole. Though the picture is not uniform, as a rule, small-scale indus- try tends to be less capital-intensive, particularly if one considers handi- crafts. Thus an increased emphasis on small-scale industry could have a beneficial effect on employment. Table 10: SOCIAL SECTOR CONCENTRATION, 1974 Establishments with Establisments with Fixed 125 Workers and Above Assets of Dinars 5 mil. and Above % of all Establish- % of % of all % of ments Employment Establishments Employment Agriculture 24 76 42 87 Industry 68 94 77 96 Construction 78 97 58 87 Transport and Communications 62 94 81 - Trade 40 85 - Handicraft 20 59 Source: Statistical Yearbook of Yugoslavia, 1976. i/ The average number of manshifts operated in the industrial sector is 1.48 ranging from 1.06 in shipbuilding to 1.83 for industry as a whole. The Planning Institute estimates that the average could be increased to around 1.8. - 301 - (ii) Private Non-Agricultural Employment 5.32 The private non-agricultural sector has played a rather modest role as an absorber of the labor force. Comprehensive data on its size and structure do not exist. The Plan provides two estimates, indicating that some 300,000 were employed in private non-agricultural activitLes ln 1970, rising to 360,000 by 1975, equal to 3.9 percent of the labor force. Some insight lInto the structure of em.ployment ln this sector can, [owever, 'oe obtained through analysing data on value-added in the sector. 5.33 In 1975, 42 percent of the value-added in the private non-agricul- tural seclor (PNIAC was accountedu Lor uy handicrafts, within which, woodwork, metal processing and textiles played the largest role. The balance of value- added is accounted for by construction (37 percent), transport (12 percent), and catering (10 percent). This breakdown of value-added can, in the first approximation, be taken as a broad indicator of the share of employment in the various sectors. 1/ The evolution of the PNAS is itself quite interest- ing. Prior to 1965 value-added in the sector as a whole, grew by around 4.0 percent (social sector growing by 11 percent). However, in the period imme- udlately after the reforms, the sector grew very rapidly in contrast to the social sector which grew at a rate of 4 percent per annum between 1965 and 1968. The growth rate began however, to decelerate after 1968. Thus, the reforms and probably even more so, the lack of social sector employment opportunities, seem to have had a strong positlve impact on the sector. During the past decade, the role of traditional PNAS activities, i.e. arts and crafts has declined continually while transport and catering have grown in importance. 5.34 As one would suspect, capital intensity in the PNAS tends to be somewhat lower than for social sector employment. Data on fixed assets per employee in the private sector are not available, However, if amortization is taken as a proxy for fixed assets, and national income for employment 2/ a set of indicative figures can be obtained (Table 11). As a whole, the PNAS is about 40 percent less capital intensive than the social sector, though the picture is not uniform. Thus, growth of employment in the private sector has been fairly favorable with a comparable employment-output elasticity, but with a somewhat lower capital cost per job than on the social sector. 1/ For example on the basis of the 1975 estimate of total employment in the PNAS of 359,000, handicrafts accounted for around 57 percent. However, if construction arts and crafts are taken out--since according to the establishment principle they would probably be classified as construc- tion--then the ratio drops to 43 percent or equal to its share in value- added. Similarly estimated employment in catering is 8.5 percent of the total as compared to its share in value-added of 9.6 percent. 2/ This assumes earnings are equal in both sectors, in fact national income per worker in the PNAs and social sectors are fairly similar, the former somewhat lower. The same holds for catering, and arts and crafts, for which estimates can be made. Table 11: CAPITAL INTENSITY IN THE SOCIAL AND PRIVATE NON-AGRICULTURAL SECTOR, 19753 (million Dinars) Amortization/ Amortization National Income National Income Social Private Social Private Social Private _(%) () Handicrafts 712 287 8,239 7,547 8.6 3.8 Construction 3,635 - 46,343 - 7.8 - Transport /1 7,627 398 28,106 1,915 26.0 20.8 Catering and Tourism 1,295 135 11,814 1,683 11.0 8.0 Yugoslavia /2 45,775 1,683 377,731 11,145 12.1 7.4 /1 Social sector includes only road transport to make it more comparable. /2 Private sector excludes construction and agriculture. Source: Statistical Yearbook of Yugoslavia, 1976. 5.35 A further feature of the sector is the average small size of work shops. In 1974, for example, there were 198,081 employed in arts and crafts. However, of these, 143,354 were owners.- Assuming one owner per workshop, the average number of workers per establishment is 1.4. In no subsector does this ratio reach 2. Thus the private sector handicrafts currently consists prin- cipally of owner-operators. The same is likely to be true of those employed in catering, tourism and transport. The sector cannot therefore, be compared to the unorganized urban sector found in many of the less developed countries, acting as a residual employer of the workers leaving the agriculture sector, but rather consists of artisans and many workers that have returned from abroad investing their savings in service facilities or vehicles. 5.36 Despite these apparent benefits, employment creation in the private sector has not been without its shortcomings. Employment growth has tended to be concentrated in a limited number of sectors, notably catering and tourism and Darticularly transportation. 1/ Many of the employed have been previously employed abroad returning with savings and often with cars or com- mercial vehicles. As a result, there has been a tendency to saturate certain occupations, notably road haulage, taxis, and some touristic facilities. Opportunities fnr a continued expansion of employment in these occupations is likely to be limited in the future. There has been little attempt to expand small-scale nroductive work shops. Table 5.14 summarizes data on major sources of employment in the handicrafts sector that comprises mostly 1/ The real growth in value-added assuming the sectoral GMP deflators for the private and social sectors are equal, is 2.5 percent for construc- tion; 3.4 percenrt for catering and 6.4 percent for transnort. - 303 - of the small-scale workshops. The overall growth in employment was only 1.1 percent per annum; if construction activities are exciuded, tne growth rate drops to 0.5 percent per annum. A further feature of the PNAs has been its concentration in the developed Republics. Table 5.13 summarizes the private sector value-added by Republic. The distribution follows closely the distri- bution of social sector value added by Republics. Although value-added shares can only act as a proxy for employment shares, they are still indicative. Table 12: EMPLOYMENT IN PRIVATE SECTOR HANDICRAFTS, 1970-74 (thousands) Growth Rate 1970 1974 (Per Annum) Metal Processing 30.1 31.4 1.1 Woodworking 23.4 10.9 -2.9 Textile Products 22.2 19.2 -3.7 Foodstuff 17.0 17.2 0.3 Construction 42.5 50.2 4.3 Others 52.4 59.2 3.1 Total 187.6 198.1 1.1 Source: Statistical Yearbook of Yugoslavia, 1976. 5.37 Although the rights of the private sector are guaranteed 1/ and private enterprises are allowed to employ up to a maximum of five salaried workers, a number of factors have hampered the development of the sector 21, concentrating activity in a limited number of branches of an owner-operator nature. First, individuals have been reluctant to work for the private sector as fringe benefits tend to be considerably smaller, and work generally harder. The less favorable access to social sector housing is particularly important given the housing shortage. Second, private employees have had difficulties in recruiting educated and skilled workers, particularly since job stability has been considerably less in the private sector. Third, with continual changes in government regulations regarding rights and obligations in the nrivatp sertnr, nrivate owners often take a short-term view only, considering investments with short gestation periods and high profitability. Fourth, often in. large cities and new developments, there are no sites foreseen for setting up workshops. Finally, there have been further deterrents in the II/ See for examlple Article 64 of the l974 Constitution. 2/ See Some Problems Connected with the Development of Small-Scale Industry, Belgrade, December 25, 1975. - 304 - areas of taxation and credit and foreign exchange policy. Taxes have been iinpven and have nft-en diirrimTinted against the priv2tP sector The 12ttpr is most apparent in the case of taxes and contributions for social services romptulted on wages Thcse increasc the rcst of Iahbr tn the private sector employee, yet, unlike the social sector private employees, have only very 1 i mTit-d nalrccss tr noncessiornary credit from the banking system. There has been no formal mechanism, as is the case in the social sector, for making foreg excAnge availabe th-og ._1 1 F5.retenti; ,on qot-a4_s4 an tion allowances. The above factors, combined with a generally non-commital government attitude towards the sector, have acted as a deterrent to the growth of private initiative in productive activities. (iii) Temporary Employment Abroad 5.38 WThile migration from Yugoslavia is not a recent phenomenon, its ra,-'Ltude ln recenLit years, as well as Lts temiporary nature, is quite novel. At the peak, in 1973, it is estimated that some 830,000 Yugoslavs were working in Europe 1/ with a furtner 270,000 overseas. Togetner tnese wouid constitute some 5.2 percent of the population, 12.2 percent of the labor force or equiva- lent to 26.1 percent of social sector employment. Tnus any major changes in the conditions governing work abroad would have significant repercussions on the employment situation within Yugoslavia as well as other important economic and social implications. 5.39 The growth in external migration has been, in part, a reaction to the generai disequiiibria in the labor market described in the earlier sec- tions of this chapter. The combination of a large agricultural sector charac- terized by low labor productivity, incomes, and underemployment, with a high income social sector unable to provide jobs at the required rate, has been an important "push" factor behind external migration. This push for external migration became particularly strong after the 1965 reforms. For two years growth in social sector employment stagnated and indeed there was a moderate decline. At the same time, income differentials between the private agricul- tural sector and social sector workers widened considerably. The effects of the postwar "baby boom" further accentuated the pressure on the labor market. Given the limited opportunities for inter-republican migration and the enor- mous income differences between working in domestic private agriculture and in Western Europe 2! the rapidly expanding European labor markets acted as a 1/ See I. Baucic, Some Economic Consequences of Yugoslav External Migrations, Center for Migration Studies, Zagreb, 1975. 2/ For example in 1973 an average Yugoslav worker abroad was estimated to have earned $4,500 per annum. In private agriculture average earnings were estimated to be around $700. - 305 - strong "pull" and provided an increasingly important vent for Yugoslavia's surplus labor 1/. However, external migration has not been limited to workers from the agricultural sector, indeed some 40 percent of those seeking jobs abroad were previously employed in the social sector. Thus, while the "push" factor seems to have been important, equally important has been the "pull" factor. 5.40 The importance of external migration as a vent for "surplus" labor was indicated in paragraph 5.12. Table 13: CONTRIBUTION OF EXTERNAL MIGRATION TO LABOR ABSORPTION, 1961-75 (%) 1961-65 18 1965-73 51 1973-75 -36 The results summarized above, clearly indicate the importance of migration during its peak years of 1969-73, when over 50 percent of the labor supply was being absorbed through this channel. 2/ 5.41 Migration has also had a positive effect on incomes, both for the workers themselves as well as for the level of incomes in Yugoslavia through their repatriated earnings. In 1973, for example, an average Yugoslav worker earned some $4,500 per annum in West Germany. Sample surveys indicate that about one-third of this was consumed abroad; one-third saved abroad; and one-third repatriated. Given that average product per capita in Yugoslavia was about $900 in 1973, remittances are fairly close to average nroduct per worker. Since the marginal product per worker is apt to be lower than the average, benefits through increased inromes can be considprable, quite apart from the two-thirds of the income that are not repatriated. In addition, by alleviating the nressure on the labor market, migration may also facilitate a more rapid increase in the incomes of those remaining in Yugoslavia. Fur- thermore, repatriation of incomes to families within Yugoslavia have helped increase their incomes, reducing income differentials and hence to some extent, helping curb rural-urban migration. I/ Economelric SLudies also confirm the great importance oU pull and pu1s factors in effecting the outflow of Yugoslav workers. For a case study Uased on quarterLy Uata of U ugoslav workers going to West Germany for the period 1962-73 see "Yugoslav Migration to and from West Germany 1962-73", E.G. Drettskis, Studies of the Institute of Geography, University of Zagreb, Volume 13, 1975. 2/ Labor supply is defined as the natural increase in the labor force plus the fall in the agricultural labor force. - 306 - 5.42 Finally, the role of workers' remittances in the balance of payments has become increasingly important. Workers' remittances increased from 2 ner- cent in 1965 to about 20 percent of Yugoslavia's total foreign exchange earn- ings in 1975. However, the significance of remittances goes beyond their annual inflow. In recent years, these inflows have been accumulating into sizeable foreign exchange acrounts held hv ciinqln ri tizens in YVioslavia, earning interest in foreign exchange and fully transferable for use within, as well as outside, Ygonslavia. By 1975, such accounts amounted to $2.1 billion held in 2.2 million separate accounts. Workers' remittances' contribution to the balance of payments has thus had im-ortar. indirect benefits to the employment situation in Yugoslavia, through alleviating the foreign exchange constraint and thus facilitating a morn -rapid --th in tel en., 5.43 ' nespit- t-he many-4 apaetbneist ugsai rom externaMl migr a= tion, such migration has not been without its costs, which have, with the large increase in. t he number of Yug5oslavs working aburoadu, becoeUU lncrsnly more noticeable. If one looks more closely at the characteristics of the worest L thLat mUiLgLte, a ulUer oUL LU1jJUL .dtiln LeUtLure UecoUUme eViUetIL. r.L'ist, as a rule, the preponderantly young, mobile and best workers were chosen by agencies to mLrate. Ms a co,sequence, the age and educational profile of migrants tended to be considerably more favorable than that of the indigenous Yugos'lav labor force. Thus -while some 47 percent of Yugoslavia's total labor force was under 34 years of age in 1971, 69 percent of migrants were below 34. Similarly, 42 percent of migrants had completed eight years of elementary, vocational, and grammar or post-secondary, schools while for the Yugoslav population the ratio was 33 percent. becond, some 40 percent of tne migrants had social sector employment prior to migrating, many of whom were skilled (i.e. with embodied human capital). Under such circumstances, migration has an additional cost 1/ (additional to the foregone marginal product of the migrating worker), namely the cost ot training the unskilled agricultural worker to the level of the migrated social sector worker. 2/ With the very large number of Yugoslavs abroad such costs can be quite considerable. 3/ 1/ The cost of raising and educating a Yugoslav worker is estimated by the Federal Secretariat for Employment to be about $11,000. 2/ Baucic cites growing proportion of illiterates among social sector workers in Croatia (Republic with highest migration) as indicative of a deteriorating employment structure within Yugoslavia due to migration. Illiterates increased from 4.5 percent of social sector employment in 1961 to 6.8 percent in 1970. 3/ There is of course, the reverse side of this phenomenon, namely Yugoslav workers obtaining skills through their employment abroad and bringing these back with them. However, the tendency for many of the returning workers to go into the tourism and transport sectors as owner-operators has meant that few have been able to utilize their acquired skills effectively. Third, if one looks at the origin of migrants by Republics, it is easy to see that again, the incidence in migration has been quite uneven, and may in some cases accentuate the differences in labor supply and demand between Republics (see Tabl*e 14). Finally, iLt is equa'Lly imiportant to note the human and social costs involved in external migration. Workers are often separated for long periods fromu their families working in unfamiliar, and at times, difficult surroundings. Furthermore, having decided to return, workers have sometimes faced difflculties in reintegrating into the Yugoslav society. 1/ Table 14: EXTERNAL MIGRATION ACCORDING TO REPUBLIC OF ORIGIN, 1971 Number % of Private (thousands) _ Sector Employment Bosnia-Herzegovina 152.8 19.3 21 Montenegro 10.7 1.3 9 Croatia 268.3 34.0 27 Macedonia 71.8 9.1 20 Slovenia 56.2 7.1 23 Serbia Proper 131.6 16.7 7 Kosovo 26.5 9.2 12 Vojvodina 72.5 3.3 14 Yugoslavia 790.5 100.0 16 Developed Republics 528.7 66.9 15 Less Developed Republics 261.8 33.1 19 5.44 Although the growing costs of continued increases in the number of Yugoslavs working abroad were becoming increasingly recognized within Yugoslavia, as well as the host countries, it was principally the European recession of 1974 that eventually brought migration to an effective halt. Indeed, during 1974 and since, for the first time, there has been quite large net inflow of Yugoslavs. 5.45 Precise data on the flows of Yugoslav workers do not exist. Never- theless, the available information points to quite a dramatic shift in the market conditions. The most comprehensive estimates of the flows of migrant workers, based on data provided by host countries, indicated that the net reflux of workers in 1974 was around 80,000, 2/ with a further net reflux of 65,000 in 1975. For indicative purposes, Table 15 below shows the number of 1/ See for example Services for Migrant Workers, OECD Joint Project 1975; and also Te Baucic, Social Aspects of External Migration of Workers and the Yugoslav Experinece and the Social Production of Migrantsj Center for Migration Studies, Zagreb, 1975. 2/ Based on estimates made by the Center for Migration Studies, Zagreb. - 308 - Yugoslavs that found work abroad through the auspices of the Yugoslav employ- ment service; as well as the number that have returned and rpeistepred with the Yugoslav employment service for employment. Since a larger number con- tinlit ton find insh nutside the service, wit a chas m Rn8 percent not registering upon return, these figures are only useful in showing the basic iindprlvino trpnds= The dramntic change after 1Q73 is, hompve r, clerly evident. Table 15: MIGRANTS REGISTERED WITH THE YUGOSLAV EMPLOYMENT SERVICES, 1970-75 (thousands) Outflow Inflow 1970 125.4 1 71 01.3 11.1 J., I 01. J L.1 1972 56.4 10.8 1973 73.4 12.3 1974 10.0 13.4 1975 7.7 19.6 Source: Federal Employment Bureau and OECD SOPEMI Reports 5.46 In 1974 the number of workers placed by the employment service dropped to 13.6 percent of the 1973 level, declining to just over 10 percent in 1975. During the same period the number of migrant job-seekers registered with the service rose rapidly. 5.47 These trends, with the exception of their suddenness, might neverthe- less have been consistent with the country's professed policy, were it not for the continued deterioration in the structural characteristics of Yugoslavia's migrant population. Given the limited number of work places being made avail- able by host countries and the large demand for these, employers concentrated their selection even further on applicants with skills, and those coming from the more developed Republics - the trends are quite dramatic (see Table 16). Most of those able to secure outside employment were requested by name, thus leaving authorities little room for placing of workers. Returning on the other hand were those that had worked only for a limited time, were unskilled and were the least able. In 1975 it was estimated that some two-thirds of those returning went back to the agricultural sector. As many of these are unlikely to have accumulated large savings, they are in principle added to the ranks of workers seeking social sector employment. A further feature of the recent development has been the growing tendency for the families of workers to join their husbands. Thus, while the stock of workers in Western Europe is estimated to have declined from 860,000 at the end of 1973 to 770,000 at the end of 1975, the number of dependents actually increased from 250,000 to 330,000 during the same period. This could be indicative of a shift towards more permanent settlement in the host countries. - 309 - Table 16: MIGRANTS SECURING EMPLOYMENT THROUGH THE YUGOSLAV EMPLOYMENT SERVICE, 1973-76 (percent of total outflow) From less Developed Republics Unskilled 1973 48.8 68.5 1974 35.8 46.0 1975 40.5 /1 34.4 1976 (I-V) 21.4 26.7 /1 Only Kosovo showed an increased share from the less developed Republics. Source: SOPEMI Reports. 5.48 The future prospects for Yugoslavia's migrant labor force are mixed. The recovery in the Western European economies is likely to have a favorable impact. However, the host countries are extremely reluctant to increase their dependency on migrant workers for fear of accentuating the already mounting social problems. Based on official statements made by host countries, the best that can be expected at this stage is for a gradual decline in number of migrants through attrition, as workers return and are not replaced. In addi- tion, most countries are likely to continue in their efforts to facilitate the integration of remaining workers into the social fabric of their countries, thus further polarizing the current situation. I/ The plan foresees a decline of about 250.000 during the period 1976-80 or 50,000 per annum. This would seem to be broadly consistent with the above view. Workers' remittances are xnpected to stagnate and decline in real terms and eventually in nominal terms. Given the importance of remittances on the balance of payments, the declining importance of remittanAes will necessitate structural shifts to 1/ "'A1 1coun-rie, are ---4er.4- entr4es of foreigr ---orer ir n- way or another and most of them are even trying--for the moment rather more in WU LUD Lildil iiLl dA LD LU CI[LLUUL 46 LLL.& *. GLL LO LAS .5.aV C {AAL.. L C X - XIUVC see SOPEMI 1976. In June 1976 the Ministry of Labor of West Germany made ilt known thilat thLe bar on recruitment wouLld bU e maintaine4nedir.de finitely without exception while new procedures would be adopted for the reintegration OL workers in tLelr home countriles. Slmilar statements have been made in Switzerland, France (particularly in the VIIth Plan) and the Netherlands. Sweden does not have any overt restrlctlions but its liberal integration policies favor permanent migration. - 310 - compensate for their fall. To some extent these changes can be cushioned through measures aimed at attracting the renutedlv large savingq held hv Yugoslav workers in the host countries. 1/ Employment Policy 5.49 The Five-Year Plan as well as the long-term perspective plan places onnei dernhl P mnlh:ci .c: nn n hrn:rl amnl nrymente cstraoteo a imed at 4 ncreascin nof only social sector employment but also encouraging new forms of non-traditional employment in the private sector. In addition the Plans foresee a need to curtail the rate of migration out of the agricultural sector through increased emphasisor, o-he agrculture sector as well as the 4.-plementation of new insti= tutional arrangements foreseen in the Green Plan of 1973. Although the broad contours of the0se policies are fairly evident, the specific deta4ls that are to be determined at the Republic and Commune levels are still in the process of A4iscusson. (i) L3L_LLoc-al Lector r IZ rt'l- ..-.-1 4 4.. _1. .. .1... I--. 'a' 5. ThU ±i&e prinLcLLipal ir.LLUVaLionULL 1 inUmpLUyLment1L policLI...y in Ltih sociLL sector is the introduction of Social Compacts and Self-Management Agreements on employmeent. Social Compacts have been concluded within and between Republics, with the executive councils, trade unions, chambers of economy, and employment associations as parties. This development nas important implications. Fore- most, it is seen as a means of consciously regulating employment creation and avoiding the uncontrolled growth of employment, whicn wouid occur if ieft to the specific interests of individual enterprises. 2/ Social Compacts and the Self-Management Agreements concluded between enterprises, consider empioyment creation from a broad national perspective. These will be an integral part of the individual enterprises plans and hence self-management planning in general. An important role in employment planning is to be played by the employment associations which are now created into Communities of interest for employment. With representatives of job-seekers and enterprises in their Assembly, such communities are intended to act as a forum for exchange of information and coordination of employment policy within and between Republics. They will encourage internal migration through special tiscal incentives and take part in the formulation of enterprise plans. These plans will be made on annual as well as a five-year basis. 5.51 Social Compacts offer an opportunity to address two important facets of the employment problem. First, the Compacts can directly address the question of a trade-off between maximizing the value-added per worker and 1/ The Economist (July 17, 1976) quotes a figure of $2.6 billion for 1974; even this, however, is likely to be a considerable underestimation. 2/ "Employment should not be left uncontrolled but should be consciously directed and socially regulated primarily by means of Self-Management Agreements and Social Compacts," p. 75, Outline of a Common Policy for Long-Term Development in Yugoslavia until 1985. The Five-Year Plan states precisely the same sentiments, see p. 94. productivity growth as opposed to sacrificing productivity growth (hence real income increases for those emnloeyd in t-he soci-al sector) and employing more workers. This can as a first approximation be seen as a distributional trade-off between growth of income in the social sector and use of these increments for creation of new jobs. It is worth noting that the long-term trade-off between maximising productivity per worker and a strategy of "balanced" productivity-employment growth does not compromise the growth target but may, in fact, increase it (through adoption of a more optimal factor ratio, see below). Second, and less directly, the stipulation of employment targets to the enterprises would induce the search for more labor- intensive technologies in their investment program. If enterprises are obliged to employ .more workers than they would e.mpLoy if thelr decisions were based on the limited enterprise objective function, 1/ the optimal enterprise strategy would be to clhloose that techn.logy whichLLJL I m.axim,izes output Lor tIe given employment target. Indeed, at the very extreme (if investment is sub- Ject to similar Social Compacts) the labor/capital ratio may be predeter- mined. If that specific factor proportion happens to be at the level that would exist under equilibrium factor prices, and if it can tech-nologically be accommodated, the choice of technology would be optimal. 5.52 However, since the wage/interest ratio would remain distorted we would still have a second best solution in that factor shares would remain distorted. This, however, may not be of significance in a system where the mearns oi proUuctLor are socially o-wnied, though it would be significant if it adversely affected the system's ability to mobilise resources. 5.53 In addition to the general policy framework outlined above, the Plan envisages increased emphasis on small-scale industry in the social sector. This is seen as a means of developing a labor-intensive sector which could ease the employment problem. In addition it could be situated away from the major industrial centers easing the heavy investment in urbanization (housing plus urban infrastructure) thus reducing total investment per job created even further. The exact measures foreseen to encourage small-scale industry are however, not yet formalized, and legislation is pending. A Compact was con- cluded in May 1976 by the Socialist Alliance of Yugoslavia on the measures necessary for the stimulation of small-scale industry. 2/ The Compact stresses the significance of small-scale industry for the development of Yugoslavia particularly in its complementary role to industry in eliminating 1/ Maximization of either value-added or personal income of the present members of the workers' community of the enterprise. 2/ Compact on the Thrust of Social Action and the Tasks of the Socialist Alliance and the Stimulation of the Development of Small-Scale Industrv. May 28, 1976. A similar position is taken in a document prepared by the Executive Council of the Socialist Republic of Slovenia, see Findings, Recommendations and Decisions Concerning Certain Current Questions on Small-scale Economy and the Scope of Independent Work in It, July 28, 1976. - 312 - structural bottlenecks, redressing regional imbalances, and increasing employ- ment opIortunities- It acknowledges that, despite a clear political position and support of small-scale industry, few positive results have yet been achieved. The Compact proposes that new initiatives should be taken, concen- trated at the Republic and Communal levels. A review of the current situation and problems is called for (with rontin rnl mnnitnring by the nlanning agen- cies), leading to a well-defined development program (with Social Compacts at the Republican levels). The compact rcornmmends siuch measures be taken in rural areas to support small workshops linked to the agricultural sector while in urban areas, service facilities should be created, linked in particular to the motor vehicle, agricultural equipment, and household appliances industries. 1/ Measures providing for legal and material security of workers, particularly in the private sector, are also stressed with particular reference to the pooling of resources'throughU contractLual organizaiLon of associated labor. Finaly the Compact recommends special measures be taken for provision of adequate credit andu trainiLng facilities andU the dissemnation of informat- 4on on i'nvest- ment opportunities. 5.54 A further set of measures that already exist and will be elaborated will aim at a fuller utilization of existing facilities and an equitable ais- tribution of work opportunities among job-seekers. It is hoped that in the course of the Plan, the level of industrial capacity utilization will i4mprove. Furthermore, measures will be maintained to limit overtime, supplementary employment outside regular employment, and work by those that have officially retired. 5.55 The long-term impact of the new policy measures are difficult to assess. The most powerful instrument for a continued increase in employment will be the Social Compacts and the Self-Management Agreements. In 1975 and 1976 these worked effectively in maintaining a rapid growth in employment in the face of slow output growth. One consequence of this was stagnating labor productivity. This in itself may not be undesirable as long as the presently employed workers accept the low productivity increases and the accompanying low personal income growth as a genuine sacrifice to create additional work opportunities. In 1975 this seems to have been the case with real earnings declining in line with labor productivity. However, in 1976 real earnings are estimated to have increased by some 4.0 percent at a time when labor productivity remained unchanged. The pressure to increase earnings in real terms is thus an important factor that cannot be readily ignored, particularly since real earnings have already been growing at a lower rate in the past Plan period as compared to the 1965-70 period (see Table 5.12). If the growth in value-added is constrained and an employment target set and adhered to, there will be a corresponding reduction in the growth in labor 1/ A list of potential areas of interest is provided in Some Problems C -onnected with the Developuent of cmrall-scale Industry, December 25, 1975. These include, consumer goods with specific and rapidly changing demand; service facilities; use of local raw mnaterials (e.g. agriculture); processing of waste naaterial (particularly leather, rubber, textile and -.etals), and processing of by-products. productivity. Under these circumstances, there is likely to be pressure to increase earnings ahead of increases in labor productiviLy, leading to infla- tionary pressure, and above, all adversely affecting the economy's accumula- tion rate. A key prerequisite to the success of hne employment pOliCy IS tnus likely to be the sufficiently rapid growth rate of value-added to facilitate not only a rise in empioyment but aiso an increase in reai incomes in iine with past expectations. 5.56 The establishment of small-scale industry is potentially promising. However, the impact on the current Plan period is not likely to be very sig- nificant. The legislation detailing special measures to encourage small- scale enterprises is still pending, 1i once available there will still be lags before its application. In addition, it will take time for a pipeline of prospective projects to become available, and even longer before they become operational. Nevertheless, the establishment and support of a small-scale industrial sector will be an important development in the longer run, partic- ularly as it is closely linked with the specific measures being introduced to encourage the employment of workers returning from abroad and the development of a productive private non-traditional sector. (ii) Private Sector Employment 5.57 The government has adopted a two-pronged approach towards the private sector, namely a strengthening of existing legal provision for creation of private sector employment, and the establishment of new legal forms consisting of hybrid private and social entities. 5.58 With respect to the first set of measures, a Social Compact on the development of the private sector is anticipated to harmonize and extend existing facilities. Particular attention is expected to be given to the provision of premises for private workshops, better access to housing, credits and reduced tax burden. To what extent these measures are likely to be effective remains to be seen. First, the limit of five on the maxi- mum number of salaried workers combined with the high costs of labor will constrain the type of activities that can be undertaken by purely private enterprises, particularly as the opportunities for private individuals to plough back their profits will be constrained. Second, it is not clear to what extent these units would have access to foreign exchange to import necessary inputs. Finallv, much will depend on the perception of private individuals regarding current policies, whether they are expected to continue, and if they are to change, in what direction. 5.59 Many of the difficulties outlined above result from the dilemma of trying to encourage a restricted growth of private enterprise in a system based on social ownprshin of t-he mepans, of prodiicrion. To ovprcomp this 1/ "The major obstacle to the harmonization of the development of small- ca,le. iczt-ru wit-- thp ncacodQ rif thp prnr1Amx7 1ic'- in tthe nhpnees nof oi in ithv in development programs of Communes and regions, as well as of broader Soci4-Political Communities, so that the greater part of these facilities are allowed to develop spontaneously and without planning", see "Some ~rt~r ,a4P - -- on.ni ProJleLms cneIted A.wth . ri t. - 314 - snpecifir diilemma a new leaal instituition, the orntractual Organizationr of Associated Labor 1/ (CNOAL), has been created by the Constitution and elaborated in the Taw on Associated Labor. It is see nas ameans of resolvirng the dilemma of trying to encourage private initiative, without creating the basis for the growth of large autonomous private enterprises Any rivate individual, can in principle, create a CNOAL subject to the approval of the Cofmmune, chamber of econom,y and the Trdad TUnioon. The ind4ivd4,4a,,a1 or-a in partnership with others, can put down the basic capital of the enterprise. The 4reA4x,4A..n l ' ho A{ nhA. .-.4F 4-i, | ,.,-4 ...;1 1 Aa4-a,.n,r 4-hn4 4rA; 4A,,nl'L to hn. 4ssw_ - - *-4,-' vshr ofk te bai capita wi-- de-rmn th L-- individual'^s vshare- ucw of profits and his voice in the management of the enterprise. The initial capital is th,en paid baclk to the four.der or. an ar.nual 1-asis. The_ founder has I...aJJ..LaJ.. La LUL j.au u L. L. Lt .L tj~ULLU~A Ut.L atL .LLLtLtua. Una.LO IUC_ L*.UILUIL &Lac an option either to reinvest his capital or allow his "equity" to fall. If thIe sharefe ' te private capital falls beow 10 percerLt, the enterprise changes it status from a CNOAL to a basic organization of associated labor. Thie L..LLa.L. WLIeL WLL1 retaLII hsL special managerLal status for a prescLbUeu period of time and his capital will continue to be repaid. There is no limit on the number of workers a CNOAL can employ, but an upper limit of 1U owners (since each owner's shares must exceed 10 percent of the capital) exists. On the basis of the contract creating the CNOAL which includes workers as parties, a Self-Management Agreement is concluded that specifies in detail the way income is to be shared, the "equity" of the owners reimbursed, the rights or the workers, and management of the enterprise. 5.60 Some 20-30 CNOALs have already been established in Slovenia, each employing between 6 to 90 workers. It is too soon to evaluate their success, but in principle the law allows considerable flexibility which is of utmost importance. The legal right to management, risk sharing and unlimited employ- ment is likely to be attractive to private individuals. Furthermore by giving CNOAL the same access to credits and rights as a basic organization of asso- ciated labor, it will enable CNOAL to effectively compete for scarce resources. Finally, a CNOAL is not likely to carry the same stigma as a purely private entity. However, like any new institutional change, it will take some time before the CNOAL can be expected to have a major impact, particularly since, with the exception of Slovenia, there are no CNOALs in other Republics. 5.61 Finally it is important to note that there is an active policy, within the agricultural sector, of creating new forms of cooperatives, among private farmers and cooperation arrangements between cooperatives and social sector kombinats, aimed at providing them with equal access to basic inputs and credit. It is hoped that these new measures, in addition to the increased share of resources to be devoted to the agricultural sector, will rationalize production techniques and offer a more rapid growth in private sector agricul- tural incomes. Although a rise in incomes would certainly have a beneficial effect in curbing the outward migration from the sector, the net effect of these measures is difficult to assess, since rationalization of production through cooperatives may, in fact, reduce the demand for labor. 1/ See Articles 280-295, Law on Associated Labor. - J15 (iii) Workers Temporary Employed Abroad 5.62 Up to 1970, the principal thrust of Yugoslav policy was towards improvement of working conditions for Yugoslav workers abroad. However, by the early 1970s the attitude towards migration was changing with the increas- ing concern over the growing number of migrants and their unfavorable struc- ture characteristics. 1/ Consequently, attention became increasingly focussed on methods to control the structural characteristics of those leaving (e.g. skill, Republic, age) and also on means of encouraging workers to return. Parallel to the above, the government introduced measures throughout the period to encourage the repatriation of workers' savings. 5.63 The first comprehensive policy statement was provided in early 1973 2/, paying particular attention to the need to limit further external migration and to encourage the return of workers. This document foresaw the need to "make possible a closer link of social funds with the savings of migrant workers and to work out incentives for increasing savings in the home country in order to ensure increased emnlovment through the investment of savings in the development of work organizations". A similar position was taken in 1974 by a Social Compact adopted by the Republics on the emnloyment of Yugoslav citizens abroad and their return, reaffirmed in the Xth Congress of the League of Communists, 3/ and followed in the "Law on the Basic Condi- tions for the Temporary Employed and the Protection of Yugoslav Citizens Employed Abroad" (June 1975). According to this Comnact all Republics and Communes were to prepare individual programs with measures designed to stimulate the return of workers and to hein them find work. This Compact was followed by the Federal "Program of Measures and Actions concerning the Gradua1 Return of Yugoslav Workers from Employment Abroad and their Re- employment in the Country", passed at the Federal level in 1976. Measures to nrovidp -for the returnees are still fairly broad in their formulation; the concrete and operative work programs will be those adopted by Republics and Communes which are expected during the course of 1977. 5.64 By 1974, with the growing involuntary reflux of workers as a con- sequence of the recession in Western Europe, it became increasingly clear that the primary issue was that of absorbing the growing number of returning . The, 1971=75 1Flan had already note' that "measures shouid be taken which would stimulate the workers temporary employed abroad to return . 1. 2/ "Conclusions of the Presidency of the League of Communists of Yugoslavia; the Presidency of the Socialist Federal Republic of Yugoslavia on the Problem of Employment of Yugoslav Citizens Abroad", February 1973. 3/ "...on the basis of an increase in employment and in the standard of Living, such conditions should be created, under which the satisfaction of the basic human needs would cease to motivate our citizens to seek temporary employment abroad and which would lead to a gradual decrease in the number of workers temporary employed abroad." - 316 - workers. The sharp decline in the outflow reduced the significance of meas- ures to control the type of workers that could leave, while reduced demand severely restricted the ability of employment agencies to place workers. The contours of the present policy are aimed at the following factors. First, there is continued effort to attract workers' remittances and induce workers to repatriate their large savings abroad, through liberal facilities for opening of accounts, high interest rates denominated in foreign exchange, a floating exchange rate and government guarantees. Furthermore, preferential local currency credit facilities are generally available while some commodi- ties can be purchased with discounts or with more favorable custom regulations. Second, there is growing effort to try and encourage the channelling of these savings into productive sectors where new jobs could be created, instead of being used for personal consumption and housing construction. To this end, enterprises h'ave been allowed to issue bonds denominated in foreign currency; purchase of these bonds often involves special privileges for obtaining employment in the enterprise. Banks are encouraged to lend counterpart local currency to support new ventures initiated by returning workers, 1/ while imports of capital goods benefit from special exemptions from customs duties. Third, the government has tried to establish bilateral arrangements with recipient countries to secure financial as well as technical assistance in creating work opportunities for the returnees. Such arrangements have already been made with the Netherlands 2/ and less formal arrangements exist with West German enterprises. Finally, new institutional arrangements envisaged within the Law on Associated Labor; such as the Contrar-tual Orqanization of Associated Labor and the increasing emphasis on private non-agricultural employment both widen the scone for workers to invest their funds in creating gainful domestic work opportunities. 5.65 Despite these measures, there has, as yet, only been limited suc- rPcR in rrontina new work nlqrop throuioh t-ho i1uc o-f rot-irnino miarqnti-' own savings. 3/ This reflects a number of factors, the legacy of traditional ttitieiSudes the timp necessarv for nll to grnsn ihe w onp ortnunlinitie-s and the --…------- _ r r - need for a more coordinated policy approach which is still pending the conclusion of t-he Repniihlian work nrograms. There has hpen A lack of attrac- tive investment programs while banks have been more interested in receiving tho dpnoQitQ nf wnrkorc ti-hn initintino nrniarfc- tho rhrnmharQ of th eornnonm have similarly been inactive in this respect. Even with suitable projects, the process of securing adequate funds has not always been easy, as the processing of documents, and the delivery of imported equipment, have been lengthy. Furthermore, the majority of those workers returning, as already noted, tends to be the least skilled and enterprising and originate from the I/ A r.rbe f su-ccessful cases have occurred, h-owever, these have been few. *, £3 Mu flAUUCL'I Out_LCOL4.LaooLQ ULU LCU i1IJ~ LiAO LLav ~L C See Vedris, OECD, Special Report. 2/ The Netherlands provided Gilders 5 million. 3/ There are no hard figures on the number of jobs created but these are not likely to exceed 1,000-2,000. least developed Republics. It is in these very Republics that the industrial structure has tended to be concentrated on primary production, while small- scale industry is seen principally as complementary to the production of final goods. Thus, opportunities are likely to be concentrated in regions with the least needs. Internal migration could alleviate this, though cultural bar- riers and houslng shortages are Li'Kely to pose dirriculties. In short, there is a need for greater coordination and provision of information to workers regarding proLject design and financing, with an attempt to reduce red tape to a minimum. It is important that such matters are dealt with expeditiously since a favora-able demonstration effect can be crucial. Population, Active Labor Force and Employment 1975-85 (i) Demographic Evolution 1975-85 5.66 The Center for Demographic Studies in Belgrade has made detailed projections for Yugoslavia's population and active labor force up to 1985, 1/ which form the basis of the Five-Year Plan projections. The basic assumptions underlying these projections are summarized in Appendix VII. Briefly the projections allow for some inter-republican migration based on the assumption that net annual flows between Republics will remain fairly stable at the 1961-71 rates with the exception of Kosovo, which will have a somewhat larger, and Bosnia-Herzegovina, which is assumed to have a somewhat more moderate, net outflow. With respect to age and sex specific participation rates, the pro- jections foresee a continued decline for the 0-14 and 15-24 age groups for both sexes, though at a lower rate than in the last intercensorial period; stable rates for 25-34 and 35-49 age groups for males, with some increase for females, and, gradually declining rates for the 50-64 and 64 plus age groups. 2/ The results of these projections are summarized in Table 5.20. 5.67 Yugoslavia's total population growth rate is expected to gradually decline over the period. The labor force growth rate is projected to be slightly lower than the population growth rate (i.e. decreasing crude activity rate) between 1976 and 1980, but falling quite dramatically in the period 1980-85. This latter factor principally reflects the growing proportion of the population in the marginal age groups with their declining activity rates. The projections also reflect the varied demographic characteristics of the various Republics. Thus the growth in labor force varies from 3.3 percent per annum in Kosovo to -0.2 percent in Serbia between 1975 and 1980, and 3.4 and -0.6 percent, respectively for the period 1980-85. As table 17 indicates, the lesser developed Republics are expected to continue to have larger growths in their labor force, in spite of the net migration to the more developed 1/ See "Projections of Total and Active Population including Migration" Sentic and Breznik; Stanovistvo. July/December 1972-January/June 1973; pp. 137-174. 2/ The assumptions on the whole tend to be fairly conservative, see Appendix VII. - 318 - Republics (which have been built into the projections). Thus, the inter- regional deficienries in labnr supply arp Pynpct-ped to hp acrentiutPd, f iwith labor surplus regions having the fastest natural rate of increase in the labor fnrce. Tabl- 17: POlPUL.ATTON AND' TAIfOP 1FORCE,' 19Q7n-85 (per annum growth rate) 119V70=7 1975=80l 1980=85 Tess Developed Republics I1 ) ' 1 11 1If1 ropulation 1.2J 1.2U 1. 2,1 Labor Force 2.13 1.97 1.60 Male 1e93 1.1 1.48 Female 2.67 2.35 1.92 Developed Republics Population 0.58 0.55 0.32 Labor Force 0.20 0.12 -0.35 Male 0.21 0.05 -0.30 Female 0.18 0.23 -0.43 Source: Table 5.23. 5.68 Table 18 analyses the implications of the natural increase in the labor force for provision of employment opportunities in the social sector. The table presents the annual increments added to the labor force over the period 1975-80 and 1980-85 and the growth in social sector employment neces- sary to employ these. The figures highlight the large differences between the Republics. At one extreme the incremental increase in labor forces is expected to be negative in Serbia (hence any additional social sector employ- ment would have to be filled through depletion of agricultural labor force or additional inter-republican migration), while in Kosovo the absorption of the natural increase in the labor force would call for a 6.7 percent growth in social sector employment opportunities. The eight Republics and Autonomous Provinces can be divided into three distinct groups characterized by their differing demographic evolution. First, there are the developed Republics (Croatia, Serbia, Slovenia, Vojvodina). In all four, the natural increase is very-small-to-negligible in relation to any anticipated growth in social sector employment. Thus in these Republics, employment opportunities must either be filled through transfers from the agricultural sector where such labor surpluses exist, or through increased inter-republican migration, returning migrants, or reduced unemployment. The second group of Republics (Bosnia-Herzegovina, Montenegro, Macedonia) have high natural increases, but though these are likely to claim a significant portion of social sector employment increases, social sector employment is still likely to increase somewhat more rapidly allowing for some depletion of the agricultural labor - 319 - Table 18: ABSORPTION OF NATURAL INCREASE IN LABOR FORCE, 1976-85 Increase in GROwTH IN SOCIAL SECTOR Labor Force Employment Necessary To (Thousands) Absorb Natural Increase (%) 1976-80 1980-85 1976-80 1980-85 Bosnia-Hlerzegovina 97.2 61.2 2.8 1.6 Montenegro 13.8 10.3 2.6 1.8 Macedonia 44.9 38.6 2.6 2.0 Kosovo 52.1 64.8 6.7 6.1 Less Developed Republics 208.0 174.9 3.2 2.3 Croatia 47.4 -37.1 0.8 -0.6 Slovenia 10.8 7.5 0.3 0.2 Serbia Proper -12.1 -64.7 -0.2 -1.1 Vojvodina 23.2 11.8 1.0 0.5 Developed Republics 69.3 -82.5 0.4 0.5 TOTAL 277.3 92.3 1.2 0.4 Source: Stanovnistvo 1972-73. force, employment of returning migrants or reduced unemployment. The third group pertains to Kosovo and will continue during this period to have natural increases in the labor force in excess of any reasonable projected growth in the social sector employment opportunities, hence during this period we will observe an agricultural labor force growing in absolute numbers (though declining relatively), or growing unemployment. 5.69 In addition to the natural increase in the labor force, the Plan foresees two additional sources of labor supply, namely: a return of 250,000 migrant workers, and a reduction in registered unemployment by 136,000. If these two factors are added to the demographic increase, assuming that tem- porary migrants return to the region of origin in the same proportions as the stock of migration in 1971, and unemployed are reduced by the respective shares of Reoublics in total unemDlovment. the required increase in social sector employment is considerably increased. 1/ Table 19 summarizes these rpeislts and rompares the nroiected growth rates with actual growth rates experienced during the last Plan period. The figures indicate that opportuni- ties fnr a continiiud deprlinp in the agricultural labor force are likely to be limited in all the less developed Republics particularly Kosovo and Bosnia- Herzegovina. The snecrian ctane facincg Kosovn arp clearly reflerted above. While in other Republics there are some prospects of a reduction in 1 Thrle assumptons tend to favor (4.e. inderstate thp labor Ahsnrntinn problem in) the less developed Republics since as already noted, recent r.ligrai- -trend -s have t-ended to be heavily blascedt againszt t-he lesseqr dII±ve C Lopedi Ll iUcs ,. developed Republics. - 320 - the agricultural labor force, the agricultural labor force in Kosovo is likely to continue to grow even with fairly optimistic assumptions about the growth in social sector employment and inter-republican migration. Table 19: ABSORPTION OF PLANNED RETURN OF MIGRANT WORKERS AND REDUCED UNEMPLOYMENT, 1976-80 GROWTH IN SOCIAL SECTOR EMPLOYMENT Necessary to Absorb Natural Growth in (Thousands) Increase (% npr annnim) Snrial Return- Reduced Return- Reduced Sector incg Un- i ngc Tin- Them.o- Emn1cIxnut.rnt- Migrants employed Migrants employed graphic Total 1971-75 Bosnia- Herzegovina 54 22 1 5 0.6 2.8 4.9 5.5 Montenegro 3 4 0.6 0.8 2.6 4.0 5.3 Macedonia 21 22 1.2 1.3 2.6 5.1 5.3 Kosovo 9 10 1.3 1.4 6.7 9.4 6.7 Less Developed Regions Croatia '82Q 18 1.4 0 0 2.5 3.7 Slovenia 19 3 0.6 0.1 0.3 1.0 4.4 Cerbla oper A If... D. /. A . I n 7 r 7 1 1 ') / . A 0 )LULA Ja LU 1 tJ ItL V.. / V. I U. I L. a V Vojvodina 19 14 0.8 0.6 1.0 2.4 3.5 Deve'Lopeu Regions TOTAL 250 136 1.1 0.6 1.2 2.9 4.4 Source:. BDRu est'L[ates. (~i) Growth in Non-Agricultural Employment 197,-ou 5.70 The Plan foresees a growth in social sector employment of 3.5 per- cent and of 5.1 percent in the private non-agricultural sector. The Federal Plan does not provide any further information, either by sector or Republic. 5.71 The planned socialsector growth rate of 3.5 wouid imply an aggre- gate employment-output elasticity of 0.47. This would be considerably below the historical elasticity of around 0.7 (see paragraph 5.27). However, given the large structural changes in favor of more capital intensive techniques foreseen in the Plan, some change in the overall elasticity might be expected even if sectoral employment-output elasticities remained unchanged. - 321 - Table 20: LABOR-OUTPUT AND CAPITAL OUTPUT RATIOS 1972 ---------LABOR-OUTPUT RATIO- -------- ---------CAPITAL-LABOR RATIO- ------- (Workers Per Million Dinars) (Thousand Dinars Per Worker) Sector Direct Rank Total Rank Direct Rank Total Rank Electricity 5.8 10 10.3 6 1,154.1 1 700.9 1 Coal 12.9 25 16.4 19 128.3 8 131.8 8 Ferrous Metallurgy 4.6 6 10.6 7 200.4 4 188.5 4 Non-Ferrous Metallurgy 4.5 3 9.2 3 187.5 5 200.1 3 Non-Metalic Minerals 11.6 23 16.3 18 87.5 14 107.6 11 Chemicals 4.6 4 9.6 4 163.8 7 170.2 7 Shipbuilding 4.9 7 9.9 5 97.4 13 103.0 12 Average Priority Industry 5.8 257.1 Average Industry 6.8 21.3 .2 63.9 Transport and Communications 12.7 24 15.8 16 208.7 3 188.3 5 Average Priority Sectors 8.0 235.8 Average Economy (excluding Agriculture) 8.6 18,6 100.7 72.3 1/ Lower ranking signifies lower labor output ratio. 2/ Lower ranking signifies higher capital labor ratio. Source: Table 5.24. - 322 - Table 20 presents labor-output and capital-labor ratios of the priority sectors andu compares these withCWL industry and economy averages. i/ Taking a broad interpretation of the priority sectors, the labor output ratios tend to be 'Lower in the priority sectors, with an average direct labor output ratio for the priority sectors of 8.0 or about 7 percent lower than the economy average (excluding agriculture 1/). To allow for the effect of structural shifts in production towards low labor-output sectors, the historical employ- ment elasticity was recalculated, using historical (1968-74) sectoral employ- ment elasticities and the plan vector of gross output targets. The effect is to reduce the elasticity somewhat though, on the basis of historical trends, an overall employment output elasticity of 0.6 would still appear attainable. Although the effect of the structural changes envisaged in the plan are modest with respect to labor-output ratios, they are quite perceptible in the case of the capital costs per job created. Table 20 shows that priority sectors as a rule rank amongst the top in terms of the capital-labor ratios. The average direct capital-labor ratio for priority sectors within industry is more than twice as high as the industrial average, with much the same result for the priority sector as a whole. Thus, one of the significant implications of the current plan targets are substantial increases in the cost per job created. 5.72 Table 21 summarizes the effect of various GMP growth assumptions on employment generation in the social sector. Table 21: SOCIAL SECTOR EMPLOYMENT GROWTH, 1976-80 P.Lan Variant VarLiaL TL/ Vai.tl IV vconomic Activites4.433 . Non-Economic Activities 5.0 4.5 2.6 Total 4.4 3.5 1.8 /, I. EPart IILl, Chapter TTT, paragraph 3.64, Iwo otler variants ( II and III) based on a re-estimated ICOR for basic industries, were a'Lso presentedU. kLLtLhUUgII hLL LiULLL Lboth these Lcases the LLLUo._ic groWLth rate was considerably reduced, the effect on employment is very small uue to thLe Low share of thIese sectors in totaL emp'Loyment. Consequently, these two variants are not treated here. 1/ The agricultural sector has not been included in the following analysis, despite being a priority sector. Given the signiticant impact or tne observed structural changes in demand for agricultural produce, away from primary to processed products and their employment impact, the inclusion of agriculture is not very meaningful. - 323 - If we assume the Plan gross output targets will be realized, social sector employment could be expected to grow by 4.4 percent per annum based on an overall elasticity of around 0.6 (Plan variant). This would indicate that the assumption in the Plan regarding the growth of employment has been a cautious one. In Part III, Chapter III an attempt was made to compare the target growth rates in the Plan with secrtnrAl growth rAtes based on historirAl TCORPs and planned investment outlays. If these revised growth estimates are used, the nroiertpd emnlnyment grnwth rntp chAnceas onsidlrably. Under Varinnt T where a mechanical extrapolation of growth rates was made, based on historical TCORs nnd nianned sec-toral investment outlays, the grnwtrh nte of employment is reduced to 3.5 percent (Variant I). The principal factor behind this decline ic rho considerably lower nno,-c-or groth in c. corr as tra tourism, and construction; and partially due to the overall decline in the overall1 econn.0ic growth rate. nespite the lower g.r-ow-th n4 emplo;nt -kt employment growth target of the Plan nevertheless still appears attainable. Var4ant IV considers th-k,e effect of a 20 percent s-hortfall n investment outlays over the Plan period assuming the adjustment is borne completely by the nor.=pri4ority sectors. l.e implications of this scenLa rio are s tr ikEng.J IIULL .1.ULLL O LULO £115 LUjLLLL.LH U t -LO O SIL U fC OtL.L~ The employment growth rate plunges to 1.8 percent per annum. The growth target of the Plan for the social sector thus appears quite realistic as long as the projected growth and investment targets can be attained. In case of a shortfall in investable resources, the criti LL.al question wiU W.l hL' inge oUL Ihow thLe Plan is adjusted. If the binding legal and contractual obligations in the priority sectors are strictly adUheredU to (as it currenttLy appears) andu the non-priority sectors are forced to bear the brunt of the adjustment, the e4ff4:Cect on emLployment general-on could b-e quLte unfavoral)e. Thus, partic uIa attention has to be paid towards a balanced reduction of growth targets if thI'e employment objective 'Ls not to ue sacrificed. 5.73 Al(thoughI the social sector employment growtn rate appears attainable if the broad output targets of the Plan are satisfied, the planned growth rate of private non-agricuiturai empioyment appears somewnat optimistic. A growth of employment of 5.1 percent would imply an employment-output elasticity of approximately one wnich is considerably nigner than the historicai rate. An increase in the growth of non-agricultural private employment is likely to occur as a result of the new institutional arrangements and the growing reflux of migrant workers. However, the large influx of migrants in the past two years has already saturated work opportunities in a number of sectors, notably catering and road haulage. The new institutional arrangements should encourage private investment in new productive sectors, although the novelty of many of the foreseen arrangements is likely to mitigate against any sudden and larger increase in employment in this sector. 5.74 Table 22 brings the various elements of the labor supply and demand together. The labor supply indicates the number of additional job-seekers that would have to be provided with work based on the objectives explicitly enunciated in the Plan. Labor absorption indicates the number of additional work places expected to be available. This is based on the Plan assumption regarding the growth in social sector employment and a somewhat reduced - 324 - (4.0 percent) growth rate for the private non-agricultural sector. The balance indicates that some depletion of the agricultural labor force would be possible, though the 2.0 percent decline per annum would be at a rate considerably below the 6.0 percent decline per annum decline experienced between 1970 and 1975. Consequently, income differentials between the two sectors though declining, would only do so marginally. Based on our assump- tions, i.e. assuming a 4.0 percent growth in private non-agricultural employ- ment, the plan reduction in unemployment and absorption of migrants, a growth rate of social sector employment in excess of 2.4 percent, will result in an excess demand for labor, facilitating a gradual depletion of the agricul- tural labor force. A growth rate of between 1.8 and 2.4 percent would either result in a grpwth in the agriculture labor force or a sacrifice of the planned objective of reducing the number of unemployed. Below 1.8 percent, the absolute number of unemployed could increase. Thus if the scenario underlying Variant IV were to materialize, the result would be an excess of labor supply which would have either to be absorbed in the agricultural sector or else the objective to decrease the number of unemployed sacrificed. Table 22: LABOR FORCE BALANCES, 1976-80 (thoisands) Change 1975 1980 1976-R0 Labor Force 9,147 9,424 277 Migrants 780 530 250 -Jemlploy.ment 5040 140 Total Tabor Supply 6 7 oc4a' lector A4,667 5 ,5 03 87 Private Non-Agriculture 359 438 78 Total Labor Absorption 954 Balance -287 % Reduction in Agricultural 'r - 1,o 'or ce _ _-I1 UVL £LVL~ At . Va 5.75 The overall evolution of the employment situation is however no guide to the development in various Republics. Detailed sectoral output projections are not available ior all Republics, thus the efrects of tne structural shifts in the economy cannot be readily ascertained for each Republic. For indicative purposes, however, the aggregate growth rates in social sector production are presented in Table 23 with an estimated growth - 325 - in employment based on the assumption that employment elasticities are 50 percent hioher in the less develoned Republics as compared to the developed Republics. These figures are then compared with the growth of social sector emnlovment necessary, to ensure that the Plan objective of reduced unemployment, adequate employment opportunities for returning migrants, and the natural in- crease in the labor force, are satisfied. The comparison indicates that with the relatively high growth assumptions in the Plans, there will be some oppor- tunity for reducing the agricultural labor force in m.ost, 'less dueve'lopedu Republics. The only exception is Kosovo which cannot, even under optimistic assumptions, be expected to absorbU the increUents to tL e Lauor force even if the Plan growth targets are to be achieved. Ilowever, even in the case of other Republics the employment situation may be somewhat less favorable than the above might imply. First, as already indicated, the overall growth rate f:or the economLy and the Republics appear to De somnewnat optimistic given the planned investment outlays. Second, the less developed Republics tend to have a relatively uigh share of basic industries with low labor-output ratio. The Plan emphasis on these sectors is likely to adversely affect the employ- ment generation capacity of these Republics. In short, if allowances for the above are made, the opportunities for migration out of the agricultural sector are likely LU be fairLy L limted with the exception of Slovenia and Serbia. Taule 23:J EMPLOiMENT GROWTH BY REPuBLIC, 1976-80 Social Sector Emnloyment/ Growth Rate Growth Rate Requir- 1976-80 1976-80 ments- Bosnia-Herzegovina 8.5-9.0 7.0 4=9 Kosovo 11.1 8.9 9.4 Macedonia n.a. n*a= 5.1 tlontenegro 8.3 6.4 4.0 Croatia 7.0 3.7 2.5 Serbia Proper 7.9 4.2 1.2 Slovenia n.a. n.,. 1.0 Vojvodina n.a. n.a. 2.4 /I Based on the assumption that the overall employment elasticity wth respect to growth in social sector value-added is 0.6, with the elas- ticity for less developed Republics ( 0.8), one-thLrd higher t[an for the developed Republics. /2 Social sector employment growth necessary to absorb returning migrants er.sure target decline in unem.piloyutent andU natural increase in labor force, see Table 19. - 326 - Table 5.1: LABOR FORCE 1975 (thousands) Social Sector Employment 4,667 51.0 Private Agriculture 2,897 31.7 Private Non-Agriculture 359 3.9 Total Resident Active 7,926 ri±grant Work-ers 9 9 Total Active 8,826 Unemployed 324 3.5 Total 9,1.50 Source: Table 5.2 - 32 7 - Table 5.2: LABOR FORCE 1961-75 (thousands) 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 Social Sector Emplovment 11 34170 3,250 3,320 3,535 3,583 3,500 3,466 3.485 3;622 3,756 3,966 4,130 4,222 4,421 4,667 Private Agrilclture /2 4 79S 4L48S 6 S7 A All A rns I. A.IA A A771 A san nec - ala i Cit ' ICA 7 lit ' nc,n on Private Non- Agriculture 2 230 236 242 248 254 260 269 280 290 301 310 322 334 346 359 TOTAL RESIDENT ACTIVE 8,1C5 D 171 8,210 0 C3 On8,239 8,1 80 0 .20 n 8 n3 8.007 07, 7071 7.80 771 7,764 707 Migrant Workers /3 n.a. n.a. n.a. 138 174 275 296 401 572 783 913 1,020 1,100 1,050 900 (70) (80) (90) (115) (140) (210) (220) (230) (430) (550) (660) (760) (830) (790) (780) TOTAL ACTIVE 8,225 8,251 8,309 8,373 38413 8,455 8,504 8,534 8,579 8,656 8,734 8,822 8 801 8 814 8,823 Unemployed /4 1i5 142 138 128 142 155 161 187 198 i92 i75 n89 229 269 324 TOTAL /5 8,340 8 393 8,447 8,501 8,555 8,610 8,665 8,721 8,777 8,848 8,909 9,011 9,030 9,083 9,147 1/ As reported in the Statistical Yearbook of Yugoalavia.and Statistical Bulletin. 2/ Mission estimate. -,/ st±L-Le Dy Federal Secretariat for Employment. Figures in brackets are workers temporarily employed in Europe, estimated by the Center for Migration Studies, Zagreb. 4/ Estimated at 60 percent of workers registered as unemployed. 5/ Census figures for 1961 and Sentic and Breznik "Projekcije Ukupnog I Aktivnog Stanovnistva Jugoslavije Sa Migracionom Komponentom", STANOVNISTVO 1971-73. - 328 - Table 5.3: LABOR FORCE COMPOSITION BY REPUBLICS, 1971 (thousnands) Bosnia- Serbia Herzegovina Montenegro Macedonia Kosovo Croatia Slovenia Proper Voivodina Total Social Sector Employment 539 39 89 51 270 43 103 31 974 48 553 66 1,015 37 423 50 3,966 45 Private Agricultural Employment /1 577 42 67 39 238 38 164 51 634 31 151 18 1,424 52 293 35 3,545 40 Private Non- Agricultural Employ- ment /2 44 3 4 2 i4 2 9 3 86 4 54 6 67 2 32 4 310 3 Total Resident Active 1,160 84 160 92 522 83 276 85 1,694 84 758 90 2,506 92 748 90 7,821 88 Migrant Workers /3 195 14 10 6 76 12 33 10 300 15 71 8 156 6 71 9 913 10 Total Active 1,355 99 170 98 598 95 309 96 1,994 99 829 99 2,662 98 819 98 8,734 98 Unemployed /4 19 1 3 2 34 5 14 4 25 1 9 1 52 2 16 2 175 2 Total 1,374 100 173 100 632 100 323 100 2,019 100 838 100 2,714 1O 835 100 8,909 100 1/ Determined residually. 2/ Total figure estimated from five year plan documents, regional distribution based on distribution of private non-agricultural value added. 3/ Total estimate based on estimate by Federal Secretariat for Employment. Republican allocation based on census. 4/ 60 percent of registered unemployed. Source: Statistical Yearbook of Yugoslavia; Statistical Bulletin; Mission estimates. - 329 - Table 5.4: UNEMPLOYMENT RATES BY REPUBLIC AND PROVINCE, 1971-75 (Annual Averages) 1971 1972 1973 1974 1975 1971-75 YUGOSLAVIA 6.7 7.0 8.1 9.0 10.4 8.3 Bosnia-Herzegovina 5.6 6.2 7.7 9.8 11.5 8.3 Montenegro 6.0 6.6 10.1 12.8 14.7 in.3i M~acedonia- 17.3 17.0 18.5 19.8 21.2 18.8 Kosovo 18.6 17.8 20.1 20.8 23.5 0. Croatia 1~~~~~~~~~. A . fi 1 0 L. 0 ~ rI Croti c~a4.0J '4.3 '4.0 '4.0 5).6 '4.7 Slovenia~ I .7 ) .1 1.0 1 A. 1 . 10. 0......k4. fl..~~~~~......... ,~- A o fi A A I 'II Ifl Ai Serbia Alroper 7.9 08. 9.9 L.. I2.0 i0.1 VUJ VoUdLIn 0.1 ./ 0.2 08. 10.0 0.4 Source: Statistical Yearbook of YuRoslavia, and Monthly Statistical Employment Surveys, Federal Institute of Statistics. - 330 - Tabe 5.5 : ThTnLDWDTnVVLT T AD FODrC Dv DBDTTEDTTBL 19I9O (annual average) --------Reserve Labor Force in Agriculture … % of Active % of Employed (thousands) in Agriculture in Social Sector Bosnia Herzegovina 325 46.0 55.1 Montenegro 3'i 45'6 Macedonia L3 1.0 A 14. Kosovo 110 60.1 91.0 Crop i-- 24 29. 22. Slovenia~~~~~~~~~~~~~~~~~~l 36 164 5. Serbia Proper 38 7 2, 3 Source: "-eserves of the labor force on indlvidual agricultural farms", Economic Institute at the Skoplje University, Skoplje, 1970, pp. 30. - 331 - Table 5.6: A!N`NUAL BALANCTES OF TITER-REPUBLICAiI NIGRATION, 1953-71 % of Mean % of Mean 1953-61 Pcpulatic,n 1961-71 Population Bosnia iferze(ovwna --13,200 -C.4 -18,300 -0.5 I4onteneoj~c: ->63C -C.4 -1,550 -0.3 Macedonia 2,200 0.2 -200 - Kosovo -3,300 -0.2. -3,900 -0.4 Croatia 2,100 0.2 6,400 +0.1 Slovenia 1,800 0.1 3,300 +0.2 Serbia Proper 400 - 7,300 +0.1 Vojvodina 11,700 1.3 6,800 +0.4 Total Net 18,130 0.1 23,1950 0.1 Source: "Internal MiRration", D. Breznik, Yugoslav-Survey, Volume XVii, No. 1, 1976. - 332 - Table 5.7: CRUDE ACTIVITY RATES AND WJORKING AGE ACTIVITY KAi1;S 1953-71 (Percentage) 1953 1961 1971 Crude Activity Rate Total 45.6 44.4 43.3 Male 61.6 58.6 56.4 Female 30.5 30.8 30.7 Wonrlking-Agp Artivitv Rate Tnta-l 67 67.6 63.7 Male 90.1 8. 3 81.1 Fem.ale 44-7 47.0 Source: The Determinants of the Labor Force Participation in Yugoslavia, Economic Institute, Belgrade, 1974, prepared for ILO. Table 5.08 AGE STRUCTURE OF ACTIVE POPULATION 1971 (Percenrtage) 0-14 15-24 25-49 50-64 64+ Agriculture 1.8 21.2 44.0 21.0 12.0 Non-Agriculture - 17.9 57.1 15.3 9.7 External Migrants - 29.7 67.0 2.9 0.4 Total 0.8 19.8 52.6 16.8 10.0 Source: Statistical Yearbook of Yugoslavia. - 334 - Table 5.9: CRUDE ACTIVITY RATES BY REPUBLIC AND AUTONOMOUS REPUBLIC,1953-71 (Percentage) Bosnia Herzegovina Montenegro Croatia Macedonia Slovenia Serbia Vojvodina Kosovo Crude Activity Rate Male 1953 57.9 52.9 63.0 57.3 59.8 65.4 54.1 1961 54.0 48.8 60.1 54.1 57.9 63.1 62.2 50.F 1971 51.3 46.1 57.9 52.7 56.6 63.2 59.7 42.7 Female 1953 26.8 20.3 31.6 22.8 35.0 38.5 26.4 10.8 1961 24.4 20.0 33.5 23.6 37.2 38.6 25.3 17.6 1-71 22,. ', k 9 -34.0 4.A 4G. 40. 26.5 C8 Total 1953 41.9 35.9 46.8 40.2 46.7 51.7 44.4 32.9 1961 38.8 34.0 46.2 39.0 47.1 50.6 43.3 34.6 1971 36.7 32.7 45.5 38.3 48.4 51.5 42.7 24.0 Source: The Determinants of the Labor Force Participation in Yugoslavia, Economis Institute, Belgrade, 1974, prepared :for IL-O. - 335 - Table 5.10: NL0Y1CT LN THE SOCI-Al S.TOR, 1966-74 (thousands) 1966 1968 1970 1971 1972 1973 1974 A. ECONGWIC 2907.6 2882.4 3103.9 3283.2 3416.2 3480.0 3641.4 Industry and Mining 1425.3 1395.1 1507.9 1591.4 1653.6 1708.6 1777.9 Electric Power 35.0 37.4 40.2 42.6 45.3 46.0 48.0 Coal 78.3 65.0 56.8 55.8 58.6 54.1 55.1 Petroleum 8.5 9.4 10.8 12.0 13.0 13.9 14.1 Ferrous Metalurgy 43.3 39.9 39.9 50.7 53.0 54.0 55.1 Non-Ferrous Metalurgy 42_4 43.0 44,7 47.9 46.6 49-.2 49-0 Non-Metalic Mineral Products 45.4 43.7 46.6 47.3 49.2 50.4 49.8 Metal Products 273.6 265.9 306.6 323.2 334.3 343.8 361.9 Shipbuilding 20.6 20.5 22.4 25.2 23.7 24.2 25.1 Electric Equipment 73.5 74.4 87.9 91.8 96.6 103.3 110.1 Chemical. 67.7 70.9 80.6 85.8 91.4 93.2 96.4 Building Material 72.3 71.9 76.8 76.5 77.6 79.4 82-. Wood Products 145.7 135.0 142.5 149.8 154.2 158.3 162.0 Paper and Paper rrudvcta 26.5 26.6 29.5 32.1 31.9 31.5 35.0 Textiles 23C.4 230.6 245.3 257.9 273.5 286.6 298.0 Leather adL 49.9 50.0 53.5 57.6 62.8 65.5 68.1 Rubber and Rubber Products 14.9 16.3 18.2 19.4 20.7 21.9 23.5 Food Processing 125.6 123.7 133.9 142.9 145.4 155.1 164.1 Printing 42.0 44.4 47.0 49.7 51.0 52.1 53,7 Tobacco Processing 19.5 16.6 15.3 15.3 15.6 16.4 16,2 Other Industries 10.1 10.5 9.2 10.0 9.0 9.6 9.3 Agriculture -23&0 207.9 188.7 185.9 196.0 183.8 187.9 Forestry 73.1 63.1 58.6 60.1 59.9 58.9 60.4 Construuction 433.7 454.3 495.5 526.7 533.6 516.4 544.6 Transpcrt and Cinunications 253.1 247.5 269.5 255.0 290.5 294.8 309.9 Trade and Catering 412.6 444.0 501.8 549.5 593.1 619.9 654.6 Eandictaits 56.9 53.7 60.0 65.6 70.9 76.1 64.6 Other 14.9 16.8 18.9 18.9 18.6 19.5 21.5 B. NON-ECONCMIC ACTIVITIES 592.0 603.0 652.0 683.0 714.0 742.0 780.0 C. TOTAL 3499.6 3485.4 3755.9 3966.2 4130.0 4222.0 4421.4 Source: Statistics! Bulletin. - 336 - Table 5.11: SOCIAL SECTOR CONCENTPATION 1974 Establishments with Establishments with Fixed 125 ,Workers and Above Assets of 5 m. Dinars and Above % of all Z of %of all % of Establish- Employ-- Establish- Emaploy- ments ment ments ment Agricultnire 24 76 42 87 Tndustry 6R 94 77 96 Construl(ti--n 78 97 58I 87 Tra,nspnort anid Cor,unications 62 94 81 Trade 40 85 I-andicraft 20 59 Source: Statistical Yearbook of Yugoslavia. Table 5.12: SMALL SCALE INDUSTRY, 1974 Fixe-d Aseets Per Worker No. of Small Scale Gross Material Establishment& Employment Fixed Assets Industry Total Product Tthous.nd) (million Dinars) (thousand Dinars) (thousand (Million Dinarsj Dinars) Industry Metal Products 119 9.5 767.4 80.8 86.7 824.9 Elecetic Equipment 32 2.5 176.4 70.6 73.1 193.8 Chemicals 68 5.1 625.1 122.6 174.2 620.0 Building Material 142 10.7 1,131.9 105.8 136.2 772.5 Wood Products 96 7.4 514.6 69.5 65.1 564.6 Paper and Paper Products 11 0.6 92.8 154.7 208.7 79.8 Textile 70 5.4 416.4 77.1 63.4 337.0 Leather and Leather Products 18 1.7 100.5 59.1 45.1 104.7 Food Processing 180 11.9 1,875.7 157.6 1130.7 1,180.9 Other Industries 8 0.6 37.8 63.0 66.3 53.8 TOTAL 744 55.4 5.738.6 4.732-0 % of Total Industry 18.1 3&1 2.3 3.0 Handicrafts 2,534 200.4 7,270 36.3 _ 1,434.6 TOTAL 3,278 271.1 10,593.6 39.1 - 19,078 FIxed Assets Per Worker, Small Scale Industry/Total Industry 0.72 Small Scale Industpy/Total Economy 0.77 Handicrafts,/Total ind-Ustry 0-25 Handicrafts/Total Economy 0.27 Note: These data need to be interpreted ca-uiously as t-'y are based on the organizationas principle. Source: Federal Institute of Planning. - 338 - Table 5.13: EMPLOYMENT, VALUE ADDED AND PRODUCTIVITY, 1965-76 …---------------…Real Growth Rates---------------- FIrTn]&orerMt Value A,dded Productivity Real Earnings (%) (%) (%) (%) 1965 1.5 3.6 2.1 2.3 1966 -2.2 5.3 7.5 12.4 1967 -0.6 2.4 3.0 5.4 1968 0.1 5.3 5.2 3.8 1969 3.3 9.6 6.3 7.4 1970 3.9 7.8 3.9 5.7 1971 4.8 9.1 4.3 6.5 1972 4.4 5.0 0.6 1.0 1973 2.3 4.3 2.0 -5.1 1974 4.8 9.5 4.7 6.4 1975 5.4 4.0 -1.4 -1.0 1976/1 4.0 4.0 - 4.0 1965-70 1.0 6.1 5.1 6.9 1970-75 4.3 6.4 2.1 1.5 /1 Estimates. Source: Statistical Yearbook of Yugoslavia 1976 Table 5.14: REGIONAL DISTRIBUTION OF PRIVATE NON-AGRICULTURAL (Percentage) Construction Transport Trade Handicrafts Total Bosnia ITerzegovina 23.3 14.0 16.2 9.1 15.6 (12.8) Montenegro 1.7 1.9 1.3 0.9 1.4 (1.4) Macedonia 6.5 5.6 3.4 4.7 5.4 (5.5) Kosovo 3.6 1.7 2.4 2.1 2.6 (1.9) Croatia 25.0 29.6 38.6 28.4 28.4 (26.8) Slovenia 14.0 20.2 17.6 21.4 18.2 (18.1) Serbia Proper 17.0 20.1 12.4 22.2 19.2 (22.5) Vojvodina 8.7 6.5 8.1 11.0 9.3 (10.4) 100.0 100.0 100.0 100.0 100.0 Note: Figures in brackets indicate share of value added in total social sector value added. Source: Statistical Yearbook of Yugoslavia 1976. - 340 - Table 5.15: EMPLOYMENT IN PRIVATE SECTOR HANDICRAFTS. 1970-74 (Thousands) Growth Rate Percentage 1970 1974 (Per Annum) Metal Processing 30.1 I1.4 Woodworking 23.4 Textile Products 22.2 19.2 -3.7 Foodstuf-f 17.0 17.2 0.3 Construction 42.5 50.2 4.3 Others 52.4 59.2 Total 187.6 i9fi. 1.1 Source: Statistical eariook of Iugosslavia, 1976. - 341 - Table 5.16: PRIVATE NON-AGRICULTURAL SECTOR: CAPITAL INTENSITY 1975 (Million Dinars) -Ia-ortizationl/ ---Amortization--- --Taticnal Income-- sational Income- Social Private Social Frivate Social Private Arts and Crafts 712 287 3,239 7,547 8.6 3.8 Construction 3,635 - 46,343 - 7.8 - Transpor't '7,627 398 28,106 1J.915 27.1 20.' Catering and Tourism 1,295 135 11,014 1,683 i1.0 8.G Yugoslavia/2 45,775 820 377,731 11,145 12.1] 7.4 ,/1 Social sector incl,udes only rond transrort t-o nike it nore comparaLble. /9 TIvat sector excludes construction and agr'culture. Source: Statistical Yearbook of Yugoslavia, 1976. - 342 - Table 5.17: INCOMES PER ACTIVE WORKER IN PRIVATE AGRICULTURE--1966-75 Average Annual Income Per Active Labor Income per Cost of Living Worker in Gross IncomeLa Force Worker Index 1966 Dinar (million Dinars) Ithousand) 1Dinhars) 1966 15,046 (17,044) 4,420 3,400 (3,860) 100 3,400 1968 14,063 (16,155) 4,368 3,220 (3,700) 112 2,880 1970 18,011 (20,519) 3,816 4,720 (5,380) 131 3,600 1971 21,150 (24,376) 3,545 5,970 (6,880) 151 3,950 1972 25,995 (29,887) 3,350 7,760 (8,920) 174 4,460 i973 32,729 (37,483) 3,145 10,410 (11,920) 207 5,030 1974 40,800 (47,026) 2,997 13,610 (15,690) 260 5,230 1975 45,699(53,274) 2,897 15,770 (18,390) 329 4 790 /1 Figures in brackets include income earned from non-agricultural activities. Source: Federal Institute of Statistics and IBRD estimates of active labor force in agriculture. - 343 - Table 5.18: INCOME PER ACTIVE WORKER IN PRIVATE AGRICULTURE BY REPUBLIC, 1971 Average Annual Active Labor Income Per Gross Income Force Worker (million Dinar) (thousand) (Dinars) Bosnia Herzegovina 2.619 577 4.540 Mnntenengr 437 67 6;520 Mancedonia ,4a28605 VAosovoA 787 1C4 4, 8nn Croatia 4,530 634 7,150 Slovenia 1,311 1 51 A 8Q SeLrbia P rope 704 n1 1 AIM A aLn Source:Table 52,andFeeralInstiutionoS98 293 10,180c Source: Table 5. 3 and Federal Institution of Statistics. - 344 - tabie 5.i9: -Y-uGOSLAV MIGRAANT WORKERS REMLTTAINCtS AND SAVINGS 1963-75 Foreign Exchange Remittances Deposits Held in Number of Workers' Remittances Per Worker Yugoslavia Mid-Year (US$ Million) ($) (US$ Million) 1963 n.a. (90,000) 16. 1964 138,000 (115,000) 31 225 1965 174,000 (140,000) 32 184 - 1966 275,000 (210,000) 64 233 38 1967 296,000 (220,000) 89 301 57 1968 401.000 (230,000) 122 304 80 1969 572.000 (4302000) 206 360 134 1970 783;000 (5502000) 441 563 269 1971 913,000 (66n,0o0) 652 714 528 1972 1,020,000 (760n000) 868 851 746 1973 10n0 nnn t3r, nnn) 1.310 1 l,l 1.129 1974 1,050,000 (790,000) 1-512 1,440 1;512 1975 900,000 (780,000)/2 1,750 1,575 2,063 /1 Figures in brackets are workers in Western Europe. /2 Based on end of year estimate of 770,000. Source: Total Number of workers are estimated by Federal Secretariat for Emplouyment, worlKLers 'r, EULUrope by Lte UCLLLteL LUL £'LrLaLLU11 DLUU.Lde, Zagreb. Remittances and savings are reported by the National Bank OL Yugoslavia. - 345 - Table 5.20: FOREIGN EXCHANGE DEPOSITS HELD BY YUGOSLAVS IN YUGOSLAVIA, 1966-75 (End of Year) (million Dinars)----- Short Long Total Exchange Rates-1 $ 1966 474 - 474 12.5 37.9 1967 713 - 713 12.5 57.0 1968 865 131 996 12.5 79.7 1969 1,089 584 1,673 12.5 133.8 1970 2,053 1,303 3,356 12.5 2!8.5 1971 5,189 3,778 8,967 17.0 527.5 1972 6,595 6,085 12,680 17.0 745.9 1973 9,013 8,606 17,619 15.6 1,129.4 1974 13,168 12,678 25,846 17.1 1,511.5 1975 18,801 18,334 37,135 18.0 2,063.1 1/ End of year exchange rate. Source: National Bank of Yugoslavia, Flow of Funds Accounts, Annual Reports, various issues. Table 5.21: EXTERNAL MIGRATION AS A PROPORTION OF PRIVATE l SECTOR EIrT OhVMENT 1971 (Percent), Bosr.ia Un-e-71 via 21 MAontenegro 9 Macedon.ia 20 KXosovo i2 roatjLa 27 Slovenia 23 Serbia Proper 7 Vojvodina 14 Yugoslavia 16 Developed Republics 15 Less Developed Republics 19 /I Agricultural plus non-agricultural Source: Population census, 1971- - 347 - Table 5.22: POPULATION AND LABOR FORCE 1970-e5 (per annurm growth rate) 1970-75 1975-8C 1.98J-85 Less Developed Republics Population Labor Force '.1^ L.97 1.60 Mlale 1.93 1.81 1.48 Female 2.67 2.35 1.92 D"eveloped Republics P opuLa LIion .kLUor Force 0 G.12 -C.35 Male 0.21 Q.05 -0.3c reUale 0.18 n' -0 .4 Source: Sentic and Breznik, '"Projekcije Ukupnog I Aktivnog Stanovnistva Jugoslavije Sa Migracionom Komponentom", STANOVNISTVO 1972-73. Table 5.23: POPUIATIo?r. ACTIVE LABOR POIRCE BY RETPUBLIC 1915-85 (Ihousanids) ---- Popullation ---- ------- Growth------- ------ -- Active Po-pulation ---Gr-----th.- Reoublic 1975 1980 1985 1970-75 1975-80 1980-85 1975- 1g80- 198' 1970-75 1975-80. 19S0-S5 (a) (b) (a) (b) (a) (b) (a) (b) ( a) (b) (a) (b) Boaniai Herzegovina 3865,3 4030.6 4i97.3 0.86 0.84 0.8;L 1500.2 14-56.6 1644.3 1553.8 1754.5 1615.0 2.09 1.49 1.85 1.30 1.31 0.78 Male 1896.6, 1982.8 2070.7 1021.5 9191.8 1114.5 1052.2 1-187.3 1091.1 1.93 1.33 1l.76 1.19 1.27 0.73 Female 1968.6 2047.8 2126.6 478.7 464.7 529.8 501.6 567.2 523.9 2.45 1.84 2.05 1.54 1.37 0.87 Montenegro 544.1, 568.1 591.2 0.78 0.87 0.80 189.2 184.6 208.4 198.4 Z24.3 208.6 2.04 1.55 1.95 1.45 1.48 1.00 M{ale 267.2 279.8 292.1 130.2 126.9 143.0 136.0 153.0 142.1 1.94 1.41 1.89 1.40 1.36 0.88 Female 276.9 288.3 299.0 59.1 57.6 65.4 62.4 71.3 66.5 2.32 1.79 2.05 1.61 1.74 1.28 Macedonia 1752.7 1882.1 2005.2 1.51 1.43 1.28 678.2 6S71.9 729.9 716.8 775,7 755.3 1.74 1.54 1.48 1.30 1.22 1.05 Male 888.3 953.8 1015.9 471.3 467.o 505.0 495.9 534.4 520.3 1.60 1.42 1.39 1.21 1.14 0.97 Female 864.4 928.3 989.3 206.9 204,9 224.9 220.8 241.3 235.0 2.03 1.83 1.68 1.51 1.42 1.25 Ebsovo 1356.6 1522.6 1707.2 2.26 2.34 2.32 369.6 357.9 435.3 410.0 515.0 474.9 3.22 2.55 3.33 2.76 3.42 2.98 Male 695.4 781.1 876.4 302.7 293.3 344.0 323.9 392.5 361.3 2.47 1.82 2.59 2.01 2.67 2.. 21 Female 661.2 741.4 830.8 66.8 64.6 91.3 815.1 122.4 113.6 7.06 6.34 6.45 5.93. 6.04 5.70 Croatia 4501.6 4595.1 4678.9 0.41 0.41 0.36 2039.2 2041.6 2083.8 2089.0 .2043.8 2051.9 0.27 0.29 0.43 0.46 -0.39 -0.36 Male 2179.3 2231.3 2281.2 1253.3 1254.8 1261.5 1264.7 1248.5 1253.5 0.24 0.26 0.13 0.16 -0.21 -0.18 Femnle 2322.3 2363.8 2397.7 785.9 786.8 822.3 824.3 795.3 798.4 0.30 0.33 0.90 0.94 -0.67 -0.64 -Slovenia 1781.4 1845.7 1907.8 0.71 0.71 0.66 843.2 848.3 848.4 859.1 850.2 866.6 0.19 0.31 0.12 0.25 0.04 0.17 Male 863.9 898.1 932.8 479.8 482.8 485.8 492.0 489.1 498.6 0.34 0.46 0.25 0.38 0.14 0.27 Female 917.5 947.5 975.0 363.4 365.6 362.7 367.2 361.1 368.0 -0.01 0.12 -o.04 0.09 -0.09 0.04 Serbia Proper 5417.9 5592.3 5726.4 0.72 0.64 0.48 2714.6 27'26.9 2689.3 2714.8 2611.0 2650.1 0.04 0.13 -0.19 -0.09 -0.59 -0.48 Male 2673.4 2763.8 2833.8 1645.6 1653.1 1636.9 1652.6 1592.6 1616.8 0.11 0.20 -o.11 -0.01 -0.35 -0.44 Female 2744.4 2828.5 2892.6 1069.1 1073.8 1052.4 1062.3 1018.3 1033.4 -0.07 0.01 -0.31 -0.22 -0.615 -0.55 Vojvodina 1998.0 2044.6 2082.3 0.51 0.46 0.37 853.8 859.9 867.5 862.1 870.8 893.9 0.58 0.70 o.32 0.51 O.08 (1.27 Male 974.6 998.7 1019.0 576.4 581.0 580.0 589.8 574.3 589.5 0.32 0.49 0.12 0.30 -0.20 -0.01 Female 1023.5 1045.9 1063.3 277.4 277.9 287.5 292.3 296.5 304.3 1.13 1.16 0.71 1.02 0.62 0.81 Yugotelavia 21217.5 22081.1 22896.4 0.82 0.80 0.73 9188.1 9146.8 9506.9 9424.0 9645.3 9516.3 0.76 0.67 0.68 0.f60 0.29 0.20 Male 10438.6 lD889.4 11322.0 5880.9 51350.7 6070.6 6007.1 6171.7 6073.2 0.75 0.65 0.64 0.5i3 0.33 0.22 Female 10779.0 11191.6 11574.4 3307.2 3296.0 3436.3 3417.0 3473.6 3443.1 0.76 0.69 0.77 0.72 0.22 0.15 1/ Projection (b) alloas for migration; see App,eEtx 'VII. Source: Santic and Brezaik, "Projekeije Ukupuog I Aktivnog Stanovnistva Jugosla%vije Sa Migracionom IKompocentomn" STANCt3TV0, 1972-73. Table 5.24: POPtL\TT(J;1jN :?J,CTBMJ iTCPJifijI[ T!,CV, Tnter-Republicon Mi :-ticr c-> I (Annual Ave.eq.eŽs) C i -'_tcn Republic 9 6 1-71 lC71 85 1971-C.5 Bosnia Herzegovina -.18,300 -J6,Co0o Montenegro -1,500 -1,50' - ^Of Macedonia -200 - -2,8300 Kosovo -3,900 +6,800 -3,800 Croatia +6,400 +6,000 -5,000 Slovenia +3,300 +3,500 -1,000 Serbia Proper +7,300 +7,000 -2,200 Voivodina +6,300°--5,00 -.^n Source: Se,ntic and Brezn"k, "'Projelci je TLr&upnog I Aktivnog Stanovinistva Jugola Sa raoj Ko n m S O T 19 Jugoslavije Sa Migracionom Komponentomn", STANOVNISTVO, 1972-73. Table 3.*25: DIRE~CT AND TOAl, LABOR OiTlPOT RATios, 1966- 72 (Per Million Do-ts) Direc t To.tal Employ- Direct Total Employ- Diret Total Em.ploy- Direct Total BpLoy- Laor Labor o-t Labor Labor meet Labor Labor tenet Labor L.bor -et Output Output Multi- Output Output Multi- Output Output Multi- Output Output Multi- Iectos~ RAti Rankj Ratio Rank olier Etatt Rjnk Ra,tio Rsok plier Ratio tan-k ER.4le Limbk lier Ratio Ran Ratio_ Rank0 PILLr INDUSTRY (15.04) (43.56) (13.18) (13.18) (40.46) (9.84) (32.30) (6.84) (21.312) Electric P-wr 11.73 9 21.23 3 i.81 10.15 9 .7.67 3 1.74 8,531 9 14..09 5 1.65 5.79 10 10.31 6 1.78 Coal 3i.61 25 37.77 17 1.23 25.88 25 119 17 1.34 19.15S 25 24.08 1 7 1.26 12.88 25 16.44 19 1.26 Potrolen 3.90 1 8.98 1 2.30 3.70 1 8.54 1 2.31 2.91 1 7.09 1 2.43 1.75 1 4.08 1 2.32 Fero-. NetalutRy 6.43 2 24.87 3 3.87 5.67 3 22.43 8 3.96 5.85 4 14.01 4 2.40 4.81 6 10.603 7 2.30 No-PrrumRtalurgy 7.02 3 21.46 4 3.06 6.38 4 1L8.65 4 2.92 5. 75 3 12.38 3 :1.15 4.51 3 9.19) 3 2.04 No-aai ineral Prods. 21.60 19 37.09 16 1.51 23.32 2.4 24.13 18 1.46 16.88 23 24.11 1.8 1.43 11.84 23 16.27 is 1.40 Natal Produce. 171.78 14 31.56 12 1.77 15.86 1.3 28.61 13 1.80 12.31. 13 19.68 1L3 I.860 8.88 15 14.03 12 1.58 Shipbuilding 11.64 8 24.25 8 2.08 9.47 7 20.853 7 2.20 7.22 8 154,3 8 2.09 4.89 7 9.8.5 5 2.01 Elmuteleal EquiPment 131.65 11 28.90 10 2.12 11.00 11 24.45 10 2.22 9.31 10 17340 10 1.83 6.79 11 12.18 10 1.80 Choieala 91.50 5 22.16 5 2.33 8.72 5 1.9.19 5 2.20 6.7e 7 14.48 6 2~.09 4.55 4 9.63 4 2.12 Building Material. 21.08 24 38.87 19 1.44 20.51 20 310. 21 16 i.47 16.73 22 23.,61 1.6 1.41 10.4.8 20 15.45 15 1.48 Wood Products - 25.91 22 47.14 22 1.82 21.52 21 318.97 20 1.81 14. 15 18 24.A3 1.9 IL. 72 10.13 18 17.51 29 i.73 Pper. 4 Poper Products 10.01 6 29.62 11 2.96 8.86 6 26. 08 11 2.94 6.72 6 16,40 9 ~ 44 5.02 8 11.83 9 2.36 Teetilee 11.86 15 38.33 18 2.15 17.56 18 19.23 22 2.23 14.68 19 28. 62 23 .95 10.12 17 17.62 21 1.74 1Leather & Leather Pro-ducts lc.,5i 13 57.99 23 3.51 16.05 14 54.79 24 3.41 12.91 16 26,18 21 3t.02 7.82 12 19.12 23 2.45 Rubhmr & tither Products 18.29 12 25.79 9 1.58 15.67 12 24. 05 9 1.53 12.10 12 18,.26 ILI 1.51 8.41 13 12.70 11 1.51 Foo Proco..soto 11.61 7 85.67 25 7.51 9.73 8 83.23 25 8.55 4.82 2 74.38 26 15.42 3.35 2 45.89 26 13.70 Prieti.R 21.87 18 34.39 15 1.57 17.31 17 27. 11 12 1.57 13.05, 17 20.31 1[4 1i.36 10.76 21 15.96 17 1.48 Toboec Processing 13.49 10 1.01.46 26 7.52 10.86 10 5 6.35 26 8.86 10.01 11 82.83 25 6. 28 4.58 5 38.92 25 8.54 MotIon FEiL Produetion 8.67 4 18.79 2 2.17 4.79 2 10.67 2 2.23 6.45 5 10.83 2 1.68 5.45 9 7.73 2 1.42 Mi eel.anem, Manf.eturee 21.18 17 44.47 20 2.10 16.80 26 38.82 21 2.31 12.61 16 28. 28 22 3!.24 8.60 14 15.22 14 1. 77 AGRICtjLTUUE 119.13 27 1.73.04 27 1.45 118.41 27 1714.99 27 1.48 84.45 27 127.72 27 1L.51 59.29 27 77.73 2? 1.35 FORESTRY 25.76 20 34.25 14 1.33 22.32 23 29. 59 15 1.33 14.99 21 19.,03 12 1. 27 11.46 *22 14.36 13 1.23 mMISTRICTON 26.44 23 45.13 21 1.71 19.69 19 35.56 19 1.81 14.88 20 26.30 20 1.77 10.35 19 18. 11 22 0.75 TRANSPORT & C~O5MMUNICLTONS 25.78 21 33.76 13 1.31 22.27 22 28.09 14 1,30 17.0! 24 21.,53 115 1. 26 12.66 24 15.81 16 1.25 TRADE 4 CATERING 21.05 16 24.86 8 1.18 16.59 15 19 .66 6 1.19 12.94 15 i5. 04 7 1. 17 9.45 16 10.92 8 1. 15 RANDICRAF4T-S 44.80 26 59.38 24 1.33 39.37 26 50.85 23 1.29 21.86 26 35, 72 24 1L.28 19.57 26 2 5.18S 24 1.29 Ae-rage 39_28 67.03 33.03 56.45 23.01 37.93 14.59 24.26 (tec.luioR Agriculture) (19.16) (45.65) (16.24) (35.42) (10.10) (27164) (8.185 (18.625 Snorco: Input-Output Tobino 0966, 1968, 1970 and 1972, and 6tutl,Cti,kf i Pt-e Table 5.26: L-ARDS-OUTPUTr RATIOS, CAPITAL-OUJTPUTf RATIOS AND CAPITAL_-LABOR RATIOS, 1972 ------- LABOR-OUTnPUT RATIO------ ------ CAPITAL.-OUTPUT RATIO..----- ------- CAPITAL-LABOR RAT'IO----- (Per Millon Dinears) (thousand Dina:) Sector Direct Rank Total Rank, Direct Rank lotal Rank Dircct Rank Total Rank INDUSTRY (65.84) (21.32) (0.82) (1.40) (119).9) (65.66) Electric Pow,ot 5.79 10 10.31 6 6.68 1 7. 22 1 1,154.12 I. 700.94 coal 12.88 25 16.44 19 1.65 3 2.17 4 128.25 8 131.79 8 Pctroleum 1.75 1 4.06 1. 1.03 5 1.60 10 589.39 2 393.92 2 Ferrous Metalurgy 4.61 6 10.60 7 0.92 7 2.00 5 200.39 4 188.52 4 Non-Ferrous. MstaIur8y 4.51 3 9.39 3 0.85 9 1.84 7 187.53 5 200.06 3 Non-Mctalic Mineral Products 11.64 23 16. 27 18 1.02 6 1.75 8 87.53 1 4 107.58 11 Metal Piroducte 3B.88 15 14.03 12 0.64 13 1.37 11 71.68 1? 97.47 13 Shipbuilding 4.89 7 9.85 $ 0.48 19 1.01 20 917.42 1.3 102.99 12 Electrical EquLipment 6. 79 11 12.18 10 0.42 21 1.08 18 6IL. 3 5 18 88.84 15 Chemicals 4.55 4 9,.63 4 0.74 10 1.64 9 163.83 7 170.18 7 Buildinlg Materials 13.48 20 15.45 IS 1.10 4 1.91 6 104z. 5 5 11 123.81 9 Wood Products 103.13 18 17.51 20 0.49 18 1.10 17 47.94 22 62.56 1 9 Paper & P'aper Products 5.02 8 11,82 9 0.91 8 2.21 3 180.77 6 186.62 6 Te-tile- 13.12 17 17.62 2 0.50 1 7 1.06 19 49.88 21 60.43 20 Leather & Leather Products 7.82 1 2 19.,12 2:3 0.27 27 0.82 26 34.21 24 42.98 22 Rubber 4 Rubbetr Products 8.41 13 1 2, 70 11 0.60 1 5 1.13 16 71.82 lb 89.13 14 Food Processir.g 3 .3 5 2 45.89 26 0.39 2 3 1.22 15 1 16. 35 9 26.56 26 Printing 10.76 21 15,,96 17 0.64 12 1.33 12 59).19 19 8 3 .62 16 Tobacco Procesising 4.56 5 38.92 25 0.47 20 1.27 14 102.68 12 32.5'i 2 5 Motion :Film Production 5.45 9 7..73 2 0.63 14 0.89 2 3 115.37 10 115.46 10 Miscellaneous Manufactures 8.60 14 15.22 14 0.40 2 2 0.91 22 46.01 23 60.09 21 AGRICJLTuRE 50.29 27 77.73 2 7 0.39 24 0.89 24 7 .67 2 7 11.46 2 7 FORLESTRY 11.46 22 14,36 13 0.33 2 5 0.52 27 28.84 2 5 36.50 23 CONSTRUCTION 10.35 19 18.111 22Z 0.55 16 1.35 13 52.96 20 13.66 18 TRANSPORT 6 COMMUNICATIONS 12.66 24 15..83 165 2.64 2 2.98 2 208.70 3 188.38 5 TRADE 6 CATERING 9.45 16 10..92 ;8 0.70 1 1 0.89 24 74.49 15 81.50 17 HANDICRAFTYS 19.57 26 25..18 2.4 0,32 2 6 0.91 21 16.56 26 36.34 24 Average 14.59 24.26 0.79 1,33 54.1 54.82 ie;xcluding Agiriculture) (8.58) (18,62) (0.86) (1.38) (100.23) (74.11) Source: Yugoslavr Input-OutpuL Table! 1972 and Statisticki Bilten. - 352 - Table 5.27: CHANGES IN EMPLOYMENT 1966-72 (Thousands) ---____-- -------CHANGES IN EMPLOYMENT----___-____-_-__ From Changes From Changes In the Composi-- in the Level From tion of Net of Net Final Changes in Actual Flnal flamnnA Do Dem-,,and OJ TeProduction Change '4 '4 ~~~~~Technology % (4=1+2+3) '4 Electric Power '+,7'42.4 46.;0 14,101.7 137.08 -8,557.i -83.18 10,287.0 100 Coal 161.0 -0.82 20,304.7 -102.87 -40,204.7 203.68 -19,739.0 100 Petroleum -2,221.1 -49.35 5,304.5 117.85 1,417.6 31.50 4,501.0 100 Ferrous Metallurgy 5,924.2 61.39 16.367.7 169.61 -12,641.9 -131.00 9,650.0 100 Non-Ferrous Metallurgy -9,070.3 -215.96 19,359.8 460.95 -6,089.5 -144.99 4,200.0 100 Non-Metalic Mineral Products -1,053.4 -27.52 17,480.9 456.66 -12,599.5 -329.14 3,828.0 100 Metal Products 8,505.4 14.01 113,273.1 186.53 -61,052.5 -100.54 60,726.0 100 Shipbuilding 4,263.8 137.59 6,769.4 218.44 -7,934.1 -256.02 'VOqqO 1oo Electrical Equiprent 23,159.2 100.30 25,539.5 110.60 -25,607.8 -110.90 23,091.0 100 23,159.2 100.30 25,539.5 110.60 -25,607.8 -110.90 23,091.0 100 Chemicals Chemicals -8,734.7 -36.70 34,836.2 146.36 -2,299.5 -9.66 23,802.0 100 Building Material 4,943.1 93.05 25,270.8 475.73 -24,901.9 -468.79 5,312.0 100 Wood Products 14,417.8 168.61 48,608.6 568.12 -54,470.4 -636.63 8,556.0 100 Paper and Paper Products -32497.3 -64 74 12,314.4 227.96 -2,415.1 -~63.22 5,402.0 100 Textiles 32,444.9 72.25 83,803.3 194.36 -73,131.2 -169.61 43,117.0 100 Leather 6 Leather Products 11,155.7 86.55 17,952.3 139.28 -16,219.0 -125.84 12,889.0 100 Rubber & Rubber Products 1,644.1 28.43 6,630.9 114.66 -2,491.9 -43.09 5,783.0 100 Food Proc.essing 24,070.4 121.62 42,185.4 213.15 -46,464.8 -234.78 19,791.0 100 Printing 3,493.1 38.66 16,528.4 182.92 -10,985.4 -121.57 9,036.0 100 Tobacco Frocessing -4,309.1 108.95 6,915.7 -174.86 -6,561.6165.91 -3,955.0 100 Film -536.5 269.59 575.6 -289.25 -238.1 119.66 -199.0 100 Other Industries -1,117.0 120.63 3,130.7 -338.08 -2,939.6 317.46 -926.0 100 AGRICULTURE -2,252,990.9 203.0 2,004,100.8 -180.55 -861,130.9 77.58-l1,11021.0 100 FORESTRY -6,333.3 48.02 23,034.6 -174.65 -29,890.3 -226.63 -13,189.0 100 CONSTRUCTION 90,864.8 93.72 198,099.5 204.32 -192,007.3 -198.03 96,957.0 100 TRANSPORT AND COMl.n^.ICPATIONS 15,180.4 19.37 116,921.8 149.17 -53,721.2 -68.54 78,381.0 100 TRADE AND CATERING 143,010.9 77.50 163,110.2 88.39 -121,591.1 -65.89 184,530.0 100 HANDICRAFTS 2,488.3 7.77 75,952.6 237.22 -46,422.8 -144.99 32,018.0 100 Source: Input-Output Tables 1966, 1972 and Price Indices in Statistical Year Book 1976. - 353 - Table 5.28: EMPLOYMENT ELASTICITIES 1956-74 1/ -----EMPLOYMENT/GRoSS OUTPUT----- ----EMPLOYMENTIFIXED ASSETS---- ----1956-65---- ----1968-74---- ----1956-65---- ---1968-74--- Elas- 2 Elas- 2 Elas- 2 Elas- 2 tieity R tcfitv R -itiry R ti v R INDUSTRY 0.54 0.99 0.49 0.99 0.65 0.97 0.50 0.99 (30.0) (25.2) (16.6) (54.8) Electric Power 0.50 0.93 0.41 0.99 0.61 0.93 0.52 0.98 (11.53) (25.3) (10.0) (17.1) Coal -0.28 0.57 -0.67 0.48 -0.19 0.58 -0.54 0.73 (-3.67 (-2.5) (-3.7) 7a-.42) Petroleum 0.27 0.66 0.80 0.94 0.54 0.74 0.64 0.81 (4 3) (I0.0) (5.2) /5 rn Ferrous Metalurgy 0.34 0.88 0.71 0.83 0.38 0.82 1.05 0.82 (8.3) (5.41 (6.4) (5.3) Non-Ferrous Metalurgy 0.15 0.76 0.29 0.74 0.14 0.68 0.25 0.72 (5.4) (~~~4.33) (4.5) (4.0) Non-Metalic Mineral 0.47 0.94 0.29 0.88 0.81 0.90 0.28 0.88 Products 512.4) (6.7) E 8.9) (6.8) Metal Products 0.63 0.99 0.57 0.99 0.92 0.94 0.52 0.89 (30.0) (23.1) (12.2) (7.2) Shipbuilding 0.32 0.61 0.52 0.61 0.81 0.79 0.46 0.89 (3.9) (15.9) (5.8) (7.0) Electric Equipment 0.64 0.99 0.60 0.96 1.15 0.97 0.63 0.98 (44.9) (12.0) (16.6) (19.0) Chemicals 0.54 0.99 0.38 0.99 0.75 0.96 0.67 0.98 (24.6) (21.9) (15.1) (18.2) Building Material 0.37 0.79 0.25 0.91 0.46 0.65 0.21 0.86 (5.9) (7.7) (4.2) (6.3) Wood Products 0.56 0.98 0.40 0.97 0.84 0.94 0.31 0.98 (19.0) (13.9) (11.8) (15.9) Paper & Paper 0.49 0.96 0.51 0.86 0.49 0.96 0.60 0.88 Products (15.5) (6.1) (14.0) (6.7) Textiles 0.75 0.99 0.65 0.99 0.74 0.94 0.49 0.99 (26.8) (52.3) (12.2) (7&1i Leather & Leather 0.65 0.99 0.96 0.97 0.76 0.95 0.49 0.98 Products (31.5) (13.6) (128 (15.7) Rubber & Rubber 0.68 0.95 0.60 0.97 0.61 0.99 Products (12.8) (14.1) (21.3) Food Processing 0.72 0.97 0.56 0.97 0.86 0.96 0.56 0.96 (17.9) (15.2) (14.9) (121) Printing 0.95 0.97 0.53 0.88 0.82 0.81 0.44 0.88 (18.5) (8.6) (6 ) (6.6) Tobacco Processing 0.52 0.59 0.13 -0.01 -0.02 -0.19 (3.7) (0.9) (-0.2) CONSTRUCTION 0.50 0.97 0.75 0.94 0.36 0.77 0.25 0nR8 (15.1) (90.0) (5.6) (5.5) TRANSPORT & 0.63 0.98 0.48 0.95 1.09 0.98 0.57 n.Or COMMUNICATIONS (21.7) (11.0) (23.5) (11.9) TRADE & CATERING - 0.53 0.92 0.54 0.97 (10.2) (13.1) HANDICRAFTS 0.22 0.67 0.90 0.99 (4.4) (42.6) 1/ Social Sector only. Source: Statistical Yearbook of Yugoslavia. - 354 - Table 5.29: EMPLOYMENT ELASTICITIES BY REPUBLIC, 1969-75-i' Industry R Construction R Transport R Trade R Total- BOSNIA-HERZEGOVINA 0.76 0.99 1.55 0.98 0.29 0.52 1.19 0.95 0.86 (20.0) (10.5) (2.7) (10.5) (28.0) MONTENEGRO 1.1 0.67 0.42 0.07 0.1 - 0.90 0.99 0.94 (3.6) (1.2) (0.03) (20.2) (8.0) MACEDONIA 0.90 0.96 0.96 -0.15 0.83 0.95 1.3 0.93 0.94 (11.6) (0.45) (10.8) (8.7) (18.1) KOSOVO 0.84 0.99 0.58 0.81 0.86 0.94 1.34 0.95 0.86 (19.9) (5.1). (9.4) (10.8) (21.1) CROATIA 0.48 0.98 0.58 0.69 0.53 0.94 1.0 0.97 0.56 0." (17.0) (3.8) (9.5) (13.2) (14.8) SLOVENIA 0.51 0.99 0.53 0.96 0.60 0.99 1.0 0.97 0.60 C ^- (22.3) (12.3) (31.2) (13.9) (23.9) SERBIA PROPER 0.43 0.99 0.44 0.41 0.71 0.95 1.1 0.96 0.58 C^ (21.1) (2.3) (10.9) (12.0) (15.6) VOJVODINA 0.50 0.97 0.37 0.44 0.19 0.44 0.55 0.92 0036 (15.5) (2.4) (2.4) (8.6) (8.1) YUGOSLAVIA 0.56 0.99 0.75 0.94 0.54 0.97 1.02 0.97 0.63 (26.9) (10.1) (14.4) (13.7) (22.2) 1/ Elasticity of employment with respect to value added in constant 1972 prices. 2/ Total Social Sector Economic Activities. Source: Statistical Yearbook of Yugoslavia. - 355 - VI. REGIONAL DISPARITIES Introduction 6.1 One of Yugoslavia's most intractable problems of postwar economic development is the income disparity between regions. 1/ In spite of major efforts of Yugoslavia as a whole, starting in the 1950's, the income dispari- ties have tendentially worsened until 1970 for the LDRs as a whole, and barely stabilized thereafter. Table 1: REGIONAL DISPARITIES OF INCOME PER CAPITA, 1954-75 GNP Household /1 ~~~~~~~/2 /3 GMP- (US$) Income- I95 194C 1970 1 17C I 1n,7 19 BJosr,ita=Herzegvina 82 69 6C7 69 1,01 7U Montenegro 53 72 78 70 1,035 82 2_ _ _ z _ _: _ t n I tI Ifl 1 'rI In M a c euLi a O:r U 4 UV I,UL.O /0 Kosovo 48 37 34 33 492 49 Less Developeu Regi ons (LDRs) 71 65 61 62 924 72 Croatia 119 1 i ;2F I J,o40 ;25 Slovenia 188 187 193 201 2,979 150 Serbia Proper 84 95 97 92 1,365 100 Vojvodina 88 116 110 121 1,790 105 Developed Regions (DRs) ii0 118 121 121 1,793 116 Yugoslavia 100 100 i00 100 i,480 100 /1 Calculated on the basis of current prices; Yugoslav average = 100. /2 GNP per capita Yugoslavia computed according to World Bank Atlas method- ology; regional data imputed by applying the GMP per capita differences to the country average. /3 Calculated from household surveys; Yugoslav average = 100. Sources: Statistical Yearbook of Yugoslavia, various issues; Indeks Vol. I, 1977. The relative position of two of the LDRs--Bosnia-Herzegovina and Kosovo--was by 1975 considerably worse than in 1954. On the other end of the spectrum, all DRs had in the long run improved their relative position. By 1975, the 1/ Throughout this report "repion" pertains to the Republics and Autonomous Provinces of the Federation. - 356 - spread had widened to the ratio of 6:1 (Slovenia:Kosovo) from 4:1 in 1954. 1/ As the last column of Table I indicates, however, the differences of personal incomes (household income per capita) are narrower, because of the incidence of transfer payments and portions of GMP which do not accrue to households, but they follow the same pattern. 2/ This pattern, although somewhat less pronounced, can be observed from the indices below for a variety of social indicators, such as inhabitants per doctor, illiteracy rate and levels of educational attainment and cars per 1,000 inhabitants. Therefore, the GMP per capita disparities can be regarded as a useful, although crude, summary indicator of the differences in welfare. _ / In each region--t.he less developed ----as well as - dvlp - intraregional differences can be found which in some of the regions extenad over the range of 10:1 luetween comuunes. Thus, sor,,e parts in LDRs have reached a stage of development which compares fairly well in comparisor, wiLtLh most parts of the DRs. L/ In terms o£L ,easures ofL iILncoe concentratioL, see paLraraphL U.0 belw, Yugoslavia also fares well by international comparison. As further analysis would illustrate, the urban/rural income differential is at the roots of the income and regional disparities problem. - 357 - Tale2: S/IC SOCIA INDICATORS BY REGIDN, 1975 (Percentage of Yugoslav Average) BOsnia Ser'zia Yugoalavia Herzegovina Nontenearn Macedonia Kosovo Croatia Slovenia Proper Voivodina Life Expectancy at Birth: /I Male 100 98 104 100 99 100 100 103 101 Femlie 100 97 104 96 95 103 104 102 103 No. of Persons per Doctor 52 100 66 76 91 35 114 133 120 109 No. of Persors per P,ospital Bed ,12 1oo 75 130 91 48 118 127 108 101 Average Area of Dwelling per Person 100 77 81 82 63 118 127 100 125 - % of Dwellings with Electricty 100 87 90 104 86 103 109 102 L04 - % of Dwellings with Water Supply and Sewerage Facilities lOO 68 99 111 37 122 133 97 119 Illiteracy RaLte /2 Total 100 tS 90 63 4.8 o67 L,250 85 16; Male 10t 71 105 67 36 159 667 103 143 Female 100 63 87 88 52 172 1,667 61 172 % of populat:on Age 10 and ox er *ith Secondary and Higher fducation 100 70- 94 76 46 121 144 103 111 No. of Persons per Passenger Car /2 100 61 65 79 29 _ 114 213 104 116 /I Based on 1971 Census. /2 Inverse ratio. Source: Ree Tnble 6.1 at the and of this chapter. (Al1 table nos. prefixed with "6." can be found at the end of this chapter). - 398 - 6.2 The tendentially growing disparities, however, are not the reflec- tion of stagnation in the LDRs, but combinre the effects of different growth rates of GMP and different growth rates of population. Table 3: GROWTH RATES OF GMP, POPULATION, AND GMP PER CAPITA, 1966-75 (percer.tages GMP Population GMP per Capita Bosnia-Herzegovina 5.0 1.3 3.6 rlut,.llt SLu J.~ ~ ~~~~ 1 1. 1 J. LMontenegro Macedonia 6.3 1.5 4.5 Ti t~~~~ ~ ~~~~~ 1J 1 1 1 f KUosovo 0.1 £.I 3. LDRs 5.4 1.6 3.5 Croatia 5.3 0.5 4.8 Slovenia o.o 0.7 6.0 Serbia Proper 5.4 0.7 4.6 Voivodina 5.0 0.4 4.6 DRs 5.6 0.6 4.9 Yugoslavia 5.6 1.0 4.5 Source: Statistical Yearbook of Yugoslavia, various issues. The figures show that the growth momentum of the LDRs as a group was only insignificantly lower than that of the DRs as a group and overlapping for various regions. The higher growth rates of population, however, 'diluted" the benefits from growth, with the effect of marked differences of growth rate per capita, setting back all LDRs and widening the absolute income gap between them and the DRs. The importance of this demographic parameter is illustrated by the comparison of the empirical disparities shown for 1954 and 1975 in Table 1 with the hypothetical disparities which would have resulted for 1975 had the population growth rate in each of LDRs been equal to that observed for the DRs as a whole over the same period. 1/ Under this assump- tion the income disparity would have narrowed to about 80 percent each for Bosnia, Montenegro and tlacedonia, to 49 percent for Kosovo, and to 77 percent for the LDRs as a whole. In other words, the relative worsening which both i/ While the assumption is "unrealistic" in view of the actual demographic dynamics, the disregard of repercussions of the population growth rate on the growth rate of GMP is plausible. In all LDRs the incidence of considerable under- and unemp'loyment results in a marginal product of labor close to zero, while at the same time the rapid population growth rate led to high investment and current costs in education and health services, which otherwise could have been used for productive investment. thus raising the growth rate of GMP. - 359 - Bosnia and Kosovo experienced would not have occurred, and the position of M7or,tenegro and ILCeU[OLia WUUU LdhaVe impLIJL Uveu sLiLgriL.LLILLy. /I 6.3 DirectLy or indirectly, these introductory observations point to the major factors affecting, in combination, the interregional disparities aad tle iimited success so Lar of thIe measures to narrow them aown: (a) demographic conditions; (b) intra-regional disparities; (c) weaknesses of the economic structure of the less-developed regions; and (d) institutional weaknesses of the less-developed regions. 1/ Thesec comnpriqnns arp mnde disrpcgrding the renercussions of higher growth rates in the LDRs on the growth rate of total Yugoslavia, used as the benchmark of com.par1son~ - 360 - Factors Affecting Interregional Disparities (i) Demographic Conditions 6.4 The LDRs stand out by their much more marked demographic dynamics: Table 4: DEMOGRAPHIC INDICATORS, 1950-75 Natural Growth Rate Birth Rate (per 1,000) (per 1,000) Fertility- 1950 1965 1975 1950 1965 1975 1956 1965 1974 Bosnia-Herzegovina 25.1 21.0 13.1 38.6 29.0 19.1 4.2 3.5 2.4 Montenegro 20.7 17.8 12.7 30.0 24.7 17.7 3.9 3.1 2.4 Macedonia 25.6 19.6 15.1 40.3 28.1 22.5 4.7 3.7 2.7 Kosovo 29.1 29.6 27.6 46.1 40.5 34.6 6.6 6.0 5.4 LDRs 25.5 21.8 16.3 39.5 30.3 24.4 4.6 3.9 3.0 Croatia 12.5 7.3 4.4 24.8 16.6 14.7 2.5 2.2 1.9 Slovenia 12.6 8.8 7.4 24.4 18.5 17.7 2.5 2.4 2.1 Serbia Proper 15.6 7.3 6.8 28.0 15.4 15.8 2.2 2.0 1.9 Voivodina 11.5 5.9 3.3 25.5 15.5 14.1 2.3 2.1 1.7 DRs 13.5 7.3 5.6 26.2 16.2 15.6 2.4 2.1 1.9 Yugoslavia 17.3 12.2 9.4 21.0 21.0 18.1 3.1 2.7 2.3 /1 Live births ner female during childhearing age. Sources: Tnhles 6-4 and 695 and Federnl Tnstituite for Planning. With the excention of Kosovo. the natural growth rates declined everywhere sharply, but even in the other three less developed regions they remained two to three times abnue the average of the develoned reaion-s The birth rates show a similar, although less pronounced pattern. The fertility rates demonst-rAte the differences of the demogrAphir dvnnmics most npers,nsivelv Bearing in mind that a fertility rate of 2.1 corresponds to the "replacement level" (with stahle population size in the long run), the figiures reveil that the DRs as a group dropped well below replacement level, that the national average ic nnnrnoahino it and thnt three nut of four lecs deel onped regains are not significantly above replacement level. Natural growth rates, birth rates and fertility of all DRs stabilized at about the present level around 1970; and the decline in the LDRs also slowed down markedly at about the same tim.e. In Kosovo, however, whfiere population continued to grow bya rate of almost 3 percent per year, and where the present fertility indicates more than adLL..VUU ttLi6 UL UL_ L LV [L WI- LLLXLL J LIO b o-ict a LV ILt L O A I. L L - fL V significant change of the demographic dynamics in the foreseeable future. One - 361 - of the consequences of the demographic dynamics during the last two decades is thLat even if fertility wouULd decline in thLe T LDRis abruptly to tle reptacemrLIt level, both their total population and working-age population would continue to grow--uue LU effLcts Of previous high tuLility--OVetL bVeLv l ucUaues alnu by only slowly declining rates. 6.5 As one would expect, the differences of past demographic dynamics change the interregional distribution of population and result in difrerent regional age structures. Table 5: CotIPOSITION OF POPULATION, 1948-75 Percent of Total Population Population below Age 2u /1 1948 1961 1975 1974 Bosnia-Herzegovina 16.2 17.7 18.6 45.5 Montenegro 2.3 2.5 2.6 47.8 Macedonia 7.2 7.6 8.2 43.0 Kosovo 4.6 5.2 6.6 52.8 LDRs 30.3 33.0 36.0 45.9 Croatia 23.9 22.4 21.2 31.5 Slovenia 9.1 8.6 8.3 32.9 Serbia Proper 26.2 26.0 25.3 31.3 Voivodina 10.4 10.0 9.3 30.0 DRs 69.7 67.0 64.0 31.4 Yugoslavia 100.0 100.0 100.0 36.5 /1 Percent of each region's population. Source: Table 6.4 and Statistical Yearbook of Yugoslavia, 1976. The relative share of all LDRs increased significantly over the period. The relative size of the population below age 20 is strikingly higher for all the LDRs. This difference in age structure, in conjunction with the still signif- icantly higher fertility rates--enhanced by the fact that three-quarters of total fertility falls in the age group below age 30--assures that the trend towards a growing relative weight of the LDRs in total population is to continue over several decades to come. This will continue to aggravate the difficulties (and/or extend the period) of closing the income disparity, even if a somewhat faster growth rate of GMP could be established in the LDRs. The compounding effect of the higher population growth rate and the existing income differential may be illustrated by a comparison of the extreme cases of Kosovo and Slovenia: while a $100 rise of the GNP per capita in Slovenia would be associated with about 3 percent growth of GNP, it would require an almnst 20 nperrent GNP growth rate for Kosovo. The last column of Table 4 also points to another problem facing the LDRs: their working-age population, and iiultimatrelv their labor force searching for employment within the region, is likely to grow at high rates. Furthermore, the present gross differences - 362 - of the labor participation rates of the working-age population--principally lIcr in all IITAWR. mnainly due to the low participation of women--are likely to diminish with the progress of social development, amplifying the different future growth rates of labor force further. 1/ (i4^) Intraregior.al Disparities 6.16 Intraregior.al disparities are quite signifi-cant, as indicated in the figures below: Table 6: INDICES OF INCOME DIFFERENTIALS OF SOCIAL SECTOR, 1974 Pn P-er GMP Per G s Personal Iocial Sector Uri'l re .A'r r~L UrU ZrbL~ DUILd _LLUI Capita Worker Income per Employment TotaEla Sclal WU Lk L % of Population Sector Social Sector- Population Bosnia-Herzegovina 68 88 92 16.1 Montenegro 72 96 95 17.4 Macedonia 71 81 82 18.4 Kosovo 34 79 84 9.4 LDRs 63 85 89 15.5 Croatia 124 110 110 24.4 Slovenia 192 120 1i9 36.5 Serbia Proper 95 93 89 21.2 Vojvodina 121 103 107 23.4 DRs 121 105 104 24.6 Yugoslavia 100 100 100 21.2 /1 Economic activities. Sources: Statistical Yearbook, Statistical Bulletin No. 833. As the figures clearly show, the interregional differences of GMP per worker (equivalent to average productivity of labor) in the social sector are, al- though correlated with GMP per capita, fairly narrow. Thus, the overall in- come disparities are only to a limited degree explained by these interregional differences and must be rooted elsewhere, i.e. in the traditional agricultural sector. 2/ More striking--and again hinting at the importance of intersectoral 1/ The repercussions of both the different demographic structure and of behavioral parameters on the employment problem are explored in greater detail in paragrpahs 5.15-5.18, Part III, Chapter V. 2/ Compare paragraphs 5.12 and 5.13. - 363 - aspects--are the interregional differences of the relative size of the modern sector (as expressed by the ratio of social sector employment in population) and the close correlation between this ratio and GMP per capita. A signif- icant additional observation is that within the social sector the inter- regional differences of gross personal incomes per worker are even narrower than the interregional differences of GMP per worker (productivity). 6.7 This leads to some important conclusions: First, within each region there is a wide gulf in productivity and income between the modern social sector and the traditional private sector (mostly in agriculture). 1/ Second, to a large degree the differences of relative size of the two socio-economic sectors determine the interregional disparity, and the persistent differences of the relative sizes prevented a significant narrowing of the disparity. Third, if one considers the ratio of gross personal income per worker to GMP per worker (productivity) as an index of "per unit labor cost of production", the LDRs tend to be at a disadvantage against the DRs. The homogenizing income policies prevailing in the social sector thus prohibited the emergence of any "comparative advantage" of the LDRs with respect to labor, impeding a more rapid expansion of labor-intensive activities in the social sector which-- though somewhat widening the differences in average incomes of the social sector--would simultaneously narrow down faster the overall income disparity. 6.8 The distributional significance of these intraregional/inter- sectoral income differentials is brought into focus more directly by comparing 'tper capita household incomes" (from all sources) 2/ in major socio-economic sectors, as shown by income survey data. I/ See also Table 9 (Kmnlnn7mcntr Parconnl Tnrnmes in Agriruiltuirp annd Sorinl Sector) Part III, Chapter V. 2/ The incomes, thus, include transfer payments and receipts from abroad. The per -p4-a C4i..-r-- are deri-.A from presented data onr average income i1tie pet: Cdp±LC ttIC aLeULM utvcu -L'Jm per household (within 11 size categories) and the corresponding average [Lousehold sizeUS. - 364 - Table 7: HOUSEHOLD INCOME PER CAPITA DIFFERENTIALS, 1973 Household Income Per Capita Average No. of x of Popula- Agri- Non-Agri- Household Active tion in Non- Total culture Mixed culture Size Members Agriculture Bosnia- Herzegovina 76 61 67 100 4.6 1.9 33 Montenegro 82 58 78 94 4.1 1.6 45 Macedonia 78 66 73 88 4.8 2.0 43 Kosovo 49 39 48 61 7.1 2.2 32 LDRs 72 58 65 90 4.9 1.9 36 Croatia 125 85 112 151 3.4 1.8 47 Slovenia 150 106 135 166 3.4 2.0 58 Serbia Proper 100 69 86 128 3.7 2.0 50 Vojvodina 105 87 103 116 3.1 1.6 48 DRs 116 78 104 140 3.5 1.9 47 Yugoslavia 100 70 89 125 3.9 1.9 44 /1 As percentage of the national average. Source: Table 6.6. Several conclusions emerge from these data: first, average household income per capita in non-agriculture (roughly equivalent to the social sector) 1/ are--with the clear exception of Kosovo--in all regions about 90 percent or more of the total (national) average. It is also much larger than in the other two sectors, and in most regions ranges between 150-200 percent of that in agriculture. Second, the share of population associated with non- agriculture is directly correlated with both GMP per capita, total household income per capita, and, of course, share of social sector employment in Dopu- lation. Third, within each socio-economic sector, the differences in family size and the ratio of active to total number of individuals per household (representing the demographic dynamics, the dependency ratio and the partic- iDation rate) exDlain to a considerable degree these differences of household incomes per capita, i.e., total household incomes scatter over a much narrower range than the ner capita figures suggest. and the latter tend to exaggerate probably the interregional differences of standard of living in each socio- economic sector. Fourth; in all LDRs the averaae household income ner canita in agriculture is less than two-thirds of the total national average. The share nf agriciiltiirp and mlxepd hoiuseholds are also higher for LDRs as a group 1/ The correspondence is only approximate--a sizeable number of households in th1Ue "...ixed" category probably also receive some lnco from the soclal sector from some of the family members. - 365 - than for DRs. Thus, although diluted by demographic features (essentially the large d1iferer,ces of average houselold size) ant transfLer paymiLents, the incomLe differentials are to a large degree a reflection of intersectoral/interregional productivity differences. (iii) Measures of income Inequality 6.9 To test statistically the level of income concentration1 and income inequality in Yugoslavia two measures were computed: 1/ (i) the Gini coeffi- cient which is the more conventional measure of overaii income concentration, and (ii) the Theil index which allows the decomposition of total inequality into component parts. 6.10 A comparison of the Gini coefficients for Yugoslavia for 1963, 1968 and 1973 and for Yugoslavia and individual regions by socio-economic sector for 1973 presented in Tables 8 and 9 below yield a number ot observations. First, the Gini coefficient of .23 indicates a favorable income distribution pattern by international standards. This in the case of Yugoslavia is explained by the socialist and workers' self-management premises of the society which exclude any significant income from capital. Z/ The agreements on criteria for personal remuneration--which allow differentiation but limits great dis- parity of social sector personal incomes--as well as the significance of transfer payments, both from social security coverage and remittances from Yugoslav workers abroad,also make for the more equitable income distribution pattern. I/ Using the 1973 household survey data which provides an eleven income bracket classification of the population by region. 2/ Unlike the capitalist system where the functional distribution of income determines the share of profits as against wages, the functional distri- butinn nf income in Yugoslavia basically determines the share of all personal incomes as against capital accumulation, the latter not directly affecting nprsnnnal incomes but being allocated for investment. See paragraphs 2.27-2.33, Part III, Chapter 11. - 366 - Table 8: GINI COEFFICIENT /1 1963-73 1963 1968 1973 All H.ouseholds .22 .24 .23 Agricultural Households .17 .21 .20 Mixed ouseholdAs .17 .18 .20 Non-agricultural Households .22 .25 .24 I Standardized 'or numl.ber of4 indl vld-3uals perL househ'oIldA. I . LdLU L ULL U Lt Li EUtUL L _LLUA.V _LU UJLLUL U Sources: Federal Otatistical Office, Statistical Bulletin No. 833, "'ouseU1old Survey 1973", March 1974; and W4orld Bank, Yugoslavia: Development with Decentralization, 1975.. Second, the overall income concentration in 1973 was closer to the 1963 level following some increase in 1968. This partly reflected the policies of the i965 economic reforms conducive to larger income differentiation, and the subsequent tightening of income policy for enterprises 1/ resulting in the so-called "income leveling" (which is also considered in Yugosiavia to have its disincentive aspect.) Third, the coefficients of income concentration by region shown below do not appear to follow a given pattern. The two regions at the extreme of average income disparity, namely Slovenia and Kosovo, were both at the lower end of overall income concentration and other regions hovered closely around the average for the country. 1/ See paragraph 2.35, Part III, Chapter II. - 367 - Table 9: GINI COEFFICIENTS /1: TOTAL AND BY SECTOR, 1973 Total Agriculture Mixed Non-agriculture Bosnia-Herzegovina .24 .24 .19 .25 Montenegro .19 .14 .19 .19 Macedonia .26 .31 .21 .26 Kosovo .18 .17 .13 .30 Slovenia .17 .18 .16 .16 Serbia Proper .22 .18 .17 .22 Vojvno-dina .22 .20 .15 .26 Croatia .20 .16 .20 .19 Yugoslavia .23 .20 .20 .24 /1 Standardized by the number of individuals per household. Slources: Federal Stati-stilrn Office; Statistical Bulletin No. 833, "Household Survey 1973", March 1974; and World Bank, Yugoslavia: Development wlth)Decentralization= 6-.11 Fourth, as to socki-er n.omip sectors. the lowest degree of income concentration was as to be expected for mixed households--who derived their income from agricultural and norn-aricrulltrrl activities--in all regions with the exception of Croatia and Montenegro. 1/ The highest concentration was generally in non-agricultural (basically social sector) households whose incomes are more affected by differences of the educational and skill attain- merit of actLive mfembers. The limitation of private land ownershin to a maximum of ten hectares, on the other hand, limits the scope for larger inequality in the rural sector. 6.12 The Theil Index 2/ was used for the decomposition of incom.e in- equality. Applying it to the 1973 household survey data which classify the population into three socio-econouimc sectors or groups 3/ allows the decom- position of total income inequality into two components as shown in Table 10 below: (i} a component which measures the contribution to inequality arising from the differences in average incomes between the three groups, and (ii) another component which measures the contribution to inequality arising from the differences within each of the groups. 1/ Both likely to have been influenced by high earnings from tourism in coastal areas. 2/ The index developed by H. Theil in 1967 has certain decomposition proper- ties which allow an evaluation of the relative contribution of different factors to total income inequality, although does not indicate causality of relationship. See footnote 1 to paragraph 6.i3. 3/ Agriculture, mixed, and non-agriculture. - 368 - 6.13 Although similar applications of the Tneil index are relatively few to allow international comparison, the overall degree of income inequality as reflected in a standardized T value of 1.1 percent apppears to be quite low as compared to other countries. The proportion of inequality (24 percent as shown in Table 10) explained by the income differentials between the three socio-economic sectors in isolation is, however, somewhat high. Notwithstand- ing intersectoral income differences (mean income ratio of 1.8 for agriculture as compared to non-agriculture), this in the case of Yugoslavia is also explained by a relatively even spread of incomes within each of the socio- economic sectors. To test the inequality effect of the regional and regional- cum-sectoral income differential, the Theil index was calculated for the eight regions and for the twenty-four regional/sectoral combination. The resulting indices are interesting to note. The Theil index computed for the eight regions was similar to that of the three socio-economic sectors but the pro- portion of inequality explained by the between group (regions) differences was somewhat higher. 1/ The Theil index transfroms the coefficient of entropy--which measures the equality of income distribution of a given population--into an index of in- equality by subtracting the actual value of that coefficient from its own maximum value. The basic equation for the Theil index T is as follows: N T = 2 Yu log Yu N u=l where N is the number of individuals in the population and Yu is the share of individual u in total income. If the population is divided in groups according to selected character- istics. the total ineoualitv may be decomnosed into two comnonents: t t T =B + W The first component (B ) measures that part of total inequality explained by all the variables or characteristics being investigated and corres- ponds to the joint contribution of the inequality between the average incomes of t-he differpnt- grornn defined hv t-hp simui1tanPe1ius erosrni-nc of the variables. The second component (Wt) measures that part of total ineiqulity tv iiinawn1ei-iod bny t-he variahleq and rorrespozndti-z to a wpighthed average of the inequalities within each of the groups. In its standardized form (dividing the value of the index by the natural lng--arit of tih popula si 1e ), te 4ih .Aex woul- nsoo-n 0 ar.d 1 for perfect equality and perfect inequality respectively, but it rarely exceeAs 0.15. For Uetai'ls see 'scar kltimirL andU o.eUbastLian [inera, Decomi,position 1r.nalysils of the Inequality of Earnings in Latin American Countries, World Bank Developm-lent Research Center, August 1977. - 369 - Table 10: THErL TNDITCES 1973 Theil Index T Between T Within Group ________ _ . Yugosliavia: Distribution /1 of Total Population and incor2e by: Three Socio-economic Sectors .11 24 76 Eight Regions. .11 30 70 Twenty-four Regional/Sectoral Groups .13 42 58 /I Over il income brackets. Source: Statistical Bulletin No. 833, 1973. The interaction between the regional/secLoral comnposition was further reflected in the third computation using the twenty-four regional/sectoral breakdown of the population. The degree of inequality, as well as thle betweer, group expla= nation, was still higher. These indicators thus support our analysis above 1/ regarding the roots of the income disparity problem in Yugoslavia, namely the rural versus urban income differential and the relative weights of the two sectors in the various regions. 6.14 The problem of poverty in Yugoslavia is, however, relative rati,eL than absolute and is basically of rural incidence. In terms of food consump- tion, the household surveys data show adequate caloric and a fairly high level of protein intake 2/ for all Yugoslavia, though lower levels for the lower income groups. Although there are major qualitative differences in non-food consumption (e.g. clothing, housing, recreation facilities), there is no apparent phenomena of rundown urban localities or clearly insufficient ameni- ties in the rural communities. The institutional set up for the financing of, and the supply of, social services provides access to education at all levels for all income groups and for comprehensive medical insurance coverage for virtually the entire population. The social security and welfare system also provides for unemployment compensation and for contributions to the needy. The Federal and Republican resource transfer mechanisms, described below 3/ continue as instrumental for maintaining the standard of living in the less developed regions and areas. A significant share of financial transfers for investment purposes are channeled for the construction of infrastructure and manufacturing facilities in the less developed areas and budgetary grants are 1/ Paragraphs 6.6-6.8. 2/ Compare Tables 6.2 and 6.3. 3/ See paragraphs 6.26-6.34. - 370 - made to support expenditures on social seLvites LI LLIt poJoLer L_UiUiLL-LLeU. As the figures below, nonetheless, demonstrate, the incidence of "relative poverty" 1s highly localized by region and socio-econom-ic s IdLCL; LNV1E LocalizdDUii U6LU i rnIU 6UI~L;La fUU~LLULULL iiN-ULULYt) ~J Tab'le Il: INCOME DISTRIBUTION ('PER CAPITA HOUSEHOLD- INCOME), 1973 /'i Percentages of Yugoslav Average Below 50 50-100 100-150 Above 150 Total Bosnia-Herzegovina 33 53 10 4 100 Montenegro 11 75 11 3 100 Macedonia 33 47 12 8 100 KoSovo 66 34 0 0 100 Glroat-i a 1 46 33 20 100 Slovenia 0 15 53 32 100 Serbia Proper 12 56 20 12 100 Vojvodina 7 61 24 8 100 Yugoslavia 11 57 22 10 100 I Equal to or lower than tbe per capita Inousehold io. theth lowest of the eleven income groups at the national level. SJource; 'tatist-cal BulletLin, VUol. U8J, TaLeU U.8. 61 @ | J 1[ Th'le figures show strikin dl1erences bL)e W thL egioUnlsb llth -LUWU income groups, with a per capita household income below one-half of the coun- try average (that is below about $300, at 1973 prices and excnange rate), was largely concentrated in the LDRs and especially Kosovo, where it extended to two-thirds oL the population. At least 80 percert oL the population. in each of the LDRs falls below the national average, and in the case of Kosovo it is 100 percent. Conversely, ror tne DRs, aDout one-Lnira of tne population in Serbia and Vojvodina had a per capita income above the national average, the proportion rising to one-hail for Croatia and 85 percent for Siovenia. The highest income groups (above 150 percent of the national average) also accounted for one-fifth and one-third of the populations in Croatia and Slovenia, respectively. However, two factors, mentioned before, have to be kept in mind. First, the per capita differences exaggerate the differences ot living standards because of the vast differences in household size and the :economies of size" associated with the large households. Second, the three socio-economic categories are very unevenly distributed over the four income groups, and probably everywhere the non-agricultural population is clustered in the two top income groups, whereas the agricultural and "mixed household" population makes up the two bottom groups in the LDRs, but extending well into the middle-income group in the DRs. In Kosovo, for example, where about 28 percent of the population is in the agriculture category, about 75 percent of the population in this category falls into the lowest income group (below one-half of the national average). - 3i7 - (iv) Weakness of the Economic Structure of the Less Developed Regions 6.16 In assessing the strength of the economic structure of the regions, a great variety of parameters can be employed. The subsequent analysis is based on the following ones: (a) OCR: output/capital ratio = GMP/fixed assets (i.e. the inverse of the average capital/output ratio); (b) LCR: Labor/capital ratio = workers/fixed assets (i.e., the inverse of the average capital/labor ratio); (c) ULC: Unit labor cost index = ratio of (the index of) gross personal income per worker to that of GMP per worker (i.e. pro- ductivity); (d) AR: Accumulation rate = ratio of depreciation plus allocation to enterprise funds (undistributed profits) to fixed assets; (e) CPC: Capital stock per capita = fixed assets per inhabitant. The economic structure of the LDRs is demonstrably weaker by almost any standard, as the following averages (for social sector, economic activities) indicate. Table 12: STRUCTURAL/OPERATIONAL COEFFICIENTS /1, 1974 (percentaee of Yugoslav Average) OCR LCR ULC AR CPC Bosnia-Herzegovina 95 104 105 74 73 Montenegro 71 78 96 108 102 Macedonia q9 111 101 70 78 Kosovo 70 88 106 48 44 TLDRs 87 102 105 74 71 Croatia ~~~~~102 93 100 108 192L Slovenia 109 91 98 145 192 Serbia Proper 102 111 96 92 89 Vojvodina 107 105 104 110 103 Yugoslavia 100 100 100 100 100 /1 Social sector, economic activities; for definition of coefficients see paragraph 6.16. Source: Statistical Bulletin, No. 954. - 372 - These figures bring out a number of important features. First, in all LDRs the efficiency of using the existing fixed assets (output per unit of fixed assets) is significantly below that of all the DRs. Second, in spite of the fact that a greater degree of integration of labor force into the modern sector is the key to reducing the inter- and intra-regional income disparities, the employment ner unit of fixed assets is. in two of the LDRs. (Montenegro and Kosovo) lower than in any of the DRs, and in only one (Macedonia) is the ratio -ignificantly ahove the national average. Third- in thre nuit of the four LDRs, the per unit labor cost tends to be above the national average, indicat- ina the ahbsence of anv "comnarat-ivu advantage" for lhabr-intPnsivP activi- ties. 1/ Fourth, in all LDRs, with the exception of Montenegro, the accumula- tion generated per unit of fixed assets is at least one-quarter below the national average; in Kosovo it is even below one-half. This reflects two features: (a) the level of personal incomes in these regions is maintained at the expense of accumulation (for reinvestment), and (b) without substantial tr ansfe.r of investment resour es A2 . t .h diftereCes in ac Cumulation. cp-; acity.Y would tend to widen the differences in availability of fixed assets and, ulti.. ately thIIe incoLLe disparity between th ions v if gw ates of population were equal. The great interregional differences in the demographic Aynamics I/ amplify thi_s ter.dency 'or growlng dlsparlty, and partl4cularly 4n uyIIcIIit.L J( apLJ.Ly LII.L LIUCLL LUii UWLL U. paL au L,di _L.jLUL ~Ly A-LI the case of the two extremes--Slovenia and Kosovo--the diverging trends would assumt LL dUlidLla beverity if texLLdpUOLdLUU LULWdLU UvrL, Dsay, UIIC UCtdUC . Fifth, only in Montenegro is the endowment with capital stock in the modern sector (fixed assets per capita) comparable to the national average, in the other LDRs--particularly in Kosovo--it is greatly below average. 1/ Compare paragraph 6.7. 2/ Compare paragraphs 6.25-6.34 below. 3/ See paragraph 6.4. - 373 - 6.17 These average features--striking as they are--do not give the com- plete picture. The regions also differ greatly with respect to the composition of the modern economic sector and especially the pattern of specialization of industrial production. It can be shown that (a) the four economic coefficients tend to follow the same pattern, although somewhat less conspicuously, for each major sector and branch in each region, and (b) LDRs--as compared to the national average--have a significantly higher coefficient of specialization I/ in industry than DRs with predominance of those branches which rank less favor- ably everywhere, 2/ whereas the reverse is true for the DRs. Table 13: INDUSTRIAL SPECIALIZATION BY REGION 1974-75 Coefficient of Specialization Bosnia-Herzegovina .2390 Montenegro .3590 Macedonia .2820 Kosovo .3890 Croatia .1390 Slovenia .1410 Serbia Proper .1680 Voivodina .2520 Source: Computed from Statistical Yearbook of Yugoslavia, Tables 204-7 and 204-10. 1/ The roefficient measures the degree of specialization of manufactures in a given region with respect to different manufacturing groups relative to nll nrher regions. The value nf the rnefficient ranges between zero and 1. It comes to zero if a region has a proportional mix of industry identical to the entire country and it annrnorhes unity if the region has a totally disproportional mix. The formula for the coefficient of spe- cialization, S, may be expressed as followsz ( ei j eij where eij = output in industry i, in region j (a) S - e4 EJ - PA = toti output in regionn EJ 4 JJ- L-5-1. J J (b) Add all positive (or negative) differences over the various industries, ania (c) Divide the sum by 100. 2/ See paragraphs 3.17-3.18, Part III, Chapter III. - 374 - Iin sum, thle moUdern sector o0 thLe LDRs compares u VifavoraLDly wiL[ tFiat 01f tle DRs because of the two interlocked reasons: (i) lower "efficiency" across the board, and (ii) overall structure biased towards the less efficient activities. 1/ (v) Causes of Regional Disparities 6.18 While the measurable features of the disparities and of the struc- tural weakness of the LDRs emerged quite clearly in the preceding analysis (and the limited success of the corrective measures applied so far), the underlying causes are complex and not susceptible to conclusive answers. Below, we try to set out a number of such causes which inter alia and in some combination--probably different from region to region--played some role. 6.19 First, the time lag of centuries for the initiation of modern eco- nomic development is bound to be reflected in large interregional differences in accumulated technical and managerial know-how. 2/ Such differences be- tween countries would normally be neutralized through the exchange rate mechanism, and/or be corrected through temporary "infant industry" protection measures, supporting new activities in their initial stage in order to estab- lish the basis for holding their ground in international competition. These options are naturally not viable for regions within a country and they are contradictory to the principle of a "unified market" of Yugoslavia. This together with the homogenization of levels of personal income (probably dictated by powerful socio-political reasons) and the historically deter- mined limitations to labor mobility, make any reduction of the income dis- parities by some automatism triggered by "comparative advantages" all but impossible, and it constrains the scope for remedial policies. 6.20 Second, within the unified market the LDRs face the problem of spatial and communication distance to the economic gravity centers of the country. This drawback is amplified by the deficiencies of the physical infrastructure (particularly in intraregional and interregional transport and communications systems). These deficiencies, in turn, forced the LDRs to allocate a higher proportion of the investment resources at their disposal to the development of this infrastructure which, for a number of reasons, does not yield quick and direct returns. Furthermore, the prevailing topo- graphy--all LDRs are mountainous and have great intraregional differences in population density--tends to make the development of an adequate infra- structure network extremely costly. 1/ The importance of these two interlocked reasons is highlighted by the illustrative inversion of the respective sector and branch coefficients applied to the structures of Slovenia and Kosovo (see paragraph 3.19, Part III, Chapter III). See also Table 3.3. 2/ In Slovenia and Croatia. the snillover of the ranid industrialization in Central Europe laid the foundations of modern industrial development before t-he turn nf t-he centiiryv The LDRs, nn t-hp nth-pr hand, remained, with the exception of a few enclaves, in the backwaters of development until after W,Jorld War II. - 375 - 6.21 Third, there are stark differences in both what one could call "economic infrastructure" and "social infrastructure". The former compri-se a number of services--such as trade, repair and maintenance shops, banking a v .COwhi S.Ci- are c--.--.Cn to efficieat economlic development. If these services are insufficiently developed--as the case in the LDRs--the repercus- s ions on overatLl .1 LUUi . e ciency, aLLUhLL im.osbU LU aUre L y C likely to be severe. Within the "social infrastructure"--such as quality and acces b3 LU euUULdLL UIL diLU iiUdi 11 i dL i J . XLL C a, IIUUb J 116, dUIII | IllbLLX dLXU L ,1 IIU I-U X- tural services--the repercussions on overall development are more indirect, but probably not less severe. These deficiencies result in: (a) the diver- sion of a considerable size of available investment resources from productive Investment, and (b) as these deficiencies continue to be conspicuous, they tend to induce the most mobile and probably best educated segment of the population to move from the particuiarly deprived countryside of the LDRs into their urban centers, and/or to those of the DRs, impeding the process of economic development through the gap in critical skills which they ieave behind. 6.22 Fourth, the preoccupation of the LDRs with the development of basic industries (sucn as mining and metailurgy, eiectric power generation, puip and paper, basic chemistry), while the DRs gave greater emphasis to processing industries has--due to reasons given above i/--contributed to the persistent differences in degrees of development. This preoccupation was, perhaps, affected, inter alia, by a number of considerations: (a) Physical availability of naturai resources was on occasions perceived as sufficient evidence for economic feasibility of their utilization; (b) the notion was on occasions entertained that within each region the only sound development strategy would be to develop its indigenous raw material basis first, and that development would then progress automatically downstream; (c) given the shortage of well-educated and experienced skilled manpower, the choice of basic industries (requiring less of such skill per unit of investment, and incorporating a higher degree of the required know-how in the form of imported equipment) was on occasions the logical solution; (d) given the competitiveness of the domestic market and the scarcity of production design and marketing know-how, the development of basic industries provided for an easier and less risky entry; and (e) access to relatively inexpensive credits 2/ and the tendency for high per unit labor cost 3/ tended to create, in terms of financial probability analysis, a bias in favor of capital- intensive basic industries. I/ See paragraph 6.17. _/ gee npragraph 6.26. 3/ Compare paragraph 6.22. - 376 - 6.23 Fifth, there is some circumstantial evidence--frequently referred to in Yugoslavia, but unsupported by the available statistical data--that the intersectoral terms of trade were unfavorable for activities engaged in the production of raw materials (such as ores, coal, lumber) and intermediate goods (such as electric power, metallurgy, semi-finished goods) which had a relatively strong position within the economic structure of the LDRs. If, and to the degree this claim is borne out by the facts, it resulted in effect to a transfer of benefits (ultimately of implicit subsidies) from the producing LDRs to the consuming DRs. 6.24 Sixth, there were few tangible incentives for established enter- prises in the DRs to transfer voluntarily either investment resources or know-how--or ultimately whole activities--to the LDRs. This is to a large degree an effect of the self-management principle. Notwithstanding the need and scope for greater investments in all regions, workers are in their deci- sions on investment (which such transfers would entail) in the first instance motivated by the loyalty to the workers' community of their own organization, and in the second instance by the loyalty to their community or region of residence. Conversely, they tended to have little to gain from such transfers since they were inherently risky with respect to both profitability (due to high labor costs, at least through the initial stages), and direct claim to whatever surplus there was. With the risk of some oversimplification one can conclude from this logical problem and the scarce evidence, that whatever (limited) transfers actually occurred, they were probably caused by one (or a combination) of the two conditions: (a) the initiating enterprise had no resources of its own and had only the choice between no investment or invest- ment in LDRs (usually financed from resources of the latter), and (b) the initiating enterprise was the sole market outlet for the initiated venture, enabling it to reap substantial indirect benefits through securing a totally denendent source of supply. Past Measures to Redress Regional Disparities 6.25 Considerations of solidarity, as well as the recoenition that Drog- ress towards redressing the interregional disparities was imperative for nolitirnl rqqonnq led alrealdv in the 195Os to sizebhle tranRfers of invest- ment resources from the Federal General Investment Fund, and of grants from the Federal hbidopt- to t-he TLT)R. When the Genernl Investment Fuind was disron- tinued (1966), an alternative scheme for transfer of investment funds was set uin: the "FeiPra1 und", 1/ arrompnied hv continued bciudget'ary grant transfers. Since repayment obligations to the General Investment Funds and the Federal Fund up to 1970 were eventually waived, all contributions earlier to that year were in effect grants to the LDRs. 1/ The complete designation is "Federal Fund for Crediting the Accelerated DevelopmXent of the Tess Developed Rep-blics anA th-e Auor.s T)rovince Li o L LL LL s oo u Lx U ±JL_ "U wLL hU tULLLeUIJU a o FNUVPLI. of Kosovo", with the accronym FNP. - 377 - 6.26 In 1971, the two transfer systems were, after some changes, legally iormalizeu 'or tLe wLole Lv4ve-vear Pla. period 1I71-75i. ThIe Federal- Fundl collected from each region 1.94 percent of GCIP of the social sector, in the torm of comipu'lsory 'loans fLUrom enterprises. ThLese means were carmLarket for loans to the recipient regions for economic investment at highly concessionary terms: 4 percent interest (for Kosovo 3 percentt), three years grace period, and total maturity of 18 years (for Kosovo 21 years). The use of these re- sources was decided exclusively by the recLpient regio,Ls and adm,,inistered by a designated regional commercial bank. Out of the collected 1.94 percent, 0.09 percent was set aside directly LOr Kosovo, and the reLmaiLtder was allocated as shown in Table 14 below. Total budgetary transfers, earmarked for social services (investment and current expenditures) as decideu exclusively by Lhe recipient regions, were to equate 0.83 percent of total GMP of Yugoslavia, and were provided from the Federal Budget and distributed as shown below. Table 14: REGIONAL DISTRIBUTION OF TKANSFERS, i97i-75 Federal Fund Budget Transfers (%) (2%) Bosnia-Herzegovina 34 40.15 Montenegro 12 10.30 Macedonia 24 18.30 Kosovo 30 31.25 Less Developed Regions i00 100.00 Source: Federal Institute for Planning. 6.27 The impact of these transfers on the recipient regions is estimated below by applying the respective formula on collection and distribution of resources to national accounts data for 1974. 1/ 1/ The actual transfers reportedly approximated very closely the transfers as prescribed by the laws; the major cause for deviations was apparently the problem to determine contributions ex ante, whereas actual GlIP -figres only became available with considerable delay. - 378 - Table 15: SIZE OF TRANSFERS, 1974 Total Transfers, Net /1 Total Transfers, Net /1 % of GMP US$ per capita Bosnia-Herzegovina 5.1 43 Montenegro 12.9 112 Macedonia 7.4 64 Kosovo 34.5 144 Less Developed Regions 9.3 71 /1 Net of self-contribution of recinient regions to the Federal Fund. Soturce: Table 6.9. While nt the averrve the tranRfer namf to nhoiit 10 nPrrPnt nf CMP of thf 1.I)R.c the impact varied greatly between the recipient regions, and in the case of Kosovo it was equivalent toone-third of its social product, highlightinrg dramatically the desperate economic conditions this region would be suffering without the support of the Yugoslav community. It can be argued that 60 per- cent of the transfers (at the average for all LDRs) have the form of credits, to be ultimately repaid. YHowever, the low interest rates and favorable terms mentioned above contain--if compared to "regular" credits (provided they were availabie)--a very large grant element. Assum4in a -.p-arat-ve 4test ---a- t of 12 percent (the most frequently mentioned rate for normal long-term enter- prise borrowing), and discounting the debt servlce payments back under the actual repayment terms for the recipient regions, the grant equivalent in the Federal rundA loans is ruore than 60 ------nt of the actual loar. suru for IKosovo, 1.1:L. UIU LUCLILO .L LWJL liLL. VUU jJ t.'_LL L 01 II LLU d L.U I U L U .LLJL ,. UV and for the other three LDRs it is still more than 50 percent. 1/ While such transfers are justified given the underlying considerations of solidarity and increased equity, the figures raise, however, one particular question: althLou ghIiL thI[e incoue udisparities--on a %GM1P per capita basis- Ud.--aLe preser.ly about equal for Bosnia-Herzegovina, Montenegro and Macedonia, the relative size oL tile transLers to Busnia-'erzegovia appears comparatLveLy small. This is all the more surprising as Bosnia was increasingly falling behind the Yugoslav average, while Montenegro aund Macedonia were clearly in the process of catching up. 2/ 6.28 On the other hand, these transfers did constitute a considerable burden for the DRs. For 1974, they amounted to 2.7 percent of the combined 1/ The "true" grant portion is even higher, as a result of the high recent rates of inflation. For possible implications of the form of subsidy on the use of FNP resources within the less developed regions see paragraph 6.33. 2/ Compare paragraph 6.1. The criteria for distribution of FNP resources among the underdeveloped regions reportedly includes, in addition to GMP per capita, other considerations such as self-accumulation capacity, access to foreign borrowing and capital coefficient. G1M PJ Lof Jjth fo. or thle FedUeraL Fundu rLesources alone--whicn have to be paid from enterprise mobilization and reduce, accordingly, their investment by the same amiount and, eventually, affect their growth potential--the transfers equated about 10 percent of their investment volume. 6.29 The weight of these transfers on the paying and receiving regions comes out even more strongly by focussing on their impact on investment. Table 16: INVESTMENT AND TRANSFERS, 1974 Fixed Assets, Investment, Social Social Sector, Sector, Economic Economy Investment Share by Per Capita Per Capita Rate in GMP Federal Yugoslav Yugoslav (%) Fund Average Average Bosnia-Herzegovina 39 11 89 73 Montenegro 47 27 136 102 Macedonia 28 27 71 78 Kosovo 51 72 62 44 LDRs 38 24 84 71 Croatia 25 -11 106 124 Slovenia 32 - 9 208 192 Serbia Proper 25 -11 79 89 Vojvodina 26 - 9 111 103 DRs -27 -10 109 116 Yugoslavia 29 0 100 100 Source: Table 6.9. These figures highlight a number of significant features. First, given the transfers the accumulation capacity per unit of invested fixed assets is much smaller in the LDRs), the investment rate of the LDRs is generally much higher than that of the DRs, and in Montenegro and Kosovo it hovers around an amazing one-half. 1/ This observation raises a troubling question: at such high investment rates, and given the institutional causes of the regional dispari- ties discussed in Section 2.4 above, there is the distinct nosslhilitv of snme "absorptive capacity" problems in at least two, if not three, of the LDRs. As the concept of "absorptive capacity" is generally nerceived; it does not- con- stitute any absolute limit to volume of possible investment. What it does allude to, however. is that dup to the swamping of the limited regional admin- istrative/managerial capacity, investment is "at the margin" bound to be less Pffiripnt npr unit of invPetmPnt than if it werp nt loywer invi-stmcent- rates. 1/ It would be slightly smaller in GNP which is about 10 percent higher (in the nati-1a average) than GMP. - 380 - This may be one of the reasons for the lower efficiency of the LDRs, pointed out before, and the loss of growth potential of the country as a whole result- ing from its tangible efforts to pull up the less developed member regions. Some Yugoslav statements appear to at least indirectly concede some validity of such a hypothesis by placing heavy emphasis on the long-run, dynamic effects of these transfers. That is to say, some short- and medium-run waste of investment resources may be inevitable; but it would be a price worth paying even on strictly economic grounds, because these sunken resources would enable the LDRs to improve their efficiency in the long run to a higher level than the more advanced regions. 6.30 Second, as shown by the ratios in the second column of Table 17, without the Federal Fund transfers the social sector of Kosovo could sustain an investment program of only one-quarter of its present size, and in both Montenegro and Macedonia the program would be one-quarter below its present level. This demonstrates again the limited accumulation capacity of the LDRs and the impact of transfers on their investment rates. 6.31 Third, in spite of the large role of Federal Fund resources in the financing of the investment program of the social sector (economic activities), on a per capita basis investment still falls significantly behind the Yugoslav average in all LDRs, with the exception of Montenegro, and at the extreme-- Kosovo versus Slovenia--it still extends over a ratio of more than 3:1. 6.32 Fourth, the comparison of the per capita investment level with the per capita availability of fixed assets (in the fourth column of Table 17) is particularly disturbing. Even on the assumption of equal average and incremental capital/output ratios in all regions, the figures suggest that at these levels of capital endowment and investment, the disparity would tend to widen rather than to narrow for all LDRs, with the exception of Montenegro. However, since both ICORs and CORs tend to be higher in the LDRs, and since, furthermore, the differences in the demographic dynamics work to the disad- vantage of the LDRs, the problems of catching up are even more severe than the figures suggest. Table 17 also brings out clearly what other inter- regional comparative data do already imply: the DRs are a non-homogenous aggregate by any standard. On the one hand, Croatia, Slovenia and Voivodina have arrived at a built-in momentum of growth which is likely to propel them further and further ahead of the country average in spite of the transfers. Serbia, however, which carries a comparable burden in the transfer of re- sources to the LDRs in spite of its significantlv less favorable position in terms of GMP per capita, may well continue to linger at or below the country's average. 6 33 AR tn the nuirnose of the Federal Fuind mechanisms. Yueoslav documents emphasize that these resources would not be available to the LDRs on a volun- tarXy basi- The deaeontralized- pnliticnl striirtuire lea to a rnmnqrtmPnt- zation of the "financial markets", financial returns tend to be lower and risks higher in the TjDRs, mitigatin.g against voluntary transfer. The decisinn- making motivation of self-managed enterprises tends to strongly encourage use of accum.ulation b-y thfle generalting enterprise itself or it lolit.y (L- Republics), and the LDRs need, in order to have a chance to establish a com- peti-tve e positio. at comparable levels of -- -rsol I ncom.e, some form LJ LL..V e CLVJLI IUL:E-t'.. J Lt'JL OLk Lt- WF-aJPr ~ F-Lo.sna.4L.tJLt - 301 - of "subsidy". This subsidy--the "grant element" referred to in paragraphs 6.26-6.27 above--has, however, two disturbing features. First the subsidy is (as it is reflected in lower than "normal" interest rates to the ultimate recipient enterprise) distributed in proportion to the funds borrowed at such preferential terms. Thus, the subsidy has no link to the ultimate cause of lower efficiency (and the potentially sound justification for subsidy): lower initial productivity of labor due to starting at the high end of the "learning curve" because of the lack of accumulated know-how. Second, this particular approach to distribution of the subsidy could--if and when the choice or the design of projects is affected by financial profitability considerations of nromotinp enferprises--lead to a "bias" in favor of projects which are more capital-intensive and are to a large degree financed from preferential credits, and n,y lilt-imteyv have some renercrssions on the actually emerging allocation pattern. Given these features, established enterprises could be tempted to propose projiects which would permit to paSS through a maximumm Of the incorporated subsidy to personal incomes of their workers, thus reducing the number of ultimate recipients in favor of a higher suhbidy ner recinient, This would, in effect, reduce the total employment generation capacity of the LDRs at the given resources- Wlilp scrh n nass-through of subsidv to npersonl incomes--as reflected in the comparatively high per unit labor costs and the low accumulatio.n rates l/--is both inevitable and in principle economically justified as a means of relieving the "infant industry" problems, the actual mechannism. -1ay b Orcnoicrally and scniallv less than ontimal TIn nrinciinlp the same subsidy could, without any loss to society, be distributed directly to personal 4-ncomes, reducing di---rct-ly the ner unit -1lab or -ct-c nf decorering enterprises. 2/ 6.34 There are, in addition, other measures in favor of the LDRs aimed at reAucing the Alspart,ies, such as preferential access to foreign exchange, O UULL LIIC -.tO t. ILO,OUL c~tCttLLLI OCCO U '-U.- 6 15C' selective credits by the National Bank system, reduction of import duties, prefllerental parti4cpation i4n insttut4onal borrowing abroad, and tax prefer- ences to foreign partners in joint ventures. Compared to the role of the i LterregLional transfers, h'[owever, tLlkey LhOave probably ha onLa y on .LLL impact. Targets, Measures and Policies of the New Plan (i) The Plan Program 6.35 Based on 1975 data on GMP, official population estimates for 1975 and 1980, and the Federal Plan targets for total growth (7 percenL per annum) and for deviations of growth between regions, the following overall targets emerge: 1/ See paragraph 6.16. 2/ Such a turnaround in the subsidy scheme could, however, run counter to strongly engrained views as well as to the legal provision established for the use of Federal Fund resources. - 382 - Table 17: REGIONAL GROWTH TARGETS OF THE PLAN, 1976-80 1 9 7 5 1976-80 1980 GMP GMP Per capita Per Capita GMP (% Yugoslav GMP (% Yugoslav (Din.bil.) Average) Growth Rate Average) Bosnia-Herzegovina 64.3 68.6 8.2/1 71.7 Montenegro 9.2 69.9 8.3 73.1 Macedonia 28.7 69.3 8.0 70.9 Kosovo 11.0 33.2 9.5 34.2 LDRs 113.2 62.4 8.2 64.3 Croatia 132.1 124.3 6-5 124-3 Slovenia 84.3 201.3 6.1 195.3 Serhia Proper 117,2 9292 7=0 93.6 Vojvodina 56.3 121.0 7.1 125.5 DlRs389.9 121=2 6=7 12912 Yugoslavia 503.1 100.0 6.9 100.0 /1 8.0-8.5. Sources: Social Plan of Yugoslavia 1976-80; Federal Institute for Planning; C4~-~-4,~,1 l,-~,-.I. ~ 107rg. T -A.,. 107 T Statistical Yearbook of YLugosl'aJviLa, 1976 nIneks 19737, V.olume I. LL L .Ld.t, LIIU LU. k ui L. L a IIIaL sI-a LL UALL L Ut L f II LL UII U J A p L a L CD between the LDRs and the DRs as a whole, because the different growth rates of population largely dIlute--as they did irn the past--the effects of different growth rates of GMP. 1/ As mentioned elsewhere 2/, however, the total target growthLII rate of the PLD an may be or, thi eigh 4 si d andA h- w any possible reduction affects income disparity is impossible to ascertain. 1/ The impact of the demographic parameter can be illustrated with a simlar numerical exercise as carried out in paragraph 6.2 for the last two decades. On the assumption that the population growth rates (1975 level) and the GMP growth rates (as in Table 14) remain unchanged, it would take the LDRs as a group about 200 years to catch up witn the DRs, and tne period would vary between about 70 years for Montenegro and about 350 years for Kosovo. On the basis of the same GMP growth rates as above, but population growth rates as presently observed for the DRs, the catch- up period would be drastically telescoped for all LDRs to about 45 years. Since the "true" population growth rate would fall somewhere between these two extreme cases, it appears evident that if the differences in growth rate of GMP are in the indicated order of magnitude (and if migra- tion between regions were zero), it could easily take something like two generations before the disparities would have disappeared. 2/ See Part III, Chapter VII. 6.36 The first major set of measures is the continuation of the slightly modified transfer schemes. The resources of the Federal Fund were increased from 1.94 to 1.97 percent of GMP of the social sector. Of this total, amounts equivalent to 020 npercent of soci-a-l sector CMP are first allocated to Kosovo (of which 0.03 percent is specifically designated for the construction of the Ibar/Lenenac proiect) and the balance of 1.77 percent are to be distributed among the four less developed regions as during the past Plan period. 1/ The terms are onlyv marina1llr changed, in order to eliminate any need for budgetary funding of any difference between the borrowing and lending terms. 2/ As in the past, the Federal Fund organization does not participate in allocative decisions, but will only monitor collection of resources and distribution to the recipient regions as determined by law. The transfers from the Federal budget have been raised from the equivalent of 0.83 percent of total GMP to 0.93; the additional 0.1 percent is split between Kosovo (0.07) and Montenegro (0.03), the remainder is distributed as during the past Plan period. 3/ 6.37 The basis for a new departure is the growing recognition that provi- sion of financial resources, although necessary to narrow down the disparities, is--unless extended beyond politically sustainable and economically rational levels--not a suflficient precondition. Yugoslav studies and documents refer amply to the causes summarized in paragraphs 6.16-6.17. Special attention is assigned to the nee' to transfer technical anu managerial knowhow in coniunc- tion with financial resources. This led to an important, although in its scope limited, departure from previous Federal Fund procedures: "joint ven- ture pooling" of resources 4/ between enterprises in DRs and LDRs can now be accounted against ouligatory contributions of DRs up to 20 percent of their total obligation. Since in such inter-enterprise arrangements risks and benefits are shiared between the directly affected parties, the self-interest of contributing (usually well established) enterprises is injected into the arrangement, which is likely to induce them to make their specific know-how available and to prevent wasteful allocation decisions. Questions remain as to the rationale for limiting these transfers to the low or to any specific percentage. 5/ 1/ See paragraph 6.26. 2! The repayment period is made 14 years (plus 3 years of grace) and the interest rate is 4.167 percent. 3/ See paragraph 6.26. 4/ See Part II, paragraph 1.31. 5/ It is unclear at this point whether the accountable amount is for each contributing enterprise only 20 percent of its own Federal Fund obliga- tion (in which case it would be too small to have much effect), or whether enterprises can account 100 percent of their own total obligation against joint venture until a regional average of 20 percent has been reached. If the latter case is correct and should prove as beneficial for both parties as is presently hoped for, there is no case for any limit. - 384 - 6.38 In addition, the new concept of setting up vertically-linked "Reproduction Entities" 1/, within which development programs and investment resources are pooled between participating enterprises, is expected to have a positive impact on the LDRs in all those activities for which LDRs have the raw material base. To the degree such inter-regional entities mate- rialize, they would not only lead to a flow of investment resources to the LDRs over and above the level established by the Federal Fund framework, but would also--as in the preceding case--mobilize the self-interest of enterprises in the DRs in command of know-how which the LDRs are presently lacking. 6.39 Whi lp t-he rnntin,iation of the transfer schemes and the new eipnar- tures mentioned above will have some effect in the right direction, three hrnoader supplementary "strategies" rarely touched upon in the public discussion and official documents: (a) restructuring of the interregional division of labor; (b) revamping of the system of relative prices; and (c) population movements. Their substance, and some of the problems associated with either will be briefl- sketched below. (ii Ir.terregional TDivi sion of TLa-or < /. ~~~~~~~~~~~A ccrl_n to Il preva4 1 4 ..: v-e :_gO V.. - -.: -k :_- __ U . LtU LUL UL. LA 6 LU LC p C VA~ .LE[L VLC W ii I U6UD .La V.La L.LL |Li LLL L C6W.LULL CL disparities are to disappear in the course of time as the result of higher growt~1 rat LC 4i TI I S AJi~,j) t U L.di LU ULU LLJi U J9 L growth ~ _L tae - Ln tel LiRs, presumably trar,slated into a pattern ofL positive growth rates in each sector and branch in each region, with superimposed total growth rate differentials. If and to tLe degree tLis view is being held, two interrelated aspects are overlooked. First, given the low growth rate of working-age population and its present high participation rate /, Slovenia has probably already now reached full employment for its indigenous labor U oc (netLir.g ouL tL-tIP.L CLay LL iraLLL LUL ULMrom L Lo regiUors, tmUporary migrants abroad and unemployment), and its labor force is likely to stabilize or to increase or decrease rarginal'Ly- iLn tLh long LUlrLU. Frr LLe same reasons, large parts of the other DRs will probably approach that stage over the next decade. unless compensated by large-scale labor force migration from the LDRs 3/, this will drastically reduce the possible overall growth rates of these regions and/or force tnese regions into a more capital-intensive growtn path, and probably a combination of both. 1/ See Part II, paragraph 1.38. 2/ Compare Part III, Chapter V. 3/ Large-scale migration will be excluded throughout this section until viewed subsequently in paragraphs 6.45-6.46. ion 6.41 Second, there is no a priori reason for the desirability of achiev- ing high and uniform or even positive growth rates in each and every sector and branch of the economy in each and every region. In fact, the opposite view can be proposed as well. If the economy of a particular region approaches full employment including sufficient absorption of the rural underemployment and returning temporary migrants, it should gradually shift the direction of development towards those activities in which it can maximize its growth (at given investment resources and limited labor force). This would inevitably result in negative growth rates in some activities and in the gradual redirec- tion of their financial assets and their labor force towards other ones. That is to say, it would be to the long-run advantage of a developed region to plan for such a reptructuring, in effect vacating certain fields of activities. In the Yugoslav context, this would obviously mean to systematically draw down some of the most labor-intensive activities in the most developed regions of the country, and making available the vacated market shares in addition to resources and know-how to those LDRs which are likely to persistently suffer from lack of gainful employment opportunities for the rapidly rising labor force. Incidentally, such a change in the interregional division of labor would be completely equivalent to what is happening internationally to the long-run benefit of all countries. 6.42 Such rearrangements of the interregional division of labor would in the Yugoslav context probably have to be initiated and propelled by those regions which vacate activities and markets. Needless to say, the repercus- sions could, at least in the short run, be severe. Activities would decline which are part of the heritage of economic development of the regions. Enter- prises would have to contract or to diversify into new activities with poten- tially considerable social and financial costs to their workers and to their Communes, and to pass on know-how would require costly transfer procedures (training and/or temporary exchange of staff in key skills). To make such reorientation of interregional division of labor a viable option, it would obviously require the institution of some kind of "adjustment assistance" fuind within the DRs or at the Federal level to smooth the immediate short-run social and economic costs of affected individuals and communities. However, since the renrieni-tion wounld he tn t-he iiltimnre henefit of the LDRs as well. such adjustment assistance can be considered as a contribution to redressing i-he int-erregionail dispa~rity= (ii Change in Reclativen Prirces 6. 43 As indl4ctedA befo 1/ some of the~ scftors andrai hrnnho which show. low returns (low gross accumulation rates) in every region are particularly strongly represented in most of the LDRs. Thus, the position of the LDRs could be improved if relative prices were changed in favor of these sectors i/ See paragraphs 6. i6-6. i7. - 386 - and activities i/. However, a couple of strong arguments immediately spring to mind which would make such policy a problematic route to pursue without thorough further investigation into numerous aspects. 6.44 First, to the knowledge of the mission there is no direct statis- tically relevant evidence of a present distortion of Yugoslav internal rela- tive prices against international relative prices. Some of the circumstancial evidence frequently referred to in Yugoslavia for the existence of such distor- tions is unconvincing (e.g. the incidence of price controls per se does not prove that distortions between controlled and uncontrolled prices are grave, nor that they tend in a particular direction), and some of the evidence appears to be a biased generalization of special cases by the directly affected parties. Second, a pattern of domestic relative prices differing more than moderately from that of international relative prices could have dangerous repercussions. If, for example, the domestic prices for steel intermediary goods were raised substantially above international prices (at a given exchange rate), this would affect the cost structure of the downstream processing industries (e.g. ship-building) and could erode their international competi- tiveness. Third, the fact that the accumulation rates of some activities are low (due to low, although internationally comparative, relative prices) can simply indicate that, at least in the short run, these activities are not competitive. Unless a clear case can be established in favor of dynamic benefits (either within the activity itself or for the economy), an increase of relative prices could lead to a perpetuation of a pattern which should not have been established in the first place. (iv) Population Movements 6.45 As implied above 2/, at least in some parts of the DRs the local pool of unabsorbed labor force is already exhausted or will be exhausted in a few years' time, given the demographic conditions and actually reached state of development, whereas at least some of the LDRs are likely to have a con- tinuing severe labor absorption problem for many years to come, in some instances, for decades rather than years. The conclusion alluded to above-- reorientation of interregional division of labor--can as well be turned around. Instead of moving production facilities to the actual residences of labor force in search for gainful employment, additional labor force could be moved to those parts of the country which are gradually running out of the labor force sufficient to continue their past growth momentum over the whole spectrum of established activities. In fact, the Long-Term Plan 3/ devotes a whole chapter to "population policy" which stresses--in addition to the need for family nlanning in some narts of the LDRs--the need for some stepped-up internal migration. Not only would interregional labor migration I/ As on the preceding iqiiP--interregional divii on of labor--thP analogy to discussions and developments on the international plain is evident. 2/ Co.pr paagaph 6.40. , OJuLt-.liCne of a Co....t.on Poic for Lon-e... Dev lomnt until 1985; Belgrade 1975. appear to be an obvious route to increase the growth potential of the country as a whole, it would also lead to an immediate relief of the unemployment problem where it is most severe. Furthermore, it would--particularly if mig- rating labor force would be accompanied by dependents--reduce the "diluting" effect of the rapid population increase on income disparity. 6.46 However, on closer examination a number of factors make this route a less easy one than it might theoretically appear. First, for a variety of social and economic reasons, the emergence of large-scale temporary inter- regional migration, patterned after temporary migration abroad (with separa- tion of families, "enclave" living conditions of the migrants, and exclusion from an alien cultural environment or inability or unwillingness to integrate into it), appears as undesirable for sending and receiving regions, and for the same reasons as it is now viewed undesirable internationally. Second, permanent migration including all dependents of workers would appear in the long run as the only viable form of movement of labor force. Given the ethnic, cultural and in some cases language differences between various regions of Yugoslavia, this could cause problems of integration if left to chance; conversely, successful integration can prove costly for the recipient regions. Third, in all likelihood the young, well-educated and most motivated would be the ones most eager to migrate. This could lead to a loss of the most precious human resources of the LDRs, making it all the more difficult for these regions to overcome their institutional weaknesses. There is no easy solution to this particular problem, particularly since this group of prospective voluntary migrants is exactly that which would be most welcome in the recipient regions and would most easily integrate, and since the constitutional principle of free movement excludes any possibility of sub- jecting interregional migration to a system of discretionary admission or exclusion. (v) Summary of Assessment 6.47 As the empiricial evidence suggests and as the present Five-Year Plan targets already imply, any sizeable reduction of interregional income disparities is bound to be even under optimistic assumptions an agonizingly slow and economically very expensive undertaking. And for the LDRs, or at least large parts of them- the -rocess of gradual reduction of income dis- parity might well be accompanied for an extended period of time by rising unemnlovmentj as the working-age population continues to grow by fairly high rates and the participation rates of the working-age population--particularly for women--is rising, due to rising expectation and Acanges of cultural pat- terns induced by the process of development itself. A continued massive transfer of resources w41l rem.a4n necessarily well beyond the prs nt Pan I C~ L Liy ui Lile peserit r±ai period. But massive transfers are--as it is now increasingly acknowledged-- not a panacea; and, moreover, the returns ' .rom any further relative increase of transfers could well be in some instances diminishing because of absorptive capacity proLlems. rn the oLher hanu, the analysis has shown that neither the sacrifices these transfers entail nor their benefits (by each region) appear to Ue quite equitaUle. - 388 - 6.48 The gradual closing of the disparity to socially and politically acceptable dimensions would probably require--as is also the present thinking in Yugoslavia--more than administrative transfer of resources. it would entail innovative schemes to induce a voluntary interregional transfer of resources with complementary technological know-how, 1/ a gradual reorientation of the interregional division of labor, some changes in the system of relative prices, and the initiation of sizeable population movements. Neither of these strategies provides for easy or quick or costless solutions and promises scope for more than marginal improvements over a "money-only" strategy. But without a determined extension beyond the confines of the past approach, the problem of disparity could well be unsolvable over the foreseeable future. I / ' 1 AA_ als uAe s "A empShasis on in Fotegration and the cncept oF L. ILt _L ~ D ULU L -LL o tLA -c1.uptot - JI - L. l~ aLL~a at ~~ * ~ the reproduction entity which encompasses producers in interlinked production processes at thle Various regions - 389 - Table 6.1: BASIC SOCIAL INDICATORS BY REGION, 1975 Bosnia Serbia Yugoslavia Herzegovina Hontenegro Macedonia Kosovo Croatia Slovenia Proper Vojvodina Life Expectancy at Birth: Male 65.4 63.9 68.1 65.6 64.6 65.6 65.3 67.7 66.0 (1971 Census) Female 70.2 68.2 73.0 67.6 66.5 72.3 72.9 71.4 72.1 No. of Persons per Doctor (physicians and dentists) 687 1,044 900 756 1,943 597 513 572 632 No. of Persons per Hospital Bed 167 222 128 184 348 142 132 156 165 Area of Dwelling per Person (sq.m.) 13.6 10.5 11 l 11.1 8.6 16.0 17.3 13=6 17.0 - *Z of Dwellings with Electricity 89.0 77.4 80.0 93.1 76.5 92.1 97.0 90.5 92.9 - % of Dwellings with Water Supply and Sewerage Facilities: end of 1975 37.5 26.5 34.5 38.1 16,7 43.6 71,8 33.5 29,2 - of those built in 1975 74.1 50,3 73,5 82,0 27,2 90.1 98.4 71.7 88.3 Illiteracy Rate: Total 15.1 23.2 16.7 18.1 31.5 9.0 1.2 17.6 9.0 (% of population age Male 7.5 10.5 7.1 11.2 20.7 4.7 1.1 7.3 5.1 10 years and over) Female 22.2 35.1 25.6 25.1 42.8 12.9 1.3 27.5 12.8 % of Population Age 10 and over with Secondary and Higher Education 18.0 12.6 17.0 13.7 8.2 21.7 25.9 18.5 20.0 No. of Persons Per Passenger Car 13.9 22.9 21.3 17.6 47.1 12.2 6.6 13.4 11.9 Source: Federal Institute of Statistics, Statistical Pocket Book of Yugoslavia, 1977 and Statistical Yearbook of Yugoslavia 1976. - 390 - Table 6.2: CALORIC VALUE OF AVERAGE DAILY FOOD INTAKE; 196v3-73 .~~~~~~~~ All Non- House__hn1ds, AorirO_ tuiral Mixped agricu-ilturial 1963 1973 1963 1973 1963 1973 1963 1973 Total Amount of Calories Bosnia-Herzegovina 2,803 3,119 2,870 3,395 2,927 3,258 2,502 2,683 Montenegro 2,577 2,905 2 ,613 9 O5 a 745 3 AGO9 r1A ) 29r Macedonia 2,584 3,072 2,624 3,355 2,705 3,296 2,343 2,655 Kos ov o 2,643 2,9272,727 3,069 097 '27'7 ' nKQ '2 ,7 27 3'A08 '2,3490 '2, 6-21 Croatia ~ ~ ~ 2 '2 '2A26 3,05 3,226 3'668 3,138O 3,18'2 '2O3 '2 77'2 Slovenia 2,753 2,933 3,194 3,455 2,869 3,345 2,455 2,623 Serbia Proper '2 'OK '2 I 212 '2V 3 71 '2 irn '2 'O 'I 82 2,523 I2 ,270 Vojvodina 2,988 3,016 3,646 3,342 3,127 3,115 2,520 2,776 Yugoslavia 2,808 3,088 3,027 3,551 2,950 3,275 2,453 2,699 Percentage Share of Calories of Animal Origin in the totai. kflIounl of Caulories Bosn'ia-'nerzegov'Lna ;9. +4J 23. 17.0 21.7 ;81 21.9 23.5 306.9 Montenegro 24.0 28.3 19.6 27.7 26.5 28.7 27.2 29.1 Macedonia 1i. 3 i5.2 11.5 12.9 10.2 14.1 i12.5 i7.9 Kosovo 9.9 13.1 7.6 11.2 9.8 12.8 13.9 15.4 Croatia 27.5 32.4 24.8 32.4 25.7 28.9 32.9 33.4 Slovenia 29.7 32.5 30.6 35.6 28.4 31.8 29.3 32.3 Serbia Proper 21.0 27.0 17.2 24.3 19.6 25.8 27.1 30.2 Vojvodina 32.4 34.8 31.2 34.1 34.5 36.3 31.8 34.2 Yugoslavia 22.0 26.8 18.7 24.9 21.0 25.7 25.5 29.2 Source: M.. Petrovic, "Changes in the National Diet, 1963-1973" Yugoslav Survey, May 1976. Data compiled from "Surveys of Personal Consumption 1963 and of Households 1973." Table 6.3: AVERAGE DAILY CONSUMPTION OF PROTEINS, 1963-73 All Non- Households Agricultural Mixed agricultural 1963 1973 1963 1973 1963 1973 1963 1973 In Grams Bosnia-Herzegovina 82.0 91.5 88.5 104.5 88.3 96.6 68.9 75.3 Montenegro 80-q 90.2 85.5 106.0 88.1 96.4 70.2 78.5 Macedonia 78.5 89.6 87.0 106.6 81.0 96.4 66.3 75.8 Kosovo 79.9 89.0 A5.1 95.5 R84= 95.0 68.6 76.4 Croatia 83.7 88.8 96.7 109.6 91.7 94.7 68.5 77.2 Slovenia 75.2 81.3 93.2 97.5 80.9 94.3 64.7 72.4 Serbia Proper 88.1 97.4 100.5 115.4 95.I 102.3 72.4 83.9 Vojvodina 85.9 89.5 109.5 100.2 89.6 92.0 71.0 80.8 Yugoslavia 82.2 91.3 92.8 107.3 88.0 96.8 69.0 78.4 Percentage Share of Animal Proteins Bosnia-Herzegovina 25.6 34.6 21.5 31.8 24.7 32.1 32.8 41.3 Montenegro ~ ~ l 35. 43. 30.1 38.6 38. 41. 36.2 1.7.8 Macedonia 16.6 26.5 15.3 19.1 15.1 22.6 20.1 35.4 Kosovo 15 .9 2.4 1. 7 10.6 16 . 21 1 20.7 7. 7 jxu~~~~,OVO ±.~~~.,J L' ZL. Z. - .L~. I -L..4. .L .' ~ .L. 4. Z.. I 1.1. /) If~ 1 ~ 10 r L. t r_ h1 a A I. A 0 IZ r1 1 Croatia 33.9 4.L _ 2.5)~t 4.6 - 3.8 41.4 + 3._5 53.1 Slovenia 39.6 48.7 37.2 45.8 38.3 42.5 41.4 53.1 II I In on II o '1 o j noi o-in o In a no A 1o n Serbia Proper L/. L io.u -.L vu. L Zs.0 J .7 Jo.u 'o0._ Vojvodina 33.8 46.7 36.6 42.6 39.4 46.5 38.6 49.1 Yugoslavia 28.5 38.9 23.7 32.3 27.3 35.1 34.6 46.9 Source: M. Petrovic, "Changes in the National Diet, 1963-1973" Yugoslav Survey, May 1976. Data compiled from "Surveys of Personal Consumption 1963 and of Households 1973."1 Table 6.4: POPUIATION AND GROWTH RATES BY REGION, 1948-75 Average Annual Increase ---- Total Population in 1,OO's -- - --- Share of Total Population -------- per 1,0g0 ) pulatLon ----- 1/ 2/ 1/ ]/ L/ 2/ I/ 1/ 2/ 194,86 1961 1971 1975 1948 1961 1971 1975 1948-61 1961-7'L 1970-75 Bosniia-Herzegovina 2,564 3,278 3,746 3,977 16.2 17.7 18.3 18.6 19.1 13.4 14.4 Monitenegro 377 472 530 558 2.3 2.5 2.15 2.6 17.4 11.7 12.3 Macedonia 1,153 1,406 1,406 1,756 7.2 7.6 8.0 8.2 15.4 15.9 15.1 Kosovo 733 964 L.244 1.405 4.6 5.2 6.1 6.6 21.3i 25.8 28.6 '; LDRs 4,827 6,120 7,167 7,696 30.3 33.31 35.12 36.0 18.4 15.9 16.9 Croatia 3,780 4,160 4,426 4,509 23.9 22.4 21.5 21.1 7.4 6.2 4.4 Slovenia 1,440 1,592 1,727 1,778 9.1 8.t6 8.4 8.3 7.E1 8.2 6.9 Serbia Proper 4,154 4,823 5,250 5,393 26.2 26.0 25.5 25.3 11.6 8.5 6.6 Vojvodina 1.641 ,855 1.953 1.976 10.4 10.0 9.5 9-3 9. - 5.2 3.1 DRs 11,015 12,430 13,356 L39656 69.7 67.0 65.9 64.0 9.3 7.2 5.4 Yugoslavia 15,842 18,550 2C1S523 2 1,352 100.0 lOn. O 100.D 100.0 12.2 10.2 9.5 I/ Census data. 2/ From current demographic count. Source: Statistical Yearbook of Yugoslavia, 1976, Tables 202-1; 202-2 (for 1975) Table 6. 'i: NATURAL INCREASE OF POPULATION BY REGION, 1950-75 Bosnia- Herze*- Serbia govina Montenegro Macedonia a.osovQ LDRs CroatiLa Slovenia Proper Voivodina DRs Yugoslayia Live BiLrths per 1,000 1950 38.6 30.0 40.3 46.1 39.5 24.8 24.4 28.0 25.5 26.1 30.3 195'i 37.6 31.1 36.2 43.6 37.5 22.1 21.0 22.8 21.0 22.0 26.9 1960 34.1 28.1 31.7 44.1 34.6 18.4 17.6 18.0 17.8 18.1 25.5 196j 29.0 24.7 28.1 40.5 30.3 16.6 18.5 15.4 15.5 16.2 21.0 1970 21.4 20.4 23.2 36.5 24.3 13.9 16.0 14.6 13.0 14.4 17.8 197'i 19.1 18.1 22.7 35.3 24.4 14.7 17.7 15.9 14.1 15.6 18.1 Natural Increase P'er 1,000 1950 25.1 20.7 25.6 29.1 25.5 12.5 12.6 15.6 11.5 13.5 17.3 1955 23.7 22.1 23.0 25.4 23.7 11.6 11.1 12.4 10.2 11.6 15.5 1960i 23.8 20.4 21.6 29.9 24.0 8.4 8.0 9.0 7.7 8.5 13.6 1965i 21.0 17.8 19.6 29.6 21.8 7.3 8.8 7.3 5.9 7.3 12.2 197C0 14.3 13.6 15.6 27.6 16.8 3.9 5.9 5.7 2.8 4.7 8.9 1975 13.1 12.6 15.3 28.1 16.3 4.4 7.3 6.8 3.5 5.6 9.4 Fertility Rate 1956 4.16 3.91 4.66 6.62 4.63 2.47 2.52 2.24 2.32 2.37 3.05 1959 3.94 3.44 4.22 6.117 4.31 2.24 2.23 2.04 1.98 2.12 2.76 1965 3.49, 3.12' 3.68 6.03 3.92 2.19I 2.44 2.00 2.10 2.13 2.69 1970 2.54 2.48 2.99 5.72' 3.33 1.95i 2.11 1.85 1.72 1.89 2.36 1974 2.40 2.40 2.70 5.43 3.03 1.93 2.12 1.90 1.74 1.92 2.27 Population Below Age 20 (Percentage) 1971 45.5 42.8 43.0 52.8 45.9 31.5 32.9 31.3 30.0 31.4 36.5 1/ Live births per 1,000 inhabitants minus deaths per 1,00C inhabitants. 2/ Number of live births per women, of age-specific fertility rate of respective year throughout childbearing life. Source: Statistical Yearbook of Yugoelavia, 1976, Tables 202-1, 202-2 (for 1975) - 394 - 1/ Table 6.6: HOUSEHOLD INCOME PER CAPITA, 1973 ----- Total ----- ---- Agriculture ---- ------ Mixed ------ -- Non-Agriculture -- Number Tn,me N"mbe T No mber -moT- N-m- T-n- (1,000) (Din.) (1,000) (Din.) (1,000) (Din.) (1,000) (Din.) Bosnia-Herzegovina 4,007 7,643 1,096 6.104 1,615 6,735 1,319 10,028 IflULntVnegrLL JUS 8,224 8 5,795 -9 ,0 2 ,5 Macedonia 1,809 7,835 459 8,752 562 7,329 783 8,824 Kosovo 1,394 4,967 392 3,892 552 4,780 443 6,154 LDRs 7,716 7,243 2,030 5,811 2,925 6,552 2,774 9.005 Croatia 4,634 12,579 822 8,503 1,641 11,244 2,192 15.160 Slovenia 1,805 15,060 180 10,630 568 13,567 1,047 16,642 Serbia Proper 5,546 10,040 1,457 6,928 1,619 8,596 2,798 12.872 Vojvodina 1,930 10,581 464 8,716 557 10,370 932 11,670 DRs 13,915 11,612 2,923 7,883 4,350 10,456 6,569 14,066 Yugoslavia 21,561 10,052 4,928 7,034 7,220 8,904 9,394 12,549 1/ Totals and sub-totals do not always add up accurately due to rounding errors in family size data. Source: Statistical Bulletin, No. 833 (Household Survey), Yugoslavia, 1974. 1/ Table 6.7: POPULATION BY SOCIO-ECONOMIC SECTOR, 1973 ~~ (Th~friousands) Non-Agri- Agriculture Mixed culture % Xl % Total Bosnia-Herzegovina 1,096 27 1,615 40 1,319 33 4,030 Montenegro 83 16 195 39 229 45 507 Macedonia 459 25 563 31 781 43 1,803 Kosovo 392 28 552 40 443 32 1,387 LDRs 2,030 26 2,925 38 2,772 36 7,727 Croatia 822 18 1,641 35 2,192 47 4,654 Slovenia 180 10 568 32 1,047 58 1,795 Serbia 1,457 27 1,619 30 2,398 44 5,474 Vojvodina _464 24 557 29 932 48 1,953 DRs 2,923 21 4,385 32 6,569 47 13,877 YUGOSLAVIA 4,953 23 7,310 34 9,341 43 21,604 - Population. classified by sectoral origin of income from work. snurce: Statistical Bulltetin No. 833. - 396 - Table 6.8: INCOME DISTRIBUTION, 1973 (Income in ninar per Capita: Percentages of Population) 1 2 3 4 5 6 7 8 9 10 11 Yugoslav Average Income 2,581 4,647 5,390 6,176 6,912. 8,484 10,761 12,892 15,499 17,300 22,201 Cumulative percentage 0.9 3.5 11.4 22.2 34.6 57.0 73.1 83.9 89.9 93.8 99.3 Bosnia-Herzagovina 2,113 3,220 4,074 4,902 5,872 6,926 9,287 10,845 14,290 15,771 17,909 0.9 5.2 13.4 26.6 40.9 67.5 82.2 90.4 94.8 97.2 98.0 Mbntenegro 2,937 5,725 5,395 5,661 5,977 7,377 9,418 11,586 13,244 16,212 21,533 0.8 4.1 10.7 22.7 38.0 69.3 84.0 91.6 96.5 97.7 100.9 Macedonia 2,352 3,431 3,778 4,809 5,600 7,517 8,855 16,230 11.217 18,414 20,009 0.5 3.1 13.8 27.9 43.6 63.7 78.9 88.3 91.9 93.2 99.6 Kosovo 1,802 2,294 2,756 3,499 4,089 4,886 5,537 6,654 7.204 7,230 8,548 0.7 5.1 15.5 29.4 40.4 60.8 74.2 74.2 89.6 93.5 99.8 Croatia 3,325 7,117 7,585 8,a44 8,675 10,04n 5 12,170 14.153 17,030 18ni 18 i 67929 0.6 3.5 8.4 15.4 25.7 47.4 65.5 78.6 87.3 92.7 99.5 Sloven-e 3,604 6,691 10.003 11,022 10,445 10,865 12.625 15,223 16,637 19,418 25,517 0.3 1.8 4.3 9.1 15.2 31.6 52.1 68.6 79.2 86.3 99.6 Serbia Proper 3,176 4,928 5,383 6.377 7,271 8,877 10,996 13,522 16.051 17,910 21.109 0.9 4.5 12.3 24.8 37.8 60.1 75.3 85.7 91.i 94.6 99.4 Vojvodina 2,429 5,657 7,165 7,445 7,740 9,600 11,693 15,094 18,287 19,393 32,432 2.3 7.6 15._5 27.6. 41.2 65.5 82.2 92.2 95.8 99.0 101.4 1/ Household income (from sit -ourse8) per household mebaer cumulative percentages do not always result in 100 percent because of smple and rounding errors Source- Statistical Bulletin No. 833. - 397 - Table 6.9: FEDERAL FUND AND FEDERAL BUDGET TRANSFERS, 1974 (D1n billion) Bosnia Monten- Maced- Serbia Vojvod- Herzegovina egro onig Kosovo LDRs Croatia Slovenia Proper ina DRa Yugoslavia GMP total 51,220 7,614 23,566 9,043 91,443 107,307 65,369 97,434 45,712 315,822 407,265 Fed. Budget Transfers 1,357 8 619 1,056 3,380 GMP Social Sector1 - 42,465 6,482 19,759 6,820 75,526 91,755 59,383 78,741 35,719 265,598 341,124 Contribut1£on FNF -7 824 126 383 132 1;465 1,780 1;152 1,528 693 5,153 6.618 Kosovo Advance share 307 307 Share, Gross 2,146 757 1,515 1,893 6,311 Share, Net 1,322 631 1,132 2,068 5,152 Budget Transfer + FNP Net/GDP(%) 5,2 12.9 7.4 34.5 9.3 Budget Transfer + FNP Net Per Capita (Din.) 683 1,774 1,012 2,287 1,127 Budget T.nsfer + FNP Net ($) 4 119 64 1 1 Investment, Social Sector, Economic 11,863 2,542 4,186 2,885 21,477 16,085 12,484 14,313 7,400 50,282 71,754 FNPFNet/Investment Social 11.1 27.3 27.0 71.7 23.5 -11.1 -9.2 -10.7 -9.4 -10.2 - Sector Economic (%) Total Investment Est.3/ .20,151 3,603 6,641 4,609 35,004 27,299 20,774 24,714 11,793 84,580 119,584 Investment/GMP (W) 39.3 47.3 28.2 51.0 38.3 25.4 31.8 25.4 25.8 26.8 29.4 Investment Social Sector Economic/Per Capita 3,022 4,605 2,420 2,112 2,836 3,582 7,069 2,672 3,756 3,702 3,392 rercento U YuRosiav Average °' 7V 62 84 LVV 2V8 79 M 'V7 .VV 1 nfor 'he Accelerated Develo,, ,ent of Underdevel.ped Regions. 2/ At exchange rate of 15.9 Dinar per US$. 3/ Estimate: assuming equal share of social sector in total investment as for Yugoslav average. Source: Statistical Yearbook of Yugoalavia, 1976. - 398 - VII. FUTURE PROSPECTS AND THE FIVE-YEAR PLAN Introduction 7.1 The performance of the Yugoslav economy since the war has been impressive, particularly in the period after 1956 when the basic philosophical premises of the Yugoslav economic system and its non-aligned role in the sphere of international relations became more settled and generally accepted. Since that time the economic system, has undergone considerable changes, adapting to new circumstances, as well as striving towards a set of institu- tions and policies, consistent not only with a continued rapid growth of standards of living, but, also concommitant with the basic philosophical premises of the system. 7.2 The recent institutional changes discussed in Part II of this report, though still at an early stage, should significantly strengthen the overall macro-economic management of the economy. The new system of planning in contrast to the essentially indicative planning pursued after the reforms of 1965, provides for legally binding undertakings (programs of action) by enterprise. The whole process of planning, though highly complex and time- consuming, provides for wide participation of all economic agents, a complete exchange of all relevant information and a forum for deciding upon priorities and the best means of attaining these. The use of legally binding Social Compacts and Self-Management Agreements are expected to extend the role of contractual relations to all spheres of economic activity and economic manage- ment e.g. price policy, incomes policy, resource mobilization and allocation. These instruments and the institutional setting through which they are estab- lished, namely participation and agreement by all affected parties, provide a genuine attempt to secure a proper balance between decentralization and self- management on the one hand and the essential requirements of coordinated economic policy, in particular, investment decisions and the macro-economic management necessary on the other hand. 1/ There still remain many unresolved issues, particularly a mechanism for expeditious adjustment of Plan provisions and contractual relations in the liRht of new and unexpected events and above all the introduction and applications of an appropriate mechanism to ensure that the negotiated contractual relations will lead to an optimal allocation of resources. 7.3 The earlier chapters of Part III analyzed various aspects of the growth and transf£rmation of the iconomy over the nast two decades. discussed the experience in dealing with specific issues in development, isolated un- re-solvud problems and dniretrew imnlirat1ionq nf thpep fnr the fEl-ire= The follow- ing paragraphs will bring together the most salient of these diverse elements and prnovie an oTe-rall view ofn the pnrnqnprtct f t-ho onnmv during, the current Plan period. The first section will review the principal objectives and perspective of the Yugoslav Long-term Plan, The analysis, then, focuses on the operational Five-Year 1976-80 Plan assessing its broad macro-economic 1/ LISee TIBRD, Yugoslavia: DevelopULent with Decentrali a 4t-i-, p. "I. - 399 - objectives both, within the framework used by the Yugoslavs, namely a static input-output model, as well as through a more general Chenery-Strout two-gap model. The second section will review the sectoral priorities of the Plan, assess the rationale for their choice in view of their performance prior to 1975, and compare these sectoral targets with an independently estimated vector of gross outputs using an input-output model. Projections on the growth of employment opportunities and the evolution of the labor force were presented in Chapter V (Part III) and are not repeated here. The Long-Term Plan 1976-85 7.4 The Yugoslav perception of the long-term objectives and issues of development are set out in a document which for the purpose of this report will be designated as "the Long-Term Plan". 1/ Since it does not stipulate obligations, it is not a plan in the strict meaning of the term. It is rather a concerted effort to identify the major development problems which need to be tackled in the operational plans (Five Year Plans and annual plans), and to specify the direction in which economic development should be heading. 2/ The draft of the Long-Term Plan was presented to the Xth Congress of the LCY in 1974 and formally adopted after extensive discussion, giving the document considerable weight. Subsequently, the draft was discussed by the Federal and all Republican Assemblies and finally adopted (October 1975) by the Federal Assembly as the guide for preparation of the operational plans. (i) Diagnosis 7.5 The Long-Term Plan elaborates on a great number of economic problems which need to be addressed. These are, by development issues, briefly summar- ized hplowt Stabilization: The economy hs su£ffPred from contin,il flucrtuations in the level of economic activity, high and varying rates of inflation, and general price instahility= The lark of stabi- litv crrpated iinrPrta,in- ties for enterprise activity and led to many decisions which proved to be detr4mental in the long run. 1/ Th1-~le fu11 tit-le i "Out',ne of a Common... Policy for Long-Ter. Development in Yugoslavia until 1985", published in English in Yugoslav Survey Nover,i,ber 1975, VoL. XVI , I o. 4t, p. 19. 2/ in the L rst stage, somie 50 special studies uL UltZUpL1fic LUtpiLcs--VarLyiLng from macro-economic models to sector demand forecasts--were carried out by research institutions, commissioned by tne Federal Institute for Planning. In the second stage, a consortium of prominent economists prepared a condensation of the results of the first stage, wnich was published in November 1974 under the title "Koncepcija dugorocnog razvoja JugoslaviJe do 1985". Subsequently, a drafting committee was established under the auspices of the Federal Planning Institute for the preparation of the draft of the final document and its subsequent refine- ment. A new long-term plan is presently under preparation. - 400 - Resource Mobilization: 1/ There have been severe disproportions and arbitrary fluctuations in the distributions of available resources between final demand (personal, common and Government consumption) and investment and savings. Resource Allocation: 1/ Prominent among the specific problems per- taining to resource allocation are: First, there has been misalloca- tion of resources between sectors, notably a lagging in the development of raw materials, power and foodstuffs. Second, there have been general inefficiencies in production, low growth of labor productivity, unsatis- factory capacity utilization in some of the rapidly expanding sectors and branches, lack of coordination in the expansion of productive facilities, low profits, and insufficient modernization of production facilities. Third. too little attention was given to indigenous research and development. Employment: The employment generation capacity of the economy, which shaqrn1v dpcljild as a rsiilt of thp I9r, rpfnrms, has not siffiriPnt1y recovered thereafter. The country needs employment generation in excess of thie ntuiiral increasc of tha lnabor frrc - Tlvii is riiu to thei reversaln1 of the flow of temporary emigration of workers--which as a consequence of inadequate wolrk opportunities in the country had, after 1965, provided an important vent for the otherwise unabsorbable labor force--and the continued existence of considerable excess labor force irn the rural sector. External Economic Relations: The balance of payments, marked by large and continually increasing 1.L.LLOdeficits on LLth L tLrL ade. U ntsULLU , reflects a high and increasing degree of import dependency (parti- cularly 'or raw materials). 'Jhs was not sufficiently com-pensated 'or cuia Jy £0. a IA LL aL~ I * LIL-L W1 L UL Li J LXJL iyLIJtJi L~U £ by growth of exports (of both manufactured goods and agricultural com- modities). Consequent ly, there has been a growing dependency on workers' remittances (which, for a number of internal and external reasons, are UoLLU L to decline) and foreignL 1U10r1r.-WJAL. A £Ll these e'leUrients rILikle the balance of payments overly volatile. Regional Disparities: Progress towards reduction of disparities of incomUe btLWeeU Lthe Republics adL Autonomous rovinces has Ubeel uis- appointing. Prominent among the causes are lack of adequate spatial planning and interregional mobility of investment and other resources. This problem is aggravated by the fact that the less developed regions nave a iarge snare of tne basic industries wnicn suffered from price disparities, impeding their capacity to generate sufficient resources for investment. / In the Yugoslav terminology the problems ot both resource mobilizatlon and allocation are frequently discussed in conjunction with the problems of "extended reproduction". 7.6 Concluding a critical summary review of the recent development, the Long-Term, Plan arrives at the following candid assessment of the maAin roots of the problems. 1/ "The emergence and intensity of these problems and contra- dictions nave also Deen influenced by lack of a nationwide iong-term develop- ment policy; inconsistency and slowness in the realization of the established policy concerning Yugoslavia's five-year development plans and the execution of decisions and agreements adopted; insufficient synchronization of the instruments of the economic system and measures of economic policy with the aims and tasks of development policy and their insufficient consistency; and uncoordinated decision making on the part of economic and aii other agents. As a result, development has taken a somewhat spontaneous course, and primary distribution 2/ and accumulation repartition 3/ have not been in line with development aims and tasks. The incompleteness and insufficient consistency of the economic system as a whole, the inadequate role played by the market and absence of a system of self-management planning, have all tended to strengthen spontaneity in economic development. For lack of a conscious regulation of the flows of reproduction 4/ on a self-management basis and of other systematic solutions, planning has not become an integrally linked system, from basic organizations of associated labor to the Federation, and has not enabled the working class to use it as a successful instrument for enhancing social and economic development. Absence of a long-term develop- ment policy has also hindered the creation of conditions for economic stab- ilization". (ii) Objectives and Targets 7.7 The Long-Term Plan contains an exhaustive set of objectives. In addition to "further development of the political and economic system and of self-management relation on the basis of the new Constitution", these include the conventional objectives of growth and improvements in the standard of living, increased labor productivity, growth in employment, economic stab- ility, more effective integration into the international division of labor, and regional development. Also included as objectives are improvements in the human environment and development and support to domestic research and tech- nological development. Although many of these objectives are discussed in some detail, the Plan does not provide an indication as to their relative weight. I/ Opncit. p. 36. 91 "Prim-ary disi-trihutiion" refers t-o t-he yvstem of rplqtive nrices; see paragraphs 2.28-2.29, Part III, Chapter II. 3/ "Accumulation repartition" refers to the pattern of investment allocation. 4/ "Flows of reproduction" correspond to the flow of investment resources. - 402 - Table 1: LONG-TERM PLAN 1976-85 PRINCIPAL GROWTH TARGETS Percent per annum Total Economy 7.0 Idustry9. Agriculture 3.5 lourism 6-7.0 Employment 3.5 Working-Age Population 0.9 Labor Force 0.6 Exports 9.0 Imports 7.0 Source: Op. cit., numerous pages. 7.8 The Long-Term Plan considers a long-term growth rate of GNP of 7 percent per annum as both necessary and feasible. Industry would continue to be the principal engine of growth, expected to expand by about 9 percent per annum. Within the industry sector, priorities will be assigned to primary and secondary energy, metallurgy, basic chemistry, and some (unspecified) branches of engineering industries. Other sectors of major priority are agriculture (primary production), interregional transport and communication, and tourism. The thrust of this strategy is a reduction of the country's dependence on imported raw materials and intermediary goods, the creation of a more stable export basis, and a more balanced economic structure with an improvement of capacity utilization. Reflecting this strategy, the Long-Term Plan sets out some broad quantitativae targets, to be pursued in the operative plans (Five-Year and annual plans). The Five-Year Plan 1976-80 7.9 The Five-Year Plan is intended to act as the principle operational document based on the findings and principle thrust of the long-term Plan (see Part I, Chapter II). Five-Year Plans are drawn up by the Planning Institutes in each of the Republics and Autonomous Provinces, with the national Five-Year Plan providing the overall consolidated Plan. The analysis in this chapter will be limited to the national Five-Year Plan. The Five-Year Plan has been drawn up by the Federal Planning Institute principally on the basis of an input-output model of the economy. Other partial approaches, such as econ- ometric estimates of certain parameters and a Harrod-Domar growth model, were used mainly to check the consistency of the results of the input-output exercise. The input-output exercise--reportedly based on the 1972 input- output matrix adjusted with the 1975 estimates of sector outputs, value added, and final demand--was used for projecting the vector of gross outputs and final demands for 1980. Although the procedures for determining the final Plan targets are not known, an iterative process, in particular applying different assumptions regarding import substitution (through adiusting the import ratios within the interindustry matrix) has reportedly been used. - 0) (i) Plan Objectives 7.10 The major quantitative targets of the Plan are summarized in Table 2, while the detailed sector output targets are presented in Table 3. In addition to the broader objectives of a rapid rate of growth combined with rapidly increasing personal incomes and a continued emphasis on industrial growth, the targets of the Plan reflect quite clearly a distinct strategy. Table 2: FIVE-YEAR PLAN 1976-80 REAL GROWTH TARGETS Percent per annum Gross Material Product 7.0 Personal Consumption 6.0 General Consumption 6.0 Fixed Investment 8.0 Exports 8.0 Imports 4.5 Employment 3.5 Source: Federal Institute for Planning, Social Plan 1976-80. This strategy reflects a shift in emphasis from sectors producing consumer goods to sectors producing intermediate and capital goods. The Plan identifies a number of sector/branches as priority sectors, areas that are expected to be given special encouragement during the Plan and have first clarm n to investable resources. These include electrical power generation and transmission, coal, ferrous and non-ferrous metallurgy basic chemical, production of non-mPtalic minerals, mechanical engineering, and shipbuilding, agroindustry and transport. 7.11 This strategy appears to be based on two objectives. First, the belief that certain industrial branches had lagged due to ,nfavorable price relations and the lack of any coordinating mechanism rather than their eco- nomic viability, e.g. electricity ar.d certain raw materials, and that from an economic stance, there was a case for allocating more resources to these sectors. Furthermore the significant changes in relative prices stemming from the fourfold increase in the price of oil itself affected the economic viabilit-y of projects and ca-lled for Som-e sh4fts in the allocation of re- sources. Second, and more importantly, there was a realization that quite apart from any inherited distortions or changes necessitated by cLanges in relative prices, a restructuring of the economy became inevitable for balance of payments reasons allone. The international events of . ..-.. .a a number of important long-term consequences for Yugoslavia. The rise in the price of oil, led to a once-and-for-all shift in terms of trade adding some $600 million to the import bill. Furthermore, aside from the short-term effects of the recession in western Europe on Yugoslavia's export earnings, there was a lasting effect through reversing the flow of Yugoslav workers seeking work abroad and thus adversely affecting the growth in workers' remittances, a - 404 - principal factor in the growth of Yugoslavia's foreign exchange earnings after 1965. Although the new and restrictive policies of the labor importing countries stem from both social and economic considerations, the recession did serve to highlight these issues and instigate the introduction of restrictive measures. 7.12 Yugoslavia thus faced a sharply increased import bill compounded by a perceived erosion of the economy's long-term foreign exchange earning capac- ity. Given their desire to maintain a rapid rate of economic growth which critically hinges on the country's ability to mobilize significant external resources, the Yugoslavs could have responded to the new situation in one of two ways or a combination of both. First, they could have initiated policies designed to increase the country's foreign exchange earning capacity to com- pensate for the deteriorating prospects of workers' remittances, through for example, a determined export drive, i.e. export promotion policies. Conversely they could have attempted to reduce their future foreign exchange requirements through reducing the country's dependency on imports, i.e. import substitution policies. 7.13 The Five-Year Plan has oDted Drimarilv for the latter apDroach. This is most apparent in the Plan's overall export and import targets. The growth rate of extorts though somewhat higher than the historical rate is nevertheless broadly consistent with past experience. 1/ However, the growth rate of imnorts nn t-hp nther hand is rnsidprqh1v hbelow t-he hlist-nric-al rate. The projected 4.5 percent growth rate in imports coupled with a 7.0 percent growth in GMP would impnlv n import elasticity of n=64 nprcent which is about one-third below its historic level. Such a sharp reduction in the import Plasticity would imply a con.siderable degree of import substitution an.d restructuring of the economy, particularly as 90 percent of imports consist of in termediate and capital goods. Our analysis - 2/ confirm t-ha the industial branches given priority in the Plan are the very branches in which output tended to lag mainly as result of growing import dependency during the period. Thus the Plan strategy is to substitute for imports in those very branches that were most directly affected by growing import dependency since 1965. (ii) 'Pl Assessument 7.14 The economic Justification for the specific strategy chosen by the Yugoslavs cannot be readily assessed. Such an assessment would require detailled proJect data on the vari---o---,-A 4s nves-meLnts and an att Lmp to assess Yugoslavia's comparative advantage in these areas which is beyond the scope of this stUAy. Tn part ic.ular Ji woul d b-e necessary to U1r t costs of saving foreign exchange as reflected in the Plan strategy to import suDstitute wLtLh Lth Lad L UL CdL 1eaLr1in additiOUnLaJ LULt-iLL UX CLllLi LhIIrLU etxprULL promotion policies. Such an assessment has not been undertaken in this study. On strictly a priori grounds however the strategy underlying tne Plan cannot be faulted. It is true that insofar as the priority sectors tend to be amongst 1/ See paragraphs 4.86-4.91, Part III, Chapter IV. 2/ See paragraphs 3.21-3.25, Part III, Chapter III. - 405 - Table 3: GROWTH OF OUTPUT 1971-75 AND 1976-80 (Percent per annuimUL) Plan Industry /1 8.1 8.0 Electricity 8.5 10.0 Coal 4.0 9U5 Crude Petroleum 7.7 6.0 Ferrous Metallurgy 8.8 ii.0 Non-Ferrous Metallurgy 7.4 11.0 Metal Products 8.8 8.5 Non-Metallic Minerals 7.3 9.0 Shipbuilding 4.6 9.0 Electrical Machinery 10.9 9.0 Chemicals 12.0 14.0 Building Material 8.8 9.0 Wood Products 7.3 6.0 Paper and Paper Products 6.6 6.0 Textiles 7.2 4.0 Leather and Footwear 7.6 4.0 Rubber Products 9.6 4.0 Food Processing 6.7 7.3 Printing 5.1 4.0 Tobacco 5.7 5.0 Miscellaneous 9.7 4.0 Agriculture /1 3.0 4.3 Social Sector 6.0 8.0 Private Sector 2.3 3.1 Forestry /2 1.7 2.0 Construction /2 3.7 7.5 Transportation and Communications /1 6.8 7.5 Trade; Catering and Tourism /2 6.3 6.7 Handicrafts /2 6.5 7.2 Piuihcir T1ti1itip . /2 5.2 7.5 EcoRnomy /2 6.3 6.9 Social Sector 6.8 7.5 Private Setor 3.9 3.7 /1 Gross output. IL VaLUe adUdUd o ur ce: ederal LstiLtuLe fLor Panning, Social Plan 1976-80 - 406 - the more capital-intensive sectors i/ and Yugoslavia faces an abundance of labor and not investable resources, the emphasis may be somewhat misplaced or at least may jeopardize the attainment of the country's employment objective. On the other hand, while there is no direct evidence to suggest that the slower growth of these sectors/branches since 1965 was due to inappropriate pricing policies, there is evidence that many of these sectors/branches were in fact discriminated against by commercial policy. Tariffs during the period favored finished goods which, in conjunction with low nominal tariffs on raw and intermediate goods, benefitted from high effective rates of protection. 2/ This is likely to have been an important factor in the shift in the pattern of resource allocation away from sectors producing raw and intermediate goods to consumer goods. Furthermore, emphasis on import substitution as opposed to export promotion is a more prudent strategy given the uncertainties surrounding the future prospects of the world economy. The analysis in Part III, Chapter IV indicates that Yugoslavia's exports have in recent years been concentrated in markets and products that have been relatively slow growing. Although Yugoslavia has a very diversified export structure, competition has and remains intense in what are fairly weak market conditions. Import substitution thus offers a more certain path, to external balancing of the economy at the same time reducing the vulnerability of the economy to future external induced oscillation. 7.15 The analysis below gives first an assessment of the broad con- sistency of the Plan through the use of a framework similar to that adopted by the Yugoslavs in drawing up their Plan, namely a static input-output model. Subseauentlv. usine the same framework an assessment is made of the structure changes, particularly with respect to imports, implicit in the Plan growth targets. Finally, the foreign and domestic financing imnlications of the Plan are reviewed using a two-gap model. (a) Plan Consistency 7.16 Since none of the analytical exercises undertaken by the Yugoslavs werp mndep available tn thp miRRion, an analogsnii exercise wTa rArried out by the mission to assess the overall consistency of the Plan. Details of the methodology used are summarIzed in Appen.dix VIII Briefly, the 1972 input- output matrix was adjusted for consistency with the observed vector of gross outputs, value added and final demand as reported for 1975 (an adjustment for relative price changes between 1972-75 was also incorporated). Departing from thisa eot-4ma-t-A 190754 ir.put-utp mat-r4i, the Plan scPtlorlb-ranch ros nltp- targets were used to obtain an estimate of sector/branch and total net final demand. The aggregat-e consumption and investment Plan targets were u to determine the implicit trade gap, thus checking the consistency of the Plan gross output ta rget . wi_h the D1an age LraL e IJ_Jalance. ±I1 l A bLV;>;> ULGL LG&6LO W LtS L X u G1 > 6 L L. u UA | G1W . 1> | _ W summarized in Table 4. If we adjust for slightly different base year figures fcor 1Q975, ourA Jrorece trad deii s Dinars 54.3 billi 1 on or about- $30 £J.L ±7/i, UUL JJLUJ1_kLL_U LLC4Ut- U=L.L1..LL. LIJ JL.LiL _JtJ U4L.~LiI UJ LJUUL Y.J.V billion 3/ in 1980, as compared with a planned deficit of Dinars 45.2 billion 1/ See paragraph 5.71, Part III, Chapter V. 2/ See paragraphs 4.61-4.64, Part III, Chapter IV. 3/ All conversions made are based on $1 = Dinars 18. 4n7 - ($2.5 billion). The Plan assumes that the trade deficit as a ratio of value added declines from 10.3 percent in 1975 to 6.4 nercent in 1980 while our projection indicates a decline to 7.8 percent. The Plan trade deficit, though broadlv in line wit-h onr nwn pstimati- dnoq ;nnpqr thproforf to ho tnTm0wthnt nn the low side. Table 4: PROJECTIONS 1975-80 (Dinrar billinn; cor.stant !975 prices`) ----- 1975 ----- ----- 1980 ----- /I /I Plan/, IBRD Plan/, IBRD Value Added 497.8 493.3 706.4 691.0 (697.3) Domestic Demand 549.3 549.2 751.8 751.6 Investment 151.8 151.8 225.2 225.2 Personal Consumption 275.0 274.9 368.0 367.8 General Consumption 54.1 54.1 72.5 72.5 Residual 68.4 68.4 86.1 86.1 Trade Deficit 51.5 55.9 45.2 60.6 (54.3) Note: Figures in brackets adjust for differences in base year figures. /1 Value added data exclude net factor service income. All projections were made on assumption that these remain unchanged during period. 7.17 The above discrepancy suggests that either the Plan assumption about the growth of consumption and investment is optimistic or conversely that the import requirements of the economy are underestimated. It is possible that the discrepancy may partially be due to errors in estimation, in particular the use of a differently adjusted input-output matrix for 1975. However, in spite of such differences, one important factor can be identified which tends to reinforce the above conclusion considerably. As the sources of growth analysis for the npriod 1],66-72 rpv-ipwpd earlier indircted, / there uas a considerable increase in the ratio of intermediate consumption to gross output for most sectors and for the Pronomvy aS whole- RBttween 1966 and 1972 for example, intermediate inputs grew more rapidly than final demand, the differ- enrc hbinm equal to narly 1 A percernt of grcs output by 1972. To the extent that this reflects a continuing trend, a consequence of the growing sophistica- tion (i .e inrvascea -i-Jindustry linkages) of the ecor.omy,-- an,y eas on using an estimated 1975 input-output matrix will overstate the share of net fii.anll de.ma-d in Egross output , and, ultim tely the growth. of net final demand.. 7.18 TIP we acceptu Ile Flan growth- largets cor consumlptioo.,, investmuent an' ~~~. is tt wa ~~~~~~~~~~~~~~~~~LLL L taL IJ LL Cal LU] LLIb uLU I LL _ i1fl exports, the higher estimated trade deficit can be translated into an increase 1.1 ee paragraph 3, 'art III, Chapter III. - 408 - in import requirements. 1/ Exports in 1975 are estimated to be Dinars 104.1 billion ($5.8 billion) growing to Dinars 152.9 billion ($8.5 billion) by 1980. With our revised estimate of the trade gap this would imply a growth of imports from Dinars 160 billion ($8.9 billion) to Dinars 213.6 billion ($11.9 billion) or by 6.0 percent per annum as compared to the Plan estimate of 4.5 percent. Thus the difference in our estimate of the trade gap has a considerable impact on the implicit import growth rate, increasing the implicit import elasticity for the Plan period from 0.64 to 0.85. (b) Sectoral Priorities and Structural Changes 7.19 This section will consider two aspects of the Plan choice of prior- ity sectors. First, given that these sectoral priorities have already been determined, the static input-output model will be used to determine the extent these output targets are likely to fit the requirements of an independently estimated final demand vector at the terminal year of the Plan. As a corol- lary of this exercise, implicit sectoral imports required to ensure consistency of gross outout targets with sector demand requirements will be calculated. This will provide an insight into the structural changes in imports antici- nated cdiiring the Plan. Although it is not nossible to iildge the feasibility of such changes short of undertaking a detailed micro-analysis of specific nrojects envisaged in the current Plan neriod, the large implicit changes in the import ratios for certain sectors point clearly to the magnitude of the strucituir21 shift envisaged. Second; the growth nattern of the nrioritv sectors in the pre-Plan period will be analyzed to determine the direction and the fact-tors t-hat- have affecrt-e-d t-hp out-put growth of these sectors. This provides a useful basis to judge the Yugoslav rationale for choosing these sectors, 7.2n Acs C.hanter TTT (Part TTTI) indicattesQ the Plnn foresoee :a manjor sch;ift towards increased provision of raw material and intermediate goods. Within irndustry, , a11 sectors caterirng predom-innantly to consumption (.ith the excep- tion of food processing) are expected to grow below the average industrial growth rate and grow considerably more slow!- than in the previo-u Plan period (see Table 3). Seven branches within the industrial sector are expected to increase t1h.eir growth raoe by more than 15 peoreont h *ho tc. ,tt~1noc .LL 1X...L aa C,oa LI . .11 5V~W1 . WG V . It _a _. .. - r ~~ - '- * _ 1.._.____. between 1971 and 1975. These are electricity, coal, ferrous metallurgy, non-ferrous Letallurgy, non-mUetall4C r.-ne-al, sh4pbu.ildiLng and chem-ica*l All or parts of these branches are included in the priority sectors elaborated uLer Padrt hL L1rP.e .or "Fe.ia.L L OblgaiLo a-nd Tas"f P . Oth1er than industry, significant increases in the growth rate are planned for agriculture andu construct-ion.. -7.2 1 GJven that the scoaprriesof thle Plan are already deter- I ' LI uJ.VeL LlICL -LIICC LLJLa.. 9.LU A.'L£L~ Ij 5a ~ mined, it is interesting to contrast these with an independently estimated i/ Tnis exercise could 'oe Uone wLJL any of the com.puuentU o -f ial UCIIkIILU. If the trade gap is taken as given and equal to that of the Plan, then our analysis suggests that the planned output vector would call for a level of consumption (or investment) lower than that envisaged in the plan. vector of gross outputs. This is done by taking the Plan's projected aggregate components of net final demand, estimating independently their composition by sector and branch and determining through the interindustry matrix the output vector necessary to satisfy the projected sectoral net final demand. 1/ 7.22 The results summarized in Table 5 indicate that based on an historic extrapolation of demand patterns, the planned values of the aggregate compo- nents of final demand would call for an output mix considerably different from that projected in the Plan. The principal difference, a corollary of the Plan strategy, is a higher than projected growth in sectors producing interme- diate and capital goods, but a slower than expected growth of output in con- sumer goods sectors. The latter is intuitively apparent since consumption is expected to grow by 6 percent in the Plan yet the outputs of most consumer goods sectors are projected to grow at only 4 percent. Implicit in the methodology used above is that import substitution will occur proportionally in all sectors. Although the aggregate growth in imports and exports is the same as that assumed in the Plan, the sectoral distribution had to be esti- mated independently since no disaggregated projections were available. This was based on historic propensities to import, linking incremental growth in imports of each sector to the aggregate growth of imports. Thus by using the lower import growth of the Plan all sectors were affected proportionally. Under these assumptions, the growth targets of the Plan suggest an excessive stress on intermediate goods production and inadequate attention towards the growth of consumer goods. This conclusion, however, is based on the particular assumption used in the model which may be unrealistic. The growth patterns of consumption, investment, and even exports are not likely to deviate substan- tiallv from the Dast, and hence our assumptions are likely to be tolerably accurate. The assumption about imports, however, requires some caution as the Plan fnrp:espe imTnort- subst-itjution nccuirring nrincrinllv in cert-ai n (nrinrit)v sectors and nor necessarily equa-proportional in all sectors. In turn using the estimTf-ed demand comnonents and the Plan gross outpunt vector; it is possible to derive sectoral imports as residual. This would provide an in- dication of tho striirtuira1 shifts in imnnrt ratios imnliciti in rhe Plqn. if the demand and output vectors are to be consistent. 7.23 Table 5 summarizes the results of this analysis. The results con- firm that implicit in the Plan is a sgnificant sectoral restructuring of imports. The share of the output of priority sectors in their respective Aomesti;c mark-et -il hav I to- si-4-4if4c_t1- inres duin thi -eid - A,na 4-4 44 U' L . - L t .[S t C W. -.L ICVc -'J O 1l LtLaIL .] LIU a C U -L.U 6 I-.t C JL- -.JU ~t the other hand the Plan foresees a growth in non-priority activities, pre- ponlerently consu,,ner goods4 industries considerably_1 below the_ growth of con= ~uI -.CiL LUlCULL S'UC LI UU -L£C L'L ~ UI~a CU.y UIU '..W LII L 15 r L .I JL LL sumption. Consequently, there will be a need to increase dependency on im- ported cotisuLtLer goodus if Lthe preCVioUs patLtLeLr Un L Uof [kdEIU dL t LU t U UPII u Lhl. Thus what emerges is a significant restructuring of imports, with increased import dependency 2/ ln some sectors anu a sharp decllne ln others. ±lle latter is particularly noticeable for chemicals, (60-70 percent reduction) 1/ See Methodology II in Section E of Appendix VIII. 2/ Defined as the ratio of import to gross output. - 410 - Table 5: GROWTH OF OUTPUT PLAN AND PROJECTED 1976-80 (Percent per annum) Implicit Ratio of 1980 Import- Output Ratios Plan Projected to 1975 Import- 1976-80 1976-80 Output Ratios Electricity 10.0 7.6 -0.60 Coal 9.5 9.5 1.00 Crude Petroleum 6.0 11.5 1.13 Ferrous Metallurgy 11.0 10.1 0.62 Non-Ferrous Metallurgy 11.0 8.9 0.85 Metal Products 8.5 7.0 0.82 Non-Metalic Minerals 9.0 8.4 0.84 Shipbuilding 9.0 13.4 0.79 Electrical Machinery 9.0 8.2 0.61 Chemicals 14.0 7.7 0.41 Building Material 9.0 6.7 -1.32 Wood Products 6.0 7.1 1.70 Paper and Paper Products 6.0 8.4 3.46 Textiles 4.0 7.4 3.73 Leather and Footwear 4.0 7.4 3.74 Rubber Products 4.0 7.0 1.41 Food Processing 7.3 6.9 0.76 Printing 4.0 7.0 4.58 Tobacco 5.0 6.2 9.62 Miscellaneous 4.0 6.9 1.24 Agriculture 4.3 5.3 3.51 Forestry 2.0 7.4 3.54 Construction 7.5 7.3 1.32 Transportation and Communications 7.5 7.3 1.32 Trade, Gatering and Tourism 6.7 7.3 1.32 Handicrafts 7_ v 7'3 1.32 Public Utilitles 7.5 7.3 1.32 Economy 0.9 Source: See Appendix VIII Section E. - 411 - and ferrous m.etallurgy, (4 0-5 I, cet wit -te prort seto -mport ratios declining by around 20 percent. Although there can be no a priori method of deter.mining the feasibillity of such decliness inimotrissht of a detailed project-by-project analysis, such large reductions do raise a numubuer of questions. * The new system of planning blaseUd on fLorwarlu contracting may provide an effective vehicle for ensuring that increased domestic produc- tion is nl fact used LU bUUbtitLUL'or imUpUoLrL. LoUWeVrL, Le cUstsLb Us sUcIh a significant reduction of imports, even if feasible, may be high. First, thLe domestic L provision of intermediate goods of comparable quality anu spec- ification as those previously imported may be physically impossible in the short run and difficult in the medium run, particularly given the wide array of intermediate goods involved. Second, in certain sectors import substi- tution may be difficult in the short run, because of existing contractual or licensing arrangements between local and foreign companies. Third, it should be noted tnat tne rali in import ratios impilcit in tne aDove anaiysis is a net substitution by imports, which implies a considerably greater gross sub- stitution of local production if the indirect import content of domestic pro- duction are also taken into consideration. Finally, as noted in paragraph 7.18 the trade gap projected by our modeling exercise is somewhat higher than the Plan level for 1980. Since in the above analysis we used the Plan target growth rate for consumption, investment and exports--deriving imports resid- ually --our estimate of imports is about 10 percent higher than the Plan. Thus the actual import reduction foreseen in the Plan is even larger than the above figures indicate. This lower import growth as discussed earlier, does not appear to be consistent with the overall Plan targets and could only be realized through a reduction of one or the other components of domestic final demand. (c) The Priority Sectors 1966-72: A Digression 7.24 The "sources of growth analysis" provides a means of analyzing structural changes and some of the salient features of the priority activi- ties and also provides a basis for assessing the rationale in choosing these sectors. Although the sources of growth analysis is only possible up to 1972, it does still provide a reasonable basis for analyzing the behavior of these sectors, particularly since preparation of the long-term Plan commenced in 1973, based on the trends visible at that time. 7.25 Table 6 summarizes a number of features of these priority activi- ties. As a group, the priority activities within industry grew between 1966-72 some 16 percent less rapidly than they would have if each sector and branch output grew at the same rate as the growth in aggregate demand 1966-72. The relatively slower growth is particularly apparent in ferrous metallurgy, non-ferrous metallurgy and coal, though also in non-metallic minerals. The other priority branches grew at a slightly, faster rate. The non-priority industrial branches on the other hand grew relatively more rapidly than the balanced growth. Agriculture, as noted earlier has had a significantly lower growth while transport grew somewhat above average. The above thus confirms that the Yugoslav strategy in the current Plan period is aimed at a balanced development of the economy through encouraging the growth of those sectors and branches that have tended to lag behind in the period after the 1965 reforms, rable 1: OUTPUT SOURCES OF GROWTH DECOMPOSITION: PRIORITY ACTIVITIES 19I66-72 ------GROSS OUTPUT 1972------------- Gross -------------------EDEVIATIONS DUE: TO CILANGESS IN-------------------- /1 Output Finial Pre4iete,dl Actual Deviation _ Share 1972 Derand ExpcLrts --Import Substitution-- Technology Total (1) (2) (3)=(2)-(1) (4)=(31/(2) t5) (6i) FPinal Intermediale (9) (10) Dlemand Impo rts (7) (8) Electricity '7.5 7.8 0.3 4 1.6 222 ' 55 10 -161 ] -26 (10 Coal 6.4 4.5 -1.9 -42 0.9 10 -8 -2 29 71. 1(10 Ferrous Metalluirgy 17.0 11.5 -5.5 -48 2.4 -12 -.2 1 53 59 l C10 Non-ferrous Metallurgy 1.5.3 10.4 -4.9 -47 2.1 17 -:16 -9 116 12 100 Non-metallic Miinerals 4. 7 4.2 -0.4 -10 0.9 -96 46 - 138 13 100 Chemicals 17.9 20.1 2.2 11 4.1 -18 38 9 -53 124 100 Shipbuilding 4-5 4.9 0.4 8 1.0 -:134 189 64 -7 -12 (10 Total Priority Induistry 73.4 63.6 -9.B -16 13.0 2 -36 -9 116 27 l(tO Total Non-priority Industry 16[.0 L79.0 13.0 7 36.6 78 30 6 -74 721 100 Total Industry 239.4 :242.6 3.2 1 49.6 -315 235 6 -661. 20'5 1(0 AgriculttLre 97.0 69.1 -27.9 -80 14.1 ]L21 12 -7 IL -27 100 Tr=agpo- _ 26.7 27.8 1.L 4 5.7 75 -3 3 -84 10'3 100 1/ Assuming all sectors graw proportionally to groiwth in aggregate final demand L966-72. Note: Columns 5-9 show conltribuitions by each source of change expressed as a percentage of output deviation. Numbers may not add exactly dule to iroundinig. Source: See Appendix VIII, Section D. - 413 - these being predominately sectors producing intermediate goods. Columns 5-9 summarize the factors explaining the differential relative growth behavior of these sectors and branches. The relative growth of priority sectors as a whole were almost unaffected by the changes in the structure of final demand, negatively affected by import substitution in intermediate inputs and by changes within the interindustry matrix (technological effect), while posi- tively affected by the growth of exports and by import substitution in final demand. The most striking factor, however, has been the significant effect of negative import substitution in intermediate goods. This increased import dependency on intermediate goods throughout the economy has affected the output growth of the priority activities considerably more than that of non- priority activities. Thus in the priority activities in industry, output would have been nearly 18 percent higher if there had been balanced growth and no change in dependency on imported intermediate goods, while for other branches in industry and the economy as a whole, the effect was 5 percent. In fact, although the priority activities in industry accounted for 13 percent of gross output in 1972, they accounted for 48 percent of the loss of production growth due to negative import substitution in intermediate inputs. I/ 7.26 The above "sources of growth analysis" of output does not, however, directly deal with the question of changes in'the import dependency of sectors and branches. The intermediate import substitution effect for example con- siders the effects of changes in intra-industry import coefficients on the olutput of sectors, but does not analyze how imports to these sectors have been affected by the change in coefficients. Since imnort substitution is the principal aim in the expansion of the priority sectors, it is interesting to annlvzp the imnort behavior of nriority-v sertors/branches through a "sourrce of growth analysis" of imports. 7.27 Table 7 summarizes the results of the "sources of growth decomposi- tion" of imports for the prorrity anrd non-priority sectors. Imports grew 19 percent more rapidly than would have occurred under balanced growth for the seven priority brannches taken together The principal factor accounting for this was the effect of negative import substitution in intermediate goods, name y: the effects of. changes in the intra-industry imJSport coefficients. Although imports in non-priority industrial branches grew, on average, even more rapidly during thLe per 4 ..4 . percentI, CiAs was not for the most part accounted for by negative import substitution (i.e. changes in import ratios W LII3LI -L tll 111 LL lllUU. ULt y Lij LI t r ix Or in LAnal U:lIU ) VLUU UUtl LU lolt: Ut:UedeaU dllU 1; including agriculture and transport, the priority activities accounted for 34 percent of gross output but 52 percent of the output decline due to negative intermediate input import substitution. Table 7: IMPPORT SOURCES OF GROWTH DECOMPOSITION: PRIORITY ACTIVITIES 1966-72 - -------------Imprt:- -----------DEVIATION DUE-TO CHANGES IN:-- ----- -y----(Thousand Dimras) --------------- Share Final Predt"tedi tS- At2 Devistion 7 1972 Demnc Exoorts --InirtibEtTtution- Technoloy Total /1) (2) (3)=(2)-(l) (4)=(3)/(2) Firkal Interncdiate DeDmand Consanti L Electricity 60 16 -44 -276 - -1 -2 . 105 -2 100 obal 970 889 -81 -9 1.3 8 -30 +-23 -13 112 100 Ferrous Metallurgy 5,031 4,980 -51 -1 7.2 -209 -207 -108 -2469 3,094 100 llon-Ferrous Metallurgy 1,579 4,058 2,479 61 5.9 -6 17 4 109 -24 100 Nlon Metalic Minerals 3,822 4,228 406 24 2.5 32 2 -2 68 - 100 Chdicals 6,428 8,484 2,056 24 12.3 -1 14 -7 4 90 100 Shipbuilding 793 298 -495 -166 0.4 43 - 56 -3 4 100 Total Priority Industry 18,683 22,953 4,270 19 29.6 -4 20 *-7 100 -10 100 Total Non-Priority Induatry 25,946 37,797 11,850 31 58.2 23 4 25 5 44 100 Total Indiustry 44,629 60,7150 16,121 27 87.8 16 8 2 59 16 100 Agriculture 9,941 5,538 -4,403 80 8.0 53 -2 50 -4 2 100 Transport 1,141 1,461 320 22 2.1 13 -1 1 57 30 100 NOTE: columns 5-9 show contribuitions by each source of change expressed as a percentage of output deviation. lIumberEi may not add exactly due to rounding. 1/ Assuming all sectors grow proportionally, to growth in aggregate final demiand 1966-72. SDurce: See Appendix VIII, Sect:ion D. - 415 - these being predominately sectors producing intermediate goods. Columns 5-9 Qsmmari7p the facrors pyn1aiining thp diffprpntin1 rplativp grnwth hPhaXvinr of these sectors and branches. The relative growth of priority sectors as a whole were almost unaffected by the changes in the structure of final demand, negatively affected by import substitution in intermediate inputs and by chanrges w4 thir the 4nterrn.dustry matri4- (techno1lo4a.1 effect) -I,4- w nh a i tively affected by the growth of exports and by import substitution in final Aer,anA. The most strik 41ng factor, Ihowever, has been the significant effect of negative import substitution in intermediate goods. This increased import d4epenAer..y on intermediate gooAs throughout the economy has affected th-e UCjCIUCLt lit.I L.CA ltA. - I 6 IJSO LIA tJ 1l. l. UILC LL.LLl.U -la 6. L C U IC output growth of the priority activities considerably more than that of non- pLULoLLY dL. AV.X L. Thus in the pLorULtLyL activities in industry, oUtpuL WUUlU have been nearly 18 percent higher if there had been balanced growth and no change in dependency on, 'mported inItermediate goous, while lfor other branches in industry and the economy as a whole, the effect was 5 percent. In fact, although the priority activities in industry accounted for 13 percent of grLUs output in 1972, they accounted for 48 percent of the loss of production growth due to negative import substitution in intermediate inputs. L/ 7.26 The above "sources of growth analysis-- of output does not, however, directly deal with the question of changes in the import dependency of sectors and branches. The intermediate import substitution effect for example con- siders the effects of changes in intra-industry import coefficients on the output of sectors, but does not analyze how imports to these sectors have been affected by the change in coefficients. Since import substitution is the principal aim in the expansion of the priority sectors, it is interesting to analyze the import behavior of priority sectors/branches through a "sources of growth analysis" of imports. 7.27 Table 7 summarizes the results of the ;"sources of growth decomposi- tion" of imports for the priority and non-priority sectors. Imports grew 19 percent more rapidly than would have occurred under balanced growth for the seven priority branches taken together. The principle factor accounting for this was the effect of negative import substitution in intermediate goods, namely: the effects of changes in the intra-industry import coefficients. Although imports in non-priority industrial branches grew, on average, even more rapidly during the period (31 percent), this was not for the most part accounted for by negative import substitution (i.e. changes in import ratios within the interindustry matrix or in final demand) but due to the demand and I/ Tncluding agriculture and transport, the priority activities accounted for 34 percent of gross output but 52 percent of the output decline due to negatiup intprmpdinte inniit imnort substitution. - 416 - the behavior of the priority sectors between 1966-72 is crucial to understand- ing whether their lagging output growth was due to inherent lack of a compara- tive advantage in producing these commodities, due to inappropriate market signals, or due to a different allocative mechanism. On the basis of informa- tion available to the mission, it is not possible to assess the comparative advantage of Yugoslavia in these sectors and branches and consequently the viability of expanding the priority activities. To what extent this had been es faotnr in th- rhoiip nf t-hp nrinrit-v nrst-iitip; R iJ. q1Rn not knnrwn As nntedr in Chapter V, (Part III) the priority activities tend to be amongst the most capital intensive (high capital-labor ratios.) actvities. In addition, a number of these activities are either import-intensive (e.g. basic chemicals) or, though drawing on domestic raw m-terials, are highly energy-intensive (e.g. non-ferrQus metallurgy). However, given that reduced vulnerability to external factors is one of the obJectives of the Five-Year Plan, there may be some trade-off between comparative advantage in terms of a free trade scenario (whnich may be quite n.realistic given V--1-4goslavia's poit4io -etw and ou side major trade blocks) and reduced vulnerability that would be acceptable ifnotimplict Jn the Plar,. Secor.d, withI- less thLan 30r percent ofimports in- ti. Lt.JU.i.m ti L.U. ..1 LL~£..4 I .ILL, L.II £ O2.a! JJ 9L C1 4£ . U}IL_ LO -1 priority branches of industry and 58 percent in other industrial branches, the princ4piple fLactor i1n the abuove proportional iLncrease in 1impotL Lo Ut Lth iL1dUUs trial sector as a whole, during the period, has been the growth of imports UL LIUII-PL-LUL-LLY ULaLdL1till,4 * L I It r.LdUL UUJt!L:LLVt_ -L. LU L t-UI t_i L1Lt_ uLULU11Uti b increased import dependency, one might expect the Plan to concentrate on those sectors -where imports have tended to grow most rapidly and where the share of imports is greatest. To reduce the economy's overall import dependency by concentrating on the priority activities would call, as we have observed, ror a significant decline in the import ratios of these branches, quite out of line with any historic trend towards increased import dependency. (d) Plan Financial Requirements 7.30 The static input-output model, though useful as a consistency check to some of the overall Plan targets, provides little insight into a number of the more important issues involved in the growth process. The analysis by its nature serves only to highlight the characteristics of an economy at two points in time. While it does provide a basis to judge the consistency of the system at that specific point in time, it does not provide a means of determin- ing whether the economy can attain the level and structure of output projected for that terminal year. Specifically, the input-output model does not provide a means to assess whether the Plan targets can be financed either from domestic or foreign resources. 7.31 The Chenery-Strout two-gap model provides a useful and consistent framework for analyzing the domestic and foreign financing implications of the Plan as well as the links between the two sources. 1/ The model was used firstly to simulate the evolution of the economy using assumptions close to 1/ A similar model was used in IBRD, Yugoslavia: Development with Decentral- ization. - 417 - those used in the Plan. This Plan scenario is later contrasted with alterna- tive scenarios, adjusting certain Plan assumptions. Common to all scenarios are the national account and balance of payments estimates for 1976 and 1977 (the latter based on the annual plan and balance of payments estimates provided by the National Bank of Yugoslavia). Alternative scenarios are thus based on differing assumptions for the period after 1977. 7.32 The Plan does not provide an estimate of the likely level of workers' remittances during the Plan period. Given the significance of workers' remit- tances in Yugoslavia's balance of payments, the growth prospects of these earn- ings play a crucial role in the overall development of the balance of payments. As already elaborated in Chapters IV and V (Part III), external migration is expected to play an increasingly less important role in Yugoslavia. The number of workers securing employment abroad has been, and is likely to remain, severely curtailed. In the past two years large numbers of workers have returned to Yugoslavia, and although the rate at which workers will return is expected to subside, the downward trend is nevertheless expected to continue. The effects of these factors on workers' remittances is complex and difficult to assess. The rise in incomes in host countries will have a positive effect, while the reduced number of workers abroad will reduce remittances. On the other hand, returning workers are likely to repatriate their reportedly large savings held in the host countries. The hypothesis used in this report is that on balance these conflicting effects are likely to cancel each other out with remittances remaining constant in nominal terms. There has, since 1973, been a tendency for remittances to decline in real terms, thus a constant nominal level for the Plan period seems a reasonable working assumption. 1/ 7.33 Plan Scenario: Table 8 summarizes the growth rate and value of nrincinal macro-economic narameters used in the Plan scenario and summarizes the balance of payments projections. One of the interesting features of the nroiections is that even with rhe ext-remelv ontimistir assimntion about the economy's reduced import dependency, (an import elasticity of 0.64), Plan imnlomonrtatinn woiild rqnuHirer c id- -he 1 rablend conqtantly orn1 .rnwfncy fnrpign exchange resources (see Table 9). The trade deficit would rise throughout the period, with an even -more rapid increase in the current account deficit due to the rising burden of interest payments. 2/ The assumption of unchang- the growth rate of foreign exchange earnings. Thus, although earnings from exports of goods and nonafactor services --1a at abot 8.0 p per annum, total foreign exchange earnings would grow by less than 6.0 percent per annum lUetween 197I6=80U. I/ Discussions withL1 Yugoslav officials support tile auove content'Lon. IL anything, their attitude is somewhat more conservative. 2/ In 1976 the trade deficit (including NFS) was equal to $1.4 billion with a current account surplus of $150 million. Table 8: PLAN SCENARIO 1971-75 1976-80 1980-85 Real Growth Rates (%) GDP 6.6 7.0 7.2 Investment 5.3 7.2 8.4 Consumption 4.9 6.4 6.3 Imports GNFS 5.2 4.5 7.2 Exports GNFS 4.8 7.8 8.6 Value of ICOR 4.2 4.2 4.2 Import Elasticity /1 1.0 0.64 1.0 Marginal Saving Rate (%) 24.0 21.0 34.0 Investment/GDP (%) 29.8 29.2 30.6 Domestic Saving/GDP (%) 24.0 24.9 27.6 National Saving/GDP (%) 27.6 27.1 28.4 /1 Based on three-year averages. 7.34 The trade gap and the current account deficit will rise throughout the period, calling for a significant inflow of foreign exchange on the capital account. Even allowing for the likely inflow through suppliers' credits and credits from official sources, there will still be a gap that would have to be filled through financial credits obtained in the interna- tional capital markets. These are by their nature less certain, and volatile. particularly in the wake of the heavy borrowing by developing countries in the international canital markets in recent years. Nevertheless the addi- tional borrowing requirements will not result in a significant increase in the economy's debt service ratio, mainly because of the proiected rapid rise in export earnings particularly if one allows for the effects of the expected rate of international inflation during the neriod. Furthermore. the financing requirements through financial credits on a net basis (allowing for annual repayment of nrincrinel) will not be thar large Thus on bal]nre; the ext-ernal financing of the Plan is likely to be feasible. - 419 - Table 9: PLAN SCENARIO BALANCE OF PAYMENTS (US$ Million) 1975 1980 1985 Current Account Exports (GNFS) 6,379 13,070 27,609 Imports (GNFS) -8,831 -15,390 -30,600 Resource Gap -2,452 -2,320 -2,991 Workers' Remittances 1,575 1,700 1,700 Net Current Transfers 120 186 261 Net Investment Income -275 -637 -1,340 Balance on Current Account -1,032 -1,071 -2,369 Capital Account Direct Foreign Investment /1 - 100 161 Export Credits Extended -200 -309 -545 Suppliers' Credits Contracted 1,032 1,990 3,892 Public Debt 804 352 563 Financial Credits 403 837 2,225 Amortization (Net) -957 -1,568 -3,266 Reserve Change (-=increase) 179 -331 -661 Canital Net -229 - - Balance on Capital Account 1,032 1,071 2,369 Debt Service Ratio /2 15.6 15.6 16.4 Foreign Exchange Reserves /3 896 2,957 5,496 ,/1 Not separately repoirted.L /2 Net of service payments received by Yugoslavia. /3 Based on IMF, International Financial Statistics for 1975, and 2 months imports thereafter. 7.35 The availability of domestic resources is also not expected to pose a difficulty for achievin g the growthLI targets ofI tLhe PLIa I CLL. to .l th . I I-e incremental capital output ratio (ICOR), though volatile, has averaged around 4.0 . Evn allowing for a somew'a LmoeULt capiLaLL-ireive dUvelopruLen in the current Plan, the ICOR is not expected to exceed 4.2. The new institutional changes as already indicated are likely to have a positive effect on the efficiency of resource allocation, through avoiding duplication and wastage due to inadequate preparation and coordination. A trend growth of GDP of 7.0 - 420 - percent using an ICOR of 4.2 would call for an investment share in GDP of around 29.5 percent. 1/ One of the consequences of the investment boom of 1974 was that the increase of the share of total investment in GDP to 30.2 percent in 1975. compared to an average of 29.8 perrent for the period 1971-75. Thus the investment requirements of the Plan period would not call for any change in the investment ratIn- The average dnmesqtir and natinnnl savi-nc rate during the Plan period required to sustain the investment rate would be hetween 24-25 nperent and 26-27 nperent, resPeQtieu1v hnth nf which are in line with recent experience and appear attainable. 7.36 Alternative Scenarios: The Plan's target growth in exports of goods and nn_-f'trrtn corxt, 4 o a R nf R Aorrant- 4c harnA 1 - rnnc4ai cont- an t th tiho h Ic_- torical trends. Chapter IV (Part III) indicated that in the post-1965 reform period, there had been a deceleration in t-he garwt-h rate nof epnrts manl4y ,u,e- to a negative competitive effect. However, in spite of this tendency the post-1965 perfo,-.man.e is in l4ne with t-he expected epor-t growth rate for the Plan period. Yugoslavia's exports structure is highly diversified, with 90 percentI. cULOnS4 sLJn oL mUaLLULacLULCU goo Lur eLrmore, u6gLosaV aO a diversified export market providing opportunities to shift between markets. Thie analysis Li.. Chapter IV (Part L.L.L) idicated thLat a growth ofJ exports ofL goods and non-factor services of up to 9 percent would not be implausible uasedU n ithe projecteU growtl rate oV' Yugoslavia's pr'Lnc.Lipal externaL L marklets using a somewhat higher growth of merchandise exports and somewhat lower rate for non-factor services. Tnus, for the current analysis the historical rela- tionship between export growth and the growth of foreign markets has been maintained leading to a trend growtn oI exports of goods and non-factor ser- vices of around 8.5 percent. 7.37 As already indicated the Plan target growth of imports, on the other hand, appears optimistic. Some degree of reduced import dependency is iikely to occur during the period. However, structural changes in import require- ments as drastic as foreseen in the Plan within a five-year period, are unlikely to occur without some sacrifice of the overall growth rate and effi- ciency. Although the teasibility ot these cnanges cannot be judged given tne limited information made available to the mission, the orders of magnitude involved indicate that exploration of a more cautious alternative to the Plan scenario might be prudent. 7.38 The simulations that follow thus concentrate on this critical issue. The assumption regarding the import elasticity is adjusted upwards. it is still assumed that over the period as a whole, Yugoslavia will be able to reduce its import dependency, albeit at a somewhat less rapid pace. The I ICOR = AK = I = I YO (I fTves-tment Shrare Y (4r.veras nf growth ,& y Yo-YYl'Yo of GDP). K = Capital stock I = Investment Yi = GDP in period i 4'21 imnort elasticity used is 0.85 which is still considerably below the best nast performance and very low by internatinal standards. Table 10 summarizes key Plomont. in thp h1ninrp of nnvmpnts ,,sin th-i. rpvuipd imnort Plnctiritv And alternative growth scenarios. Table 10: BALANCE OF PAYMENTS--ALTERNATIVE SCENARIOS (US$ .1 M4 1 1i on) 1980 1985 A B A Resource Gap =2,470 =2,4/.0 =1,760 =24 4 Balance on Current Account -1,260 -1,780 -1,010 -2,220 Total Disburseaes 3,110 3, 750 4,4900 7,070 IULdJ. LJ, A J/J + 't7v IVIU of which Financial Credits 960 1,550 570 2,880 Diebt Servi-ce Ratio 16. ;7. 15jI .3 2. 7.39 The first of these scenarios (A) revises the growth rate of the economy down to a trend raLe of 6.0 percent starting in 1978. SinLce the expected growth performance of the economy between 1976 and 1978 is below 6.0, the average growti-h rate Lor the Plan period will fall to 5.5 percent. If all other assumptions remain unchanged, the balance of payments situation in 1980 will be fairly close to that of the Plan scenario. However, in contrast to the Plan scenario the balance of payments situation improves considerably between 1980 and 1985, due to the somewhat lower growth rate of 6.0 percent (import elasticity of 1.0) as compared to the Plan long-term growth target of 7.0 percent. If the average growth rate of the economy is increased to 6.0 percent for the period 1976-80 (Scenario B), the balance of payments situation deteriorates rapidly with a sharp rise in external financing requirements, and a continued deterioration into the 1980s. 7.40 In short, if the Plan assumption about the economy's reduced import dependency is changed, and a higher and more plausible level of imports is assumed, there will be a need for a reduction in the overall growth rate if the external financing requirements of the economy are not to transgress the external borrowing parameters established by the Yugoslavs in their Plan. 1/ An average growth rate of the economy of around 5.5 percent for the period 1976-80 rising to 6.0 percent in the 1980s would appear to be the upper limit. The need to grow at a somewhat more moderate rate than achieved in the 1970s is not altogether surprising. Yugoslavia's import bill in 1973-74 was consid- erably increased through the rise in prices of petroleum products, at the same time the prospects of increases in workers' remittances deteriorated. With export earnings from commodities and non-factor sources expected to grow at much the same rate as in the early 1970s, imports will have to grow less 1/ It is worth noting that the Plan document clearly foresees that increased "external indebtedness" defined as the debt service ratio is unacceptable, see page 113, Social Plan of Yugoslavia, 1976-80. - 422 - rapidly if the external capital requirements are not to become excessive. Our analvsis suggests that in nart the rediued imnort reqiiirements will have to be achieved through a more moderate growth rate, if an extreme assumption about import substitutiJon is t-o he avoided. It is nevertheless noteworthy that even with the revised projections the economy can continue to grow at a very respectable 5-6 percent per annum.