SOCIAL PROTECTION AND SOCIAL INCLUSION IN THE WESTERN BALKANS

Transcription

1 SOCIAL PROTECTION AND SOCIAL INCLUSION IN THE WESTERN BALKANS A SYNTHESIS REPORT European Commission Directorate-General for Employment, Social Affairs and Equal Opportunities Unit E2 Manuscript completed in January 2009 European Commission 1

2 This report was financed by and prepared for the use of the European Commission, Directorate-General for Employment, Social Affairs and Equal Opportunities. It does not necessarily represent the Commission's official position. The Institute of Economics, Zagreb Paul Stubbs If you are interested in receiving the electronic newsletter "ESmail" from the European Commission's Directorate-General for Employment, Social Affairs and Equal Opportunities, please send an to The newsletter is published on a regular basis in English, French and German. European Communities, 2009 Reproduction is authorised provided the source is acknowledged. 2

3 ACRONOYMS CITED IN TEXT... iv ABSTRACT... vi ABSTRAKT...vii SAŽETAK...viii REZIME... ix РЕЗИМЕ... xi 1: Economic, Demographic, Labour Market and Education Trends : Social Protection Systems : Poverty and Social Exclusion: dimensions, characteristics, trends and strategies : Pension Systems: coverage, sustainability and reform challenges : CONCLUSIONS AND KEY CHALLENGES iii

4 ACRONOYMS CITED IN TEXT AIC AP KOS AP VOJ BiH CC CEE/CIS CRO CSWs DG DGECFIN DEN DEP DFID DIN EAR ECHI EFPs EIZ ETF EU FBiH FDI FES GDP HIV/AIDS HBS HRK IDPs ILO IMF IOM KM LFS LSMS MAC MICS MON MONEE MOP MTDS MTEF NE NGOs Actual Individual Consumption Autonomous Province of Kosovo Autonomous Province of Vojvodina Bosnia-Herzegovina Candidate Countries Central and Eastern Europe and the Commonwealth of Independent States Croatia Centres for Social Work Directorate-General Directorate-General for Economic and Financial Affairs Denars (former Yugoslav Republic of Macedonia currency) Department for Economic Planning (Bosnia-Herzegovina) Department for International Development (UK Government) Dinars (Serbian currency) European Agency for Reconstruction European Community Health Indicators Economic and Fiscal Programmes Institute of Economics, Zagreb European Training Foundation European Union Federation of Bosnia-Herzegovina Foreign Direct Investment Friedrich Ebert stiftung Gross Domestic Product Human Immunodeficiency Virus/ Acquired Immunodeficiency Syndrome Household Budget Survey Croatian Kuna (currency) Internally Displaced Persons International Labour Organisation International Monetary Fund International Organisation for Migration Convertible Mark (Bosnia-Herzegovina currency) Labour Force Survey Living Standards Measurement Survey former Yugoslav Republic of Macedonia Multi-Indicator Cluster Survey Montenegro Monitoring Eastern Europe materijalno obezbjedjene porodice (Montenegro/Serbia family material support) Medium-term Development Strategy (Bosnia-Herzegovina) Medium-term Expenditure Framework ndihme ekonomike (Albania economic aid) Non-Governmental Organisations iv

5 NMS New Member States OECD Organisation for Economic Co-operation and Development OSI Open Society Institute PASIS Poverty Alleviation and Social Inclusion Strategy (Montenegro) PAYG Pay As You Go PISA Programme for International Student Assessment PPP Purchasing Power Parity RCC Regional Co-operation Council RDPs Refugees and Internally Displaced Persons RS Republika Srpska (entity in Bosnia-Herzegovina) SEEHN South East European Health Network SER Serbia SFRY Social Federal Republic of Yugoslavia SILC Statistics on Income and Living Conditions SIS Social Inclusion Strategy SLO Slovenia SME Small and Medium Enterprises SPSI Social Protection and Social Inclusion U Unemployment UNDP United Nations Development Programme UNHCR United Nations High Commissioner for Refugees UNICEF United Nations Children s Fund UNSC 1244 United Nations Security Council Resolution 1244 USD United States Dollars WHO World Health Organisation WIIW Vienna Institute for International Economic Studies v

6 ABSTRACT Social Protection and Social Inclusion in the Western Balkans: A Synthesis Report This report explores social protection and social inclusion in the Western Balkans, namely: Albania, Bosnia and Herzegovina, Kosovo under United Nations Security Council resolution 1244, Montenegro, and Serbia, drawing on a series of independent reports completed in August The report addresses key political, economic and demographic trends, including the functioning of labour markets and education systems; the financing of, eligibility for and access to social protection; general living conditions and groups at risk of poverty and social exclusion; access to pensions and to health and long-term care. The report explores disparities and discrimination based on gender, age, disability, 'ethnicity', and sexual orientation, as well as exploring spatialised inequalities. The report identifies future challenges for the modernisation of social protection systems and for promoting social inclusion, framed in terms of the revised Social Inclusion objectives of the European Union. vi

7 ABSTRAKT Mbrojtja Sociale dhe Prfshirja Sociale n Ballkanin Perndimor: Raport Prmbledhs Raporti eksploron mbrojtjen sociale dhe përfshirjen sociale në vendet e Ballkanit Perëndimor, përkatësisht: Shqipëri, Bosnjë dhe Hercegovinë, Kosovë (nën rezolutën 1244 të Këshillit të Sigurimit të Kombeve të Bashkuara), në Malin e Zi dhe Serbi, mbështetur në një seri raportesh të pavarura të përfunduara në gusht Raporti adreson risitë kryesore politike, ekonomike dhe demografike, përfshirë funksionimin e tregjeve të punës dhe sistemet arsimore; financimin, kualifikimin dhe aksesin për mbrojtjen sociale; kushtet e përgjithshme të jetesës dhe grupet në rrezik varfërie dhe përjashimi social; aksesin në pensione, shëndetësi dhe kujdesin afatgjatë. Raporti eksploron pabarazinë dhe diskriminimin bazuar në gjini, moshë, aftësitë e kufizuara, përkatësi etnike, dhe orientim seksual, si dhe eksplorimin e pabarazive hapsinore. Raporti përcakton sfidat e ardhshme për modernizimin e sistemeve të mbrojtjes sociale dhe për promovimin e përfshirjes sociale, përkufizuar sipas termave të objektivave të rishikuar të Përfshirjes Sociale të Bashkimit Evropian. vii

8 SAŽETAK Socijalna zaštita i socijalna uključenost na zapadnom Balkanu: Sveobuhvatni izvještaj Ovaj izvještaj istražuje pitanja socijalne zaštite i socijalne uključenosti na Zapadnom Balkanu, tačnije u Albaniji, Bosni i Hercegovini, Kosovu pod Rezolucijom 1244 Vijeća sigurnosti Ujedninjenih naroda, Crne gore i Srbije, a na osnovu niza pojedinačnih izvještaja koji su finalizirani u avgustu godine. Izvještaj donosi osnovne političke, ekonomske i demografske trendove, uključujući načine funkcioniranja tržišta rada i obrazovnih sistema; finansiranje i dostupnost sistema socijalne zaštite; opće uslove života i grupe kojima prijete siromaštvo i socijalna isključenost; dostupnost penzionom sistemu, zdravstvu i dugoročnoj zaštiti. Izvještaj istražuje nejednakosti i diskriminaciju koje su zasnovane na rodu, godinama starosti, invaliditetu, etnicitetu i seksualnoj orijentaciji, kao i prostornim nejednakostima. Izvještaj identificira buduće izazove u modernizaciji sistema socijalne zaštite i promoviranju socijalne uključenosti, a u okvirima revidiranih ciljeva socijalne uključenosti Evropske unije. viii

9 REZIME Socijalna zaštita i socijalna uključenost na zapadnom Balkanu: Sveobuhvatni izvještaj Ovaj izvještaj istražuje sisteme socijalne zaštite i socijalne inkluzije u Zapadnom Balkanu, naime u Abaniji, Bosni i Hercegovini, Kosovu u okviru Rezulucije 1244 Savjeta bezbjednosti Ujedinjenih nacija, Crnoj Gori i Srbiji, na osnovnu serije nezavisnih izvještaja finalizovanih u Avgustu godine. Ovaj izvještaj opisuje ključne političke, ekonomske i demografske trendove, uključujući funkcionisanje tržišta rada i obrazovnih sistema; finansiranje, prava i dostupnost socijalne zaštite; opšte uslove za život i grupe koje se suočavaju sa rizikom od siromaštva i socijalne isključenosti; dostupnost penzionog sistema, i sistema zdravstvene i dugoročne njege. Izvještaj istražuje disparitet i diskriminaciju po osnovu pola, starosti, invalitnosti, nacionalnosti i seksualne orjentacije, kao i prostorne nejednakosti. Izvještaj identifikuje buduće izazove za modernizaciju sistema socijalne zaštite i promociju socijalne uključenosti, oblikovane po ugledu na revidirane Ciljeve socijalne inkluzije Evropske Unije. ix

10 REZIME Socijalna zaštita i socijalna uključenost na zapadnom Balkanu: Zbirni izveštaj Ovaj izveštaj istražuje oblasti socijalne zaštite i socijalne uključenosti u zemljama zapadnog Balkana: Albaniji, Bosni i Hercegovini, Kosovu pod protektoratom Saveta bezbednosti UN rezolucije 1244, Crnoj Gori i Srbiji, a zasnovan je na seriji nezavisnih izveštaja koji su završeni avgusta godine. Izveštaj tretira ključne političke, ekonomske i demografske trendove, kao i funkcionisanje sistema tržišta rada i obrazovanja; socijalnu zaštitu sa aspekta finansiranja, kriterijuma i dostupnosti; opšte uslove života i rizične grupe u oblasti siromaštva i socijalne isključenosti; dostupnost penzija, zdravstvene zaštite i dugoročne zaštite. U izveštaju se analiziraju nejednakosti i diskriminacija koje su zasnovene na polnim razlikama, starosti, invalidnosti, etničkoj pripadnosti i seksualnoj orijentaciji, uz analizu prostorne (geografske) nejednakosti. U izveštaju su takođe, identifikovani budući izazovi u kontekstu modernizacije sistema socijalne zaštite i promocije koncepta socijalne uključenosti, koji su sadržani u revidiranim ciljevima dokumenta, Socijalna uključenost, Evropske unije. x

11 РЕЗИМЕ Социјална заштита и социјална укљученост на западном Балкану Збирни извештај Овај извештај истражује области социјалне заштите и социјалне укључености у земљама западног Балкана; Албанији, Босни и Херцеговини, Косову под протекторатом Савета безбедности УН, резолуција 1244, Црној Гори и Србији. а заснован је на серији независних извештаја који су завршени августа године. Извештај третира кључне политичке, економске и демографске трендове као и функционисање система тржишта рада и образовања, социјалну заштиту са аспекта финансирања, доступности, и критеријума; опште животне услове и ризичне групе у области сиромаштва и социјалне искључености; доступност пензија, здравствене заштите и дугорочне заштите. У извештају се анализирају неједнакости и дискриминација које су засноване на полним разликама, старости, инвалидности, етничкој припадности и сексуалној оријентацији. У извештају су такође, идентификовани будући изазови у контексту модернизације система социјалне заштите и промоције концепта социјалне укључености, који су садржани у ревидираним циљевима документа Социјална укљученост, Европеске уније. xi

12 1: Economic, Demographic, Labour Market and Education Trends 1.1 Scope and Purpose of the Study This is a synthesis report drawing from a number of independent reports on social protection and social inclusion from pre-candidate countries and territories in the Western Balkans: Albania, Bosnia and Herzegovina, Kosovo Under United Nations Security Council Resolution (UNSC 1244) 1, Montenegro, and Serbia, completed in August It also draws on previous studies on Candidate Countries (CC) for Croatia 2 and the former Yugoslav Republic of Macedonia 3. It follows the broad logic of an earlier synthesis report from a series of studies on the social protection systems in the, then, thirteen candidate countries of the European Union 4, with more substantive chapters on pensions and health systems in line with the new set of common objectives on social protection and social inclusion agreed by the European Council in March Given their close proximity to and, in the case of Slovenia, shared legacy with, some of the countries and territories which are the focus of this report, where appropriate, comparisons are made with Bulgaria, Romania and Slovenia, as well as with the EU 27 as a whole (or EU 25 where full 27 data not available) and with the EU 12 (or sometimes 10 post-communist) New Member States (NMS). The main objectives of this report are to summarise in comparative perspective the key commonalities and differences regarding social protection and social inclusion in the Western Balkans and to identify key future challenges for the modernisation of social protection systems and for the fighting of poverty and social exclusion. In the remainder of Chapter 1, key political, economic, demographic and social trends are addressed, with a particular focus on labour markets, educational systems, gender relations, and the situation of minorities. The last two are cross-cutting themes like disability and spatial disparities which are also addressed, where necessary, in the subsequent chapters. Chapter 2 addresses social protection systems including the financing of, eligibility for and access to social assistance, social insurance and social services as well as addressing unemployment and family benefits. Chapter 3 analyses general living conditions and the risks of poverty and social exclusion as well as identifying the groups which are most vulnerable to poverty and social exclusion. Chapter 4 focuses on old age, survivors and disability pensions. Chapter 5 addresses access to health services and long-term care. Both chapters address issues of financing and sustainability as well as equity in the context of current and proposed reform efforts. Chapter 6 draws conclusions and notes the key challenges in terms of modernising responses to social exclusion and reforming social protection systems. Analysis is hindered by the lack of reliable statistics in some cases and, throughout, the lack of strictly comparable statistics. The absence of any reliable census data in Bosnia- Herzegovina and Kosovo clearly limit the reliability of any per capita figures, for example 6. In this synthesis report, wherever possible, EU data sources, primarily through EUROSTAT, are utilised together with national official statistical office data, albeit with the proviso that much of this is not yet aligned with best European standards either in terms of data source nor in terms of key indicators. Data sets utilised by key international organisations including 1 Henceforth Kosovo For other data problems see the respective country reports. 1

13 UNICEF s TransMONEE data base, UNDP s Human Development Index and related indicators, as well as those of the World Bank, are also utilised together with data from independent research institutes, as necessary. 1.2 Governance in Comparative Perspective The wars and conflicts since 1991, and the re-constitution of various states, mini-states and territories with a rather complex relationship to each other, indicate how political, social, cultural, economic and institutional arrangements have been profoundly destabilised, and how sovereignty is still heavily contested within the region (cf. Deacon and Stubbs, 2007; Clarke, 2008). The wars of the Yugoslav succession, beginning with the short conflict in Slovenia in 1991, spreading to Croatia from 1991 to 1995 and Bosnia-Herzegovina from 1992 to 1995 as well as the conflict in Kosovo and Serbia in 1999, the instability in the former Yugoslav Republic of Macedonia in 2001, and the crisis in Albania in 1997, saw a complex and changing mix of international humanitarian and security interventions. The conflicts and crises directly affected processes of social and political change and had dire economic consequences. Bosnia-Herzegovina, in particular, still has an extraordinary complex governance structure as a legacy of the Dayton Peace Agreement of December 1995, with power dispersed between two entities with only a weak central state. The status of Kosovo, which declared independence on 17 February 2008, but which remains subject to United Nations Security Council (UNSC) Resolution 1244, is also far from clear. Throughout the region, then, a process of state-building remains unfinished, there are simmering territorial disputes and many contiguous minorities living in one state but with an affiliation to another. Normal social policy is complex in the context of disrupted governance arrangements and the existence of what have been termed parallel power networks (Solioz, 2005; 80) based on the interweaving of formal and informal social practices and a circularity of elites in politics, business, and in some cases, in organised crime, working through patronage. The complexity of governance arrangements is reflected in, and indeed compounded by, the somewhat uneven relationship of different countries to EU membership. The Thessaloniki summit in June 2003 reinforced the European perspective of the Western Balkans, with support for membership in the future, and a clear package of financial assistance (European Commission, 2003). At the current time, Croatia is in the middle of negotiations and has a realistic chance of membership in 2011 or 2012, the former Yugoslav Republic of Macedonia has candidate status but, as yet, no membership negotiations, and Albania, Montenegro and, most recently Bosnia-Herzegovina and Serbia have Stabilisation and Association Agreements in place. In December 2008, Montenegro submitted an application for membership. Kosovo has a special EU partnership in place. The latest Enlargement strategy report from the Commission suggests: The year ahead will be a crucial one in addressing challenges in the Western Balkans. The progress of the Western Balkan countries towards EU membership can be accelerated, provided they meet the necessary conditions. Croatia is expected to reach the final phase of accession negotiations by the end of 2009 if it has taken the necessary preparatory steps. Further reforms in the former Yugoslav Republic of Macedonia will bring the country closer to the EU. For the potential candidates, progress could result in candidate status when they have demonstrated their readiness. (European Commission, 2008; 2-3) The World Governance Indicators project aggregates information from diverse sources into six broad indicators: Voice and Accountability; Political Stability; Government Effectiveness; 2

14 Regulatory Quality; Rule of Law; and Control of Corruption. The scores for the countries and territories of the region, plus Bulgaria, Croatia, the former Yugoslav Republic of Macedonia, and Romania are shown in Table 1:1 in the annex, together with an average overall governance score. Whilst such indices can be questioned methodologically, they show the extent of the gap in terms of governance between, particularly, Albania, Bosnia-Herzegovina, Kosovo and Serbia when compared with Slovenia, Croatia and Bulgaria. Importantly, all have negative indices for Control of Corruption, except for Slovenia. Notwithstanding the important contribution made by international agencies in social policy throughout the region and the, at times, dominant role played by these agencies in Kosovo and Bosnia-Herzegovina, one of the key preconditions for sustainable social policies is the existence of state capacity. The various ways in which state-building remains incomplete in the region is captured by the Fund for Peace s Failed States Index for 2007 which ranks 177 countries (Kosovo is not included) along a number of social, economic and political indicators. (Table 1:2). Again, Slovenia stands out as a stable state a long way ahead of two groupings: Bulgaria, Croatia, Montenegro and Romania which have elements of state stability; and Albania, Bosnia-Herzegovina, Macedonia and Serbia which have a number of elements associated with failed states. In a sense, it is the accumulation of governance problems which is significant, eroding the capacity of central and local state agencies to guarantee security and to secure equal access to social and other fundamental rights. The concept of state-building is in danger of technicising the complex social and political engineering which is being attempted in parts of the region. The unfinished nature of this, not least in terms of processes within Bosnia- Herzegovina and the status of Kosovo, are also important factors which need to be addressed within a frame which links social policy with other discourses, notably security, refugee return, and democratisation (Deacon and Stubbs, 2007). Whilst it is true, as the International Commission on the Balkans commented in 2005, that the EU only has the capacity to absorb reasonably functioning and legitimate states, it is too harsh to suggest that there are no more of these left in the region (ICB, 2005; 8-9). Still, the EU s relationship to much of the region is dominated by geo-political, reconstruction and capacity building imperatives. This means that the social dimension of association, accession and membership is sometimes not given sufficient attention although since the European Council meeting in Thessaloniki and the EU - Western Balkan summit in June 2003, there has been sustained EU commitment to viewing the region in a European perspective and to further strengthening the privileged relations between the EU and the Western Balkans (Council of the European Union, 2003). The lack of attention to social policy questions is mirrored by regional initiatives such as the Stability Pact and the new Regional Co-operation Council (RCC) (Stubbs, 2008; Deacon, Lendvai and Stubbs, 2007). 1.3 Main Macro-Economic and Fiscal Trends There is some limited data available through EUROSTAT on macro-economic trends in the region. Since 2005, Eurostat Unit E4 has collaborated with the National Statistical Institutes in the region to gather a range of data. In 2006, a Pocketbook was produced containing key data and trends up to 2003/4 (EUROSTAT, 2006). Subsequently, the Eurostat web site has some statistics up to and including In 2008, a new Pocketbook was produced with data up to 2006 (EUROSTAT, 2008). Kosovo Under UNSC 1244 is included separately although, for some data, Serbia and Montenegro are considered together. GDP per capita data for 2001 and 2006 are included in Table 1:3 in the Annex. It shows countries and territories which, with the exception of Croatia, have per capita GDP of only between 4% and 15% of the EU- 3

15 27, although this understates their relative weight if the data were expressed in PPS. In addition, the grey economy is not included in the potential candidate countries GDP figures. Table 1:4 uses World Bank data to show that the countries have had significant growth, particularly in the last few years, but also fairly high levels of government expenditure and of external debt. Figure 1:1 using UNICEF TransMONEE data, shows that the economies of most of the countries of the region did not recover to pre-1991 levels until the late 1990s at the earliest, with the former Yugoslav Republic of Macedonia and, perhaps also Serbia and Bosnia and Herzegovina, only now reaching 1991 levels. The Candidate and Pre-Accession Countries Economies Quarterly produced by DG ECFIN Unit D-1 is a very useful source of economic data on the region, including updated forecasts for the candidate countries. Data from the 2 nd quarter of 2008 report, published in July 2008, give a clear picture of trends in the region on a number of key indicators, compiled together as Table 1:5 in the Annex. They show a pattern of consistent GDP growth in the last five years, uneven current account and general government deficits and, perhaps most worryingly, recent high inflation which, in part, been caused by higher import costs as a result of increased oil prices. Inflation rates for April and May 2008 show double digit inflation in Kosovo, Macedonia and Serbia and significant increases elsewhere. The ability of the Western Balkans economies to limit the effects of the global economic crisis may, already, lead to the need to revise downwards growth projections, a point we return to in the conclusions to this chapter. The 3 rd quarter 2008 report hints at this, stating that the international financial crisis has had only a limited impact on the economy and the financial sector at least up to the second quarter of However, the significant widening of the current account deficit experienced by most countries raises the vulnerability to external shocks and is a source of concern as both external credit and FDI inflows are likely to slow as a result of the global financial crisis. (European Commission DG ECFIN 2008b; 3) In terms of the structure of the economy, most of the countries in the region still generate a high proportion of value added through agriculture, forestry and fishing although this has declined in recent years with a greater proportion of value added contributed by services and, to a lesser extent, industry and construction (Table 1:6) figures suggest that the proportion of agriculture and services is as follows: EU-27 2% - 72%; Croatia 7% - 62%; Bosnia and Herzegovina 10% - 46%; Macedonia 12% - 58%; Montenegro (2004 figures) 12% - 55%; Serbia 13% - 40%; and Albania (2005 figures) 21% - 58% (Eurostat 2008a). In terms of structures of revenue and expenditure, commitments regarding 2007 can be found in the Commission s assessment of the Economic and Fiscal Programmes (EFPs) submitted by prospective candidate countries which were submitted by Albania, Bosnia-Herzegovina, Montenegro and Serbia in December Kosovo was not asked to submit an EFP but a similar exercise is undertaken in Kosovo s recent Medium-term Expenditure Framework (Government of Kosovo, 2008). Table 1:7 summarises revenues and expenditure with only limited data for Kosovo and Montenegro. In addition, it is noteworthy that the Western Balkans is attracting significant Foreign Direct Investment (FDI), mainly due to privatisation although a recent paper suggests that the FDI:GDP ratio will drop from 10.5% in 2006 to 8,6% in 2007 covering on average only 60% of current account deficit, being much lower in Albania, Bosnia and Herzegovina, and Kosovo (Koro, 2007; 2). The author notes a deteriorating fiscal situation driven by increasing 4

16 budgetary expenditures, although all countries are within the limits of Maastricht criteria budget deficits and general government indebtedness. 1.4 Labour Market Trends Labour market trends are difficult to capture fully in a region where there are large informal economies and significant migration patterns (ETF, 2007). Employment levels overall appear to be stagnating well below the EU average, with economic growth not translated fully into rising employment ratios, although the latest Labour Force Survey (LFS) data, albeit before the economic crisis, is showing the beginnings of some small increase in employment in the region. Employment ratios are particularly low for young people aged 15-24, and there are considerable gender differences, with employment ratios for women significantly below those for men. Activity rates are lower than those for the EU and, with the exception of Albania, unemployment rates significantly higher. Crucially, the ETF report cautions against reliance on official data, noting that standard labour market indicators do not seem to be sufficiently informative in describing the functioning and performance of labour markets (ETF, 2007; 10) because of vastly different quality of jobs, and the rise of informal, unstable and precarious employment such that many people have developed lifestyle and survival strategies which involve switching between multiple employment statuses which are not capable of being captured by Labour Force Survey (LFS) data. In the case of much of the Western Balkans, then, high levels of labour market mobility is more a consequence of these factors than an indication of a well functioning labour market, with large flows between formal and informal labour market statuses. The report notes the existence of three unstable labour market statuses: those in informal agricultural employment, often a buffer for those who cannot find formal employment; the unemployed, and others consisting mainly of so-called discouraged workers who are not classified as unemployed or studying. Overall, then, the suggestion, backed up by some data from Albania and Bosnia and Herzegovina, suggest low levels of labour market attachment, with only a minority of the working age population regularly employed in a non-precarious job. What appears to be happening as a result of uneven restructuring is the multiplication of labour markets and the hardening of disincentives to mobility between them. A process of deindustrialisation is occurring alongside a lack of progress in terms of restructuring of some state owned enterprises, and the expansion of a low-skill, low value added SME sector (ETF, 2007; 8). The report points to a division between high skilled transition in Croatia and, to an extent they argue, Serbia, and a low-skill development path elsewhere. Table 1.8 shows key labour market data from the latest available Eurostat databases complemented by 2007 ECFIN data for total Unemployment rate. Using administrative data, Table 1.9 shows how activity rates remain low throughout the region, particularly for women. Table 1.10 shows nominal monthly wages and changes over time. A recent report for the World Bank has calculated average total labour costs in 4 Western Balkans countries, including, separately, for the two entities in Bosnia and Herzegovina. Total labour costs range from 370 EURO per month in Macedonia to 523 EURO per month in FBiH, with BiH-RS (at 406 EURO); Montenegro (438 EURO) and Serbia (445 EURO) close to the unweighted average of 436 EURO (Arandarenko et al 2008). The report also compiles a table on minimum wage rules with minimum wage legislation in all the countries surveyed (in Macedonia only in the public sector) ranging from 52 EURO in Montenegro, or 20% of average net wage, to EURO in BiH-FBiH or 55% of average net wage. Elsewhere in Albania, BiH-RS, Macedonia and Serbia, the minimum wage is around 40% of average net wage (ibid; 41). 5

17 Table 1.10 shows the distribution of employment between different sectors of the economy based on LFS data. The Albanian LFS uses a slightly different classification, so that it is hard to compare directly, although the 2007 LFS shows that 85% of employment is in the private sector, including 47% in agriculture (Albania SPSI report). Throughout the region, agriculture remains important in terms of employment, although its importance is decreasing. There is evidence that the share of flexible forms of employment is rapidly increasing, in particular temporary employment, especially for young workers, older workers, women with small children, unskilled workers, migrant workers and other vulnerable groups. In Croatia its share grew from 10% to 13% and in the former Yugoslav Republic of Macedonia from 10% to 18%, combined with a shortening of the average duration of fixed-term contracts (Nesporova, 2008). In the Western Balkans self-employment is a declining tendency in Macedonia from 13% in 1997 to 10.9% in 2006, in Croatia from 21.1% in 1998 to 18.3% in 2006 (ibid). She notes that agency work is on the increase although still very low. In addition, the incidence of part-time employment remains low below 10% in most of the region - due to its unpopularity among employers and workers, and is about half that of the EU-15. This all points to a deepening of labour market segmentation, with core male workers between 30 and 45 years of age relatively well protected, and others without contracts or with temporary contracts having little or no social security entitlements. Whilst overall job tenure has increased, Nesporova points out that the proportion of tenures under 1 year and over 10 years have both increased. Labour turnover has declined since 2000, indicating a certain stabilisation of national labour markets after a period of extensive enterprise restructuring in the crisis years of the 1990s. The latest Eurostat pocketbook provides updates of labour market statistics with some improvement in overall employment rates (% of population in employment) but still with Croatia at 55.6% the only country close to an EU-27 rate of 64.4%. The others are: Serbia 49.9%; Albania (2005 data) 49.7%; Macedonia 39.6%; Bosnia-Herzegovina 35.0%; Montenegro (2005 data) 34.8%; and Kosovo 28.7% (Eurostat, 2008; 31). Some improvements in the overall employment rate of older workers, aged 55-64, can also be noted but again rates are well below the EU-27 for 2006 at 43.5%, with Croatia at 34.3%; Macedonia 27.9%; Bosnia-Herzegovina 30.6%, Serbia 32.6% and Kosovo (2005 data) 25.2% (ibid; 35). In terms of labour market reforms, it is possible to trace a broad reform model of flexibilisation although, even here, the process has been uneven and far from a fundamental shift from welfare to workfare (Bornarova et al, 2007). There has certainly been reform of legislation, with support from international organisations, in terms of flexibilising labour laws and introducing active labour market programmes encouraged time and again by the World Bank across the region (Arandarenko, 2004; 41). There has also been some alternative advice, notably from the ILO and, crucially, the impacts of policies has been much less than was expected or advertised. Labour market institutions, well established in the region, have proven hard to reform. Increasingly, an agenda on those who are hard to reach has led to a focus on active labour market programmes although, overall, expenditures on such programmes have been extremely limited and evidence of improving employability sparse. The ETF report emphasises the key challenge in terms of developing inclusive, secure and flexible labour markets, promoting a model of flexicurity which has been seen by some as oxymoronic (Arandarenko, 2004; 49). Nevertheless, the importance of complementing traditional labour market policies with social protection, supply side policies and the development of human capital is clearly important, albeit hindered by the limited role of social partners, weak administrative capacity and the absence of policy co-ordination. 6

18 1.4.1 A Note on Informality There is general agreement that the informal economy is quite extensive in the Western Balkans although definitions, methods of calculation and estimates vary considerably. An early paper by Christie and Holzner (2004) using 2001 data provided figures for undeclared household income as a share of GDP which, as they are careful to point out, is not equivalent to so-called missing GDP. Rates ranged from 18% in Croatia, through 19% in Serbia and 21% in BiH, all below the estimate for the 8 post-communist NMS who joined the EU in 2004, Montenegro 27%, Bulgaria 34%, the former Yugoslav Republic of Macedonia 39%, Kosovo 45%, Romania 46% and Albania 52%, revised to 38% in a more recent paper (Christie and Holzner 2005). A recent study on Kosovo using the same methodology, now estimates Kosovo s informal economy at between 27% and 35% of GDP (EAR 2007). In a revised version of the methodology, the original authors found Croatia s concealed consumption to be only 11.1% of GDP, the lowest in Europe (Christie and Holzner, 2006). A recent OECD study on the Black Sea economies shows estimates of the informal economy as a % of GDP rising from 1999/2000 to 2002/3 for both Albania (from 33.4% to 35.3%) and for Serbia and Montenegro (from 36.4% to 39.1%) (OECD Development Centre, 2008; 68). There is general agreement that the informal economy probably accounts for between 25% and 35% of GDP in the Western Balkans (ETF, 2007; 23), above the EU average, around the level of Italy, and below the levels in Bulgaria and Romania. A World Bank report, using LSMS data for 2004, suggests that 76% of all employment in Albania was informal, some 69% of which is agricultural employment and the rest is split somewhat equally between waged informal work and self-employment in non-agriculture (World Bank, 2006; 63). Arandarenko et al (2008) use this figure of 75% and compare it with similar figures derived from the LFS for Bosnia and Herzegovina (42%), the former Yugoslav Republic of Macedonia (32%), Montenegro (27%) and Serbia (43%). As they note: (F)ormality and informality in the region typically appear not as a binary choice, but rather along a spectrum of statuses, from full informality through semi-formality (agricultural employment; self-employment; double payrolls in many, especially small, private firms), to full formality seen most typically in the public sector. (Arandarenko et al, 2008; 11). Crucially, little is known about coping strategies at the individual household level and the ways in which these may erode human capital with concomitant results on entry to the labour market in the future. The OECD report on the Black Sea region discusses the erosion of savings and assets which often occurs in non-insured households during an economic downturn, and the resorting to subsistence agriculture (OECD Development Centre, 2008; ch 6). In addition, friendship and social networks as a source of support are stretched at the very time when they are most needed and, as formal credit sources are unavailable, many resort to loan sharks which further increases insecurity. The following statement is, it would seem, no less applicable to the Western Balkans: The adoption of specific household coping mechanisms has different impacts on different socio-economic groups. They can induce changes in gender roles within households and societies. They also have implications for spatial inequalities, notably widening the ruralurban divide, and on enhancing ethnic division. As different socio-economic groups adopt different coping mechanisms, these actions could affect the opportunities available to vulnerable and marginalised groups, such as the elderly and children. (OECD Development Centre, 2008; 108) 7

19 1.5 Demographic Trends Natural population trends are towards ageing populations throughout the region except for Albania and Kosovo. Key demographic indicators are compiled based on Eurostat data for 2006 in Table 1.12 below. Whilst Kosovo and Albania have higher dependency ratios currently, they also have higher populations under 15 than the other countries of the region. Hence, population projections are more favourable, in some ways, for these countries and territories, although even Albania is beginning to show the first signs of an ageing population and both have high levels of out-migration amongst the active population. Figure 1.2 shows World Bank estimates of the proportion of urban to rural populations in a number of countries in All the countries and territories of the region have experienced significant urbanisation in recent years, with the population of the major cities rising considerably. Figure 1:3 shows estimates of population density in the region, although the cut off points diverge from the 150 inhabitants per km 2. In terms of forecasts, using the 2006 revisions from the United Nations Population Division and the medium variant (Table 1.13), only Albania is expected to have a higher population in 2050 compared to The figure for Serbia includes Kosovo and is, therefore, somewhat misleading. The population of Bosnia and Herzegovina is expected to fall by almost 20% in this period and that of Croatia by 18.5%. It should be borne in mind that the latest EUROSTAT projections for 2006 see the EU-27 as growing only by 2.1% from 2008, with an old age dependency ratio by 2060 of 53.5% (Eurostat 2008b) Migration and Remittances The countries of the Western Balkans, except for Albania, were countries of migration before the 1990s, with guest workers working in many Western European countries and a large diaspora spread throughout the world. There was significant labour migration, also, from the poorer to the wealthier republics of former Yugoslavia. In the period of the wars between 1991 and 1995 and during the crises of 1999 in Serbia and Kosovo, there was large scale forced migration with significant refugee and displaced populations. Subsequently, patterns of return and resettlement further complicated the picture. A true understanding of migration trends, therefore, need to move beyond aggregated data to look at the profile of migrants, the time of their migration, and the underlying cause. The IOM Migration profiles produced in late 2007, give the most complete picture of migration in 2006, using mainly UN, World Bank and official in-country data. All the countries in the region have considerably more emigrants (out-migration) than immigrants (in-migration) in their total population. This reaches as high as 38% of the Bosnian population, 27.5% of the Albanian population, 18% of the Croatian population and 16% of the population of the former Yugoslav republic of Macedonia. The emigration rate of the tertiary educated is also high throughout the region, reaching 28.6% in Bosnia and Herzegovina and around 20% of the population of Albania and the former Yugoslav Republic of Macedonia. Data on remittances are also contested and complex, with the latest World Bank figures still including Serbia, Montenegro and Kosovo together figures show net incoming remittances reaching 16.5% of GDP in Bosnia-Herzegovina, 14.6% of GDP in Albania and 13.8% of GDP in Serbia and Montenegro. In terms of 2007 estimates, this makes them the 15 th, 16 th and 18 th highest remittance receiving countries in the world. Figures for the former Yugoslav Republic of Macedonia and Croatia are much lower at 4.0% and 2.3% respectively. 8

20 It seems that in Montenegro, remittances currently account for some 7% of GDP and in Kosovo 13% of GDP (SPSI Country reports). New figures available for Croatia and Albania for 2007 show higher rates, increasing incoming remittances by, respectively, 45% and 9%. (World Bank, 2008). In all cases, these are under-estimates as they record only remittances sent through official channels. Taking migration as a key theme, it is apparent that younger and more skilled persons are increasingly likely to migrate, in part at least a recognition of the lack of opportunities in the formal labour market. The failure of social protection systems to respond to this phenomenon is particularly marked, in terms of channelling remittances, accumulating insurance-based contributions, allowing for portability of benefits, and in terms of advice regarding return to the domestic labour market A Note on Refugees and Displaced Persons UNHCR estimates as at 1 July 2007 were that there were some 500,183 Refugees and Internally Displaced persons in the Western Balkans, including the former Yugoslav Republic of Macedonia. 382,163 were Internally Displaced Persons of one kind or another, although this is complicated by the independence of Montenegro and the stated independence of Kosovo which means that IDPs have a more contested status there. The breakdown by country and the origin of refugees is shown in Table 1.14 in the Annex. These figures also need to be treated with caution and, in themselves, fail to provide a clear picture of forced migration in the region. Crucially, the figures do not include persons from the region who are refugees or asylum seekers in other countries. Secondly, many displaced persons have been granted citizenship in the country to which they migrated. Thirdly, many people have established permanent residence away from their town or village where they were residing at the time of the conflicts and are, therefore, no longer classified as an IDP. As a UNDP study (2006) points out, thousands of families have faced multiple displacements, adding to vulnerability. In these contexts even return can be a process linked with vulnerability and exclusion (UNDP, 2006; 69). 1.6 Educational Systems Significant gains were made in both educational systems and outcomes in the former Yugoslavia and in Albania, after the Second World War. Under socialism, the educational system was formally free, and involved compulsory schooling from ages 6 to 7 to up to 14 or 15 in primary schools, with the first four years offering general studies and the second four years individually taught subjects and optional secondary education either in academic schools (gymnasia) or in vocational/technical education. Pre-school provision was widely available, although regionally quite varied, with facilities for infants up to 3 years of age linked to workplaces and more offering care to enable women to return to work than having any educational function. Kindergartens existed for children aged from 3 to school age. Higher education expanded also in this period. By 1981, in SFRY, illiteracy rates had fallen to 9.5% of the population, from 25.4% in 1948, albeit with some regional differences, ranging from 0.% in Slovenia and 5.6% in Croatia to 14.5% in Bosnia and Herzegovina and 17.6% in Kosovo. The proportion attending high schools rose in the same period from 0.6% to 5.6%, with much smaller regional variations (SFRY 1985). Critiques of education in Yugoslavia as perpetuating inequalities led to controversial reforms in 1980 which abolished the classical gymnasium but these reforms proved unpopular and were revoked in

21 By the end of the 1980s, educational systems were in real need of investment and modernisation. Instead war, economic crisis and the social costs of transition resulted in destruction of considerable education infrastructure and a decade of chronic underinvestment, leading to lower standards, increased inequalities in terms of access, and some erosion of near universal access. In parts of the region, the curriculum became a site of ideological reform and the education of minorities and of vulnerable groups was not a priority Pre-School provision Rates of pre-school enrolment were lower in the former Yugoslavia and in Albania compared to the former Soviet Union and elsewhere in Central and eastern Europe, prior to transition. Based on UNICEF TransMONEE data which does not include Kosovo and which does not separate Serbia and Montenegro, rates of enrolment have improved throughout the region except in Bosnia and Herzegovina were they are reported to be extremely low. Levels fell throughout the region in the context of war and crisis but have risen subsequently. Crucially, aggregate figures, in all cases, mask significant differences by income quintiles and in terms of rates in urban areas being significantly higher than in rural areas. The head start in terms of development which pre-school education is widely agreed to provide is enjoyed by only a minority of children in all the countries of the region (Table 1.15). In Albania, the urban-rural difference is high, 48.2% to 34.7%, with a 24 bps difference between rich and poor households (Albania SPSI study). Rates in Kosovo are reported to be as low as 10% of 3-6 year olds (Kosovo SPSI Study). The most recent TransMONEE figures show rates of enrolment of 0-2 year olds for Croatia (14.0%), Montenegro (11.7%); Serbia (10.2%) and Macedonia (5.4%) (UNICEF ICDC 2008) Primary and Lower Secondary Education After some falls as a result of wars and crises, enrolment in primary and in most of the region lower secondary education is over 90%, with primary enrolment in terms of gross ratios reaching 98.4% in Macedonia, 94.5% in Croatia, 90.8% in Bosnia and Herzegovina, and 90.6% in Albania in 2005 (UNICEF TransMONEE 2007 database). There is a very significant drop-out, however, after compulsory schooling ends with only 15.3% of year olds enrolling in upper secondary education in Bosnia and Herzegovina. Figures for Macedonia and Croatia are 29% and 23.4% respectively. Albania leads the way with a gross enrolment rate of 47.3% /ibid). Micro data for Albania show that school attendance, as opposed to enrolment, is highly influenced by income quintile and in terms of urban-rural differences (UNICEF 2006; 52). There is a consistent picture of problems for Roma children and children with disabilities in terms of enrolling and completing primary education. In terms of secondary education, issues of rural-urban differences and of poverty seem more pronounced. All the SPSI reports point to problems in terms of educational infrastructure, low motivation of teachers and high turnover rates, and the need in some urban centres to have two- or three-shift schooling. The Bosnia and Herzegovina report emphasises the problems of divided and segregated schooling for different ethnic groups. There have been many attempts throughout the region at reform of basic education, involving the introduction of 9 years of compulsory education, the right for private schools to exist, and a number of curriculum changes, as well as attempts at decentralisation and the introduction of quality standards. Nevertheless, as noted below and in chapter 6, the issue of consistent 10

22 investment in educational infrastructure, in reform to meet the needs of a modern economy and, in particular, in improving educational opportunities for vulnerable groups, will be necessary in order to promote social inclusion in the medium- and long-term Tertiary and Vocational Education Throughout the region, the numbers attending tertiary education has increased in the last fifteen years. In Albania there has been a four fold increase from 22,705 students in higher education in 1991/2 to 86,902 in 2007, some 60% of whom are women. The major problem in Albania is high drop out at the upper secondary level as young people leave to enter the labour market or migrate. There is also a strong male dominance in vocational education where 66% of the students are male (Albania SPSI Report). In Bosnia and Herzegovina figures are not reliable since there has been no census since 1991, but there seems to be some 6.5% of the working age population in tertiary education in 2007, compared to only 4% in 1991, with males outnumbering females (7.6% compared to 5.4%) but with the gap declining (BiH SPSI Report). In Montenegro according to the 2003 census, 7.5% of the population were university educated compared to only 5% in 1991, with a further 5.1% having some other tertiary education (Montenegro SPSI report).serbia reports that only 4.4% of year olds had completed tertiary education but this figure is low as some were still studying, of course. More worryingly, only 0.3% of the Roma population are reported to have high school or tertiary education experience (Serbia SPSI Report). The Kosovo report states that there has been a 31.2% increase in higher education enrolment from 1999 to 2004 (Kosovo SPSI Report). Using the TransMONEE database, a recent ETF report shows participation rates for year olds in higher education (Table 1.16), and finds that all the Western Balkan countries lag some way behind Bulgaria and Romania and are very far behind Slovenia. The Western Balkan countries have expended higher education but at a much slower rate in the last few years, compared to the NMS countries. The report cautions that the definition of higher education varies considerably so that the table is more useful for showing changes over time in individual countries than for strict comparisons, however. An ETF report suggests that there remains a gap between reform intentions, legislative changes and real change on the ground (ETF, 2007; 85). It points to continued lack of attention to adult and continuing education and to careers guidance. Education and training is still slow to respond to the new competences required in the labour market. Vocational education based on traditional skills is over-loaded at the start of secondary education, with too little attention to post-secondary and higher educational vocational training. This reinforces a mismatch between supply and demand and locks in too many young people into inappropriate vocational education. There are problems of governance in terms of finding the appropriate scale and level of decentralisation of vocational training and poor co-ordination between Ministries and with social partners. There is still only limited attention to vulnerable groups in terms of equity considerations, made worse by financing initiatives which reinforce regional inequalities and rely on increased marketisation Educational Expenditures and Attainment Public expenditures on education as a percentage of GDP tend to be below the EU average, with Eurostat data suggesting a range from 3.2% in Albania, through to 4.6% in Montenegro (Eurostat, 2008). These are similar to data from the World Bank for average expenditures between 1996 and 2002 (World Bank, 2006), such that underinvestment in education in 11