Long-term unemployed are the main challenge

People who have been unemployed for a year or more still pose the main challenge to the government’s efforts to cope with high unemployment in Slovakia. But the solutions proposed by Labour Minister Ján Richter, who also led the department in the previous term, are not likely to bring about sustainable change, analysts say.

In its programme statement, the government declares its aim to push the unemployment rate below 10 percent, and to stimulate the economic growth and support existing projects in order to create 100,000 new jobs on the labour market. While analysts mostly consider the first aim not very ambitious, citing some statistics that show the unemployment rate in Slovakia already under 10 percent, they have their concerns about how the latter can be fulfilled.

To create so many jobs, it would mean for the government to employ 45 percent of today’s long-term unemployed, Michal Páleník from the Employment Institute (IZ) wrote in an open letter to the minister, calling such aims “unrealistic in the current setting”.

“We can reduce unemployment by methodical adjustments, with no real effect on people’s lives, however,” he wrote in the letter.

It is possible to create 100,000 jobs, as seen from the previous four years when about the same amount of people found employment, but most of them were short-term unemployed, Peter Goliaš of the Institute for Economic and Social Reforms (INEKO) think tank noted. He does not expect this to repeat in the coming term.

“The long-term unemployed dominate the labour market, their work habits are more difficult to restore,” Goliaš told The Slovak Spectator.

Long-term unemployed

According to the Labour, Social Affairs and Family Centre, about 70,000 of those presently unemployed have been for more than four years, while prior to the 2008 economic crisis it was only 50,000, according to Martin Vlachynský of the Institute of Economic and Social Studies (INESS) think tank.

The average length of unemployment grew from 13 months in 2010 to 16 months in 2015,” Vlachynský told The Slovak Spectator.

Based on the ministry’s data, there were about 165,000 people unemployed in Slovakia as of March 2016, and almost a third of them had completed only primary education. The programme statement came with several tools to employ these people, including the comeback of social enterprises that were first introduced by Smer’s former labour minister Viera Tomanová during the 2006-2010 term. The project was shelved after allegations of cronyism.

Sustainability concerns

Now the ministry claims it wants to create a favourable environment for social enterprises based on the time-proven European standards, such as positive discrimination in public procurement, or a combination of grants and soft loans, Veronika Husárová from the Labour Ministry told The Slovak Spectator.

“The aim is to have as many of them as possible to be self-sustainable, so that they won’t need public support after the initial period,” Husárová said.

Sustainability is however what analysts see as the main challenge with regard to the proposed measures. Directly created jobs cannot be sustainable in the long-term and fade when grants run out, Goliaš said.

“While we can see that it is not an effective tool, it can artificially push unemployment to low levels,” Goliaš said adding that this is what happens in Hungary where the government subsidises jobs of hundreds of thousands people.

To cope with long-term unemployment, the government wants to extend its support for less-developed regions. It is necessary to set up individual consulting, education and retraining for long-term unemployed according to the real needs of the labour market, Husárová said.

The government’s programme statement only repeats established tools such as supporting regions by investment stimuli and tax benefits for employers of graduates or long-term unemployed, INESS pointed out.

“Experience shows that such tools have a temporary nature,” Vlachynský told The Slovak Spectator.

Zuzana Kusá, a sociologist with the Slovak Academy of Sciences, highlighted the proposed debt refunding mechanisms that should allow low-income groups to get out of debt trap they might be caught in.

“The debt trap literally deprives low-income groups of any prospects for improvement of living conditions even if they find a job,” Kusá said.

What Kusá sees as a negative is that the government presented a plan to sanction those unemployed who refuse an appropriate job more than once.

Demographic challenges

Overall, Kusá considers the government’s targets as realistic since they lean on established tools that have been created and discussed for long enough in cooperation with social partners, civil society, and academia. Problems could arise with unfavourable development in EU countries where a large number of Slovaks live and work.

“Even if 100,000 new jobs are created, the potential return of merely one-third of students or workers from abroad would keep the unemployment rate above 10 percent,” Kusá said.

In March 2016, registered unemployment rate dropped to its seven-year minimum at 9.89 percent, while the general rate remained at 11.69 percent. This was mainly due to the economic growth and the government’s achievements in employing disadvantaged groups. The ministry reports that the number of jobless youngsters and graduates fell by one-third since April 2012.

Demographic development is however set to keep the unemployment rate over the 10-percent limit, according to Páleník. In the coming years, there will be 160,000 new retirees while the number of youngsters who will join the labour market will drop significantly.

“A significant part of the youngsters goes to study at foreign universities and another part lives in segregated settlements without opportunities for employment,” Páleník said.

Kusá pointed to the discrepancy between the 35,000 job vacancies and the more than 315,000 job seekers on Slovakia’s labour market.

“Until labour supply is not improved, any talk about unemployment structure only conceals the real problem,” Kusá said. People with low education lack more jobs, thought they are applicable as auxiliaries in service sectors such as tourism and care for nature, cities and households. Paying of such services is, however, problematic from the private as well as public pocket, Kusá said.

May the situation improve?

The Labour Ministry believes that the future of employment depends on the Slovak economy that is expected to grow at about 3 to 4 percent in next three years, according to the central bank.

Almost 75,000 new jobs could arise and unemployment rate could fall to before-crisis level 8.4 percent by the end of 2018, the ministry’s Husárová said.

Kusá underlined that the state representatives must smoothly draw resources from the Operational Programme Human Resources, carry out projects of individual assistance for long-term unemployed and improve quality of programmes in regions with the highest unemployment rate. Consistent realisation of the programme for waivering debts of the poorest groups will also play a role among other factors.

Vlachynský pointed out that it is essential to settle high admission costs, low market flexibility and differences in minimum wage.

An effective tool for higher employment can be lowering levy duties for people with low income including self-employed and part-time employees to help cut the cost of producing new low level jobs, Goliaš said.

“These people are frequently not willing to pay high levies and rather work illegally or draw social benefits,” Goliaš said.

Páleník suggests amendments in legislation concerning inclusive business and inclusive procurement, according to which municipalities and regions could have higher revenues from taxes of about 10 to 20 percent. This change could employ around 10,000 long-term unemployed already during the summer of 2016.

“But enforcement of tools to improve employment and enhance life is usually very demanding,” Páleník said.