MACRO NOTES

Joblessness in Slovakia - what is the current situation?

Unemployment is currently a hot topic of political debate in Slovakia. The previous and current governments promised that the unemployment rate would fall below 10% by the end of their terms. Neither government will accomplish such an aim.
The reasons behind the failure to meet the target is the lack of FDI-driven restructuring (restructuring from domestic sources is not an option, given available resources and know-how). We will tackle the issue of how to increase an economy's potential output (and decrease unemployment) next time. This column deals only with the current state of affairs.


Ján Tóth

Unemployment is currently a hot topic of political debate in Slovakia. The previous and current governments promised that the unemployment rate would fall below 10% by the end of their terms. Neither government will accomplish such an aim.

The reasons behind the failure to meet the target is the lack of FDI-driven restructuring (restructuring from domestic sources is not an option, given available resources and know-how). We will tackle the issue of how to increase an economy's potential output (and decrease unemployment) next time. This column deals only with the current state of affairs.

Three methodologies - only one is correct

Unemployment is defined as the percentage of those in the labour force who do not have jobs. The labour force definition precludes people who are not truly seeking a job, or are not able to accept a job if offered (ie. who require additional training, etc.). Unemployment is measured by two agencies in Slovakia - the National Labour Bureau (NLB) as well as the Statistical Office (SO). Since NLB numbers are available on a monthly basis, both the media and politicians pay attention to them, while the numbers produced by the SO receive little or no attention as they are available only on a quarterly basis with three months' delay. The problem is that the NLB numbers are wrong.

NLB reports registered unemployment, which is the number of people asking the NLB for money and claiming to be unemployed. Since there is a financial incentive in doing this, the number is potentially biased and represents more the maximum potential level of unemployment than the actual one. Since December 1997, the NLB has also reported figures for disposable unemployment, which takes into account those who are not ready to accept a job immediately if offered. Including disposable unemployment was a step forward in the accuracy in the NLB's calculations, and cut the unemployment rate by about 0.9%.

However, the financial incentive involved in this calculation is also a factor and, on average, the number has exceeded the SO's correct figure by 0.7%. This suggests that the difference between registered unemployment and the unemployment defined more properly by the SO has been as high as 1.6% (though recently the difference has shrunk somewhat).

The biggest advantage of NLB data is its timeliness (the latest available SO number is for Q300, while NLB data already shows figures for January). Should NLB data be used for analysis, we consider disposable unemployment as a more reasonable proxy for true unemployment rates.

The NLB reported registered unemployment at 20.8% and disposable unemployment at 19.8% in January. Before comparing the numbers, one has to adjust them for seasonality. Another adjustment needed is for the so-called public works scheme (we put people employed under the government's temporary public work scheme back into the unemployed figure). We call the adjusted rate core unemployment, and have plotted it in the following graph. The graph shows that while there was a stabilisation in unemployment for most of 2000, it showed a surprising pick-up in the last two months.


Ján Tóth is Chief Economist at Dutch investment bank ING Barings in Bratislava.

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