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Employment policy disappoints markets

Spurred by Slovakia's soaring unemployment rate, which at 17.7% is the highest in central Europe, the cabinet approved a two-year plan on November 24 which aims to lower the number of jobless citizens, especially those under age 29, and clamp down on illegal work.
Analysts, however, were not impressed by the effort, saying that the plan falls short of providing a long-term solution for Slovakia's unemployment woes. Unemployment in the neighbouring Czech Republic in 1998 was almost 10% lower, at 6.5%, while in Hungary the jobless rate was 7.8% and 10.6% in Poland.

Spurred by Slovakia's soaring unemployment rate, which at 17.7% is the highest in central Europe, the cabinet approved a two-year plan on November 24 which aims to lower the number of jobless citizens, especially those under age 29, and clamp down on illegal work.

Analysts, however, were not impressed by the effort, saying that the plan falls short of providing a long-term solution for Slovakia's unemployment woes. Unemployment in the neighbouring Czech Republic in 1998 was almost 10% lower, at 6.5%, while in Hungary the jobless rate was 7.8% and 10.6% in Poland.

According to the plan, the government will form special teams of advisors at regional labour offices who will guide jobless young people in their search for a career. The plan also calls for the 'long-term umemployed' (people out of work for more than one year) to do public service work in return for their welfare cheques. Lastly, the state wants to make tax audits of companies more effective to lower the number of people working illegally on the side while they collect unemployment benefits.

Reactions to the government's proposal have been cool. "We expected more from this proposal," said Juraj Ševcech, the legal advisor to the Confederation of Trade Unions (KOZ), a national labour umbrella group.

"I would characterize this proposal as an attempt to boil water and call it soup," said Martin Barto, the director of strategy at the state-owned bank Slovenská Sporiteľňa.

According to Barto, the missing ingredients in the plan are incentives for foreign investment, a clear programme for the transformation of the economy by restructuring the business sector, and retraining programmes.

Bernardína Bodnárová, a sociologist with the Slovak Academy of Sciences, agreed that the key fault of the programme was its lack of re-training courses, which are a well-tried tool to decrease unemployment in many European countries. Bodnárová cited the case of a labour office in an eastern Slovak region which "could have placed several jobless people in firms." Although she would not give the name of the region, Bodnárová said the office had not been able to meet the demand "because none of these unemployed people had been re-trained."

Edita Bauerová, the Deputy Minister of Labour, blamed a lack of co-operation between government ministries, namely the Economy Ministry and the Finance Ministry, for stalling real progress on a solution to unemployment. "Former Swedish Prime Minister Olaf Palme once said that every minister is the minister of labour," she told The Slovak Spectator.

According to Bauerová, unemployment levels are closely tied to the development of the economy, which means that economic ministries must work closely to produce a common strategy. That co-ooperation hadn't occured on the employment concept, Ševcech said, adding that "the plan's three main goals, which are key for the entire conception, weren't even covered by financial sources."

Changing horses midstream

Critics of the new policy said that ineffective employment plans were nothing new in Slovakia, having their roots in a sea-change in labour market thinking in the mid-1990's. "Looking back at 1994 and 1995, employment policy was more active then nowadays," said Barto. "It was about re-training unemployed people and finding new jobs for them."

National Labour Office statistics bear out Barto's charges. In 1994, the government spent 3.6 billion crowns on its labour market policy, 53% of which went to active programmes and 47% to passive. By 1997, total spending had increased to 7.09 billion crowns, while the balance between active and passive measures had tilted to 44% and 56%, respectively. In 1998, fully 71% of the 7.77 billion crowns poured into labour programmes went into passive policies.

This increase in passive spending compensated for the government's failure to attack the root cause of unemployment - an unrestructured corporate sector and a lack of foreign investment. The sickness of the economy was reflected in an unusual statistic: although Slovak GDP grew over 34% in the 1994 to 1998 period, unemployment paradoxically increased from 10% to over 14%.

"That GDP growth was generated by economic sectors which didn't greatly influence the level of unemployment," said Ján Tóth, an equity analyst with Dutch investment bank ING Barings. He explained that small and medium-sized businesses, which influence the level of unemployment most dynamically, were running into increasing difficulties.

"The higher the level of unemployment was, the more accurately it reflected the true state of the economy," Tóth said.

Now that the Dzurinda government has announced plans to restructure the banking and corporate sectors, however, prospects for an eventual improvement in unemployment are in sight - if the government can be convinced to lower its spending on passive policies.

Barto calculated that the amount of money the government poured into Labour Offices and Social and Health Insurance companies in 1999 to pay unemployment benefits was about 8 billion Slovak crowns, or about 3.5% of the state budget expenditures. "That's really too much," Barto said, adding that generous benefits payments were demotivating people to search for work.

"At three or four thousand crowns a month, those who are unemployed can simply sit at home and occasionally find some illegal work to earn some extra money," Barto said. "They can earn as much money as an average worker in a company."

Barto reserved some praise for the programme, saying he thought the the plan addressed the most important problems to be solved. "When official figures say that more than 100,000 out of 500,000 unemployed in Slovakia work illegally, the government must do something about it," he said. But as far as the engagement of long-term unemployed in work-for-welfare activities was concerned, Barto said the government plan was somewhat naive. "Half of them will probably bring a doctor's note saying that they cannot work," he concluded.

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