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Anatomy of Georgia’s Labor Market

Economists always discuss various statistics to appraise economic state of a country. Besides gross domestic product (GDP) level, the unemployment level  is one of the statistical indicators that draws attention of economists and society.

Unemployment is a heavy burden on Georgian population and it leads to economic, psychological and social losses. According to various theories, a 1% growth in unemployment level results in about 2% reduction in GDP. Moreover, the Authorities lose revenues as a result of reduction of number of taxpayers. In developed countries and in some developing countries, expenditures grow more, because the Authorities have to pay higher compensations  for increased unemployment. There is a different situation in Georgia, because the Authorities do not pay any compensation for unemployment and unemployment burden is laid on only unemployed citizens. Their incomes shrink and skills and experience regress in the course of time. Moreover, unemployment reduces motivation for working.

Current Situation

According to all statistical and sociological inquiries in Georgia, unemployment problem is number one issue in the country. According to sociological survey conducted by NDI in May 2015, 67% of Georgian citizens consider a lack of job places to be a key problem, while according to the research, 66% consider themselves to be unemployed. According to national statistics service of Georgia, the year of 2009 recorded highest unemployment indicator (16.9%) and the lowest figure was recorded in 2015 (12%).

Therefore, it is important to clarify what makes such huge difference between official statistics and reports of sociological surveys on unemployment issues.

First of all, we should determine the essence of unemployment. A person is unemployed who cannot find a desirable job place with desirable salary. In Feudal system there was no unemployment in practice, because people did not have the right to reject job. If a person has no income, he/she has to leave for foreign countries or receive social allowance. Many countries issue high unemployment allowances and this factor competes with low-income job places too.

Perception of unemployment is a very important issue. Because of this reason, in most cases official statistics does not coincide with sociological surveys. For example, many people, who do not work at desirable place, consider themselves unemployed, including taxi drivers, land workers and so on. But the official statistics does not consider them as unemployed.

Employment in Numbers

Business sector’s turnover in the fourth quarter of 2016 rose by 15.3% year on year and marked 17.4 billion GEL. The business sector’s output indicator also grew to 8.8 billion GEL in the fourth quarter of 2016, up 20% year on year.

Ratio of major business in the reporting period made up 81%, medium business sector — 9.4% and small business sector — 9.6%.

A little different situation is met in case of total output: major business — 79%, medium sector — 11.3% and small business — 9.7%.

Value of goods and services purchased by enterprises marked 13 billion GEL, up 2.4% year on year, while sales of goods and services made up 8.1 billion GEL, up 11.7% year on year.

Averaged number of employees constituted 620 800 persons, up 6.2% year on year, including 40.7% women. Ratio of major business in total number of the employed marked 61.3%, medium — 16.6% and small business — 22.1%.

Total number of hired citizens made up 584.9 thousand persons, up 3.7%. Total personnel expenses constituted 1997.6 million GEL, up 12.2% year on year.

Monthly salaries marked 1130.4 GEL, up 85.8 GEL year on year, including women salaries marked 819 GEL, up 66.1 GEL. Averaged monthly salary due to size of enterprises is the following: major business — 1268.5 GEL, medium — 1110 GEL and small business — 646.6 GEL;

In the reporting period, trade (vehicles, household products and personal  things), processing industry and construction fields emerged  as leaders in terms of number of employees with 25.5%, 13.8% and 10.4% ratios, respectively.

However, considerable ratio in the structure is recorded for health and social assistance (10.3%), transport and communication (9.9%), real estate operations, leasing and  service companies (9.8%).

As to number of employees, this indicator is distributed due to regions in the following way: Tbilisi — 65.8%, Ajara — 9%, Imereti — 6.9%, Kvemo Kartli — 5.5%, Samegrelo-Zemo Svaneti — 3.6%.

Asymmetry of Methodology

If we analyze international methodology of unemployment statistics, we will see that Labor Statistics Bureau determines unemployment level that provides annual indicators for unemployment and other aspects of labor, such as types and duration of unemployment. Indicators are calculated through research of household economies (families). Inquiries are held every quarter and members of 15 and above age categories of about 3400 household economies are inquired.

Based on survey results, Labor Statistics Bureau includes each mature member of families in three categories: employed — persons, who spent a major part of the week at offices; unemployed — persons, who tried to find a job place over the past 4 weeks, but failed; Those unrelated to workforce — bodies, who do not belong to either of the previous groups (students, housewives, pensioners).

Bodies of 15 years old and above are considered unemployed if they have not worked for 7 days before the survey and if they have sought job place for the past 4 weeks, including agriculture sector workers, tutors, retailers and so on. If these persons have worked even an hour for seven days before the survey, they are considered employed, according to this methodology.

In general,  number of self-employed bodies exceed quantity of the employed in Georgia. Total number of the employed accounts for 1.7 million persons, including about 1 million persons are self-employed. That’s why a major part of population does not consider themselves as employed.

According to official methodology, 1.7 million persons have been employed in Georgia, of which 246 000 are unemployed. If we analyze number of job seekers on domestic market, we will conclude that not only 246 000 persons seek job places, but a major part of self-employed too. This signifies that new job places are created in Georgia, but this does not signify that the new job places are occupied by unemployed citizens. There is much probability that the mentioned new positions be occupied by self-employed bodies. Currently, a major part of employed citizens are self-employed, of which 59% work in agriculture sector, which creates 8% in GDP.

Structural Unemployment

In the course of time, changes take place in structure and technology of consumer demand, which, on their turn, change structure of joint demand for workforce. As a result of similar changes, demand for professions grows. In this case unemployment arises because workforce does not fully respond to new changes in structure of employment.

Access to finances does not represent a main obstacle for doing business in Georgia, but amorphous  system of crediting business sector by commercial banks is an important problem. For example, if we analyze loans issued by commercial banks, almost 60% of total loans are concentrated in trading sector that is not a main source of formal employment, while the major employer industry receives only 20% of total loan portfolio.

Noncompliance of workforce skills and experience to job places on the market is a key reason of structural unemployment. This especially concerns the former Soviet Republics, where values were revised and skills of workforce with Soviet education turned out inappropriate.

Inappropriately-educated workforce does not exist in only elder generations. Despite  reformation, education system still remains inefficient in bringing up future leaders, who would satisfy the modern market demands.

Over the past 25 years, after announcement of independence, the state has not carried out efficient reforms against structural unemployment in either education or labor relations field. All reforms and initiatives, including creation of employment agency, introduction of general skills and other standard methods in educational space or various preferences for socially unprotected citizens, represented not socially-oriented policy for long-term results, but for short-term antisocial target policy, where the Government assisted them who were granted the official status of the poor. Meanwhile, the remaining part of population had to  rely on families and market.

As to reasons of arising unemployment, naturally, these factors vary. Factional unemployment is one of the reasons, the moment, when people need time for finding desirable job. The second reason comes from structural unemployment, when there is small working place on the market and the number of job seekers exceed the supply. (Based on economic situation of our country, the demand for employment prevails the supply). The third reason is related to market power of trade unions that raise salaries above the balance level and labor supply becomes excessive. Finally, we can summarize and say that unemployment is an incorrect communication of factors.