Labour market

The need for an economic leap

Indicators 2001 2002 2003 2004 2005 2006*

Total population 3639,6 3631,5 3623,1 3612,9 3589,9 3581,1

Economically active population 1616,7 1615,0 1473,6 1432,5 1422,3 1357

Employed population 1499,0 1505,1 1356,5 1316,0 1318,7 1257,3

Number of wage earners 899,2 891,8 868,2 840,9 830,8 842,4

Unemployed according to ILO 117,7 109,9 117,1 116,5 103,7 99,9

Unemployed registered in employment

offi ces at the end of the year 27,6 24,0 19,7 21,0 21,7

Inactive population 2022,9 2016,5 2149,5 2180,3 1963,7 1576,0

Persons declared as working or searching for

employment abroad 172,0 231,3 291,0 345,3 394,5 310,0

Diagnosis

A constant decrease of the employment indicators on the labour market was ob-served during the past years. From 2000 to 2006, the number of active population has dropped from 1654 thousand to 1357 thou-sand people¹⁰⁴. Th e number of the employed population dropped from 1514 thousand to 1257, whereas the number of unemployed people, calculated by the ILO methodology dropped from 140 thousand to 100 thou-sand people (Table 7). Analyzing the rate of employment in the Republic of Moldova in comparison with other EU countries it can be noticed that it is a lot smaller – 45.4% as opposed to 63.3% European average, which points out again that both the functional-ity of the labour market and the qualfunctional-ity of economic growth of the past years were not very high.

Among the main factors that have de-termined the drop of employment indica-tors the following can be considered:

Demographic factor: Th e Republic of Mol-dova is facing a negative demographic balance and population aging (BIRTH AND DEATH RATE CRISIS section). Th e decrease of human potential has a major impact on the worsening of the employment indicators, impact that will become even more important in the future.

Labour force emigration (see EMIGRATION section): Th e main cause that fosters emigration is the lack of attractive employment

opportuni-ties on the national labour market. Th e shortage of well paid jobs, the low salary level, the pes-simistic perspectives of professional growth and low quality of life more and more motivate the able-bodied people to look for jobs outside the country.

Quality of economic growth: Th e analysis of GDP growth by the components of aggregate de-mand shows that GDP growth is mainly due to growth of fi nal consumption of households, ma-inly of those in rural areas (REAL ECONOMY).

Th e intensifi cation in 2006-2007 of gross capital formation is still not enough to ensure a sustai-nable economic growth. Such a model of econo-mic growth does not contribute to multiplicati-on of attractive and productive jobs.

Processes of structural modernization of the economy: Th e market relationships, which rely fi rstly on competitiveness and effi ciency, make the economic units minimize their production costs, hence optimizing the number of jobs at their enterprises. In particular, a constant drop in the number of jobs is observed in agriculture.

Th e salary increase from the past years is due to the modernization of economic market mecha-nism, contributing at the same time to a diminu-tion of the employment level.

Together with the drop of employment indicators, there have occurred signifi cant changes in the structure of employed popu-lation by age, sex, environment, activity fi eld, etc. Consequently, a signifi cant decrease in the share of population employed in the branches that cannot ensure a high work productivity is observed, and hence an in-crease in the salary income (primarily in ag-riculture). Signifi cant changes are observed in the structure of the employed population by age, meaning aging of human resources.

In most of the big companies the average age of the staff is close to the retirement age. Th e attempts of young persons with vocational studies to be employed in such companies usually fail. Th e owners are not willing to hire persons with no relevant experience, and the quality of formal education is oft en unacceptable (see VOCATIONAL EDU

CATION). Oft en young people cannot ac-cept the salaries the owners off er, and the persons close to retirement do not hurry to leave their job in favour of youth.

The need for an economic leap Th e structural modifi cations of

employ-ment as function of environemploy-ment are related to the process of depopulation of rural ar-eas (see DEMOGRAPHY: A LATENT THREAT and THE RURAL MOLDOVA).

Th e lack of opportunities of self employ-ment and the practically null attractiveness of the jobs available in rural areas makes the economically active population from rural areas, especially the young one, to choose to migrate to cities or out-migrate, hoping to have a slightly better life.

Risks

Th e worsening of employment indica-tors reveals the vulnerability of the national economy and social security system (see SOCIAL PROTECTION POLICIES). Th e decrease of employment level leads, on the one hand, to a growth of the economic de-pendence ratio, and on the other hand, to an exhaustion of the resources needed to ensure the functioning mechanism of social insurance and health care systems, these two closely depending on the salary income of the employed population.

Th e reduction of employment can have a negative infl uence on the quality of hu-man potential as well. Th e lack of employ-ment opportunities, the low level of salaries provided by available jobs makes the popu-lation practice additional activities that are not directly related to their specialty and qualifi cation. Th e people that go abroad for work also get unqualifi ed jobs. Such a situ-ation determines a massive loss of human potential qualifi cation that can aft erwards bring the Republic of Moldova to the status of underdeveloped country, and the invest-ments in human capital made by both the state and the population can convert into unjustifi ed expenses.

Another factor related to human capital degradation is the state ignoring the prob-lems that the educational system faces. Th e extremely low salaries of teachers have lead to a massive shortage of teaching staff in vocational schools. Th e educational off er of schools, as well as the equipment used to train specialists that hasn’t been changed for 15 years, cannot meet the labour market requirements (see EDUCATION). Many specialties and craft s off ered by vocational

schools are no longer required on the mar-ket. On the other side, there have appeared many craft s and specialties that are not in the lists of professions off ered by the voca-tional schools of the country. Th is creates the impression that vocational schools train jobless people, and not specialists. Most unemployed persons aged between 15-24 years have secondary vocational education (the people with secondary vocational stud-ies and secondary specialized education ac-count for 30.4% and 15.2% respectively of the total number of unemployed).

Unemployment cannot be considered a major problem of the labour market. Its low level is a distinctive peculiarity of the Mol-dovan labour market at the current stage.

Th erefore, promotion of a policy targeted at a continuous decrease of this phenomenon on the labour market is unjustifi ed. Th e problem is rather that of creating adequate professional reintegration conditions and services for the unemployed, as well as en-suring favourable conditions to creation of attractive jobs that would ensure a decent living for the potential workers and their families. Th e low salaries and imperfect functionality of the labour market worsen the employment indicators.

Governmental policies

Th e constant modifi cation of the mode and mechanisms of state intervention on the labour market is a peculiarity of the Moldo-van labour market. During the transition, along with changing the employment con-cept, the institutional framework and the employment and unemployed social protec-tion legislaprotec-tion has been modifi ed several times. On May 15, 2002, the Republic of Moldova approved the “Employment Strat-egy”, aiming at ensuring the functionality of the labour market. It mainly targeted at cre-ating favourable conditions for the forma-tion of supply and demand behaviours that are appropriate to a modern market econo-my. Th e competition environment underly-ing the market economy would allow ensur-ing an optimal level of employment, a sus-tainable growth of work productivity, and, hence, salary income of workers, and on the other side, it would allow to harness the ex-isting human capital as effi ciently as possi-ble. Although this strategy implementation

The need for an economic leap

term is not due yet, in 2007 a new employ-ment strategy was approved till 2015. Th e development of a new employment strategy, a more modern one, was determined by a severe deterioration of labour market situ-ation in the country, as well as by the new European integration goals.

Other regulatory acts and institutional documents, by which the Republic of Mol-dova policy on employment is promoted, are the employment programmes, developed for a 2-3 year term and mostly having an operational character. All the strategic and operational documents are in compliance with the market economy requirements, but they contain elements inherited from the pre-transition period. Th us, the old practice of naming the line ministries as responsible for creating jobs can be mentioned. Or, jobs are created in the real economy, and their quick creation depends on their economic justifi cation, not on the indication of minis-tries. In the same context, “motivating” big enterprises with or without state capital to create new jobs in order to accomplish the provisions of employment programmes and strategies is, also, irrelevant. Jobs are produc-tive and sustainable only when they provide the enterprise with a maximal profi t, and their creation with the purpose of strategy implementation diminishes the competi-tiveness of these enterprises.

Also the Government’s recently initiated attempts to “harmonize the education sys-tem with labour market requirements” are stark clumsy. Major investments or changes in the economic or trade policy can generate major changes in the employment structure of the labour market. For this reason, the at-tempts of “centralized” forecasting of long term developments of operational structure and, consequently, those of directive regula-tion of admission to secondary specialized and higher education institutions will not improve the situation of employment, but, on the contrary, can aggravate it. In a mar-ket economy – model to which the Repub-lic of Moldova also aspires, the correlation of the educational system with the labour market requirements, as well as the quality of educational services can be ensured only through measures and methods specifi c to a market economy, based on free action of market forces.

Recommendations

From the secondary character of the labour market it follows that an improvement of the employment situation can only be accomplished aft er the “recovery” of the real economy. Th e big enterprises, created in the period of centra-lized economy, that survived the transition, can no longer be the main source of available hu-man capital absorption and of creation of new lasting jobs. Th e future of modern economy is represented by the small adaptable businesses.

Th e employment level can increase not only by creating new jobs in the existing enterprises, but also by creating new modern and competitive enterprises and creating new goods and services markets.

An implementation of marketing researches on the labour market, correlated with consolidati-on of professiconsolidati-onal orientaticonsolidati-on and planning is necessary. In the conditions of an emerging and constantly changing market, the off er must be able to face these fl uctuations. Consequently, the job off er should be fl exible and able to quickly and effi ciently respond to all structural modifi -cations that can happen in the real economy, as well as on the labour market.

Rehabilitation of the professional orientation institute would lead to an optimization of costs related to formation of job off ers, a process that is regularly lasting and costly. Th e vocational training system must be fundamentally refor-med so that it puts accent not only on compre-hensive knowledge of narrow specialty subjects, but also on general skills, such as knowledge of foreign languages, PC, communication, etc.

A new concept of vocational education can es-sentially reduce the unemployment rate among young people, especially of those with seconda-ry specialized education. At the same time, the education system should not only educate young people into specialists willing to be employed, but to educate the spirit of initiative in them and to provide them with basic economic knowledge on how to start their own businesses.

In the situation when unemployment is not an essential problem, the employment policies sho-uld be targeted at improving general conditions and labour security, and stimulate owners to pay legally and raise the salaries.

The need for an economic leap During the past years, the amount and

role of technical assistance in the Repub-lic of Moldova has signifi cantly increased.

Some developments show an increased at-tention from external donors:

Opening of the European Commission Offi ce in Moldova at the end of 2005. Since January 1, 2007 the Republic of Moldova is directly nei-ghbouring the European Union and it is obvio-us that this made the EU interest in the further development of Moldova’s situation grow. At the same time, the new geographical proximity, con-current with the European orientation of the fo-reign policy, has increased the donors’ (not only EU’s) interest in stabilizing this region.

Approval of the new programme for Moldova by the International Monetary Fund, in May 2006. Th e memorandum with IMF was signed aft er fi ve years of lack of support from this insti-tution to the Republic of Moldova and indicated a mutual agreement on the development policies.

Increase in the assistance amount. Th e assistan-ce amount and the number of projects has conti-nuously increased during the past years (Table 8), as a result of the increasing interest in Moldova’s development from the donors’ community. Th e United States and European Union weigh hea-viest, refl ecting the economic power along with their signifi cant interest in this region.

Th e trend of the external aid growth is expected to maintain for the years to follow.

During 2007-2009, the technical and fi nan-cial assistance, provided to the Republic of Moldova can reach USD 1.2 billion, half of it as grants.

Normally, assistance should be provid-ed and various sectors should be supportprovid-ed in accordance with the priorities, estab-lished by the National Governments in their strategic documents. Th ere are three such documents in the Republic of Moldova: Th e Economic Growth and Poverty Reduction Strategy Paper (EGPRSP), Th e EU-Republic of Moldova Action Plan (EURMAP) and the Government Activity Plan for 2005-2009 – “Country’s Modernization – People’s Wel-fare”. Obviously, the existence of three stra-tegic documents does not make a favourable environment for coordination of foreign

as-sistance. Still, the assistance was provided mainly in accordance with the priorities of EGPRSP and EURMAP. Although the Na-tional Plan of Technical Assistance tries to incorporate the EGPRSP priorities and to connect them to the existing assistance proj-ects, this oft en leads to simple taking over the EGPRSP priorities, without ultimately fi nding the necessary funds. Such sectors like the public administration reform, ag-riculture and rural development, and social protection have benefi ted from large alloca-tions, while areas like research and innova-tion, industry or tourism have practically been ignored.

Since October 2005, the relationship be-tween the Moldovan Government and the donors’ community was coordinated at two levels. Th e “superior” coordination is car-ried out by the National Committee for ex-ternal assistance coordination under the First Deputy Prime Minister’s Offi ce. Th is Com-mittee is concerned with: (i) assuring a