THE REPUBLIC’S LABOUR MARKET SUPPORT OFFICE

The very illustrative example could be also the experience of the Labor Market Support Office (LMSP) established by the Republic of Serbia.

Activities of that Office have been focused upon resolving the labor problems, providing certain support for the unemployed, helping them to get new job by financing professional reorientation, giving financial incentives to employers to employ new workers, and alike. The funds have been alimented from obligatory contributions charged from wages and salaries of all employees and its function has been to support the new employment of the unemployed.

In situation of total absence of any other development funds, this fund for a Conditions of

the MFB crediting

number of years during the 90-ies appeared to be practically the only Government-sponsored available source for financing SMEs. But generally, the functioning of the Labor Market Support Office, while definitely having some positive effects in financing the SME projects (certainly, rather modest - having in mind the needs), has also been facing lots of problems. According to the complaints, most often stressed by the authentic SME candidates for beneficiaries, the major problem concerned application of non-transparent criteria for project evaluation, as well as of the procedures for project selection, and hence, also of (the officially established) corruptive practices.

Largely due to these distortions in operation and funding activities of the Office the support has been often given to economically not viable projects.

Through the whole period of 90-ties, the Fund of the Republic’s Office for Labour Market has been practically the only one active fund for SMEs financing in Serbia. The Fund was introduced in 1994 and was relatively active (with the exception of a few months pause during the last political changes in Serbia) throughout the entire period since its establishment.

The Statutory Acts as well as the current reports of LMSP, have explicitly stated several goals as “priorities” that should be achieved in their activities.

Those are as follows:

• affirmation of the SMEs’ development philosophy and practice;

• supporting the development of a service sector;

• improvement of the existing profitable programs;

• restructuring of the existing SME production and labour, and

• supporting agricultural development.

The goals were (and still are) formulated in a rather descriptive and vague way: there are too many of them and it is not clear what the real (if any) priorities should be. However, by definition, i.e. by the very nature of its activities, the key targets of the LMSP and consequently of its financing of the SME programs were focused upon decreasing unemployment by the following two approaches:

• Employment increase through financing the employment programs in order to change the labour supply and demand structure in favor of professionally trained personnel (especially the young ones) for specific jobs.

• Solving the problem of structural unemployment by opening the new posts for the unemployed and redundant labour - via personnel training, vocational re-training and with a constant innovation of knowledge.

Conditions. The Fund has been releasing money in the form of grants: it is not supposed that it would have to be paid back.

Amounts. At this moment, the amount of DEM 600 - 1.800 is approved for each person, depending on the category:

1. Unemployed persons 18.000 dinars

per person

2. Unemployed parents 24.000 din. p.p.

3. Self-employment of founders 30.000 din. p.p.

4. Unemployment compensation beneficiaries 30.000 din. p.p.

5. Disabled persons 54.000 din. p.p.

Types of investment programs financing. There are two types of investment programs eligible for financing by LMSP fund: the first one is the self- employment programs and the other one concerns the programs for employment of disabled persons. In practice, the second refers to quite a specific situation and is relatively rare: out of 3.365 programs approved, only 75 (or 2.2% of the total number) refer to this type of programs.

In the year 2000, the Labour Market Office took part in financing of 3.365 investment programs, supposedly employing 10.761 persons, totaling 156.300.800 dinars (around DEM 5.2 million). For the year 2001, the plan is to employ 15.000 additional persons through new programs (Table 3).

The self-employment programs by financing SMEs. This type of program has been focused to help those people that are registered by Labour Office as unemployed (mostly the ex-employees of firms closed for any reason) - to get new jobs through the self-employment schemes. So, the programs financed by LMSP Fund are supposed to create new jobs for those people, and one of their immediate consequences is that those people are supposed to be removed from the register of the unemployed after being granted money for self-employment, i.e. after implementation of the programs.

Self-employment programs include helping in establishment of new micro enterprises and small shops, as well as programs for employment with another employer. In the year 2000, via the realization of 3.290 self- employment programs, total of 10,629 persons were employed. The aggregate value of those programs exceeded 150 million dinars. Out of the total number of people employed through the self-employment programs, 1,586 cases referred to establishing business enterprises and 1,704 programs referred to financing the already operating firms, i.e. their expansion and employment of additional workers.

The share of SME‘s incentive programs in self-employment programs has been increased from 29% in 1998 and 41% in 1999 to 48% in 2000.

According to the structure of those programs, they support mostly private enterprises operating in:

Program type No. of programs No. of persons employed Amounts granted (dinars)

Self-employment 3.290 10.629 151.606.800

Disabled 75 132 4.694.000

TOTAL 3.365 10.761 156.300.800

TABLE 3. DATA ON LABOR MARKET SUPPORT OFFICE PROGRAMS

• crafts industry,

• trade, health,

• personal and other services,

• agricultural sector.

The effects of those self-employment programs are supposed to be multiple

– they should stimulate employment of younger people supported to start their private business. In addition, it is expected that these programs would help partly legalizing engagement into a “gray-zone” economy.

The money that has been released within the second self-employment programs is actually granted to employers. However, the grants are always strictly related to the specific unemployed person, i.e. the employer is getting the money for the list of persons and the total amount of money depends directly on the number of the employed persons and their category. The only obligation of the employer is to keep those people at work at least for the period of two years. The employer is supposed to participate financially to the investment with minimum 50% of the total. There are no limitations regarding the investment type or size, with the exception of cases where employment of more than 10 persons is applied. In such cases, an opinion of the Chamber of Commerce is required.

Special attention is oriented towards the categories such as those concerning the unemployed parents or unemployment compensation beneficiaries, so they get larger financial support in order to decrease the number of unemployed who receive unemployment benefits (at the moment, more than 47,486 people).

The procedure of finance approval:

• The employer contacts the local employment office for information (The Republic’s Office for Labour Market is organized on a territorial base).

Labour Market Office consists of a head office and 24 local offices (out of which, the 3 offices that had been established in Kosovo Province, nowadays do not function);

• The employer makes a business plan, encloses the required documents with a list of people who are going to be employed;

• Local employment office evaluates the study;

• The study is finally evaluated in the Head office;

• The Board of Directors or the managing director (up to 10 persons) makes the decision regarding approval and financing of program;

• When entering a contract, the unemployed person gets a steady job contract;

• During the next 2 years the realization of the contract is subject to monitoring;

• In cases of breaching the contract, the debt enforcement is performed.

If that is not possible, the Labour Market Office lodges a legal complaint.

Sources of Financing. The Fund of the LMSP is being “filled up” by the introduced obligatory taxes that are paid by every employer on every payroll paid. The total amount is 1.8% of the payroll (0.9% on the account of employers and 0.9% on the account of employees).

Effects. The information on the effects of the SMES’s financing by this source is not quite unanimous. From the point of view of the LMSP major goals (decreasing of the number of unemployed), they could be considered as relatively good. By the way, the official reports on the LMSP are full of satisfactory expressions referring to the high level of effectiveness (success of over 90% of all programs) and in terms of resolving the unemployment problems at relatively low costs (after receiving the grants, the unemployed persons are permanently removed from the official list of unemployed).

In spite of intentions and verbal statements, there were rather persisting more or less “weak signals” actually questioning the real effectiveness of Fund activities, i.e. the statement presented in public about its effectiveness.

There were quite a number of complaints and questions regarding the way in which the programs were selected. Some of the questions and suspicions that have been raised recently, refer among other things to:

• the general lack of transparency in selection of programs;

• the fact that some firms have been repeatedly getting grants for their programs;

• the different treatment of firms in respect to the pressures exerted at them to fulfill their obligations;

• in connection with the last two, there are hints that the owners of some privileged firms might be connected with the ruling oligarchy;

• in addition, the real efficiency of programs approved is not quite evident, because the focus of LMSP is on the number of employed persons, not on the profitability of the firms.

However, the entire concept and idea of LMSP fund activities should not be questioned. In that sense, it is necessary to provide a substantially larger funds for labour market interventions, especially having in mind that this kind of funds usually makes around 2% of GDP in the developed countries as well as in transitory economies. It has been already announced that in a few months the measures for facilitating a very fast privatization process will be introduced, so we could expect a lot of needs for interventions of this kind.