A SKILLED WORKFORCE FOR AVOIDING THE MIDDLE-INCOME TRAP IN BIH

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A SKILLED WORKFORCE FOR AVOIDING THE
MIDDLE-INCOME TRAP IN BIH 

• Vjekoslav Domljan
• CRES Mostar, BiH

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Overview

• Introduction
• Escaping income trap
• Mass unemployment
• Policy recomendation

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Introduction
Key causes of economic problems Key causes of economic problems
internal external
Bad legacy Regional non-cooperation
War damages Global crisis
Wrong privatization
Wild liberalization
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Introduction

• Middle income trap
• Low to middle income country - industrialisation
• Middle to high income country? -

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Introduction

• High income
• (gt 12,196 US)

• Middle income
• (996-12,195 US)

Country GNI pc
Greece 28,630
Slovenia 23,520
Croatia 13,810
Country GNI pc
Moldova 1,590
Kosovo 3,240
Albania 3,950
Macedonia 4,400
BiH 4,700
Bulgaria 5,770
Serbia 5,990
Romania 8,330
Turkey 8,730
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Escaping middle income trap
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Escaping middle income trap

• For moving up the value chain with knowledge and
  innovative-based products and services
• investment rates gt25-32 of GDP
• innovation-conducive policy framework
• business environment

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Escaping middle income trap
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Escaping middle income trap

• transition countries share the same 3 top
  business obstacles (EBRD, 2010)
• skills availability
• corruption
• tax administration.

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BiH Albania Belarus Bulgaria Croatia Maced Hungary Moldova Mont. Romania Serbia Slovakia Slovenia
infrastrucutre -0.11 0.16 0.09 0.01 -0.17 -0.07 -0.11 0.07 0.09 -0.12 0 0.03 0.08
telecom -0.21 0.06 0.03 -0.05 -0.26 -0.17 -0.18 -0.05 -0.13 -0.22 -0.06 -0.12 -0.01
electricity 0.02 0.73 0.13 0.16 -0.15 0.14 0.11 0.15 0.36 -0.07 0.22 0.26 0.19
transport -0.10 -0.08 -0.04 -0.04 -0.13 -0.07 -0.17 0.01 0.07 -0.15 -0.03 0 0.08
land access -0.19 0.01 -0.02 -0.16 -0.2 0.02 -0.36 0.14 -0.06 -0.14 -0.08 -0.12 0.04
skills 0.04 0.13 0.3 0.01 0.11 -0.06 -0.17 0.25 0.1 0.15 0.04 0.16 0.11
tax administration 0.22 0.11 0.04 0.12 0.25 0.02 0.61 0 0.18 0.22 0.03 -0.02 -0.04
labour regulations -0.10 -0.16 -0.24 -0.02 0.01 -0.11 0.09 -0.19 -0.03 0 -0.03 -0.05 0.22
customs -0.12 0.12 -0.1 -0.24 -0.17 -0.11 -0.29 -0.1 0 -0.25 -0.13 -0.29 -0.2
licencing -0.03 -0.16 0.08 -0.04 -0.1 -0.1 0.14 -0.14 0.04 0.01 -0.11 -0.08 -0.09
courts 0.04 -0.02 -0.22 0.06 0.2 0.22 -0.14 -0.05 -0.08 0.01 0.03 0.08 0.02
corrupton 0.22 0.31 -0.06 0.16 0.08 0.12 0.32 0.02 -0.03 0.13 0.26 0.15 -0.12
crime -0.06 -0.15 0.14 0.06 -0.11 0.01 -0.2 0.02 -0.16 -0.16 -0.03 0.13 0.01
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Overcoming middle income trap

• enterprises in transition countries with
• small private sector and
• higher unemployment rate
• complain less about skills.

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RD ( GDP) 2007 2008
High income 2.37 2.29
High income OECD 2.41 2.29
Upper middle income 0.79
World 2.07
BiH 0.03
Bulgaria 0.48 0.49
Croatia 0.81 0.90
Greece 0.57
Montenegro 1.10
Romania 0.53 0.59
Serbia 0.35
Slovenia 1.45 1.66
Turkey 0.72
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Researchers /1 mln people 2003 2004 2005 2006 2007 2008
High income 3726 3761 3840 3945
OECD members 3217 3257 3354 3442 3012
Upper middle income 1032 1025 1037 1029 1112
World 1281
BiH 61 63 67 177 197
Bulgaria 1223 1262 1299 1344 1466 1499
Croatia 1315 1605 1289 1303 1384 1514
Greece 1418 1771 1796 1873
Macedonia 551 526 547 521
Moldova 759 757 720 700 726
Romania 960 978 1061 952 877 908
Serbia 1196
Slovenia 1893 2018 2625 2921 3109 3490
Turkey 471 482 550 592 680
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Patents Patents 2006 2007 2008 2009
High income High income 808819 826192 813996 764583
OECD members OECD members 809402 827681 816102 766793
Upper middle income Upper middle income 44574 36842
World World 994324
Albania Albania
BiH BiH 55 59
Bulgaria Bulgaria 243 211 249 242
Croatia Croatia 317 344 330 250
Greece Greece 532 575 628 698
Kosovo Kosovo
Macedonia Macedonia Macedonia 34
Moldova 303 303 333 273 134
Romania 814 814 827 995 1054
Serbia 432 432 395 386 319
Slovenia 287 287 331 301 373
Turkey 1072 1072 1810 2221 2555
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High-technology exports ( of exports of manufactured products) 2003 2004 2005 2006 2007 2008 2009
High income 21.3 21.2 21.1 21.3 18.7 18.6 19.4
OECD members 20.4 20.1 20.2 20.3 17.8 17.3 19.0
Upper middle income 17.5 15.5 13.9 13.9 13.6 11.7 14.3
World 20.9 20.8 20.5 20.6 18.7 18.2 19.6
Albania 1.0 1.1 5.0 12.6 1.7 3.7 1.3
BiH 3.2 3.2 3.6 2.9 2.9 3.9 3.1
Bulgaria 4.3 4.0 4.7 6.0 6.0 6.6 8.2
Croatia 12.3 13.0 11.5 10.2 9.1 9.1 10.9
Greece 12.2 11.4 10.2 10.5 8.0 10.0 11.3
Kosovo
Macedonia 1.3 1.3 1.1 1.1 0.8 3.0
Moldova 3.0 2.6 3.9 4.7 5.1 4.2 5.4
Montenegro
Romania 3.6 3.4 3.4 4.4 3.7 7.2 10.1
Serbia
Turkey 2.1 2.0 1.5 1.9 2.0 1.7 1.9
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Mas unemployment

• the labour market in BiH face many challenges
• Activity rates are low
• Unemployment rates are long-term, largely
  structural
• Very few new jobs are created
• Underemployment is significant
• Employment services have a very limited role
• Education programmes are not in line with labour
  demand
• Young people are poorly prepared for labour
  market
• Young people do not consider entrepreneurship as
  an option for them.

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Mass unemployment
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Mass unemployment
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Mass unemployment
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Mass unemployment
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Mass unemployment

• Issue of human capital development is a priority
  for faster, export-oriented and sustaining growth
• Improved skills will upgrading the skill content
  of exports (and reducing vulnerability to
  low-wage competition) lead to increased
• productivity and
• employability
• ... will also endogenize the creation of new
  enterprises through the creation of more
  entrepreneurs.

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Mass unemployment

• mismatch between demand and supply of skills is a
  result of
• A) supply side failure
• undeveloped private market for skills provision,
  and a small number of the (un)employed are
  willing to participate in
• lack of adequate government policies and
  strategies addressing the problem
• B) demand side failure
• Very few new jobs are created

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Mass unemployment

• wages are high relative to
• the product composition of exports
• productivity in a regional comparison

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Policy recomendations

• The policy recommendation
• Follow the export and competitiveness strategy
  (agro-food, metal, wood, construction materials
  and tourism)
• Introduce the private and develop public
  institutions mathing demand and supply
• Create a tertiary education strategy
• Review the secondary school curricula
• Create an adult education strategy
  frameworks/regulation
• Create cluster training centres

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Policy recomendations

• 1. Increase talent base

• Review the primary and secondary education
  system shift approach from rote learning to
  creative and critical thinking
• Increase emphasis on reintroducing technical and
  vocational training schools
• Identify and nurture talent through a
  demand-driven process
• Improve autonomy and accountability of
  educational institutions
• Encourage RD collaboration between terciary
  education and firms
• Enhance English language proficiency

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Policy recommendations

• 2. Re-skill the existing
• the labour force

• Upgrade skills of the bottom segment of the labor
  force through continuing education and training
• Develop tranining centres at employment agencies
• Formalise international quality standards and
  certification of skills
• Allow wage levels to be reflective of the skill
  level

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Policy recomendations

• 3. Remove labour
• market distortions
• constraining wage
• growth

• Protect workers, not jobs, through a stronger
  safety net, while encouraging labour market
  flexibility
• Revise legal and institutional framework to
  facilitate hiring and firing
• Raise pay through productivity gains, not
  regulation of wages

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Policy recomendations

• 4. Increase reliance on diaspora

• Create a strategy for tapping into the countrys
  diaspora
• Review existing programmes to attract
  highly-skilled Bosnians-Herezgovinians overseas
  to return home
• Offer permanent residence for ex-Bosnian and
  Herzegovinians and their families
• Centralise oversight of foreign labour and
  expatriates to enable coherent practice
• Build up critical mass of skilled professionals
  through simpler work permit and immigration
  procedures
• Liberalise professional services through mutual
  recognition arrangements