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Conundrum of Unemployment

Unemployment is the sharpest problem in Georgia. This is confirmed by various public polls done by local and international organizations. However, public discussions and media coverage do not fully reflect deepness of this problem.

There is a lack of discussion  in Georgian society regarding the problem of unemployment due to the ideological reasons. According to dominating neoliberal ideology, if the Government does not intervene in an economy and does not distort market forces, full employment and economic will be achieved automatically.

Georgia did its best to follow this model of economic development, however, unemployment is still high and currently reaches 12%. Furthermore, if one looks reality in a more scrupulous manner, things get more complicated.

Geostat, national statistics office of Georgia, applies methodology of International Labor Organization (ILO) for calculating level unemployment country-wide. This methodology enables to identify general trends in relation to unemployment and determine the number of active citizens, but this methodology cannot be utilized for planning employment policy.

By looking into  the statistics deeper, we will see that unemployment level is much higher. 42.4% of the employed are considered to be hired employees, while 57.6% are considered as self-employed. In the developed countries self-employed are not considered  to be low-paid segment. Self-employed may be individual entrepreneurs, consultants, programmers (so called ‘techie guys), architects and so on. Representatives of this profession may have high salaries in most cases, even though they are considered to be self-employed. However, there is different picture in Georgia in this regards.

According to Geostat 83% of self-employed are registered in agriculture sector. Quite naturally, following question arises: what does the employment in this sector mean? As noted above, Geostat applies ILO standards, under which a person is considered to be employee if for the past 7 days before the inquiry he/she has worked even an hour for salary (salary, natural income, profits and so on). This norm does not determine  an amount of revenues; a person is considered an employee, for example, if you live in village, have small plot of land where you plant maize, keep cattle and sell milk. In this case you are considered to be employee, to be precise, a self-employed.

A major part of the employed in agriculture sector does not belong to welloff segment and mainly people employed in this sector are working for subsistence. This consideration is proved by  Geostat information  which says that revenues in the agriculture sector is the lowest and this sector is the least productive and its total ratio in economy is 8%, even though  around 48% of the employed are considered to be self-employed in agriculture sector.

Taking into consideration afore mentioned methodology, Geostat  may consider a person to be employed just for the reason of having one cow. This sort of cases are not exceptions. This is proved by the GFSIS research, which says that real unemployment in Georgia is 30%, not 12%, as reported by Geostat.

What could be a remedy  for a societal “disease” of  unemployment? How to make sure that people have jobs and live normal life? Bitter remedy that we are offered since announcement of independence comprises of the following ingredients: minimization of state intervention, privatization of public property and attracting foreign direct investments. Today, Georgia has one of the smallest Government  in terms of both functionality and size, on European scale. In the past decade, Georgia has attracted billions of FDI. As for privatization, in Georgia, like in most Post-Soviet countries, a huge volume of public assets were sold. In spite of strictly following neo-liberal development path Georgia  has not yet cured such social diseases as total unemployment, poverty and inequality.

Moreover, this model not only cannot heal these diseases, but on the contrary, it frequently sharpens them. Unemployment problem is an evident exapmple of this. It may be paradox, but our economic system leads our citizens to unemployment. As noted above, a major part of the employed are self-employed citizens in Georgia, who are involved in agriculture sector or other least productive economic activities.  Self-employment is a mean for survival in Georgia, along with money transfers by Georgian diaspora from abroad. A major part of our population mostly depends on money transfers from abroad. For comparison, the amount of transfers in GDP equals to the agriculture sector ratio in economy, where a half of population is employed.

What We Should Change: Following European Experience

To change the reality, we should first set a correct diagnosis. Government should calculate unemployment level with alternative methodology. Naturally, our Authorities will not have to invent a new bicycle: EU, where Georgia strives to integrate so zealously, applies deeper alternative models for calculating employment (Labour Force Survey). Along with ILO methodology, it is necessary that Geostat register number of involuntary unemployment. In other words, to get a comprehensive picture, Georgian government should calculate part-time workers and underemployment as well.

As for problem resolution, Georgian government’s answer to these problems should be as follow: a) industrial policy and b) employment policy;

Industrial policy implies substantial structural transformation of national economy through active government policies. Georgian Authorities should promote infant  industries, through instruments of industrial policy, which include: creating development bank (for providing “mission oriented”, cheap and patient finances), usage of state procurement mechanism for promoting domestic production, utilizing of exports discipline instrument (fiscal stimulus and indirect subsidies for exporting companies) and so on.

Secondly, Government of Georgia should develop real employment strategy. In general, employment policy is divided in two directions:

  1. a) Active Labor Market Policy: job seeking mechanisms, trainings, financed internships and so on. Objective of this policy is to activate citizens, equip them with new skills and develop the existing skills.
  2. b) Passive Labor Market Policy: this policy comprises unemployment allowances (benefits), unemployment insurance and financial and nonfinancial assistance for the period people lose jobs.

Since the market cannot frequently regulate the labor process and human resources are wasted, governments plan labor market policy and the objective of this policy is to prevent wasting human resources, through providing trainings, transmitting new skills to unemployed and regulating demand-supply on labor market.

EU has been actively implementing this policy and averagely EU countries spend around 2% of GDP annually. Georgian Government allocated about 4 million GEL for labor and employment policy in 2016. From that amount only 2.7 million GEL was directed to employment policy. Roughly speaking, Georgia spent 0.007% of GDP on employment policy, e.i.  285 times less than EU countries spend annually on labour market policies annually as a share of GDP.

When a theory does not work, we should throw it into the dustbin. High level of unemployment, poverty and inequality, proved that neoliberal experiment has failed in Georgia immensely. Today we need to carry out real employment and industrial policy which creates jobs, instead of cultivating sophistic dogmas.

Tato Khundadze Economic Analyst