07.03.2024
PROBLEMS ARE COMING IN THE LABOR MARKET
While only a year ago we were wondering whether the Bulgarian labor market was heading towards an overheating phase, by the end of 2023 the trends point more towards stagnation. Unemployment remains low, but along with it the demand for labor is gradually decreasing, and structural problems remain unsolved, the Institute for Market Economy points out.
According to their analysis, after the labor market crisis of spring 2020, which followed the outbreak of the covid-19 pandemic and restrictive measures for business, travel and social life in general, unemployment in Bulgaria follows its usual seasonal dynamics - with peaks in the winter months and distinctly lower unemployment in the summer, thanks to the activity of the tourism sector and agriculture.
As of mid-2021, the unemployment rate has remained in the range of 4 - 5.5%, which corresponds to between 140 and 160 thousand persons registered at the labor offices - a significantly lower number even compared to the period before the pandemic. Unemployment in the country appears to have reached its natural low, with those who are employable having found jobs, and almost all who are not making it permanently into the inactive pool. It is significant that, despite the high declared labor shortage, the rest of the unemployed do not manage to realize themselves - they either have inappropriate education and skills compared to the demand, or are in regions where the demand is low.
Part of the reason for this is the profile of a large proportion of the unemployed. The number of people under the age of 29 registered at the labor offices has decreased significantly – to 15-18 thousand people in the various months of 2023, compared to over 40 thousand at the peak of the pandemic. The decline in the case of the permanently unemployed is weaker - up to 35 thousand people. To the extent that these two groups encounter particular difficulties in finding employment, the probability that they will leave the group of the unemployed in the near future seems relatively small, the Institute for Market Economy points out.
In 2023, a visible decline in vacancies registered in the labor offices begins. On the one hand, the annual spring labor demand peak is weaker and shorter compared to 2021 and 2022, and consequently the demand for workers throughout the summer and fall remains at significantly lower levels. This is especially clear in the last two months of 2023, when registered vacancies fall even below the level of the period of the strictest restrictive measures. This, on the one hand, may reflect reduced expectations by employers of the potential for expansion in 2024 and, on the other hand, an adjustment to the inability to fill jobs.
According to economists, the current state of the labor market is most clearly described by the Beveridge curve, which is a comparison of the unemployment rate with the number of vacancies relative to the total size of the labor force. The resulting indicator serves to determine the moment of the business cycle through the dynamics of the labor market, with recessions characterized by high unemployment and lower demand for labor, and periods of economic growth - by low unemployment, many vacancies and, accordingly, high competition for workers.
According to this approach, the last months of 2023 are characterized by both low supply and low demand for labor – in other words, the labor market stagnates. It is too early to say whether the trend is sustainable, as a more certain indicator of this will be the demand for labor in the first months of 2024. However, the cooling of the labor market has serious consequences both for the expected dynamics of wages in the short term, as well as for economic activity in general. Shrinking competition for workers potentially reduces pressure on employers to raise wages, especially given the drop in demand in the high-tech sector. The slowdown in employment growth, in turn, threatens to miss the growth potential of the economy due to the inability of companies to realize their expansion plans.
The new picture of the labor market from mid-2023 is largely foreshadowed. The changes mostly represent the final normalization after the shock caused by covid and the revival after the lifting of restrictions. Against this background, however, the long-term structural problems come to the fore again - the low levels of education and skills of people outside of employment, regional inequalities, weak retraining and activation policies. This, in turn, puts on the agenda the urgent need for reforms of labor market-related systems, so that these problems are addressed in order to overcome the risk of stagnation and therefore missed economic growth due to missing or otherwise unskilled workers, the Institute for Market Economy concludes.
