11.01.2022

THE RAPID DECLINE OF THE LABOR FORCE IN BULGARIA HAS CONCRETE CONSEQUENCES FOR THE ECONOMY

Although the publication of the final full results of last autumn's census remains far in the future - perhaps even at the end of the year - the initial (and preliminary) data published by the NSI on the country's population, districts and age structure allow a number of important conclusions, writes economist Adrian Nikolov in an analysis of the Institute of Market Economics (IME).

First of all, we cannot miss the problems with the conduct of the census itself, marked by the extraordinary conditions - in the end, they affect both the speed of publishing the final results and the quality of the data obtained.

Apparently, the biggest problem is the failure of the electronic census, which the statistical institute expected to cover the majority of the population, and has reached only a third - in cases even since 2011, despite the far wider penetration of the Internet.

This in turn leads to a lack of sufficient censuses, delays in the whole process, and ultimately - uncovered areas and households. Whether it's a weak information campaign, a drop in trust due to hacker attacks or problems with the platform itself, the case of the refusal of electronic census will largely mark the way the 2021 census will be remembered.

Leaving aside the problems with the process itself, the first results lead to several important conclusions:

The decline in the population between 2011 and 2021 is more serious than expected, and its pace is accelerating. While the "correction" of the previous census is just under 180 thousand people, this time its size will be over 395 thousand people.

Within three decades, the country's demographic pyramid has practically reversed - while according to the 1992 census, the share of people aged 0 - 17 was 24% and that of 65+ - 14%, today their places have been reversed.

As a result, we cannot expect anything other than the aging and shrinking processes of the population to continue to accelerate over the next decade, with all the consequences for the labor market, social policy, pensions, the tax system.

The return of Bulgarians in the year of COVID-19 was far from enough to eliminate the effect of previous migration processes. As far as the NSI analysis shows, natural and mechanical processes have a relatively equal impact on population decline, it seems that income growth in recent years has not been enough to stop the flow of Bulgarians seeking better employment abroad.

There is a very big decrease - with over 885 thousand people - in the group of the population in active working age, or between 18 and 64 years. The rapid decline of the labor force brings with it concrete consequences for the Bulgarian economy - in the future more work will have to be done with fewer people, which pushes the country towards more capital-intensive industries with higher labor productivity and a clear need for raising the qualification and skills of employees.

The sharp decline in population creates the illusion of "getting rich" if we use relative indicators. The smaller population means, for example, that the GDP per capita of the country increases without the volume of GDP having increased.

If we take the data from 2020, when according to the "old" data GDP per capita was BGN 17.3 thousand, then with the "new" population its volume would increase to BGN 18.4 thousand, or an increase of more than thousand levs, not including the growth of 2021

This, in turn, leads to a "convergence" of a few percentage points compared to what Eurostat has so far reported to the average European level of GDP per capita - without, of course, anything that has changed in the real well-being of the population.

All districts, except the capital, lost population in the period between the two censuses, with the least economically developed parts of Northern Bulgaria being the most severely affected, with declines ranging between one-fifth and one-quarter within a decade.

Conversely, thanks to more favorable migration processes, the leading regional economies - Plovdiv, Varna, Burgas - manage to slow down the shrinking population.

The case of Sofia is interesting - it was expected to report a larger population, but the capital has managed to increase its population by 15%, after reporting the outflow to neighboring municipalities during the pandemic.

Population change also affects the macroeconomic indicators of the districts. With the necessary stipulation that the final data will be different - at least because the latest available regional data are for 2019 - GDP per capita is in the range of 10-15% higher in most areas, as the most visible is the effect in poorer areas.

The exception is the capital - due to the larger population than reported in the current estimates, the average level of GDP per capita decreases by just over 10%. In other words, among the consequences of the census will be the reporting of shrinking economic inequalities between the districts and faster catching up with the leader Sofia than the other districts.

The initial data released this week by the NSI are just a small part of what the census will provide to analysts and policy makers. However, the sharp decline in the number of able-bodied people, the reversal of the demographic pyramid and the concentration of the population in the capital give a lot of food for thought and lead to urgent changes.