13.04.2022

HIGH UNEMPLOYMENT AND LACK OF MANPOWER

Expert analysis of IME

In the last two years, the Bulgarian labor market has undergone drastic and extreme changes - from the rapid rise in unemployment at the beginning of the Covid-19 crisis and restrictive measures to the creation of many new jobs and the return to labor shortages only a year later. In this text we will try to present the different phases that the labor market has gone through both at national level and in selected regions.

For this purpose, we use the Beveridge curve, which compares the unemployment rate with the number of vacancies relative to the total workforce. The resulting indicator is used to determine the moment of the business cycle through the dynamics of the labor market, as recessions are characterized by high unemployment and lower labor demand, periods of economic growth - with low unemployment, many vacancies and high competition for workers.

A special case is when there is an increase in unemployment, combined with an increase in the number of vacancies relative to the size of the labor force. In this case, there is likely to be a significant mismatch between employers' needs for new labor and the skills and qualifications of the unemployed, which indicates deeper structural problems in the labor market beyond the impact of the economic cycle.

To calculate the Beveridge curve in the period between January 2020 and February 2022, we use monthly data from employment offices provided by the Employment Agency, which allows tracking the impact of the introduction and enforcement of restrictive measures and the sharp deterioration of the overall economic climate.

The Beveridge curve for the last two years clearly shows that from the point of view of the labor market, the crisis can be divided into several stages. With the introduction of the initial restrictions on social and economic life in March 2020, unemployment increased by almost 3 percentage points. up to 9% of the workforce, but the level of vacancies remains almost unchanged at 20 thousand - or 6-6.5 per thousand able-bodied. In other words, even in a period of sharp rise in economic uncertainty, employers generally do not shrink their demand for labor. There was a slight decline in labor demand only in the winter months with the introduction of the second wave of restrictive measures, the lowest level of which was reported in December 2020 - with 4.82 vacancies per thousand able-bodied.

The equilibrium point at which the vacancy rate exceeds unemployment comes in February 2021, with the usual seasonal dynamics observed during the year. Demand for labor increases in the summer months with the intensification of tourism and agriculture and shrinks respectively in the autumn and winter months, while the unemployment rate falls below its pre-crisis levels to 4.7 - 4.9% in the autumn of 2021. in other words, the conclusion is confirmed that Covid-19 and the restrictions (at least at the level of the national economy) have led to a momentary shock in the labor market, the effects of which, however, virtually disappear with the normalization of economic life.

However, the big "scissors" between unemployment and the demand for labor are a cause for concern - it is mostly a sign of structural discrepancies between the skills of the unemployed and the sought-after employees.

The regional comparison illustrates the different processes in the interaction between labor supply and demand at the sub-national level. The examples were chosen because of their different dynamics. While Burgas and Blagoevgrad were among the districts most severely affected by the initial blow to the labor market and continue to recover from it, Vidin is the weakest district in the country and the capital the strongest and most flexible market. labor throughout the economy.

Like the rest of the country, Blagoevgrad suffered a rapid rise in unemployment under the first restrictions - up to 14% in April - May 2020. Unlike other areas, however, unemployment remained high throughout the period and did not fall below 8%. However, the demand for labor is constantly rising, remaining at 20 vacancies per thousand able-bodied throughout the summer of 2021. This is a particularly worrying sign of the medium-term development of the regional labor market - apparently local businesses are particularly hungry for staff , but the unemployed in the district are not able to meet such high demand (or working conditions do not meet their requirements).

Burgas is an interesting case in terms of the strong influence of seasonal employment dynamics. As a result, the unemployment rate is relatively less affected than the limits in the spring of 2020, with the unemployment peak reaching 8.8% in April 2020; for comparison, in January 2021 the level was already 7.3%. However, the demand for labor is changing significantly, as in 2020 in the traditionally busiest month of May before the summer season there are only 11.5 vacancies per thousand able-bodied, compared to 22 per 1,000 only a year later. This demonstrates, on the one hand, the dependence on tourism, but on the other hand leads to the conclusion that the reduced demand for labor, combined with low unemployment, is most likely a sign of the complete elimination of a significant number of able-bodied people from the labor market.

At the same time, Vidin stays out of the general dynamics, and the impact of the crisis in the district is weak, with unemployment rising from 14.5 in January to 16.5 in May 2020 and a gradual decline to just over 11% by the end of 2021 However, throughout the period the demand for labor is significantly lower than the supply, reaching its peak for a short time 11 vacancies per 1000 able-bodied in November 2021, but most of the time gravitates in the range of 5 - 7 per 1000. This in turn, it means that the major problems in the regional labor market are structural and far ahead of the pandemic, especially in terms of low entrepreneurial activity and investment, which determines the low demand for labor, labor.

The capital is a diametrically opposed example. Unemployment managed to reach or exceed the demand for labor in a very short time - only in May, June and December 2020. However, in this crisis, the Sofia labor market clearly demonstrates that it is the most flexible and adaptable in the country, as by the end of 2021 unemployment is shrinking to "naturally" low levels of 1.5%, which is combined with high demand for labor (given the large size of the local economy) from 5 - 7 vacancies per 1000 able-bodied.

In conclusion, the review of labor supply and demand in the crisis year and the subsequent recovery period shows rather a brief shock, followed by a recovery in pre-crisis positive employment trends and labor shortages. However, some regional labor markets suffer from structural problems and skills gaps, the resolution of which will be among the important challenges in attracting investment and raising living standards on the ground.