THE WORLD BANK

COUNTRY OFFICE

BOSNIA AND HERZEGOVINA

CONFERENCE ON EMPLOYMENT GROWTH-

ON A ROAD TO RECOVERY

Sarajevo, July 1, 2014

Based on “BACK TO WORK: Growing with jobs in Europe and Central Asia (ECA)” by Omar Arias & Maria DavalosThe World Bank

The jobs challenge is the most daunting in Bosnia and Herzegovina

Employment Rate (population aged 15+, first quarter 2013)

Source: ILO and ECA Regional Jobs Report (2013).

Notes: *denotes data for 2012. Data is not seasonally adjusted.

Kaza

khst

anSw

eden

Russ

ian

Fed.

Azer

baija

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Rep

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*Ne

ther

land

sUk

rain

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an*

Finl

and

Unite

d Ki

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Germ

any

Luxe

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Geor

gia*

Esto

nia

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ech

Repu

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Cypr

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men

ia

Alba

nia*

Latv

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land

Bela

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Fran

ce*

Slov

akia

Slov

enia

Lithu

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Rom

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Port

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Hung

ary

Bulg

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Turk

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Mon

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FYR

Mac

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Serb

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Mol

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B&H*

Koso

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0

10

20

30

40

50

60

70

Perc

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wor

king

age

pop

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on

Two contextual factors:(1) Transition legacy and speed of modernization

Strongest reform record among middle income regions…

… with significant variation in implementation speed of reforms

across ECA countriesDoing Business Indicator (Gap to Frontier) Transition Index (EBRD 2012)

3

Notes: ECA = Europe and Central Asia; LAC = Latin America and the Caribbean; EAP = East Asia and Pacific.

2006 2007 2008 2009 2010 2011 2012 201350.0

55.0

60.0

65.0

70.0

75.0

80.0

85.0

90.0

ECA LAC EAP OECD (EU)

OECD (Non-EU) SEE Bosnia and Herzegovina

Two contextual factors:(2) Impact of demographics on the labor force

Source: Back To Work: Growing with Jobs in Europe and Central Asia (2013).

Bulg

aria

Ukr

aine

Geo

rgia

Mol

dova

, Rep

ublic

of

Latv

iaLi

thua

nia

Bela

rus

Russ

ian

Fede

ratio

nCr

oatia

Rom

ania

Esto

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nd H

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iaSl

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ech

Repu

blic

Slov

enia

Mac

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ia, T

FYR

Arm

enia

Mon

tene

gro

Alba

nia

Azer

baija

nKa

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stan

Turk

eyKy

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stan

Turk

men

istan

Uzb

ekist

anTa

jikist

an

-20

-10

0

10

20

30

40

50

Perc

ent

Older workers will outnumber youth due to:Aging + Low

Fertility + Out-Migration

ECA Countries: Change in 15+ Population 2010 - 2030 (%)

Younger countries also face

demographic pressures:

Out-Migration, youth bulge, and long-run

aging

Resuming Sustained Growth: Ensure macro fundamentals for economic recovery

and regain the pre-crisis reform momentum

Enabling Private Sector-led Job Creation: Enable business creation and expansion, tap on

entrepreneurship

12

Preparing Workers for Jobs: Helping workers acquire skills for the modern

workplace Making (formal) work pay by removing disincentives

and eliminating barriers to the labor market Removing obstacles to internal labor mobility

3

Meeting the Jobs Challenge in ECA:Three policy goals

Enabling Private Sector-led Job Creation

A small segment of “super star” firms (Gazelles) account for most job creation almost everywhere

As % of all firms and all jobs created during 2004-08

Notes: The number above each country represents the average growth rate of employment per yearSource: Back To Work: Growing with Jobs in Europe and Central Asia (2013).

5.2

2.8

1.1

2.6

5.0

4.5

1.4

-0.3

7.7

-1.0

Bul-garia

Czech Repub-

lic

Es-to-nia

Poland B&H Croatia

Ro-mania

Serbia Russia Ukraine

Advanced Intermediate Late

2214

10 13 1813

19 17

42

12

72 72

54 50

71

51

7367 66

73Share of Enteprises Share of Jobs Created

Preparing Workers for New Jobs - Skills

But inadequate response from education and skills training systems

7Source: Based on OECD PISA 2009.

Kyrg

yz R

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licAz

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ijan

Kaza

khst

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onte

negr

oBu

lgar

iaRo

man

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rbia

Russ

ian

Fede

ratio

nTu

rkey

Lith

uani

aCz

ech

Repu

blic

Croa

tiaSl

ovak

Rep

ublic

Slov

enia

Latv

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unga

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land

Esto

nia

Mex

ico

Chile

Aust

riaIs

rael

Luxe

mbo

urg

Gre

ece

Ital

yFr

ance

Spai

nG

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any

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King

dom

Belg

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Port

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ark

Nor

way

New

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land

Net

herla

nds

ECA OECD, non-ECA

0

10

20

30

40

50

60

70

80

90Too many youth fall behind in basic cognitive skills

% of 15-year olds who are functionally illiterate, scoring “below level 2” on PISA reading test 2009

Preparing Workers for New Jobs– Incentives and barriers

There is still room to improve work incentives: Labor taxation remains relatively high in Bosnia and Herzegovina and,

critically, not very progressive

Source: World Bank based on OECD Tax and Benefit Models.

BEL

BGR

CZE

DNK

DEU

EST

IRL

GRC

ESP

FRA

ITA

LVA

LTU

LUX

HUN

MLT

NLD

AUT

POL

PRSVN

SVK

FIN

SWE

GBR

ISL

USA

JPN

NOR

MDA

ARM

ROUBiH(Fed)

BiH(RS)

MKD

MNE

SRB

05

10

15

Pro

gre

ssi

vity

of ta

x w

ed

ge

(p

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en

tag

e p

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ts)

10 20 30 40 50Tax wedge for single at 50% of average wage

Gap in tax wedge between high and low wage earners, 2012

Key policy directions of a diverse Jobs-centered policy agenda - sequencing

• Combination of short and long term policies– Short term:

• Macro/fiscal policy to ensure fundamentals for economic recovery

– Longer term:• Growing superstar firms – Eliminate barriers to business

expansion and entrepreneurship• Making workers more adaptable - Generic skills and market-

driven, life-long learning• Making (formal) work pay – Removing disincentives and

barriers to work• Making workers more mobile – Removing impediments to labor

mobility9

What does this mean for Bosnia and Herzegovina?

10

• Continue strengthening macro-economic stability and policies that foster economic growth

• Business climate reforms to facilitate firms’ growth and tap into world markets:– Business climate reform for private sector development. Priorities are:

• Make it easier to start a business, including entry into and exit out of entrepreneurship

• Rationalizing regulations and rethinking the overall structure of taxation• Improving infrastructure, especially electricity

– Deepening economic integration, regionally, with the EU and globally

• Skills: Equipping workers with market-relevant and adaptable skills– Ensuring strong generic skills foundations (from ECD to quality basic education)– Market-driven VET and quality assurance in higher education– Revamp adult training systems, life-long learning and on-the-job training to make

them market-driven

What does this mean for Bosnia and Herzegovina?

11

• Better balancing worker protection and job creation, with regards to

– Collective agreements, minimum wages and severance costs that can affect disproportionately women, youth and older workers

– Disincentives stemming from labor taxation and the design of social benefits, particularly for low-wage earners, to make (formal) work pay

– Barriers to employment that affect women, youth and older workers, e.g., provision of child and elderly care services and options for flexible work arrangements

• Strengthening the social dialogue on jobs - government, employers, trade unions, youth and civil society at large