Anatomy of Georgian Unemployment
24 November, 2011
Anatomy of Georgian Unemployment

The increasing unemployment rate of Georgia contradicts the economic growth of the country and bespeaks of serious structural problems.

It is an open secret that GDP growth confirms the economic growth and generally it is followed by increased employment level. However, these two intertwined indicators contradict each other in Georgia.

Georgian unemployment rate has been steadily increasing since 1998 from 12.4% all the way up to 16.3% as of 2010 against the backdrop of increasing GDP; it speaks of problems in economy.

 The IMF resident representative in the latest regional outlook also stressed that in spite of economic growth in Georgia, the unemployment level did not diminish.

Unemployment imposes a number of costs for a nation, such as economic, physiological and social ones, the Economic Policy Research Center (EPRC), stated in its research published on November 16, 2011.

According to the survey, conducted by National Democratic Institute (NDI), out of 16 161 polled  persons, 67% of the respondents consider themselves unemployed. This number includes non-active labor force and persons not looking for a job. The NDI study highlights the importance of employment for the Georgian society. According to the results observed in September 2011, 62% of the population believes that “jobs” is a number one national issue, while 74% believes it to be the number one local issue.

When considering unemployment education level of the unemployed workforce also matters. According to the UN Human Development Report (2010), 81% of unemployed have secondary or higher education that means the educated workforce is idle and cannot contribute to the country’s economy.

The World Competitiveness Report (2011-2012) assures inadequately educated workforce is a major constraint to doing business in the country. It is largely believed that changes in economic structure cause high unemployment level. Most of the countries in the transition economies suffer from the so-called “structural unemployment”. This type of unemployment is a long-term one, caused mainly by a mismatch between the skills of workers and the available jobs on the market.

Another unemployment type that the EPRC finds in Georgian reality is cyclical unemployment: kind of a short term job that occurs during economic recessions, when economic output falls and business cycles are affected by low market demand.

A possible way to determine the type of unemployment in the country is the correlation of the Foreign Direct Investments (FDI) inflow in major economic sectors and the number of employees where FDIs go. FDIs account for the bulk of total investments in Georgia, as domestic savings are inadequate to meet local financing needs. Therefore, FDI is believed to be one of the key channels to output and employment growth. The statistical analysis proved a mismatch between the employment growth and FDI in relevant sectors. In Georgia that is the reason why employment level does not increase in compliance with the GDP growth.

“This might be explained by time lags, as well as the fact that not all the sectors possess link term employment generation potential. Probably, the idea is that for sustainable increase in formal employment permanent and steady flows of FDIs is necessary. In short FDI in Georgia does not influence employment at its highest potential. The reason might lie once again in structural unemployment; this also explains that even in 2007 when GDP growth level was as high as 12%, unemployment was still at a considerable level of 13.3%,” the EPRC experts say.

Contradictions prevail in employment structure too. More than 50% of Georgian employed people is self-employed and largely concentrated in agriculture, whereas this sector makes just around 9% of the country’s GDP.

“No need to argue that a sector which employs about 50% of the total number of employed, should contribute more than 9% in the total GDP figure,” Irina Guruli, Program Coordinator at the EPRC, said.

To further strengthen the statement, unemployment rate in rural areas is 7.9%, as compared to 27.2% for urban areas. Out of total people employed in rural areas 80% are self-employed, i.e. employed in agricultural sector that frequently means that they can meet only their family needs and do not produce any extra output to contribute to the entire economy, Davit Narmania, an economic analyst said.

According to the statistics, the only category with demonstrated growth is the category of self-employed, whereas the number of employed people who are “hired” has been declining. Self employed population is mostly concentrated in the regions for a clear reason: the agricultural land.

Another sore issue is incomes of employed people. According to the UN Human Development Report, 17.4% of the employed people live on less than USD 1.25 USD per day. The figure is zero in the developed countries however it is an issue of importance in developing world. Compared to some post soviet countries Georgian indicator is lower, but it does not solve the problem.

Boosting entrepreneurship is believed to alleviate the unemployment related problems. The top three barriers Georgian government has to address to this end is access to finance, inflation, and inadequately educated workforce.

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