Macedonia vs. Unemployment - Proposal Submitted to the Government - Part I

Battling Unemployment

By: Dr. Sam VakninFormerly Economic Advisor to the Government of the Republic of Macedonia Skopje, Republic of MacedoniaApril, 2007Contents

I.  RecommendationII.  The Facts III. Bibliography

Get the Real Picture

No one in Macedonia knows the real picture. How many are employed and not reported or registered? How many are registered as unemployed but really have a job? How many are part time workers – as opposed to full time workers? How many are officially employed (de jure) – but de facto unemployed or severely underemployed? How many are on “indefinite” vacations, on leave without pay, etc.?

The Statistics Bureau must be instructed to make the gathering and analysis of data regarding the unemployed (through household surveys and census, if necessary) – a TOP PRIORITY.

A limited amnesty should be declared by the state on violations of worker registration by employers. All employers should be given 30 days to register all their unregistered and unreported workers – without any penalty, retroactive or prospective (amnesty). Afterwards, labour inspectors should embark on sampling raids. Employers caught violating the labour laws should be heavily penalized. In severe cases, closures should be enforced against the workplace.

The Minister of Justice, in collaboration with the court system, should accord the persecution of violating employers a high and urgent priority.

The number of trade inspectors should at least be tripled, as per standards in other developing countries.

All the unemployed must register with the Employment Bureau once a month, whether they are receiving benefits, or not. Non-compliance will automatically trigger the loss of the status of “unemployed”. If a person did not register without good cause, he would have the right to re-register, but his “unemployment tenure” will re-commence from month 1 with the new registration.

I recommend instituting a households’ survey in addition to a claimant count. Labour force surveys should be conducted at regular intervals – regarding the structure of the workforce, its geographical distribution, the pay structure, employment time probabilities.

The statistics Bureau should propose and the government should adopt a Standard National Job Classification.

The Unemployment Benefits

Unemployment benefits – if excessive and wrongly applied – are self -perpetuating because they provide a strong disincentive to work.

Health insurance should be separated from unemployment benefits. Unemployment benefits and health benefits should be paid independently of each other.

Unemployment benefits should be means tested. There is no reason to pay unemployment benefits to the children of a multi-millionaire. Unemployed with assets (especially liquid assets) should not receive benefits, even if they are otherwise eligible. The benefits should scale down in accordance with wealth and income.

Unemployment benefits should always be limited in time, should decrease gradually and should be withheld from certain segments of the population, such as school dropouts, those who never held a job, (in some countries) women after childrearing.

Eligibility to unemployment benefits should be confined to those released from work immediately prior to the receipt of the benefits, who are available to work by registering in an employment bureau, who are actively seeking employment and who pass a means test. Benefits should be withheld from people who resigned voluntarily or discharged due to misconduct or criminal behaviour. In the USA, unemployment compensation is not available to farm workers, domestic servants, the briefly employed, government workers and the self- employed.

Unemployment benefits should not exceed short-term sickness benefits (as is the case in Canada, Denmark and the Netherlands). Optimally, they should be lower (as is the case in Greece, Germany and Hungary). Alternatively, even if sickness benefits are earnings-related, unemployment benefits can be flat (as is the case in Bulgaria and Italy). In Australia and New Zealand, both sickness benefits and unemployment benefits are means tested. It is recommended to reduce the replacement rate of unemployment benefits to 40% of net average monthly wages in the first 6 months of benefits and to 30% of net average monthly wages thereafter in the next 6 months.

Unemployment benefits should be limited in time. In Bulgaria, they are limited to 13 weeks, in Israel, Hungary, Italy and the Netherlands to 6 months and in France, Germany, Luxemburg and the United Kingdom – 12 months. Only in Belgium are unemployment benefits not limited in their duration. In most of these, countries, though, social welfare payments replace unemployment benefits following the prescribed period of time – but they are usually lower than the unemployment benefits and serve as a disincentive to remain unemployed rather than employed. It is recommended to limit the duration of unemployment benefits to 12 months.

No health insurance should be paid for those unemployed for more than 6 months.

No unemployment benefits should be paid to a person who refuses work offered to him or her on any grounds, except on medical grounds.

I recommend a few pilot projects with the aim of implementing them nation-wide, should they prove successful:

A pilot project should be attempted to provide lump sum block grants to municipalities and to allow them to determine eligibility, to run their own employment-enhancement programs and to establish job training and child care assistance. An assessment of the success or failure of this approach in a limited number of municipalities can be done after one year of operation.

The unemployed worker, who participates in the second pilot project, should be provided with a choice. He could either receive a lump sum or be eligible for a longer period of unemployment benefits. Alternatively, he can be provided with a choice to either receive a larger lump sum or to receive regular unemployment benefits. In other words: he will be allowed to convert all or part of his unemployment benefits to a lump sum. The lump sum should represent no more than 9 months of unemployment benefits reduced to their net present value (NPV).

The state should provide matching funds if the person chooses to establish a business, alone or in partnership with other unemployed people (provide credits of 1 euro or a state guarantee for 1 euro against every 1 euro invested by the unemployed person).

The third pilot project involves the formation of private unemployment insurance plans to supplement or even replace the insurance (compensation, benefits) offered by the Employment Fund. In many countries, private unemployment insurance is lumped together with disability and life insurance – all offered by the private sector within one insurance policy.

The fourth and last pilot project involves the formation of “Voucher Communities”. These are communities of unemployed workers organized in each municipality. The unemployed exchange goods and services among themselves. They use a form of “internal money” – a voucher bearing a money value. Thus, an unemployed electrician can offer his services to an unemployed teacher who, in return will give the electrician’s children private lessons. They will pay each other with voucher money. The unemployed will be allowed to use voucher money to pay for certain public goods and services (such as health and education). Voucher money will not be redeemed or converted to real money – so it has no inflationary or fiscal effects, though it does increase the purchasing power of the unemployed.

(continued)