Project Proposal

LABOR MARKET - POLICY, INSTITUTIONS, LEGAL FRAMEWORK

Author and coordinator:: dr Gordana Matković

1. PROJECT OBJECTIVE

The basic project objective is formulating the Labor Market Policy framework for Yugoslavia in the transition period to a market economy.

2. PROJECT DESCRIPTION

The project would involve the analysis of the situation, the analysis of the existing and proposals for new policies and institutions on the labor market.

Project Contents

I Macroeconomic situation

II Labor market – employment, unemployment and gray economy

salary trends

III Current labor market policy and institutions

IV The experience of countries in transition

V Formulation of a labor market policy in new circumstances

VI Changes in the functioning of existing institutions and establishment of new institutions

VII Changes required in the legal environment

3. BACKGROUND AND JUSTIFICATION

The drastic collapse of the Yugoslav economy can be most clearly seen through the trends on the labor market. A short overview of the situation on the labor market during the past ten years:

decrease in employment, with a drastic fall in salaries (the number of employed constantly decreased from 2.8 million in 1989 to 2.1 million; the average salary decreased from 250 USD to 50 USD in 1999).
an increase in underemployment, which according to some estimates amounts to as much as 800 thousand persons
an increase in unemployment, from 600 to over 850 thousand persons
the number of underemployment and unemployed is higher than the number of actually employed
a deterioration of unemployment structural characteristics
the expansion of the gray economy, the number of persons active in the gray economy towards the end of 1997 was more than 1.2 million

The causes of these extremely negative trends on the labor market are:

a rapid drop of economic activity, caused by the lack of reform, by corruption, war and UN sanctions
the influx of refugees from Bosnia and Herzegovina and Croatia (over 650 thousand), and
the existing labor market regulation.

The regulation of employment, the relationship between employers and employees in the socially-owned sector and in the sector with mixed ownership is not sufficiently adapted to market principles and has, to a significant extent, retained characteristics of the socialist system. The basic approach in the legal system, including collective negotiating, is characterized by the extensive rights of the employees at the expense of the employers, which leads to the distortion and imbalance of the labor market. There are two main sectors that are incompatible with a market economy system: termination of employment and the forming of wages i.e. the very complicated and expensive process of discharging an employee and the collective negotiation that leads to an imbalance in employment and wages. These two factors, together with high wage taxation and contribution rates, cause the migration of labor force from the formal into the informal sector.

In the private, and especially in the informal sector, the relationships are completely undefined, "employees" do not have even minimum security or the basic rights. The contrast between these two partial labor markets, their overlapping and interweaving prevent an adequate implementation of even the best of policies.

The prerequisite for implementing a normal market economy system is an in-depth reform of the labor market on the whole:

abolishment of excessive and unnecessary state regulation by liberalizing labor market i.e. the establishment of voluntary contractual relationships between the employee and employer
new model of collective negotiation
elimination of the gray economy
formulation of a state policy corresponding to a free market economy

4 . EXPECTED RESULTS

The project will formulate elements of the labor market reform and the concept of the legal framework necessary for implementing the reform.

PROJECT IMPLEMENTATION TIME FRAMEWORK

This project is to be carried out within a 6 month period upon its adoption.

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