Armenia: Labor Market Dynamics - World Bank Internet Error Page

158 Pages·2007·1.73 MB·English

Report No. 35361-AM

Armenia: Labor Market Dynamics

(In Two Volumes) Volume II: Main Report

January 2007

Human Development Sector Unit
Europe and Central Asia Region

Document of the World Bank
2
CURRENCY EQUIVALENTS
(Exchange Rate Effective January 8, 2007)

Currency Unit = Armenian Dram (AMD)
AMD 1,000 = $2.74
$1 = AMD 365

FISCAL YEAR
January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ALMPs Active labor market programs
BEEPS Business Environment and Enterprise Performance Survey
BIS Business Information System
CIS Commonwealth of Independent States
CPI Consumer price index
EBRD European Bank for Reconstruction and Development
EC European Commission
ECA Europe and Central Asia
EPL Employment Protection Legislation
EU European Union
FDI Foreign direct investments
FIAS Foreign Investment Advisory Service
FSU Former Soviet Union
FYR Former Yugoslav Republic
GDP Gross domestic product
GNI Gross national income
GOSKOMSTAT State Statistical Committee of the USSR
GTZ Deutsche Gesellschaft fur Technische Zusammenarbeit
HHS Household survey
IDP Internally displaced people
ILCS Integrated Living Conditions Survey
ILO International Labor Organization
IMF International Monetary Fund
IOM International Organization of Migration
LFPR Labor Force Participation Rate
LFS Labor Force Survey
LRP Labor Redeployment Program
MTEF Medium Term Expenditure Framework
NES National Employment Service
NSS National Statistical Service
OECD Organization for Economic Co-operation and Development
OSCE Organization for Security and Cooperation in Europe
PES Public Employment Services
PSU Probability Sample Unit
3
REC Regional employment centers
SES State Employment Service
SIDA International Development Cooperation Agency (Sweden)
SME Small and Medium Enterprises
SOEs State-owned enterprises
SPAP Social Protection Administration Project
SSEE Secondary Specialized Education Establishments
SSI Social Security Institute
SSP Social Support Program
TFR Total fertility rate
ULC Unit labor costs
UNDP United Nations Development Program
UNICEF United Nation’s Children Fund
USAID United States Agency for International Development
USSR Union of Soviet Socialist Republics
VET Vocational education and training

Vice President: Shigeo Katsu
Country Director: Donna M. Dowsett-Coirolo
Sector Director: Tamar Manuelyan Atinc
Sector Manager Arup Banerji
Task Team Leader: Arvo Kuddo
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MAP OF THE REPUBLIC OF ARMENIA
5
ACKNOWLEDGMENTS

This report was written by Arvo Kuddo (Task Team Leader; ECSHD). It relies on the
contributions prepared by the team of Armenian experts from AVAG Solutions Ltd. led
by Vahram Avanesyan. Background papers on particular topics were prepared by the
following authors: (a) macroeconomic developments and the labor market: Armen
Yeghiazaryan and Vahram Avanesyan; (b) rural employment: Armen Yeghiazaryan,
Vahram Avanesyan, and Nairuhi Jrbashyan; (c) youth employment and unemployment:
Vahram Avanesyan, Melik Gasparyan and Nairuhi Jrbashyan; and (d) labor legislation
and labor market institutions: Vahram Avanesyan and Melik Gasparyan. The fieldwork
on conducting labor market surveys was supervised by Ruben Yeganyan and Norayr
Gasarjyan. The report uses the contributions provided by Sona Harutyunyan (Director),
Anahit Parsadanyan and Hasmik Tadevosyan from the State Employment Service,
Louisine Qalantaryan, Head of Labor Market Division of the National Statistical Service
of the Republic of Armenia (administrative and Labor Force Survey data), and Gorana
Krstic (Integrated Living Conditions Survey data). Tatyana Bogomolova and Asta
Zviniene (HDNSP) provided assistance in preparing population forecasts for Armenia.

The team is grateful for the support of Donna M. Dowsett-Coirolo, Country Director
(ECCU3), Arup Banerji, Sector Manager (ECSHD), and Aleksandra Posarac, Country
Sector Coordinator for South Caucasus (ECSHD). The team benefited from comments of
peer reviewers Verdon Staines (AFTH3) and Carlos Silva Jauregui (MNSED), as well as
Christian Peterson (ECSPE), Saumya Mitra (ECSPE) and Anthony Cholst (ECCU3),

Special thanks to Diane Stamm, who edited the document.
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CONTENTS

PAGE
Abbreviations and Acronyms 2

Map of the Republic of Armenia 4

Acknowledgements 5

Contents 6

Introduction 13

Chapter I. Macroeconomic Developments and the Labor Market 17
1.1. Economic Growth and Employment 17
1.2. Job Flows, by Industry 23
1.3. Productivity Improvements 30

Chapter II. Labor Market Trends 35
2.1. Labor Force Participation 35
2.2. Employment Ratio 40
2.3. Unemployment Trends 45
2.4. Inactive Population 50
2.5. Older and Disabled Workers 51
2.6. Child Labor 53
2.7. Gender Segregation 54
2.8. Urban-rural Dimension and Regional Disparities 55
2.9. Education Level and Labor Market Outcomes 57

Chapter III. Wage Dynamics and Unit Labor Costs 61
3.1. Wage Dynamics 61
3.2. Unit Labor Costs 67

Chapter IV. Rural Employment 69
4.1. Output and Employment in Agriculture 69
4.2. Landownership and Land Use 74
4.3. Income from Agriculture 75

Chapter V. Youth Employment and Unemployment 77
5.1. The Level and Structure of Unemployed Youth 77
5.2. Sociodemographic Characteristics of Registered Unemployed
Young People and their Households 79
5.3. Past Interactions of Unemployed Youth with the Labor Market 83
5.4. Students in Primary Professional Schools and in Secondary
Specialized Education Establishments 86
7
Chapter VI. Labor Migration 90
6.1. Outflow of Population 90
6.2. Current Labor Migration 92
6.3. Urban-rural Migration 95
6.4. Remittances 95

Chapter VII. Business Environment and Labor Markets 98
7.1. Importance of the Business Environment 98
7.2. Challenges to Creating a Business 100
7.3. The Role of Labor Regulations, and Skill Level and Education 104

Chapter VIII. Labor Legislation and Labor Market Institutions 106
8.1. State Intervention in the Labor Market 106
8.2. Employment Protection Legislation 108
8.3. The Capacity of the State Employment Service 113
8.4. Active Labor Market Programs 115
8.5. Unemployment Benefits 119
8.6. Social Dialogue 121

Chapter IX. Policy Recommendations 124

References 133

Annexes 141

Tables

Table 1.1.Volume Indexes of Gross Domestic Product
(constant prices), 1991 = 100 18
Table 1.2. Employment Dynamics in Health, Education, Science,
and Public Administration, 1995–2004 21
Table 1.3. Jobs, Value Added, and Labor Productivity in the Nonagricultural
Sector of the Economy, 1995–2003 22
Table 1.4. Parameters of Cobb-Douglas Production Function for Industry,
by Sector, 1995–2003 27
Table 1.5. Dynamics of Agricultural Employment in Armenia and other
Transition Countries, 1990–2003 30
Table 1.6. Output and Labor Productivity in Industry, 2001–2003,
by Enterprise Size 32
Table 1.7. Labor Productivity: International Comparisons 34
Table 2.1. Employment of Population in the USSR and in Some of the
National Republics (including in subsidiary household plots; 1989 population
census, in %) 36
Table 2.2. Employment/Population Ratios and Activity and Unemployment Rates
in 2004 in Armenia and Georgia, and in some European Countries 39
8
Table 2.3. Unemployment Rate Estimates from Different Sources, 1996–2004 46
Table 2.4. Economically Inactive Population, 2001 Population Census Data; ’000 51
Table 2.5. Employment, by Occupation and Gender, in Percent, 2004 LFS 55
Table 2.6. Population and Labor Force, by Marz 58
Table 2.7. Have You Worked since Graduation? (respondents aged 23–33),
Percent 59
Table 3.1. Armenia: Summary of Earnings Distribution, 1998/99 and 2004 63
Table 3.2: Average Annual Earnings and Return per Unit of Cost of Education,
16–33 Year-olds with Jobs, by Gender and Level of Education,
in ’000 Drams; 2001 65
Table 3.3. The Dynamics of Average Monthly Wages and Minimum Wages
in Armenia, 1997–2004, Drams 66
Table 4.1. Number of Farms and the Total Area of their Privatized
Agricultural Lands 69
Table 4.2. Employment-to-Population Ratio and Employment Status by Stratum,
Percent 71
Table 4.3. Economic Activity and Unemployment by Age Group, June–July 2005 73
Table 4.4. The Average Monthly Income from Agricultural Activity (crop
production, animal husbandry, processing) per Household, Drams 75
Table 5.1. School Attendance of De Jure Population, by Age and Type
of Educational Institution, 2001 Census 78
Table 5.2. Youth Unemployment Rates and the Ratios of Youth-to-Adult
Unemployment Rate 79
Table 5.3. Unemployed Youth with Professional Qualification, by Area of
Specialization (percent) and Average Duration of Being Registered
at the SES (months) 82
Table 5.4. Distribution of Reasons for Not Obtaining Training or
Retraining by Unemployed Youth, Percent 83
Table 5.5. Unemployed Youth, by Source of Job Search, Percent of Total 85
Table 5.6. Circumstances with a Decisive Influence on the Selection of
Specialization by VET Students, Percent 88
Table 6.1. The Number of Population of Armenian Nationality Living in the USSR
and in Some of the CIS States; in Millions (according to the 1989 population
census and the latest census data) 92
Table 6.2. Estimates of the Average Remittance that Armenian Temporary
Workers in Moscow and Rostov Send Home, 2003 96
Table 6.3. The Impact of Remittances on Household Incomes
in Armenia (drams) 96
Table 6.4. Economic Benefits and Costs of Remittances to a Receiving Country 97
Table 7.1. Starting-a-Business Indicators—Measures to Register a Business
Formally in Some Countries 101
Table 8.1. Key Benchmarks on Labor Regulations from the National Labor
Laws (regular employees, that is, excluding minors, disabled, and so forth) 111
Table 8.2. Armenia: Public Expenditure on Labor Market Programs, 1998–2003 116
Table 8.3. Involvement of Officially Registered Job Seekers in
Active Policy Measures 118
9
Table 8.4. Reasons for Unwillingness of Unemployed to Register at the
Regional Employment Centers in the Opinion of Directors 120
Table 9.1. Impacts of ALMPs Based on Experience of EU Countries 126

Figures

Figure 1.1. Structure of Value Added and Employment, 1990–2003 19
Figure 1.2. Dynamics of Main Economic Indicators (1991=100) 21
Figure 1.3. Nonagricultural Jobs in the State and Private Sectors, 1995–2003 24
Figure 1.4. Job Creation and Destruction in Industry, 1999–2003
(in reporting enterprises) 25
Figure 1.5. Job Creation and Destruction in Construction, 1999–2003
(in reporting enterprises) 26
Figure 1.6. Number and Size of Industrial Enterprises in Armenia, 1996–2003
(1995 = 100) 28
Figure 1.7. Main Indicators for Agriculture in Armenia, 1990 – 2004, Percent 29
Figure 1.8. Structure of Output and Employment in Industry, by Sector,
1990–2003 31
Figure 1.9. Ratio of Labor Productivity-to-GDP Per Capita in Armenia,
1994–2003 1990 = 100) 33
Figure 2.1. Population Pyramid of Armenia, 2001 Population Census 38
Figure 2.2. Population Pyramid of Armenia in 2025, Scenario I 38
Figure 2.3. Population Pyramid of Armenia in 2025, Scenario II 38
Figure 2.4. The Dynamics of the Able-bodied Population of Armenia, 2001–30,
by Main Age Groups, ’000s 40
Figure 2.5. Employment-to-Population Index in Armenia; 1990 = 100 41
Figure 2.6. Employed by Actually Worked Hours; 2004 LFS 41
Figure 2.7. Employed, by Gender and Type of Work, in Percent, 2004 LFS 42
Figure 2.8. Employed by Employment Status, 2004 LFS, in Percent 43
Figure 2.9. Tax Compliance in Armenia, CIS, EU8, and ECA Countries in 2005,
According to the World Bank Business Environment and Enterprise
Performance Survey (BEEPS) 44
Figure 2.10. Forecast of the Dynamics of Employed Population Aged 15–64,
to Maintain the Employment Rate of Able-bodied Population at the Current
Level of 55.9 Percent, or to Raise to the Level of 65 Percent and 70 Percent 45
Figure 2.11. Unemployment Rates at Age 15 and Over, According to the
Labor Force Survey Data for 2001–05, in Percent 47
Figure 2.12. Officially Registered Youth and Adult Unemployment,
1994–2003 (end-year data) 48
Figure 2.13. Structure of Registered and Self-reported (ILO definition)
Unemployment, by Selected Age Groups, 2003 49
Figure 2.14. Unemployed by the Duration of Job Seeking, 2004 LFS, in Percent 50
Figure 2.15. Population Projection for Age Groups 7–17, 65–79, and 80 and
Over, in Armenia 52
Figure 2.16. Employment Rates of Older Workers, 2004 LFS and
2004 ILCS Data 53
10
Figure 2.17. Hours Worked by Employed Children in a Week, 2004 LFS 54
Figure 2.18. Participation, Employment, and Unemployment Rates in Urban
and Rural Areas, According to the 2004 ILCS, Population Aged 15 and Older 56
Figure 2.19. Unemployment Rate by the Level of Education,
in Percent, 2004 LFS 59
Figure 3.1. Dynamics of Gross Domestic Product, Employment, Real Wages,
and Labor Productivity in Armenia, 1990–2004 (Indexes, 1990 = 100) 62
Figure 3.2. Average Wages of Employees with Different Levels of Education,
According to 2004 LFS Data, in Drams 64
Figure 3.3. Dynamics of Unit Labor Cost in Armenia, 1990–2004 (1990 = 100) 67
Figure 4.1. Dynamics of Value Added, Employment, Labor Income, and
Productivity in Agriculture, 1990–2004 (1990 = 100) 70
Figure 4.2. Employment by Age Group, Percent of Population 72
Figure 4.3. Average Size of Agricultural Land per Household, Hectares 74
Figure 5.1. Households of Unemployed Youth, by Number of
Working-age and Employed Members, Percent 80
Figure 5.2. Unemployed Youth without Professional Qualification
(specialty) by Intention to Continue Education in the Future, Percent 81
Figure 5.3. Unemployed Youth, by Reasons of Losing Last Job, Percent 84
Figure 5.4. Reasons for Failure to Take a Job Offered by the SES, Percent 86
Figure 5.5. Households of VET Students by Number of Working-age
and Employed Members, Percent 87
Figure 7.1. Problems of Doing Business (percent of firms indicating a problem) 100
Figure 7.2. Underemployment Due to Labor Regulations in Armenia, and ECA,
EU8, and CIS States, Percent, by the BEEPS 2002 and 2005 102
Figure 7.3. Skills and Education of Available Workers as a Constraint to
Business Expansion 104
Figure 7.4. Current Level of Employment in Surveyed Firms (in percent);
FIAS 2003 Study 105
Figure 8.1. Government Interventions and Regulation in the Labor Market 107
Figure 8.2. Labor Regulations as a Problem of Doing Business (percent
of firms indicating labor regulations as a problem doing business, 2005,
according to the BEEPS survey) 109
Figure 8.3. Labor Market Regulation in Armenia (before the approval of the
new Labor Code) and in Selected Transition Economies 110
Figure 8.4. Assessment of Labor Protection Legislation in Armenia (for old
and new Labor Codes) and Comparisons with OECD Countries 112
Figure 8.5. Annual Expenditure on Public Employment Services and Administration
per PES Total Staff: International Comparisons (2002, 2003; U.S. dollars) 114
Figure 8.6. Distribution of Regional Employment Centers by
Budgeted Annual Expenditure per Officially Registered Job Seeker (2004) 115
Figure 8.7. Public Expenditure on Labor Market Programs per Officially
Registered Job Seeker (drams) 117

Boxes
Box 1. Country Characteristics 14