Employment Policy Papers

In search of a decent job:

Youth employment in the Republic of Serbia
Gorana Krstić and Valli’ Corbanese

Employment Programme
Subregional office for Central and Eastern Europe
Copyright © International Labour Organization 2008
First published (2008)

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ILO

In search of more and better jobs for young people of Serbia

Gorana Krstić and Valli’ Corbanese

ISBN XXXXXXXX (printed version)

ISBN YYYYYYYY (web version)

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ii
 Preface

Youth is a crucial time of life when young people start fulfilling their aspirations,
assuming their economic independence and finding their place in society. A troubled entry into
the world of work has serious welfare repercussions for young people, including a higher risk of
poverty and deterioration of skills. While some young people will, eventually, make it into a
permanent job, a significant part remains trapped in temporary and low-paid jobs from which
they find it difficult to exit. If the transition from school to work is smoothened by effective
assistance in making a good start in the world of work, it will positively affect young people’s
professional and personal success in their future lives.

The ILO has long been active in youth employment, through its normative action and
technical assistance activities. The ILO’s global strategy on employment – the Global
Employment Agenda (GEA) – goes beyond the scope of traditional labour market policies and
places employment at the heart of economic and social policy. One of the pillars of the ILO’s
Youth Employment Programme is expanding the knowledge base to better understand the multi-
faceted dimensions of youth employment, and thus devise coherent and coordinated
interventions.

This working paper on the youth labour market of the Republic of Serbia was prepared
for the ILO by Dr. Gorana Krstić Assistant Professor at the Faculty of Economics, University of
Belgrade and by Ms Valli Corbanese, youth employment expert of the ILO Subregional Office
for Central and Eastern Europe. It is part of the research work on Increasing knowledge and
understanding of the quantitative and qualitative aspects determining the labour market
outcomes of young people of South-East Europe which covers 11 countries of Central and Eastern
Europe.1 The empirical research has been conducted in preparation of the Subregional Tripartite
Meeting of Experts on Decent Employment of Young People organized jointly by the ILO and the
Ministry of Labour, Family and Social Affairs of Slovenia (Ljubljana, December 2007). During
the Meeting, experts from the Western Balkans and Slovenia shared national experience and good
practice and identified priority areas for future action by governments and employers’ and
workers’ organizations. The two last chapters of the working paper were finalized on the basis of
the inputs provided by the tripartite delegations of experts at the above mentioned Tripartite
Meeting.

1
The countries covered by the research project are: Albania, Bosnia and Herzegovina, Bulgaria, Croatia,
FYR of Macedonia, Moldova, Montenegro, Romania, Serbia, Slovenia, Ukraine and the United Nations
Interim Administration of Kosovo.

iii
 This working paper is organized around four chapters. The first chapter provides an
overview of the economic and social context of the Republic of Serbia and introduces data on the
Serbian labour market dynamics. The second chapter offers a detailed analysis of the situation of
young Serbs in the labour market and it offers insights on the determinants of youth involvement
in the informal economy. The third chapter reviews the key policies and institutions affecting
youth employment, while chapter four concludes the working paper with policy implications.

Gianni Rosas,
Senior Employment and Skills Development Specialist,
ILO Subregional Office for Central and Eastern Europe.

iv
 Acknowledgements

We would like to express our gratitude to everyone involved in the finalization of the
working paper. Thanks go especially to the Director of the Statistical Office of the Republic of
Serbia, Mr. Dragan Vukmirović, to the Deputy Director Mr Miladin Kovačević and to the Head
of the Labour Force Survey, Ms Jelena Milaković for sharing statistical data on the labour
market.

A special acknowledgment goes to the colleagues who provided comments and feedback
on the first draft of the paper, Mr. Gianni Rosas, Senior Employment Specialist of the ILO
Subregional Office for Central and Eastern Europe and Ms Giovanna Rossignotti of Youth
Employment Programme at ILO headquarters in Geneva.

Appreciation is expressed to Prof. Mihail Arandarenko, Associate Professor of Labour

Economics at the University of Belgrade, who reviewed the paper and provided invaluable
guidance on its finalization.

Finally, a special mention goes to the staff of the Employment Sector of the Ministry of
Economy and Regional Development and of the National Employment Service for their insights
in the policies and programmes enacted by the Republic of Serbia.

v
vi
 Table of contents

Preface .................................................................................................................................. iii

Acknowledgments ............................................................................................................... v
Executive summary ............................................................................................................ xi

CHAPTER 1. OVERVIEW OF THE ECONOMIC AND SOCIAL CONTEXT

1.1 Macroeconomic overview ......................................................................... 1

1.1.1. Overview of the economic and social context ................................... 1

1.1.2. Fiscal and trade policy...................................................................... 5

1.1.3. Private sector .................................................................................... 6

1.2 Labour market dynamics ........................................................................ 7

CHAPTER 2. ANALYSIS OF THE YOUTH LABOUR MARKET

2.1 Socio-demographic characteristics of young people .............................. 13

2.1.1. Demographic trends .......................................................................... 13

2.1.2. Trends in education ........................................................................... 15

2.2 Youth labour force participation............................................................. 18

2.3 Youth employment.................................................................................... 20

2.4 Young workers in the informal economy................................................ 25

2.5 Wages and working conditions of young workers ................................. 32

2.6 Youth unemployment ............................................................................... 35

2.7 Youth inactivity and discouragement...................................................... 40

CHAPTER 3 POLICIES AND INSTITUTIONS FOR YOUTH EMPLOYMENT

3.1. Macroeconomic and sectoral policy ....................................................... 43

3.1.1. Agricultural and regional development policies ............................... 45

vii
 3.1.2. Small and medium size enterprise development ............................... 48

3.2. Education and training policy ................................................................. 50

3.3. Labour market policies and institutions ................................................. 54

3.3.1. Employment protection legislation.................................................... 56

3.3.2. Active labour market programmes .................................................... 57

CHAPTER 4 CONCLUSIONS AND POLICY IMPLICATIONS

4.1 Conclusions ................................................................................................ 61

4.2 Policy implications .................................................................................... 62

References ............................................................................................................................ 65

List of figures

Figure 1.1. Real GDP and employment trends in Serbia 1995-2006

Figure 1.2. Key labour market indicators for Serbia, 2004-2006
Figure 2.1. Projections of the children, adult and elderly people in the total population
Figure 2.2. School enrolment rate of young people in Serbia, 2004-2005
Figure 2.3. School enrolment rates of youth in Serbia and selected countries
Figure 2.4. Educational attainment of young people, 2005
Figure 2.5. Youth employment by occupation, 2005
Figure 2.6. Formal and informal workers by age group and sex, 2006
Figure 2.7. Formal and informal workers by education and economic sector, 2006
Figure 2.8. Young people’s perception of their household financial situation (by type of employment)
Figure 2.9. Reasons for seeking other job by type of employment
Figure 2.10. Youth weekly hours worked
Figure 2.11. Youth weekly hours worked and hourly earnings by occupation
Figure 2.12. Young workers by job searching method
Figure 2.13. Youth duration of unemployment
Figure 3.1. Serbia’s performance in the 10 dimensions of the EU SME Charter
Figure 3.2. PISA Scores for Serbia and selected countries, 2003

viii
List of tables

Table 1.1. Selected macroeconomic indicators, 2001-2006

Table 1.2. GDP per capita, HDI and Gini index in selected countries
Table 1.3. Labour force participation, employment and unemployment in Serbia and selected countries
Table 1.4. Key labour market indicators for Serbia by age and sex, 2006 (percentages)
Table 1.5. Labour market indicators by education and location, 2005 (percentages)
Table 2.1. Demographic trends for Serbia, 1981-2005 (percentages)
Table 2.2. Educational attainment of Serbian population by sex, age, ethnicity and location, 2005
Table 2.3. Youth key labour market indicators by sex, age, education and location
Table 2.4. Youth main labour market indicators for Serbia and other countries
Table 2.5. Youth employment by sector of economic activity, type of business, sex, age group,
educational attainment and location, 2005
Table 2.6. Employment status and type of employment by sex, age, education and location
Table 2.7. Characteristics of youth informal and formal employment
Table 2.8. Average main job earnings and hours worked in the informal and formal economy, 2005
Table 2.9. Youth monthly earnings and hours worked by sex, age, education and location,
Table 2.10. Youth average wage and hours worked by sex, age, education and location
Table 2.11. Unemployment duration and long-term unemployment by sex, age, education and location
Table 2.12. Youth inactivity by sex, age, education and location
Table 2.13. Reason of inactivity by sex, age, education and location, 2005
Table 3.1. Labour market indicators by districts , 2004
Table 3.2. Active labour market programmes by type and population groups targeted

List of boxes

Box 1 Labour market indicators and definitions

Box 2 European Charter for Small Enterprises in the Western Balkans —The SME policy index

ix
x
Executive summary and main findings
Jobs creation in Serbia
remains a challenge
notwithstanding strong
economic growth
Despite a shrinking youth
population, young people
still experience a troubled
transition from school to
work
More than seven years into sweeping economic reforms and
healthy growth rates, employment and youth employment
prospects in Serbia remain discouraging.
The negative 1990s trends of declining employment and
increasing unemployment continued in the period 2000-
2006, with the unemployment rate increased from 13.2 per
cent to 21.5 per cent. The expansion of the private sector
failed to absorb the labour shed by the restructuring and
privatisation processes on the one hand, and to generate
enough jobs for people queuing in the labour market, on the
other. Employment in the informal economy remains
pervasive, accounting for over a third of total employment
and increasingly absorbing unqualified and unskilled labour.
The data for Serbia show that the country experienced the
same path of jobless growth as the other countries of the
Western Balkan and of Central and south-eastern Europe
(CSEE) over the same period, at least with regard to jobs in
the formal economy.
Nearly half of the young labour force was unemployed in
2006, young women more than young men (51.7 per cent
and 44.9 per cent) notwithstanding women’s higher
educational attainment. Compared to adults, young people in
Serbia are two and a half times more likely to be
unemployed and more likely to be employed part-time or in
temporary jobs, often in the informal economy. Youth
unemployment is long-term in nature, as 68 per cent of
young unemployed had been looking for a job for one year
or more. A factor that may determine youth labour market
outcomes and explain some of the unemployment rate
differentials between youth and adults is the delayed
restructuring of socially-owned enterprises. However, the
failure of the economy to create new jobs – at least in the
formal economy – has hampered youth employment the
most.
xi
Education is crucial for a Young people with a lower level of education are more
successful transition into likely to be inactive, or employed in low quality jobs, under
work, but it does not precarious working condition – often in the informal
always smooth the path economy –compared to youth with a higher level of
education. However, the returns to education in terms of
employment outcomes are less straightforward for young
people compared to adults. Young people with university
education are indeed four times more likely to be employed
compared to youth with only elementary education, but they
also experience higher unemployment rates, mostly due to
the mismatches between their job qualifications and the
requirements of the labour market. A higher incidence of
unemployment among the highly educated may also be an
indication of higher reservation wages and greater capacity
to afford being unemployed, since better educated young
people tend to come from better-off families. However, if
this is combined with a relatively high incidence of
inactivity among highly educated youths, as it is the case in
Serbia, it can also reflect labour market mismatches, i.e.
over-supply of highly educated youth in certain education
streams relative to actual labour demand.

An uneven transition path Most young Serbs face problems in making a smooth and
is common to most young quick transition from education to work. While some will,
Serbs… eventually, make it into a permanent job, a significant part
remains trapped in temporary and low-paid jobs from which
they find it difficult to exit. The labour market indicators of
the 15-24 age group, compared to those of adults in the 25-
34 group, show that labour force participation and
employment increase three-folds and unemployment
decreases by half. A worrying aspect of youth transition is
the large proportion of idle youths, as measured by the share
of the youth population neither in school nor in employment.
More than a third of the youth population 15-24, e.g.
267,000 young Serbs, were neither in employment nor in
education or training in 2007.

… but certain groups end Although there is a general lack of decent work
up permanently excluded opportunities for youth, not all youth face the same risk of
from the labour market being excluded from the labour market. Young women,
youth leaving in urban areas and in certain regions of Serbia,
as well as youth with low educational attainment are much
more likely to be unemployed than other groups. No
systematic information is available on youth employment
outcomes by national origin, but there are indications that
young Roma, young IDPs and refugees are also at a
disadvantage in securing employment.

xii
Decent work for young A troubled entry into the world of work has serious welfare
people requires long-term repercussions for young people, including a higher risk of
commitment and policy poverty and deterioration of skills. Job creation remains a
coherence… complex challenge that requires a long-term multi-sectoral
approach that simultaneously tackles labour demand and
supply, address quantity and quality of employment and
balance preventive and curative measures. The formulation
of a youth employment policy is crucial to address job
creation challenges and the low responsiveness of youth
employment to economic growth. Such a policy requires
coherent and coordinated action that spans all ministries and
ensures that long-term development objectives and targets
are shared between several institutions, rather than being
confined to a few of them.

…aimed at job creation…. To a certain extent, high youth unemployment mirrors the
overall high level of aggregate unemployment characterizing
the Serbian labour market. The reduction of youth
unemployment will in part depend on the effectiveness of
macroeconomic policies that promote employment-centred
growth. Yet, the fact that youth unemployment in Serbia
remains two and a half times higher than adult
unemployment despite growing levels of GDP, suggests
other factors also contribute to young people’s relative
labour market disadvantage.

… quality educational Education plays a key role in the Serbian labour market, but
outcomes matching it is not always effective against the risk of experiencing a
labour market difficult transition into the world of work. Much depends on
requirements... the match between job qualifications and labour market
requirements. The ongoing reform of the education and
training system attempts to tackle these mismatches, but –
since education reforms have an impact only in the mid to
long-term – the government needs to enact remedial policies
to address the needs of those youth who have already left the
formal educational system and are at risk of exclusion. Adult
training and lifelong learning opportunities also need to be
substantially increased in terms of quantity and quality.
Attracting direct foreign investment and providing
incentives to enterprises to train their workers, while
minimizing “poaching” practices, may well be a means of
upgrading the skills of the labour force and to increase their
productivity.

xiii
… and active labour The shift away from the administrative employment
market programmes protection envisaged by the Labour Law in 2001 and further
targeted to the most pursued with the new Labour Code of 2005 is positive, but it
disadvantaged youth needs to be complemented by well-targeted, effective and
affordable support programmes for young jobseekers,
especially the ones that are most disadvantaged. In Serbia,
many active labour market programmes are being introduced
in an ad hoc fashion as a quick response to perceived
problems; tracking of programme participants over time as
well as the evaluation of programme effectiveness is still
inadequate to inform the policy-making process. The
effectiveness of the programmes could be dramatically
improved by a selective choice of programmes, sharper
targeting, a tightening of work-search requirements, the
provision of comprehensive and integrated “packages” of
services, a closer match to local labour market needs, and
greater involvement of employers’ and workers’
organizations in the design, monitoring and evaluation of
youth employment policies.

xiv
CHAPTER 1. OVERVIEW OF THE ECONOMIC AND SOCIAL CONTEXT

1.1 Macroeconomic overview

1.1.1 Overview of the economic and social context

Throughout the1990s Serbia’s development was hampered by armed conflicts,
international isolation, political instability and economic turmoil. Prior to the break-up of the
Socialist Republic of Yugoslavia (SRY), trade among the republics constituted over 40 percent of
gross domestic product (GDP). The collapse of the common market and international sanctions
compromised the Yugoslav traded sector and led to a massive contraction of industry. Industrial
activity fell by 50 percent during the fist half of the 1990s and per capita GDP plummeted to the
1969 level. Since mid-1990s output growth has been increasing, with the exception of 1999 when
GDP fell by 18 percentage points due to the Kosovo conflict (Figure 1.1).

Figure 1.1: Real GDP and employment trends in Serbia 1995-2006

13,00
10,00
7,00
4,00
1,00
-2,00 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
-5,00
-8,00
-11,00
-14,00
-17,00
-20,00

Employment grow th(%) GDP grow th (%)

Source: Republic Statistical Office (RSO), Statistical Yearbook, Belgrade, 1995-2006, European Bank
for Reconstruction and Development (EBRD) Transition report 2006: Finance in transition, London,
2006

Prior to the 1990s, living standards were comparatively high relative to most socialist
economies. The collapse of economic activities and the rise in both open unemployment and
underemployment led to an impoverishment of the population. Socio-economic conditions were
also exacerbated by the influx of nearly 700,000 displaced people. The reduction in income-
generating opportunities in the formal economy and the poor enforcement of tax and labour
regulations, coupled with mild penalties for violations, encouraged the growth of the informal
economy, which became an important safety net for many.2

In January 2001, the new Serbian government launched a sweeping reform programme
aimed at accelerating the transition to a market economy. Since then, the economy has expanded
and living standards have improved. The economic reforms centred on macroeconomic
stabilization, price and foreign exchange liberalization, the restructuring of the banking system,
the privatization of state- and socially-owned enterprises and improvements in the business
regulatory framework.3 Economic activity, measured by real GDP, grew in the period 2001-2006
at an annual rate of 5.6 per cent (Table 1.1).

Table 1.1: Selected macroeconomic indicators, 2001-2006

2001 2002 2003 2004 2005 2006
National accounts
Real GDP growth, % 5.1 4.5 2.4 9.3 6.3 5.7
GDP per capita, US $ 1,574 2,112 2,720 3,285 3,520 4,103
Investment (% GDP) … 13.4 14.4 19.6 18.7 17.9
Government budget
Overall government balance (% GDP) -4.9 -8.3 -3.4 0.0 0.9 2.7
Government expenditure (%GDP) 43.8 51.8 46.7 45.3 43.1 45.2
External accounts
Current account (%GDP) -5.0 -17.5 -16.4 -14.8 -10.0 -12.2
Foreign direct investment, (% GDP) 1.4 3.0 6.7 3.9 5.9 16.1
Prices and wages
Consumer price index,
end-year, % 39.0 14.2 7.6 13.4 17.5 6.6
Growth of net real earnings, % 16.5 29.9 13.6 10.1 6.4 11.2
Employment growth (%) 0.2 -1.7 -1.2 0.5 0.9 -1.3
Source: European Bank for Reconstruction and Development (EBRD) Transition report 2006: Finance in
transition, London, 2006; International Monetary Fund (IMF), Republic of Serbia: Selected issues, IMF
Country Report, Washington D.C., 2006; Republic Statistical Office (RSO), Economic trends in the
Republic of Serbia in 2006, Annual Report, Belgrade, 2006, Government of Serbia, Second progress report
on the implementation of the poverty reduction strategy in Serbia, Belgrade, 2007.

The main source of GDP growth was the services sector, which experienced an annual
increase of about 7 percent over the period.4 In 2006 output growth, estimated at 5.7 percent, was

2
Over the last decade, the ratio of the informal economy to registered GDP in Former Republic of
Yugoslavia accounted for about one third. Krstić, G., “An empirical analysis of the formal and informal
labour markets in the FR Yugoslavia (1995-2000)”, University of Sussex, Brighton, 2002.
3
World Bank, Serbia: Labor market assessment, Washington D.C., 2006.
4
For more details see Republic of Serbia, National strategy for economic development of the Republic of
Serbia (2006-2012), Belgrade, 2006.

2
led by the expansion of domestic demand and exports as well as increasing foreign direct
investments.5 In the same period, significant progresses were also recorded in small-scale
privatization and competition policy.6

Despite these positive results, some inherited imbalances continue to affect the economic
performance of the country. Output growth did not revert into employment creation, overall
employment continued to decline and the unemployment rate reached 22 per cent in 2005.7 The
current account deficit remains high (12 per cent of GDP), reflecting the low level of domestic
savings due to the low confidence in national banks. Foreign Direct Investments (FDI) increased
substantially, but have mostly been brownfield, i.e. related to the purchase of state- and socially-
owned enterprises. An external debt of 68 percent of GDP places Serbia in the group of medium-
indebted countries.8 Sizable corporate losses, a legacy of the 1990s, still remain in the non-
financial sector, due to the weak governance and soft-budget constrains in state- and socially-
owned enterprises.9

After the hyperinflation of 1993, Serbia faced several inflation episodes until 2001.
Inflation stabilized between 2001 and 2003, when it was reduced to 7.6 percent. Strong domestic
demand, increasing oil prices and the introduction of the value added tax (VAT) in early 2005
resulted in new inflationary pressures over 2004 and 2005. The appreciation of the national
currency — due to a reduction of foreign exchange rate interventions and strong capital inflows—
and a slow down of international oil prices helped reduce inflation from 17.5 per cent in 2005 to
6.6 per cent in 2006.10

With a GDP per capita of US$ 4,103 Serbia belongs to the group of middle income
countries,11 while a Human Development Index (HDI) of 0.772 in 2002 places it in the category
of upper-medium developed countries.12 The recent upward trend in economic growth resulted in
substantial poverty reduction. Between 2002 and 2007, the percentage of poor people declined

5
Economics Institute, Macroeconomic analyses and trends, Belgrade 2006, and Economic Barometer, No
146, December 2006.
6
European Bank for Reconstruction and Development (EBRD) Transition Report 2006: finance in
transition, London, 2006
7
From 1991 to 2003, the employment intensity of growth in the countries of Central and Eastern Europe
including Serbia deteriorated from 0.24 to -0.19, while youth employment elasticities declined from zero to
-1.26, S. Kapsos, The employment intensity of growth: Trends and macroeconomic determinants, ILO,
Employment Strategy Papers No. 12, 2005.
8
For more details see Republic of Serbia, National strategy for economic development of the Republic of
Serbia, 2006, op.cit.
9
International Monetary Fund (IMF), IMF Executive Board concludes 2006 article IV consultation with the
Republic of Serbia, Public information note no 06/120, 2006. Downloadable at:
http://www.imf.org/external/country/SRB/index.htm
10
IMF, Executive Board concludes 2006 article IV consultation with the Republic of Serbia, op.cit.
11
EBRD, Transition Report 2006: finance in transition, London, 2006, op.cit.
12
United Nations Development Programme (UNDP), Serbia: Human development indicators, UNDP
Belgrade, 2006.

3
from 14 percent to 6.6 percent.13 The poverty depth also declined over the same period from 3
percent to 1.3 percent. However, it should be emphasized that poverty in Serbia is more
widespread than these figures indicate, since the data do not fully cover refugees, internally
displaced persons and the Roma population. According to a survey conducted in 2003, poverty
among the Roma population was considerably more widespread than among the general
population (49.2 percent) and more severe (the poverty depth was 13.6 percent in 2007).14 The
population groups more likely to be poor were the rural population (particularly in Southeast
Serbia), the poorly educated, the unemployed, workers in the informal economy, elderly persons,
children up to 14 years old, households with two and more small children and members of large
households.15 The main source of income for most Serbian households in 2006 was wages and
salaries, accounting for 48.3 per cent of the average monthly income; social transfers represented
28.5 per cent and farm incomes and unspecified income sources accounted for 3.4 per cent and
5.5 per cent respectively.16 Consumption inequality, measured by the Gini coefficient, was
estimated at 28 per cent in 2006 (table 1.2).

Table 1.2: GDP per capita, HDI and Gini index in selected countries
GDP per capita HDI Gini index
(US$) 2006 2006 (consumption)
Slovenia 22,273 0.917 28.4
Hungary 17,887 0.874 26.9
Croatia 13,042 0.850 29.0
Bulgaria 9,032 0.824 29.2
Romania 9,060 0.813 31.0
Bosnia and Herzegovina 7,032 0.803 26.2
Albania 5,316 0.801 31.1
FYR Macedonia 7,200 0.801 39.0
Serbia 1 4,103 0.772 28.0
1
For Serbia the HDI is reported for 2002. Source: UNDP, Human Development Report, 2007/2008.
For Serbia, see Republic Statistical Office (RSO), Economic trends in the Republic of Serbia in 2006,
Belgrade, 2006, Government of Serbia, Second progress report on the implementation of the poverty
reduction strategy in Serbia, Belgrade, 2007.

13
The poverty line was set at 5,234 RS dinars in 2002 and at 8,883 SR dinars in 2007. Krstić G., “Poverty
profile in Serbia in the 2002-2007 period”, in: Republic Statistical Office, Living Standard Measurement
Stud. Serbia 2002–200, Belgrade, 2008.
14
Krstić, G., Poverty profile in Serbia in the 2002-2007 period” in: Living Standard Measurement Study
Serbia 2002–2007, Republican Statistical Office (forthcoming).
, Belgrade 2008.
15
Bogićević, B. et al. Poverty and reform of financial support to the poor, Ministry of Social Affairs,
Centre for Liberal and Democratic Studies, Belgrade, 2003.
16
Republic Statistical Office (RSO), Household Budget Survey for 2007 — Final results, Belgrade, 2008.

4
 1.1.2 Fiscal and trade policy
Public spending significantly increased and it reached 51.8 per cent of GDP in 2002.
Such increase was partly due to the timely payment of social transfers previously subject to
arrears, to the inclusion of some quasi-fiscal activities in the budget and to an increase in wages
and subsidies spending. This trend was soon reversed and in 2005 public expenditures declined to
43.1 per cent of GDP. Increased fiscal revenues contributed to an overall fiscal surplus in 2005 of
nearly 1 per cent of GDP. Subsidies to state- and socially-owned enterprises were reduced. In late
2006 a supplementary budget was adopted that envisaged an increase of expenditures of 4 percent
of GDP, financed by privatisation and licensing proceeds. Such amount funded additional current
spending on wages and some of the capital expenditures of the National Investment Plan (NIP)
for 2006 and 2007. The total investment envisaged under the NIP for the period 2006-2007 equals
7.5 per cent of GDP.

Since 2001, Serbia’s trade regime has been liberalized. Top tariffs and weighted average
rates are 30 per cent and 7 per cent respectively; the tariff structure is relatively stable; most
licensing requirements on exports and imports were removed; and quotas were abolished.17 Since
late 2006, Serbia is part of the Central European Free Trade Agreement (CEFTA).

Exports have grown considerably since 2001, but remained low relative to GDP (18 per
cent in 2005). In 2006, exports increased by 30 percentage points compared to 2005. Iron, steel
and other metals constitute approximately half of all exports18 Imports increased at a slower pace
than exports (22 per cent and 30 per cent respectively); this improved the trade balance deficit
and decreased the import/export coverage ratio from 1.8 in 2005 to 1.7 in 2006. Export growth
and significant inflow of remittances have contributed to a decline in the current account deficit
from nearly 15 per cent of GDP in 2004 to about 10 per cent in 2005. In 2006 the current account
deficit increased again to reach 12 per cent of GDP. Inflows of foreign direct investment
remained robust, particularly in 2006 when they exceeded US$ 4 billion (over 16 per cent of
GDP).19 In the period 2002-2005, the highest FDI were recorded in the industry of cigarettes (24
per cent of all investments) and in the banking sector (17.2 per cent).20

17
IMF, Republic of Serbia: 2006 Article IV Consultation and post-program monitoring, IMF country
report No 06/384, Washington D.C., 2006.
18
Economics Institute, Macroeconomic analyses and trends, Belgrade, 2006 and Economic Barometer, No
146, December 2006
19
Economics Institute, Macroeconomic analyses and trends, and Economic Barometer, 2006, op.cit.
20
For a disaggregation of FDI by sector of investment, see Serbia Investment and Export Promotion
Agency (SIEPA), downloadable at www.siepa.sr.gov.yu.

5
1.1.3 Private sector
The share of the private sector in GDP increased from 40 per cent in 2001 to 55 per cent
in 2005 as a result of economic restructuring, privatisation and improved business environment.
In the period 2001-2005, the number of small and medium sized enterprises (SMEs) has been
increasing from 61,722 to 79,500 (almost 30 percent), while trading establishments have grown
even more (38 per cent).21 The recently enacted Law on Business Registration abolished a number
of administrative and legislative barriers to entry and resulted in a sharp increase in the number of
businesses recorded —between 2005 and the first half of 2006, some 15,489 new enterprises were
established and 23,604 new shops were opened.22

In the period 2001-2005, the private sector increased its share in the overall number of
active enterprises (from 86 per cent in 2001 to 91 per cent in 2005), in employment (from 17 per
cent to 54 per cent respectively) and in value added (from 18 per cent to 58 per cent).

The structure of GDP changed significantly between 2000 and 2005. The industry sector
decreased its contribution to GDP (from 35 per cent to 28 per cent) and to employment (from 36
per cent to 29 per cent), while the service sector expanded (from 49 per cent to 57 per cent in
GDP and from 39 per cent to 52 per cent in employment). Over the same period, the agricultural
sector contribution remained stable (around 15 per cent), although the number of workers
declined (from 25 per cent in 2000 to 18.9 per cent in 2005), suggesting an increase in
productivity. The competitiveness of the agricultural sector also improved, with an increase in
exports of approximately 30 per cent a year in the period 2003-2006.

Serbia made significant progress in improving the business climate: two recent surveys
report that Serbia improved its performance in most of the areas studied, but particularly in the
area of starting a new business and labour market regulations. 23

21
RSO, Statistical Yearbook, Belgrade, 2006 op.cit.
22
Economics Institute, Macroeconomic analyses and trends, and Economic Barometer, 2006, op.cit.
23
WB, Doing Business in 2006, Washington D.C, 2006; EBRD, Transition Report 2005: business in
transition, London, 2005.

6
1.2 Labour market dynamics
The main source of labour market statistics in Serbia is the Labour Force Survey (LFS),
conducted on a yearly basis since 1995. The analysis of the overall and youth labour market
provided in this study is based on data derived from the LFS, unless otherwise indicated.

Box 1: Labour market indicators and definitions

The essential feature of labour market indicators is that individuals are classified into three mutually exclusive
categories: employed, unemployed and inactive. According to the criteria set by the International Labour
Office, precedence is given to employment over unemployment and to unemployment over inactivity.
Inactivity: refers to all people of working age (between the ages of 15 and 65), who are neither employed nor
unemployed, i.e. those who are not “economically active”, because they are attending school, are engaged in
household duties or are retired.
Employment: the employment category encompasses all people who, during the reference period, worked for
a wage or salary (paid employed), for profit or family gain (self-employed or own-account workers) including
members of cooperatives and unpaid family workers. The indicators used to measure employment are the
employment rate, i.e. the percentage of people employed in the labour force and the employment ratio, i.e.
the share of people working on the total of working age population.
Unemployment: ILO criteria classify as “unemployed” all individuals who are: a) without work (not in paid or
self-employment); b) currently available for paid employment or self-employment, and c) actively seeking
work. The “relaxed” definition of unemployment waives the active job search requirement, to include
discouraged workers, i.e. those individuals who have not been looking for work because they think none is
available, or they believe they lack the skills necessary to compete in the labour market. Normally,
discouraged workers are not included in the unemployment count and they are considered “inactive”. Two
indicators are used to measure unemployment: the unemployment rate, i.e. the share of people unemployed
out of the total labour force and the unemployment ratio, i.e. the share of people not working, available and
actively seeking for work out of the working age population.

Source: Hussmans, R., Merhan, F., Verma, V., Survey of economically active population, employment,
unemployment and underemployment: an ILO manual on concepts and methods, ILO Geneva, 1990

The 1990s trends of declining employment and increasing unemployment continued also
in the period 2000-2006. Notwithstanding GDP growth in real terms the unemployment rate
increased from 13.2 per cent in 2000 to 21.5 per cent in 2006; wages rose rapidly early in the
2000s, but slowed since 2002 and average wage growth has not exceeded GDP and productivity
growth since 2003.24 The decline in employment was predominantly the result of restructuring
and privatization in state- and socially-owned enterprises, whose workforce decreased by 31 per
cent between 2001 and 2006. Over the same period, employment in the private sector increased
by 23 per cent, while employment in the private, non-agricultural sector rose by 70 per cent. The

24
Republic Statistical Office (RSO), Labour Force Survey (2000-2006). It has to be noted however, that the
LFS methodology was changed in 2004 and data prior to that date are not strictly comparable. World Bank,
Serbia: Labor market assessment, Washington D.C., 2006. According to official data, which probably
overestimate growth in wages, real wages were twice as high in 2006 compared to 2001.

7
increase of private sector employment, however, was not sufficient to compensate the decline in
employment in socially-owned enterprises, due to the relatively low share of private non-
agricultural employment in overall employment. Furthermore, the recorded increase in private
sector employment was partly affected by the reclassification of businesses, due to the
privatization of socially-owned enterprises, and by improvements in the data coverage. In 2006,
around 57 per cent of non-budget, non-agricultural employment was in the private sector, almost
double the share of the prior five years.

According to the 2006 LFS, 62 per cent of employment was in the private sector, with
employment in the service sector levelling at around 50 per cent of total employment. Over 42
per cent of all service sector workers were employed in non-market services, i.e. public
administration, health and education, while the share of employment in market-oriented services
(57.8 per cent) is comparable to other Central and Eastern Europe (CEE) countries (56 percent).25
The dominant share of employment in the service sector in OECD countries indicates that this
sector may still play an important role in absorbing the labour shed by the restructuring of Serbian
enterprises.26 In 2006, wage employees represented 73 per cent of all employed, self-employed
workers accounted for 20 per cent, and contributing family members accounted for nearly 7 per
cent of overall employment.

Redundancies combined with a large stock of unemployed (nearly 700 thousand persons),
exerted pressures in the labour market and generated excessive labour supply compared to weak
demand. The discrepancy between labour supply and demand can also be observed through the
unemployment to vacancies ratio. The registered number of unemployed in December 2006 was
19 times higher than the registered number of vacancies, (used as a proxy for labour demand).

In 2006, the labour force participation in Serbia was 63.6 per cent (table 1.3), lower than
in 2005 (65.2 percent, figure 1.2). This rate is significantly below the EU25 and EU15
participation rates, but it is above the rates of countries like Croatia, Bulgaria and Romania. The
overall participation rate is affected by the low participation of women, particularly the younger
cohort (see table 1.4), mostly engaged in household and care duties. The main determinant of
adult men inactivity are personal or family reasons (41 per cent) and “other” reasons (40 per
cent), while for young women personal or family reasons are the most important determinant of
inactivity (68 per cent).

25
World Bank, Serbia: Labor market assessment, Washington D.C., 2006, op.cit.
26
The World Bank estimates that about 80,000 workers of socially-owned enterprises may become
redundant in 2008.

8
 Table 1.3: Labour force participation, employment and unemployment in Serbia and
selected countries (percentages)
Participation rate Employment rate Unemployment rate (ILO)
All Women All Women All Women
EU 25 70.3 62.9 64.0 56.6 9.0 10.0
EU 15 71.2 63.5 65.3 57.6 8.3 9.2
Serbia 63.6 54.5 49.9 40.6 21.6 25.5
Bulgaria 62.2 57.2 56.0 51.6 10.0 8.0
Croatia 63.3 57.1 54.8 49.0 13.4 14.3
Romania 61.6 54.6 57.2 51.1 7.2 6.5
Source: LFS 2006 for Serbia; EUROSTAT, Labour market trends, 11/2006 (IV quarter 2005).

Notwithstanding the strong economic growth experienced by Serbia in recent years,

employment continued to fall. The number of workers in 2006 was almost 300,000 lower than in
2004. The employment rate declined from 53.4 per cent in 2004 to less than 50 per cent in 2006
(figure 1.2). Such rate is considerably below the average employment of EU25 and EU15
countries, but it is also below the rates of Croatia, Bulgaria and Romania. Women, young people,
the poorly educated and the residents in urban areas are the groups less likely to be employed
(table 1.5), although for young people, the low employment rate is partly explained by school
attendance (57 per cent).

Unemployment in Serbia was historically relatively high compared to other centrally

planned economies. The unemployment rate increased from 19.5 per cent in 2004 to 21.8 percent
in 2005, while it declined slightly in 2006 (21.6 per cent) and more markedly in 2007 (18.8 per
cent). Despite this recent drop, the unemployment rate in Serbia remains one of the highest in the
region.

9
 Figure 1.2: Key labour market indicators for Serbia, 2004-2006

70,0 66,4
63,6
60,0 53,4
49,9
50,0

40,0
30,0
19,5 21,6
20,0
10,0

0,0
Labour force participation Employment rate Unemployment rate (ILO)
rate

2004 2006

Source: LFS 2004 and 2006.

Unemployment is long-term in nature. The incidence of long-term unemployment is

extremely high, as approximately 80 per cent of the unemployed in 2006 had been jobless for a
year or more.

Table 1.4: Key labour market indicators for Serbia by age and sex, 2006 (percentages)
Age groups Participation Unemployment Employment rate Unemployment
rate rate ratio
(ILO definition)
All
15 to 64 13.7
63.6 21.6 49.9
15 to 24
37.4 47.8 19.5 17.8
25 to 54
80.4 19.6 64.6 15.7
55 to 64
36.1 9.5 32.6 …
Men
15 to 64 13.5
72.7 18.6 59.2
15 to 24
43.9 43.1 25.0 18.9
25 to 54
88.6 16.4 74.1 14.5
55 to 64
51.5 8.6 47.1 …
Women
15 to 64 13.9
54.5 25.5 40.6
15 to 24
30.1 55.5 13.4 16.7
25 to 54
72.3 23.4 55.4 16.9
55 to 64
22.1 11.4 19.6 …
Source: LFS 2006.

10
 Long-term unemployment affects women and men equally, while adults (aged 25-64), the
poorly educated, the residents in Central Serbia and in rural areas are more affected than other
groups. Women, especially the young, are more likely to be unemployed than their male
counterparts, despite their better educational achievement, (table 1.5).

Table 1.5: Labour market indicators by education and location, 2005 (percentages)27
Participation Unemployment Employment Unemployment Long-term
rates rate ratio ratio unemployment
rate
Total 65.2 21.8 51.0 14.2 79.0
Education
Primary or less 46.2 20.6 36.7 9.5 86.1
Secondary education 71.8 24.3 54.4 17.5 78.2
Higher education 83.2 14.5 71.1 12.0 70.6
Region
Belgrade 63.8 20.3 50.8 13.0 71.8
Central Serbia 65.8 23.2 50.5 15.3 83.9
Vojvodina 65.2 20.2 51.9 13.2 74.0
Location
Other 66.7 20.5 52.9 13.8 82.2
Urban (city) 64.2 22.7 49.6 14.6 76.9

Source: LFS 2005.

Part-time employment increased from one per cent of total employment in 2002 to 7.1
per cent in 2006. Similarly, temporary work and fixed term contracts increased their share in total
employment from 5 per cent in 2002 to 13 per cent in 2006. Such developments are mainly
determined by the changes introduced in 2001 in the labour law on the treatment of fixed-term
contracts and part-time employment. However, most Serbian workers are still engaged in full-
time jobs.28 Flexible forms of employment could be important to improve employment
opportunities, especially for women and youth which are the least employed groups in Serbia.
The question is whether these flexible forms of employment will lead to more stable employment

27
As the LFS 2006 contain unreliable estimate for some indicators, the data presented in this table are
drawn from the LSF 2005.
28
Krstić, G., “Labour markets in Serbia and Montenegro”, background paper prepared in 2004 for World
Bank, Agenda for Economic Growth and Employment, Report No. 29258-YU, Washington, DC.

11
prospects, or will have a negative impact on future labour market outcomes, increasing the risk of
moving from one temporary job to another without being able to build a career.29

A significant share of total employment in Serbia is in the informal economy. According

to the Living Standards Measurement Survey (LSMS) data, informal employment accounted for
30 per cent of total employment in 2002 and 35 per cent in 2003.30 The measurement of the
LSMS of 2007 confirms a 35 percent share of informal employment, despite the progresses made
since 2002 in tax administration and in the business regulatory system. The LSMS also indicates
that the informal economy has been increasingly absorbing unqualified and unskilled labour,
since as much as 53 per cent of informal workers had primary education, 39 per cent had
secondary education and 8 per cent were university graduates.31 The most common type of
informal economy activities are subsistence farming and self-employment in trade and other
services. The estimates using the 2005 LFS data suggest that informal employment may account
for 43 percent of total employment.32 However, it should be noted that the data of the LSMS and
the LFS are not comparable. Differently from the LSMS, the LFS is not designed to measure the
scale of informal economy and the classification used – all the self-employed below a certain
level of education and all employees working for smaller companies – clearly leads to an over-
estimation of the number of workers engaged in the informal economy.

29
Rosas, G., Rossignotti G., “Starting the new millenium right: Decent employment for young people”,
International Labour Review, Vol. 144, No.2, 2005. While the improvements in youth employment prospects
in OECD countries were the result of increased use of fixed-term employment contracts, the empirical
evidence from the European Union (EU) seems to indicate that these contracts, more than a stepping stone
to stable employment, are pushing young people into a vicious circle of unemployment spells and
precarious employment.
30
Krstić, G., “Labour markets in Serbia and Montenegro”, op.cit. The definition of informal employment in
this study covered: (1) workers employed with no social contributions paid; (2) people employed in a
private unregistered firm; and (3) the employed who work at home, from door-to-door, in the flea market
and in other places.
31
Living Standards Measurement Survey, chapter 9 “Employment status” Belgrade, 2008.The LSMS 2007
used the same definition of informal employment used in 2002 and 2003.
32
Informal employment, according to the LFS data, includes the following categories of workers: (1) self-
employed individuals who completed secondary education or less; (2) contributing family workers; (3)
employees in private firms with less than 10 workers; (3) owners of firms with less than 10 employees.

12
CHAPTER 2. ANALYSIS OF THE YOUTH LABOUR MARKET

2.1 Socio-demographic characteristics of young people

2.1.1 Demographic trends

The resident population in Serbia (without Kosovo and Metohia) was estimated in 2005
at 7.4 million, 51 per cent of whom were women (table 2.1).33 The slight increase in the
proportion of women in the total population is mainly due to emigration flows and to the conflicts
of the 1990s. Negative growth rates have been recorded since the early 1990s and this is causing a
decline of natural population growth. Total fertility rate — measured as number of births per
woman in reproductive age (15-49) — declined from 2.1 in 1981 to 1.5 in 2005, which is below
the population replacement rate. It is estimated that around 3.5 per cent of the population
emigrated before 1991, while between 1 and 3 per cent emigrated after the beak-up of the Former
Yugoslavia and the start of the conflicts in neighbouring republics.34 The flow of refugees who
relocated to Serbia in the 1990s accounts for approximately 5 per cent of the overall population. 35

Table 2.1: Demographic trends for Serbia, 1981-2005 (percentages)

1981 1991 2002 2005
Total population 7,729,236 7,576,837 7,498,001 7,440,769
Men 49.3 48.9 48.6 48.6
Women 50.7 51.1 51.4 51.4
0-14 20.5 19.2 15.7 15.8
15-24 14.2 13.2 13.4 13.1
25-64 54.9 55.8 54.3 54.0
65+ 10.4 11.8 16.5 17.2
Child dependency ratio 29.6 27.8 23.2 23.5
Old age dependency ratio 15.0 17.1 24.4 25.6
Total fertility rate 2.1 1.8 1.5 1.5
Natural population growth 3.6* 0.2 -3.3 -4.6

Note: Data refers to the Republic of Serbia, without Kosovo and Metohia, currently under UN
administration. Data for 1981, 1991 and 2002 are derived from the population census, for
2005 from mid-year population estimates. The 2002 census was conducted only in the
territory of Central Serbia and Vojvodina. Natural population growth for 1981 refers to
Central Serbia.
Source: RSO, Statistical Yearbook, 2006 op.cit.

33
See notes to table 2.1.
34
According to the 2002 Census around 414, 800 people from Serbia and Montenegro live abroad.
35
According to UNHCR estimates, about 2-3 percent of the overall population is still registered as
internally displaced and they were not, therefore, included in the resident population.

13
 The decline in fertility rates and the increase in emigration flows of working age people
caused significant changes in the age structure of the population. The share of children up to 15 in
the overall population declined from 20.5 per cent in 1981 to 15.8 per cent in 2005, while the
share of elderly people (65 and over) increased from 10.4 per cent to 17.2 per cent over the same
period. The share of young people 15-24 in the overall population declined from 14.2 per cent in
1981 to 13.1 per cent in 2005.

Thus, Serbia is facing a significant aging of the population and this trend is likely to
continue over the next three decades (figure 2.1).

Figure 2.1 Projection s of the children, adult and elderly people in the total population

80,0
70,0
60,0
50,0
40,0
30,0
20,0
10,0
0,0
1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Share of children (0-14) in total population

Share of adults (15-64) in total population
Share of elderly (65+) in total population

Source: World Bank, Serbia: Labour market assessment, 2006 op.cit; UN projections for Serbia and
Montenegro, downloadable at http://www.un.org/esa/population/.

The child dependency ratio, which measures the proportion of the population under 15 in
the working age population, is declining, while the old age dependency ratio increased
significantly. The lower child and higher old age dependency ratios, coupled with negative
population growth, will affect labour supply, as the working age population will decrease in
relative terms as of 2010. In absolute terms, this implies a loss of 200,000 in the working age
population between 2005 and 2020.36

36
M. Arandarenko, Transition from education to work. Serbia Country Report, European Training
Foundation, Turin, 2007.

14
2.1.2 Trends in education
School enrolment rates in Serbia slightly increased over the last two years. The basic
education enrolment rate was 98.4 percent in the school year 2005/2006 and the dropout rate was
estimated at 0.36 percent.37 Although there is no significant sex difference in enrolment, drop-
outs are more frequent for girls belonging to disadvantaged groups (i.e., rural population, Roma,
children with special needs, refugees and internally displaced persons). The secondary enrolment
rate was 77.7 per cent in 2005/2006 while the drop-out rate was 2.3 per cent.38 Other data show
that drop-out rates during primary and secondary education were much higher than the official
estimates (15 per cent and 30 per cent, respectively).39 The United Nations Children Fund
(UNICEF) reported for 2005 a gross secondary enrolment rate of 88 per cent, which is below the
rate of the Czech Republic (97 per cent), Estonia (96.5 per cent) and Slovakia (91 per cent).
Tertiary gross enrolment rates were about 40 per cent, again lower than the average of South East
Europe (54 per cent).40

Figure 2.2: School enrolment rate of young people in Serbia, 2004-2005 (in
percentage of corresponding age population)
80
76 75
70

60 56
53
50

40 37 2004
33
2005
30

20

10

0
15-19 20-24 15-24

Source: LFS 2004 and 2005.

37
RSO, Statistical Yearbook, 2006, op.cit.
38
According to the results of the UNDP vulnerability survey conducted in Serbia in late 2004, around 92
per cent of school age children with domicile in non-Roma communities (residing close to Roma
settlements ) were enrolled in primary school, while this percentage was much lower for refugees and IDPs
and the Roma population — 85 per cent and 74 per cent respectively. The corresponding rates for
secondary education were 71 per cent for the non-Roma population, 58 per cent for refugees and IDPs and
only 19 per cent for Roma youth. Higher education rates (college and university) were: 10 per cent for non-
Roma, 6 per cent for refugees and IDPs and one percent for Roma youth. UNDP, At risk: The social
vulnerability of Roma, refugees and internally displaced persons in Serbia, Belgrade, 2006.
39
Republic of Serbia, Poverty Reduction Strategy Paper (PRSP), Belgrade 2003.
40
United Nations Children Fund (UNICEF), The state of the world’s children 2006, New York, 2006;
UNDP, Human development report for Serbia 2006, Belgrade, 2006 and UNESCO-UIS, Statistics in Brief,
Paris, 2006.

15
 According to the LFS data, the overall school enrolment rate of young people in Serbia
was 53 per cent in 2004 and 56 per cent in 2005 (figure 2.2). This rate is lower than the EU
average, especially compared to the EU 10 countries (figure 2.3), but higher than those of other
countries in the region.

Figure 2.3: School enrolment rates of young people in Serbia and selected
countries (in percentage of the population 15-24)

70
63
59 58
60
53
50 47 46

40

30 26

20

10

0
EU 25 EU 15 EU 10 Albania Croatia Romania Serbia

Source: EUROSTAT (data for 2003); for Serbia LFS 2004.

The adult literacy rate for the Serbian population 15 years and older was 96.4 per cent in
41
2003. Men’s literacy rates were higher than women’s (98.9 per cent compared to 94.1 per cent).
Youth literacy rate was 99.4 percent (99.4 percent for men and 99.3 percent for women). The LFS
data indicates that in 2005 over half of the youth cohort had attained secondary education, 42 per
cent had completed primary education or less, while only 2.2 percent had completed higher
education (figure 2.4).

41
UNESCO Institute for Statistics, downloadable at
http://www.uis.unesco.org/profiles/EN/GEN/countryProfile_en.aspx?code=8910

16
 Figure 2.4: Educational attainment of young people (2005)

90,0

80,0 84,6
73,2
70,0
60,0
50,0

40,0
30,0 26,9

20,0
11,0
10,0 4,4
0,0
Primary school or less Secondary education Higher education

15-19 20-24

Source: LFS 2005.

Among young adults, only 4.4 per cent had attained higher education in 2005. Such a
small share of young people having completed tertiary education suggests relatively low
enrolment rates, but also that most of those enrolled in tertiary education were still studying at the
time of the survey. Only 11 per cent of university students graduate on time and the average
length of study is about eight years.42 Such protracted length of university studies could be partly
explained by the poor prospects that highly educated youth face in the labour market, given that
their unemployment rate is higher than their less educated peers.

The educational attainment data of the LFS disaggregated by sex and other characteristics
show that young women, Serbs and youth residing in urban areas are better educated than other
groups (table 2.2). The educational achievement of youth is lower than that of adults since
approximately 57 per cent of the young people were still attending secondary school or university
at the time of the survey.

42
Turajlić, S., “Higher Education in Serbia – Reform Strategy”, Annex 3, Ministry of Education and Sport.
Of the Republic of Serbia, 2003

17
 Table 2.2: Educational attainment of Serbian population by sex, age, ethnicity and
location, 2005 (percentages)

Primary or less Secondary education Higher education

Age group 15-24 25 + 15-24 25 + 15-24 25 +
Total 41.7 39.5 56.1 46.4 2.2 14.1
Sex
Women 42.1 30.6 55.3 53.3 2.7 16.1
Men 41.4 47.8 56.9 40.0 1.7 12.2
Ethnicity
Serbs 40.3 38.1 57.3 47.3 2.4 14.6
Others 51.6 50.2 47.5 39.4 0.9 10.4
Location
Other 48.0 58.0 50.8 37.2 1.2 4.7
Urban
37.6 25.3 59.6 53.4 2.8 21.3
(city)
Source: LFS 2005.

2.2 Youth labour force participation

The youth labour market is characterized by relatively low participation rates. In 2005,
young people in the labour force were 35.8 per cent of the 15-24 population (table 2.3), lower
than the EU, CEE and CIS countries (table 2.4). Youth participation in Serbia is considerably
lower than the national average of 64 percent. Such low rate of activity is mostly due to school
attendance and to the fact that many students do not work while studying (93 percent). Another
factor that determines low participation rates is the low participation of young women (31 per
cent), teenagers (19 per cent) and youth with low educational attainment (17 per cent).

18
 Table 2.3: Youth key labour market indicators by sex, age, education and location
Participation Unemployment Employment Unemployment
rates rate ratio ratio
Total 35.8 47.7 18.7 17.1
Sex
Women 30.6 51.7 14.8 15.8
Men 40.8 44.9 22.5 18.3
Age group
15-19 19.1 52.0 9.1 9.9
20-24 52.1 46.2 28.1 24.1
Education
Primary or less 16.9 46.3 9.1 7.8
Secondary education 48.5 47.9 25.3 23.2
Higher education 71.5 52.3 34.1 37.4
Region
Belgrade 31.8 55.8 14.1 17.8
Central Serbia 37.3 48.9 19.1 18.3
Vojvodina 36.1 39.6 21.8 14.3
Location
Other 42.7 43.0 24.4 18.4
Urban (city) 31.2 52.1 14.9 16.2

Source: LFS 2005.

Youth in Serbia experience low employment and extremely high unemployment rates.
Employment and unemployment remained stable between 2004 and 2006, levelling at 19.5 per
cent and 47.8 per cent respectively. However, compared to 2006, the data of the 2007 LFS
indicate a drop in youth participation rates (from 37.4 to 33.3 per cent) and employment (from
19.5 to 18.7 per cent), but also a decrease in the unemployment rate (from 47.8 to 43.7 per cent).
The youth employment rate in Serbia is almost twice lower —and the unemployment rate twice
higher— than in CEE and CIS countries.

19
 Table 2.4 Youth main labour market indicators for Serbia and other countries
Developed
and EU CEE and CIS Serbia
countries
Youth share in total working-age
15.7 22.1 18.7
population
Youth labour force participation rates 51.8 41.8 37.4
Youth employment to population ratio 45.0 33.5 19.5
Youth unemployment rate 13.1 19.9 47.8
Youth-to-adult unemployment rate 2.3 2.6 2.5
Youth share in total unemployed 26.2 32.9 24.4
Source: ILO, Global Employment Trends for Youth, Geneva, 2006; LFS 2006.

2.3 Youth employment

In 2005, youth employment accounted for 7 per cent of overall employment. Only 18.7
per cent of youth are employed compared to 51 per cent of the working age population (table
2.3), even though young people account for 19 per cent of the working age population. The
employment ratio of teenagers and young adults is 9.1 per cent and 28.1 per cent respectively.
The low level of employment of young adults (4 per cent) is due to the fact that only a small
percentage completes university studies on time (10 per cent).

The labour market disadvantage of young women compared to men mirrors the adult
labour market: 14.8 per cent of young women were employed (22.5 percent for young men)
compared to 40.8 per cent of adult women (61.2 per cent for men). Lower employment rates for
women are due partly to discriminatory practices in the labour market and to limited opportunities
for women to reconcile work and family responsibilities.

Young people living in rural areas and in Vojvodina have higher employment rates than
young people living in other regions, mainly due to farming activities, feature that is also
observable for the adult labour market.

Approximately 34 per cent of youth with tertiary education are employed compared to
only 9 per cent for young people with primary education or less. However, university graduates
also have higher unemployment rates than youth with lower educational attainment. This finding
points to mismatches between the educational outcomes of young graduates and the requirements
of the labour market. The determinants of high youth unemployment rates are further elaborated
in section 2.6.

20
 Table 2.5: Youth employment by sector of economic activity, type of business, sex, age
group, educational attainment and location, 2005
Sector of economic activity Type of business
Non-
Agriculture Manufacturing Services Private
private
All employed 15-64 18.9 29.1 52.0 42.4 57.6
All employed 15-24 16.8 23.4 59.8 19.9 80.2
Sex
Women 9.9 12.0 78.1 17.6 82.4
Men 21.2 30.6 48.2 21.3 78.8
Age group
15-19 30.5 21.9 47.6 10.8 89.2
20-24 12.5 23.9 63.7 22.7 77.3
Education
Primary or less 45.2 19.3 35.4 6.0 94.0
Secondary 10.1 25.2 64.7 21.5 78.5
Higher education 0.0 9.6 90.4 58.4 41.6
Location
Other 30.2 23.7 46.1 18.3 81.8
Urban (city) 2.2 23.1 74.7 21.6 78.4
Source: LFS 2005.

Young workers are over-represented in the service sector. Nearly 60 per cent of all youth
employment was in services in 2005, while for adults the share was 50 per cent (table 2.5). Figure
2.5 shows the distribution of youth employment by occupational class. Most young workers had
service-type of occupations (for example shop and market sales workers, craft persons, related
trade workers, etc.). Compared to young men, young women were over-represented in service
sector jobs, whereas the opposite occurred for agriculture and manufacturing. More young adults
than teenagers are engaged in services and manufacturing, due to their higher educational
attainment. Furthermore, highly educated youth predominate in services (90 per cent), while the
least educated dominate in agriculture (45 per cent). A high concentration of university graduates
in the service sector may, however, indicate that these young people are overqualified for the
work they do. Young urban people mainly work in services (75 per cent) and only a negligible
share is engaged in agriculture (2 per cent).

21
 Figure 2.5: Youth employment by occupation, 2005
35
32,5
30
24,5
25

20

15 13,2 12,5
11,1
10
4,5
5 1,8

0
Elementary Crafts, Skilled Service Clerks Professional Mangerial
related agriculture workers workers workers
workers and fishery

Source: LFS 2005.

Approximately 80 per cent of young workers are employed in the private sector, young
women more than men (82 per cent and 79 per cent respectively). This is opposite to what would
be expected, since the non-private sector usually allows women a better reconciliation of work
and family responsibilities. The share of young adults employed in the non-private sector was
about twice higher than that of teenagers, which suggests that the non-private sector requires
workers with a higher level of education. This is confirmed by cross-referencing employment
data by type of business and educational attainment of workers: most youth with primary and
secondary education were employed in the private sector (94 per cent and 78 per cent
respectively).

Around 77 per cent of young employed are wage employees (83 per cent women and 73
per cent men). The share of young self-employed in overall youth employment is only 9 per cent
(6 per cent women and 12 per cent men) compared to 20 per cent of adult workers (table 2.6).
Contributing family members represented 14 per cent of youth employment (11 per cent women
and 15 per cent men). Interestingly, the share of wage employees on overall youth employment
increases with educational attainment, with 93 per cent of university graduates being wage
employees compared to 49.8 per cent of youth with primary education or less.

22
 Table 2.6: Employment status and type of employment by sex, age, education and location
Employment status Type of employment
Contributing
Self- Unlimited Temporary
Employees family Part time Full time
employed duration duration
members
All employed
Employed 15-64 17.8 75.4 6.8 5.7 94.3 84. 7 15.3
Youth employed
Employed 15-24 9.4 77.0 13.6 11.0 89.0 62.4 37.6
Sex
Women 5.9 83.3 10.8 11.5 88.5 71.4 28.6
Men 11.6 73.0 15.4 10.8 89.2 56.7 43.3
Age group
15-19 10.0 63.1 26.9 22.3 77.7 50.5 49.5
20-24 9.2 81.4 9.4 7.5 92.5 66.2 33.8
Education
Primary or
16.0 49.8 34.3 26.7 73.3 53.6 46.4
less
Secondary 8.1 83.4 8.5 7.0 93.0 65.4 34.6
Higher 0.0 92.6 7.4 7.4 92.6 50.4 49.6
Location
Other 11.0 66.9 22.1 12.2 87.8 62.6 37.5
Urban-city 7.6 88.0 4.4 9.7 90.3 62.3 37.7
Source: LFS 2005.

The rate of youth self-employment in Serbia (4 percent) is three times lower than the
average level of youth self-employment in other countries.43 A number of social and cultural
reasons may contribute to explain such low rates. First, most young people in Serbia come from
families with no entrepreneurial background, since, until recently, most employment was
concentrated in state- or socially-owned enterprises. Second, the unfavourable regulatory
framework inherited from the 1990s, lack of start-up financing and poorly developed business
advisory services hamper youth entrepreneurship. However, this form of employment could be
particularly important in improving youth employment prospects, especially so when wage
employment opportunities remain limited.44 In addition, the specific features of self-

43
International Labour Organisation (ILO), Starting right: Decent work for young people, Background
Paper for Tripartite Meeting on Youth Employment: The Way Forward, Geneva 13-15, October, 2004. The
average level of youth self-employment measured in 41 countries was 12 per cent.
44
Dutz, M., C. Kauffmann, S. Najarian, P. Sanfey and R. Yemtsov, “Labour market states, mobility and
entrepreneurship in transition economies”, Brazilian Journal of Business Economics, 4(2), 2004 p. 37-49.

23
employment—flexible working hours, greater independence, higher job satisfaction and greater
earnings opportunities—may better respond to youth aspirations. However, in Serbia self-
employment appears to be a second best solution: average monthly earnings are lower than
employees’ wages and the higher the education level the higher the percentage of wage-workers
compared to the self-employed (see section 2.4).

Compared to adults, more youth are employed part-time (6 per cent and 11 per cent,
respectively, table 2.6). Among youth part-timers, only 1.9 per cent did not want a full-time job;
most youth were involuntarily working part-time because they were in education or training (36.3
per cent), due to of the specific nature of the job (25.6 per cent), or due to family responsibilities
(9.9 per cent). Approximately 22 per cent were working on a part-time basis because no full-time
job was available. Such results suggest that part-time work is not an affordable option for young
Serbians, as only those in education or training or those who could not find a full time job choose
this type of employment. Women, particularly, can hardly afford to be employed on a part-time
basis, since the costs associated with work (transport, meals, cloths, childcare, etc.) do not
compare favourably to part-time wages.

Around 38 percent of young workers had temporary jobs, twice as much than adult
workers. While there is no sensible gender difference in part-time work (11.5 per cent women and
10.8 per cent men), the share of young men in temporary employment is considerably higher than
the share of women (43 per cent and 29 per cent respectively). Teenagers and young people with
lower educational attainment are more likely to hold part-time and temporary jobs than other
groups, as most of these jobs are low skilled.

24
2.4. Young workers in the informal economy

Recent evidence suggests that the incidence of the informal economy in many transitional
economies, including Serbia, is increasing.45 Although the informal economy was not unknown in
Yugoslavia and in other formerly socialist economies, the combination of economic and non-
economic shocks in Serbia over the last decade created fertile conditions for its growth.46 Political
instability and economic crises resulted in a dramatic downfall of economic activity, which in
turn led to increased un(der)employment and poverty. Declining incomes, the limited
enforcement of labour and tax regulations and the mild penalties applied to violations of labour
law, created incentives for both individuals and enterprises to engage in the informal economy.
During the 1990s the informal economy, largely tolerated by the State, was the main survival
strategy for many Serbian households. In that period, the ratio of the informal economy to
registered GDP accounted for about one third. This share increased from 31.6 per cent in 1991 to
36.4 per cent in 1997, reaching a peak of 54.4 per cent during the period of hyperinflation
(1993).47 Since 1994, with the stabilization of prices and improving economic trends, the extent
of the informal economy started to decrease. According to the estimates based on the LSMS panel
data, informal employment in Serbia accounted for 30 per cent of overall employment in 2002
and for 35 per cent in both 2003 and 2007.48 However, the empirical evidence of the LSMS
indicates that the informality rate for youth increased substantially (from 41 per cent in 2002 to
50 per cent in 2007) mainly due to the relative absence of remunerative jobs in the formal
economy.49

A survey conducted by the European Training Foundation in 2006 on the transition from
school to work provides another set of data on formal and informal employment of Serbian youth
15 to 29 years old.50 Among young people employed, the survey distinguish: i) those who are
paid registered employees, ii) those who are paid unregistered workers, iii) the self-employed
with no employees, iv) the self-employed with employees, and v) contributing family workers.
By including in the account of informal employment all the unregistered employees, all the self-

45
EBRD, Transition Report 2006: Finance in transition. London, EBRD, 2006, op.cit.
46
The economic and non-economic factors that contributed to the growth of the informal economy in
Serbia refers to the episodes of hyperinflation, the slow transition to the market economy, the break-up’ of
socialist Yugoslavia, the economic sanctions imposed on Serbia and regional conflicts.
47
Krstić, G., “Labour markets in Serbia and Montenegro”, background paper prepared for Agenda for
economic growth and employment, World Bank, 2004, op.cit.
48
Krstić, G., “Labour markets in Serbia and Montenegro”, background paper prepared for Agenda for
Economic Growth and Employment, World Bank, 2004, op.cit., Chapter 9”Employment” in: Living
Standard Measurement Study Serbia 2002–2007, Republican Statistical Office (forthcoming).
49
The definition of informal employment in the LSMS included: i) persons employed with no social
contributions paid; ii) people employed in private, unregistered firms; and iii) people working at home,
from door-to-door, in the flea market and in other “informal” workplaces.
50
ETF, Serbia: School-to-work transition survey, ETF, Turin (unpublished).

25
employed with no employees and the contributing family members, the share of informal
employment on total youth employment 15-29 is approximately 37 per cent.

Figure 2.6: Formal and informal workers by age group and sex, 2006

70
62,6
59,3
60 55,0
51,3
48,7
50
40,6
40 37,0

30
22,8
20 14,6
8,0
10

0
15-19 20-24 25-29 Men Women

Informal workers Formal workers

Source: ETF, Serbia: School-to-work transition survey, ETF, Turin, (unpublished)

As figure 2.6 shows, informality is widespread among teenagers and young adults, but
decreases with age and, probably, with work experience. This finding may point to the fact that
young people revert to the informal economy to gain the work experience required by employers.
Men are more engaged in the informal economy compared to women (59 per cent and 40 per cent
respectively).

Informality is strongly determined by the level of education of young workers and the
economic sector. Nearly 95 per cent of all young workers with primary education are informally
employed, compared to 40 per cent of workers with secondary education and 16.3 per cent of
higher educated employees. Interestingly, young workers who dropped out before completing
education are more likely to be engaged in the informal economy that those who completed their
studies: for instance, among the unregistered employees 13.3 per cent dropped out from primary
education (compared to none among the registered employees); 13.8 per cent dropped out from
secondary education (compared to 10.8 per cent of formal employees), and 32.8 per cent dropped
out from tertiary education (compared to 27.6 per cent of registered workers).

26
 Figure 2.7: Formal and informal workers by education and economic sector, 2006

90,0 81,2
76,9
80,0
70,0
70,0
60,7
60,0
50,0
39,1
40,0
30,0
20,0 14,4 14,6 15,4 17,4
8,7
10,0
0,3 1,4
0,0
Primary Secondary Higher Agriculture Manufacturing Services
education education education

Informal workers Formal workers

Source: ETF, Serbia: School-to-work transition survey, ETF, Turin, (unpublished)

Most young people working in agriculture do so informally (85.7 per cent), while the
share of young informal workers in manufacturing and services is just over one third of all youth
employed (33.3 per cent and 32.8 per cent respectively).51These data indicate that young men,
youth with a lower level of education, school drop-outs and youth living in rural areas are more
exposed to informal employment than other groups. This finding is also confirmed by the 2005
LFS data. The LFS data, unfortunately, do not distinguishing between people working in the
formal and informal economy. To overcome this limitation, the following data analysis is based
on the definition developed by the World Bank labour market assessment, which considers the
following categories as being “informally” employed: (1) self-employed individuals who
completed secondary education or less; (2) contributing family members; (3) employees in
private firms with less than 10 employees; (3) owners of firms with less than 10 employees.52
According to this definition, in 2005 informal employment accounted for 43 per cent of overall
employment, while 63 per cent of young workers were informally employed. Table 2.7 provides a
breakdown of formal and informal employment of young and adult workers.

51
Given that people in rural areas represent the majority of those employed in the informal economy, it can
be assumed that such persons mainly work in agriculture. The new data set of the 2007 LSMS records that
in rural areas over 52 percent of employees worked in the informal economy, 11.3 percent up compared to
2002. Republic Statistical Office (RSO), Living Standards Measurements Study. Serbia 2002 – 2007,
Belgrade, 2008.
52
The rationale for this definition of informal employment is provided in the study of the World Bank,
Serbia: Labour Market Assessment, No. 36576-YU, World Bank, 2006, op.cit. It is likely that the inclusion
of self-employed workers with a lower level of education and of all the employees of smaller companies
leads to an over-estimation of the extent of informal employment in Serbia. However, the data of the LFS
give the possibility of verifying whether certain individual characteristics have a bearing on the propensity
of individuals to be exposed to precarious working conditions.

27
Table 2.7: Characteristics of youth informal and formal employment
Youth All
Informality Informal Formal Informality Informal Formal
rate employment employment rate employment employment
Total 63.2 100.0 100.0 43.3 100.0 100.0
Sex
Women 65.8 40.4 35.9 43.5 40.3 40.0
Men 61.5 59.6 64.1 43.1 59.7 60.0
Age group
15-19 76.9 29.3 15.2 … … …
20-24 58.8 70.7 84.9 … … …
15-24 … … … 63.2 10.3 4.6
25-54 … … … 41.0 75.9 83.2
55-64 … … … 46.3 13.8 12.2
Education
Primary or less 84.1 27.0 8.7 65.2 34.1 13.9
Secondary 59.7 71.7 82.8 43.2 59.1 59.3
Higher education 22.1 1.4 8.5 16.2 6.8 26.8
Region
Belgrade 56.8 14.9 19.5 31.8 15.6 25.6
Central Serbia 66.0 54.1 47.8 47.1 54.8 47.0
Vojvodina 61.9 30.9 32.7 45.2 29.6 27.4
Location
Other 67.3 55.5 46.3 56.1 55.6 33.3
Urban (city) 58.7 44.5 53.7 33.7 44.4 66.7
Employment status
Self-employed 100.0 14.9 … 92.2 37.9 2.5
Employees 52.1 63.5 100.0 26.6 46.4 97.5
Contributing family
100.0 21.6 … 100.0 15.7 …
workers
Economic sector
Agriculture 94.6 25.2 2.5 87.0 38.1 4.3
Manufacturing 39.9 14.8 38.2 25.8 17.4 38.0
Services 63.4 60.1 59.3 37.1 44.6 57.7
Job experience (yrs) … 2.9 2.7 … 18.3 19.0
Source: LFS 2005.

Several points of interest arise. First, young people are over-represented in the informal
economy compared to adults: approximately 10 per cent of all informal workers were young
people, compared to only 5 per cent of formal workers. Among young workers, almost two thirds
worked informally (63.2 per cent), compared to 41 per cent of adults and 46 per cent for older

28
 workers (55+). Second, educational attainment is a strong determinant of informality: young
people with completed primary education or less were almost four times more likely to be
informally employed compared to young people with higher education. Third, due to the
definition of informality adopted, young self-employed and contributing family members are
over-represented. This points to the relevance of agriculture as the main source of informal
employment, whereas formal workers are primarily found in the services sector. That is why
young people residing in rural areas and in Central Serbia are more likely to be informally
employed than those living in other regions. Finally, while there is little difference in weekly
hours worked, the formal economy has a substantial earning premium (about 35 per cent, table
2.8).53 However, earnings in the formal economy tend to be more dispersed, as measured by the
coefficient of variation of hourly earnings. These findings appear to be the same for both the
youth and adult labour markets.

Table 2.8: Average main job earnings and hours worked in the informal and formal
economy, 2005
Youth Adults
Informal Formal Informal Formal
employment employment employment employment
Weekly hours worked in the main job 45.7 44.2 47.9 43.0
Monthly net main job earnings 10,426 14,370 14,072 17,485
Monthly net main job hourly earnings 61.9 83.4 76.0 102.6
Coefficient of variation hourly net earnings main job 0.402 0.216 0.363 0.218

Source: LFS 2005.

Engagement in informal economy in Serbia is associated with low earnings, poverty and
vulnerability. According to the LSMS data, informal workers in 2002 faced a higher risk to
poverty than the national average (over a third) and around 42 per cent of the working poors were
employed in the informal economy. In 2007, of the total number of employed persons below the
poverty line, over 72 per cent worked in the informal economy.54 Moreover, the subjective
perceptions of young people about their household financial situation, is more negative among
workers in the informal economy than for the others (figure 2.8).

53
Youth earnings in the formal and informal economy could not be disaggregated by individual
characteristics due to the small number of observations (<100) for some modalities.
54
Krstić, G., “Labour markets in Serbia and Montenegro”, background paper prepared for Agenda for
Economic Growth and Employment, World Bank, 2004, op.cit; Republic Statistical Office (RSO), Living
Standards Measurements Study. Serbia 2002 – 2007, Belgrade, 2008, op.cit.

29
 Figure 2.8: Young people’s perception of their household situation (by type of
employment)

45,0
41,3
40,0
34,8
35,0 33,2
30,3
30,0 28,1
26,5
25,0 Informal
20,0 Formal

15,0

10,0
4,1
5,0 1,7
0,0
Very good Predominantly good Predominantly bad Bad

Source: LFS 2005.

Approximately 41 per cent of young workers in the informal economy think that the
situation of their household is bad compared to 30 per cent of other young workers. Young
workers in the informal economy are also more likely to perform their job in places other than in
a “proper establishment”, such as farm, home, “from door to door”, vehicle, street, market place
and other “informal” places, compared to formal workers (43 per cent and 18 per cent
respectively). Around 49 per cent of young workers in the informal economy are looking for
other jobs compared to 39 per cent of formal workers, and the main reason is unsatisfactory
working conditions figure 2.9).

Figure 2.9: Reasons for seeking other job by type of employment

Informal Formal

80,0
73,6
70,0
59,9
60,0
50,0
40,0
30,0
19,7
17,2 14,9
20,0
10,4
10,0 2,3 0,5 0,9 0,6
0,0
Unstable, Secondary job Better working Other reasons Not seeking other
temporary current conditions job
job

Source: LFS 2005.

30
 Even though the informal economy may be an important safety net for many individuals
and households, the disadvantages for workers, business and society at large far outweigh
advantages. In the long run, the unfair competition exerted by the informal economy on formal
enterprises may lead to further job losses as companies are driven from the market; the losses in
tax revenues and social contributions means that the government will have to find additional
resources to finance basic services (health and education, for instance) and to provide a safety net
for elderly people who did not contribute. Numerous researches and surveys indicate that Serbia
has made significant progresses in recent years in the improvement of the business climate.
Hence, doing legitimate business has become easier, and, consequently, the economic incentives
to operate informally should become weaker.

The implications of extensive informality among young workers are multiple and relate
to human and financial resources wastage, forgone productivity and development. Young
informal workers in Serbia experience low incomes, lack of social protection, security, and
representations. The involvement in the informal economy early in the working life can have a
negative impact on future labour market outcomes, increasing the risk of future unemployment,
inactivity and poverty. These workers are more likely to lose their job and become unemployed
compared to workers in formal economy. In addition, informal workers are over twice as likely to
become inactive year-on.55 Similarly, the LFS shows that many young, highly educated people
are stuck in low-skill and low productive jobs. These young people run the risk that their skills
erode over time and this, in turn, has a negative impact on the probability to find better jobs.
Finally, the engagement of young people in the informal economy seems to be associated with
higher poverty risk and vulnerability, as the perceptions regarding household welfare is markedly
worse than that of formal workers.

55
According to the panel of LSMS data for 2002 and 2003, 68 per cent of informal workers are likely to
lose their job. Krstić, G., “Labour markets in Serbia and Montenegro”, 2004, op.cit

31
2.4 Wages and working conditions of young workers

Youth earn considerably less than adults: the average monthly earnings for young
workers in 2005 were 26 per cent lower than those of employed adults (table 2.9).56 If working
hours are considered, youth earnings disadvantage is slightly lower (24 per cent).

Table 2.9: Youth monthly earnings and hours worked by sex, age, education and
location, (in RS dinars)
Average monthly Average hourly Average weekly
earnings earnings hours
Adult employed (25-64) 16,503 93.7 44.8
Youth employed
12,084 71.0 45.0
Sex
Women
10,672 63.7 43.8
Men
13,007 75.7 45.9
Age group
15-19
9,817 70.7 43.3
20-24
12,690 71.0 45.5
Education
Primary or less
8,491 51.1 45.2
Secondary education
12,594 73.7 45.2
Higher education
15,391 91.0 40.9
Location
Other
12,091 66.5 45.9
Urban (city)
12,078 74.8 44.3
Note: Average 2005 exchange rate USD/SR Dinars: 1 to 66.7.
Source: LFS 2005.

Among employed youth, those earning most are highly educated young men living in
urban areas. Young men earn on average 19 per cent more than women. If only young employees
are considered, male wage advantage is even higher (25 percent). Young workers with higher
educational attainment earn on average 23 per cent more than workers with only secondary
education, while young workers in urban areas had a wage premium of 12 per cent.

56
The minimum wage was set at 7,134 dinars for the period July-December 2005. The minimum wage is
determined twice a year on the basis of tripartite negotiations in the Socio-economic Council. Since 2002,
the ratio of minimum wage to average wage in Serbia was between 38 and 42 per cent. This ratio is in the
middle of the range for countries of Europe and Central Asia. World Bank, Labour market assessment,
2006, op.cit.

32
 Average monthly wages of young employees were higher than the earnings of young
self-employed including employers (table 2.10). However, the opposite holds when hours of work
are considered. Young self-employed earn on average 36 per cent more than young employees,
although these latter have a higher educational level.57 Young workers in the non-private sector
have hourly earnings premium in the range of 45 per cent58, while service workers had earnings
advantage compared to youth employed in manufacturing and agriculture (14 per cent and 106
per cent, respectively). This is due to the fact that the service and the non-private sector require
workers with higher education attainment. The earning differences by occupation show higher
hourly earnings for jobs that require higher education, such as managers and professionals, while
considerably lower earnings are found in elementary and process occupations.

Table 2.10: Youth average wage and hours worked by sex, age, education and
location, (in SR Dinars)

Average monthly Average hourly Average weekly

earnings earnings hours
Total 12,084 71.0 45.0
Employment status
Self-employed 10,836 94.0 41.4
Employees 12,425 69.1 45.8
Contributing family workers 2,179 34.7 25.8
Type of business
Non-private 14,354 93.8 41.5
Private 11,435 64.5 46.1
Economic sector
Agriculture 6,919 36.9 48.4
Manufacturing 13,214 66.8 47.1
Services 12,164 76.2 43. 9
Note: Average 2005 exchange rate USD/SR dinars: 1 to 66.7.
Source: LFS 2005.

As regards other working conditions, the LFS collected information on type of

employment and contracts (full-time and part-time, unlimited and temporary duration), job
experience, hours of work, place of work and wage arrears. However, there is no information on
entitlements such as health and old-age insurance, paid sick leave and annual paid leave, nor on

57
Median hourly earnings show that young self-employed earn only 7 per cent more than young
employees.
58
This premium is 40 percent using median hourly earnings.

33
the form of the employment contract (written or oral contract). Hence, it is not possible to
adequately measure how many young workers are in decent work. However, the cross-
referencing of information on working hours, involuntary part-time work and tenure of
employment, indicate the presence of shortcomings in the employment protection of young
workers.

Figure 2.10: Youth weekly hours worked

35,0
32,9

30,0
26,4
24,6
25,0

20,0

15,0
9,7
10,0
6,5
5,0

0,0
Up to 25 hours 26-39 hours 40 hours 41-50 hours 50 hours

Source: LFS 2005.

Young people worked on average 45 hours per week in 2005, which is comparable with
that of adults. 59 Young Serbians are working more hours than they did three years previously
when their average weekly hours were 43.1.60 Figure 2.10 shows that a good share of young
workers work overtime (26.4 per cent) and nearly 25 per cent work excessive hours. There are
some 7 per cent of young people still in education who also work, but they normally work around
27 hours per week.61 Agricultural occupations are those with the highest hours worked per
week— but also with the lowest hourly earnings. These data point to lower productivity of
agriculture relative to other sectors of the economy (figure 2.11). The data on hours worked seem
to indicate that employers in Serbia meet greater demand through longer hours rather than
through new hiring, particularly in the private sector. This is in line with the low rate of job
creation. This finding may indicate that the cost of hiring for enterprises does not compare

59
The new Labour Code of Serbia, entered into force in 2005, allows employers to redistribute working
hours across seasons or from period of slow demand to peak periods. Such reform placed Serbia on the top
10 list of the Doing Business 2006 for the most flexible regulation on work hours.
60
LFS 2002. In the same year, adults averaged 41.4 hours per week.
61
Young people still in education and working are counted as employed according to the ILO criteria, as
activity always has priority over inactivity. Most of them are teenagers. As regards child labour, less than
one percent of young people aged 15-17 work. The minimum working age established by the Labour Law
is 15 years of age (article 24 of the Labour Law, Official Gazette of the Republic of Serbia, No. 24/2005).

34
favourably with paying overtime, but it also points to a weak bargaining power of workers’
organizations in negotiating more jobs and better working conditions.

Figure 2.11 Youth weekly hours worked and hourly earnings (in RS dinars) by occupation

weekly hours hourly earnings

160
141
140
120 103
100
71 74
80
62
55 50 50
60 46 47 45 42 41 41
40
20
0
Elementary Crafts, Skilled Service Clerks Professional Mangerial
related agriculture workers workers workers
workers and fishery

Source: LFS 2005.

The average length of work experience for youth is about two years. Around 63 per cent
of young workers have been employed for one year or less. Wage arrears do not appear to be a
problem anymore, as only a small fraction of working youth faced wage arrears with a delay
exceeding two months (4 per cent).

2.5 Youth unemployment

Youth unemployment remains a serious challenge for Serbia, as nearly half of the youth
labour force was unemployed in 2004 and in 2005 (48 per cent). Another useful indicator that
measures youth disadvantage in the labour market is the youth-to-adult unemployment rate.62 In
2005, this rate was 2.5, indicating that young Serbian were more than twice as likely to be
unemployed than adults. The “relaxed” definition of unemployment, which includes in the
unemployment count also those young workers who are discouraged, does not yield substantial

62
Youth-to-adult unemployment rate is defined as the ratio of youth unemployment rate and adult
unemployment rate (share of unemployed adults in adult labour force).

35
 63
differences, given the low share of discouragement among youth (0.3 per cent). The above
mentioned data reflects a waste of those human resources that have the potential to make a
significant contribution to economic and social development.

Labour shedding from state- and socially-owned enterprises contributed substantially to

unemployment and the private sector was unable to absorb the losses. In such instances, young
employees with less working experience may be more affected. The LSMS panel data for 2002-
2003 show that young people faced the highest risk to lose their job and had the lowest chance to
find a job.64 However, the LFS data indicates a higher share of adults among the unemployed who
were laid off or quitted their job due to the liquidation of the enterprise (21 per cent and 28 per
cent respectively), compared to youth (13 per cent and 8 per cent respectively).

Unemployment varied across individual characteristics. Among young people in the

labour force, more young women were unemployed than men (52 per cent and 45 per cent),
notwithstanding their higher educational attainment (6.4 per cent of women had completed higher
education compared to 2.9 percent of men). This feature is also found in the overall labour
market, which may suggest a degree of gender discrimination in the access to employment and
occupations. However, when taking into account the total youth population, fewer women were
unemployed men (15.8 per cent compared to 18.3 per cent for men, table 2.3). Such discrepancy
is explained by the differences in activity rates of the two sexes: young women are more inactive
than young men (69.4 per cent and 59.2 percent, table 2.10), partly because they engage more in
education. The share of young women who are neither in the labour force nor in education is
slightly higher than men (11.5 per cent and 10.5 per cent), although inactive women are slightly
better educated (one per cent of inactive women have higher education compared to 0.9 per cent
of men). The unemployment rate of teenagers is about 7 percentage points higher than that of
young adults (52 per cent and 45 per cent respectively), due to teenagers’ lower educational
attainment and work experience compared to young adults.

The relation between educational attainment and unemployment found for adults — e.g.
the higher the level of education, the lower the unemployment —is not so marked in the youth
labour market. Similarly to Moldova, Romania and Slovenia, the highest incidence of
unemployment is observed among higher educated youths.65 Young people with lower
educational level are less exposed to unemployment, but they are proportionally much more

63
However, it should be noted that the number of discouraged workers is probably under-estimated in the
LFS, as the survey did not count those youth who had not been looking for job because they perceived their
skill/education level is inappropriate or insufficient.
64
Krstić, G., “Labour markets in Serbia and Montenegro”, background paper prepared for Agenda for
economic growth and employment, Report No. 29258-YU, World Bank, Washington, D.C. 2004.
65
Kolev, A., Saget, C., “Understanding youth labour market disadvantage: Evidence from south-east
Europe”, International Labour Review, Vol. 144, No.2. 2005. The study conducted by M. Arandarenko
founds the highest incidence of unemployed among secondary education graduates, especially youth
graduating from vocational schools.

36
likely to be inactive. Two factors contribute to determine such high rate of unemployment among
educated youth. First, this finding points to labour market mismatches, i.e. the supply of educated
youth exceeded demand and the competencies acquired in higher education do not respond to the
needs of the labour market. Rigid curricula and outdated teaching methods are often cited as
constraints of the Serbian post-secondary education system, which is ill-suited to the needs of the
economy.66 Second, those young people who graduate on time are probably better students and
may have reservation wages.67 According to the LFS data, about 26 per cent of unemployed youth
who refused a job offer in last 12 months did do because the wage offered was unsatisfactory.
Other reasons mentioned for refusing job offers were: the job was not suitable for the applicant’s
qualification (17 per cent); “other” reasons (17 per cent); working hours were not acceptable (18
per cent); the type of job was not suitable (9 per cent); the workplace was too far from the place
of residence (9 per cent); and the absence/illness at the moment of the offer (4 per cent).68

The most common methods for job search are through the National Employment Service
(NES), advertisements or friends, family or acquaintances. Figure 2.12 below shows that young
jobseekers usually combine the various methods.69

Figure 2.12: Young workers by job searching method

90,0
78,0
80,0
70,0 63,2
57,5
60,0
50,0
40,0
31,6
30,0
20,0 12,3
8,0
10,0
0,0
Public Private Direct contact Friends and Advertisement Other
Employment employment with employer family
Service agency

Note: The sum of percentages of various job finding methods is over 100, as multiple answers are
possible. Source: LFS 2005.

66
European Training Foundation (ETF), Labour Market Review of Serbia, ETF, Turin, 2006
67
Reservation wage refers to expectations about a minimal income threshold set as a condition for
accepting work.
68
These results should be treated with caution as there was small number of observations for unemployed
youth who refused the offered job (only 23 observations). The majority of unemployed youth have not
refused any job (95 percent).
69
The LFS questionnaire gives the possibility to choose multiple answers to the question on job search
methods.

37
 Youth unemployment in Serbia, like overall unemployment, is predominantly long-term.
In 2005, the incidence of youth long-term unemployment was 68 per cent (table 2.9). The
majority of young long-term unemployed have been jobless for two, three or four years (figure
2.13). However, the groups more exposed to long-term unemployment are men, young adults,
youth with lower educational attainment and urban residents. These groups also appear to be at a
disadvantage when the incidence of long-term unemployment is taken into account — except for
urban residents, who have a slightly lower incidence compared to residents in rural areas.
However, the largest difference in the incidence of long-term unemployment across individual
characteristics is between teenagers and young adults (47 per cent and 76 per cent respectively)
and between young people with higher and lower educational attainment (52 per cent and 69 per
cent respectively).

Figure 2.13: Youth duration of unemployment

30,0
28,4
26,4

25,0 23,7

20,0
15,8
15,0

10,0
5,8
5,0

0,0
< 6 months 6-12 months 1-2 years 2-4 years > 4 years

Source: LFS 2005.

The incidence of long-term unemployment for youth by individual characteristics is

rather similar to that of adults, except for sex. While there is no significant sex difference in adult
long-term unemployment, there is a 2 percentage difference relative to young women.

The unemployment benefits do not have much influence on the level and duration of
youth unemployment, as only a very limited number of young jobseekers qualify for such
benefits.70 Low benefit coverage rate (7 per cent of the unemployed registered with the NES)

70
The main features of the unemployment benefits system in Serbia are the following: (a) persons eligible
for unemployment benefits are unemployed workers with a minimum of 12 continuous months of
unemployment insurance contributions preceding dismissal, or 18 months with interruptions; (b) the
duration of benefit depends on length of contributions – the minimum duration is 3 months and the

38
suggests that there is a large fraction of new entrants who do not qualify for unemployment
benefit, as well as large proportion of long-term unemployed who are no longer eligible. 71

Table 2.11: Unemployment duration and long-term unemployment by sex, age,

education and location
Duration in months Composition of long- Incidence of long-
Median Mean term unemployed term unemployment
Total 17 22.9 100.0 67.8
Sex
Women 16 21.9 44.6 66.7
Men 17 23.7 55.4 68.8
Age group
15-19 9 11.3 19.8 46.8
20-24 24 27.6 80.2 76.3
Education
Primary or less 17 23.3 19.5 69.3
Secondary education 18 23.6 76.8 68.5
Higher education 12 10.7 3.7 52.3
Location
Other 18 23.4 44.3 69.8
Urban (city) 16 22.5 55.7 66.3
Source: LFS 2005.

The long-term character of youth unemployment in Serbia has serious implications in

terms of human resources wastage. Young jobseekers with low educational attainment,
particularly the long-term unemployed, face a scarcity of low-skill jobs and, thus, are less likely
to escape unemployment. International evidence shows that the probability of finding a job
decreases with the duration of unemployment, which, in turn, may lead to permanent labour
market exclusion and high poverty risk.

maximum duration is 24 months; (3) the unemployment benefit is set at 60 percent of the individuals’
average wage preceding unemployment for an initial period of 3 months, decreasing to 50 percent for the
remaining period; (4) the beneficiaries are eligible for pension and health insurance, paid on the actual
benefit level. For details on the unemployment benefits system in Serbia, see World Bank, Serbia: Labour
market assessment, 2006, op.cit.
71
Benefit coverage rate is defined as the percentage of unemployed who receive the benefit.

39
2.6 Youth inactivity and discouragement

Inactivity among young people is relatively high due to school attendance. Inactive
young people, excluding students, accounted for 11 per cent of the youth population (table 2.12).
The share of discouraged workers among inactive youth is negligible (0.2 per cent), but this
measure is probably an underestimation as the survey considers “discouraged” only youth who
have not been looking for job because they have lost all hope of finding one.72

Table 2.12: Youth inactivity by sex, age, education and location

Inactivity Not in the
In school
rate labour force
Total 64.2 53.1 11.1
Sex
Women 69.4 57.9 11.5
Men 59.2 48.5 10.7
Age group
15-19 80.9 72.6 8.3
20-24 47.9 34.1 13.8
Education attainment
Primary or less 83.1 72.1 11.0
Secondary education 51.5 40.4 11.1
Higher education 28.5 15.8 12.7
Location
Other 57.3 45.2 12.1
Urban (city) 68.8 58.4 10.4

Source: LFS 2005.

As table 2.13 reports, the main reason of inactivity among young people is “other” reason
(47 per cent), followed by personal and family reasons (36 per cent), poor health or disability (15
per cent), and discouragement (2 per cent).

72
Young discouraged workers are those who are not looking for a job because: i) they perceive that their
skill/education level is inappropriate, and ii) those who have lost all hopes of finding a job. These two
categories of workers represent a part of the unexploited labour potential, as they would likely enter or
return to the labour market if the economic situation or employment prospects were to improve. The
negligible rate of discouragement found in the Serbian youth labour market may well be a gross under-
estimation. In Kosovo and Metohia, for instance, the share of discouraged workers among inactive youth
amounted to 21 per cent. Corbanese, V., Rosas G., Young people’s transition to decent work: Evidence
from Kosovo, ILO Employment Policy Papers, 2007/4

40
 Young women are more inactive than young men, due to their higher participation in
education. There is no large sex difference between young people who are inactive and not in
school (11.5 per cent of young women and 10.7 per cent of young men). However, there is a
striking difference by sex with regards the reasons for inactivity. For young women, inactivity is
caused by personal or family reasons (68 per cent), while for men the main reason is “other” (79
per cent). For adult women, determinants of inactivity are personal or family reasons (41 per
cent), and “other” (40 percent); this latter being also the primary determinant for adult men (68
per cent). As expected, more teenagers are inactive than young adults, as more teenagers
compared to young adults are still attending school. Young adults not in the labour force and not
in school accounted for 14 per cent, while the share for teenagers is 6 percentage points lower.

Table 2.13: Reason of inactivity by sex, age, education and location, 2005 (percentages)
Personal,
Poor health School or Unable to
family Other
or disability training find job
reasons
All (15-64) 12.1 18.3 35.4 2.6 31.7
Sex
Women 10.6 28.7 30.1 2.4 28.2
Men 14.6 0.5 44.5 2.9 37.5
Total youth (15-24) 1.6 3.8 89.5 0.2 5.0
Sex
Women 1.3 7.1 89.5 0.1 2.0
Men 1.8 0.1 89.5 0.3 8.3
Age group
15-19 1.4 1.9 94.7 0.1 2.0
20-24 1.9 7.2 80.5 0.4 10.1
Education
Primary or less 2.1 4.3 90.6 0.1 2.9
Secondary education 0.8 3.3 88.5 0.3 7.1
Higher education 6.0 … 67.0 … 27.0
Location
Other 2.7 7.3 84.3 … 5.7
Urban (city) 1.0 1.9 92.3 0.3 4.5
Source: LFS 2005.

A surprising feature of inactivity is its prevalence among young people with higher
educational attainment compared to youth with secondary education. Most highly educated youth
reported “other” causes for their inactivity (82 per cent), followed by poor health or disability (18
per cent).

41
42
CHAPTER 3 POLICIES AND INSTITUTIONS FOR YOUTH EMPLOYMENT

The analysis of the previous chapters highlighted the complexity of the youth
employment challenge in Serbia in terms of both its quantitative and qualitative dimensions. The
availability of decent job opportunities for young people is influenced by many factors, such as
aggregate demand, sectoral policies, labour market regulations, education and training outcomes,
work experience opportunities, entrepreneurship options, voice and representation, as well as
young people’s own aspirations. The way in which policies are coordinated and administered also
affects the effectiveness of the measures taken to facilitate young people’s transition to decent
work. As seen in the previous chapters, the analysis of the Serbian labour market pointed to three
key policy areas: i) macroeconomic and sectoral policies and their impact on job creation; ii)
education and training policies and their relevance to labour market requirements; and iii) labour
market policies that bridge the gap between labour supply and demand, while ensuring workers’
protection. This chapter will briefly review the main policies affecting youth employment in
Serbia.

3.1. Macroeconomic and sectoral policies

Since 2001 Serbia underwent major economic and political reforms that have begun to
address the problems of poverty and social exclusion. The macroeconomic policy was directed
towards the removal of basic misbalances and towards creating the basis for medium-term
macroeconomic stability. Price liberalization and a flexible exchange rate regime were introduced
with a monetary policy geared toward the control of inflation. Tax reforms were enacted in three
steps. The overall tax system was simplified in 2001, which resulted in the reduction of the
average tax burden on wages and salaries (including social security contributions) by 7
percentage points (from 38 per cent to 31 per cent). The second step was aimed at making the tax
system more supportive to investment and employment and included the reduction of the
corporate tax rate from 20 to 10 per cent. A 14 per cent flat tax was introduced in 2002 by the
new personal income tax law. The third key element of the reform was the introduction in 2005 of
the value-added tax (VAT) with a regular rate of 18 per cent and a reduced rate of 8 per cent. The
combination of these measures is estimated to have helped contain the informal economy and
resulted in an improvement of tax compliance and tax collection.73 However, their impact on
overall employment and youth employment may still take a while to materialize. In the last three
years only negligible changes can be detected on the main labour market indicators.

73
WB, Serbia: Labour market assessment, Washington D.C., 2006, op.cit.

43
 In 2003 the country adopted its poverty reduction strategy paper (PRSP). The PRSP for
Serbia is a medium-term development framework containing the main strategic guidelines for
social development and for the reduction of poverty to 7 per cent by 2010. This target was
reached as early as 2007. The PRSP, under the direct coordination of the Office of the Deputy
Prime Minister since 2005, is aligned to the European integration process and the realization of
the UN Millennium Development Goals. It builds on three strategic pillars: i) development and
economic growth centred on job creation and higher income, ii) prevention of new poverty
determined by economic restructuring, and iii) design and efficient implementation of
programmes, measures and activities targeting the poorest and most vulnerable groups (children,
the elderly, disabled persons, refugees and internally displaced persons, the Roma, the rural
population and people with low educational attainment), particularly in the least developed
regions.74 The overarching objective of the PRSP is to develop the domestic economy and
achieve greater international competitiveness. This, in turn, is expected to increase output, create
new jobs and provide higher incomes and sources of financing for public policies. Increased
growth and income is to be achieved by pursuing macroeconomic stabilization, creating an
attractive environment for FDIs and SME development, accelerating the privatization process,
formalizing the informal economy and ensuring an efficient functioning of state institutions. In
the field of employment, the priority set by the PRSP is improving the educational and
qualification structure of young unemployed and increasing employment opportunities for the
most vulnerable groups of the population.75

The National Sustainable Development Strategy (2008-2013) emphasizes macro-economic

stabilization, the promotion of SMEs and FDIs, increased investment in human resources and in
the adaptability of the labour force, as well as the reduction of regional disparities and the
protection of the environment as key policy priorities to achieve sustainable economic growth
accompanied by social development. The experience of other transition countries confirms the
importance of these policies in determining growth performance. Macroeconomic stabilization is
a key element, since growth has generally been stronger in countries that have contained inflation
and liberalized prices early in the transition process. Output has also expanded more rapidly in
countries with increasing export rates, underlining that a well-managed trade liberalization and
export orientation are important determinants of growth. Domestic and foreign investments
become increasingly important to sustain growth, once a more advanced stage of development is
achieved. The quality of the business environment and the extent of the private sector on GDP, in
turn, play an important role in accelerating investment and growth. Finally, investment in human

74
See the Government of Serbia web page on the PRSP, downloadable at www.prsp.sr.gov.yu/engleski/.
75
As a result of the inclusion of youth employment as a national priority in the PRS, youth employment
indicators are constantly monitored to measure progress (or lack of it).

44
capital through more and better training and education is a key determinant of productivity and,
consequently, of growth.76

Serbia’s performance in exports and investment promotion is still lower than in other
transition countries. The investment patterns indicate that reforms on the business environment,
trade law and privatization still need to be pursued to increase the share of investment from the
current 18 percent of GDP in 2006 to the level required to sustain economic and employment
growth (25 percent of GDP).77 In this sense, the promotion of investments has become a mid-term
priority for the Serbian Government.

3.1.1. Agricultural and regional development policies

One of Serbia’s features is the development gap between urban and rural areas and
regional differences in natural, infrastructural and human resources. Further economic
restructuring and privatization is expected to deepen such differences, as the areas that will be
mostly affected are mono-industrial and mining centres. Regional disparities have been
exacerbated by the economic transition, with industrial areas once developed now facing serious
economic and social development challenges. Such asymmetry is particularly evident between the
north and the east and south of the country.78 Regional labour markets also present sensible
differences in performance, with unemployment rates by districts exceeding the 1:3 ratio (table
3.1). To reduce regional disparities the National Sustainable Development Strategy proposes
public-private partnerships to increase the quantity and quality of infrastructure and human
capital, as well as targeted programmes to increase the qualifications level of the labour force.

76
World Bank, An agenda for growth and employment, Washington D.C, 2006, op.cit.
77
Government of Serbia, Report on Small and Medium Size Enterprises 2006, Belgrade 2007. IMF, Serbia:
Selected Issues, Washington D.C., 2006, op.cit. FDI in Serbia still predominate in the acquisition of
successful privately-owned and state-owned enterprises and not in areas where no previous facilities exist.
See Government of Serbia, Macroeconomic framework and fiscal limitations in PRS Implementation,
Second progress report on the implementation of the PRS in Serbia, 2007, downloadable at
www.prsp.sr.gov.yu/engleski/.
78
M. Arandarenko, A. Nojković, The labour market in Serbia. Overview, Centre for Democracy and
Reconciliation in Southeast Europe, 2007. For instance, the City of Belgrade employs 29.6 per cent of the
population and its processing industry accounts for 25.6 per cent of GDP. Conversely, the processing
industry in the districts of South Serbia account for only 5.2 per cent of GDP, even tough the territory takes
up 11 per cent of all of Serbia.

45
 Table 3.1: Key indicators by districts (2004)
Percentage
Percentage
Unemployment Share of long- Job vacancy LF with
Illiteracy LF with
Counties rate term unemployed primary
rate higher
(2004) unemployment ratio (2004 ) school or
education
less
GRAD BEOGRAD 21.40 69.41 1.39 1.32 20.31 13.48
SEVERNO-BAČKI 35.49 60.18 1.40 0.67 8.03 33.88
SREDNJE-BANATSKI 39.23 72.64 2.74 0.50 7.80 32.65
Vojvodina

SEVERNO-BANATSKI 34.78 72.74 1.99 0.53 6.35 39.33

JUŽNO-BANATSKI 37.58 72.87 3.11 0.48 7.03 34.73
ZAPADNO-BAČKI 41.21 69.37 3.12 0.52 7.70 28.54
JUŽNO-BAČKI 31.12 61.66 2.19 0.44 13.41 23.40
SREMSKI 43.35 66.29 2.96 0.35 6.58 32.35
MAČVANSKI 46.82 73.15 5.83 0.40 5.54 46.39
KOLUBARSKI 28.19 62.54 4.88 0.66 5.33 52.94
PODUNAVSKI 31.07 60.06 3.58 0.44 6.44 39.21
BRANIČEVSKI 19.82 63.51 5.54 0.89 4.35 55.41
ŠUMADIJSKI 29.61 77.32 2.63 0.52 8.86 31.84
Central Serbia

POMORAVSKI 30.07 72.82 4.99 0.65 6.97 42.42

BORSKI 31.29 70.45 5.60 0.52 7.14 40.07
ZAJEČARSKI 33.32 65.85 3.83 0.55 6.88 43.78
ZLATIBORSKI 39.16 74.30 4.83 0.38 6.74 40.08
MORAVIČKI 36.25 71.79 3.10 0.53 7.47 38.18
RAŠKI 39.72 81.87 4.54 0.28 8.37 36.80
RASINSKI 36.99 75.65 5.42 0.40 7.20 43.42
NIŠAVSKI 35.51 70.29 4.16 0.62 12.60 28.17
South Serbia

TOPLIČKI 38.13 69.38 9.23 0.34 6.11 40.91

PIROTSKI 29.51 75.69 4.80 0.50 7.79 36.83
JABLANIČKI 43.15 78.40 9.04 0.20 6.39 41.17
PČINJSKI 39.23 67.88 8.62 0.30 7.27 41.09
Sourc: M. Arandarenko, A. Nojković, The labour market in Serbia. Overview, 2007, op.cit.

The key instruments of Serbian regional policy are the Development Fund, transfers to
local self-government —the new Law on Financing of Local Self-Government envisages transfers
totalling 1.7 per cent of GDP— incentives distributed by the Ministry of Agriculture and the
provisions of the National Investment Plan.79 In 2004 the government also initiated a rural

79
In July 2006 the Law on Financing of Local Self-Government introduced a new mechanism for regional
policy management. In 2007 29.7 billion RSD were earmarked for transfer to towns and municipalities.

46
development programme that includes grants to generate alternative sources of income in rural
areas, with a particular emphasis on less developed regions.

The Development Fund has two credit programmes targeting municipalities whose
adjusted pro capita income is less than 55 per cent of the republic’s average. Such programmes
are aimed at promoting employment and growth by providing loans at favourable conditions. In
2006 the Fund invested more than 1.3 billion RSD in 144 programmes in economic sectors other
than agriculture and farming activities. The impact of these programmes on youth employment
and poverty reduction remains to be ascertained. The LSMS of 2007 indicates that the poverty
decline measured since 2002 is mainly due to real salary increase, the growth of pensions and
other social transfers, as well as the flow of foreign remittances in household incomes.80

Despite its declining contribution to GDP, agriculture remains important for Serbia’s rural
economy and export earnings.81 Recent trends suggest that the sector has potential for growth, if
annual production can be stabilized and productivity improved. To this end, the Agricultural
Strategy provides a road map for growth, backstopped by institutional reforms, improved
planning, reorientation of expenditures and increased budget allocation. The structural support
provided by the Ministry of Agriculture’s budget increased from 8 per cent in 2003 to 47 per cent
in 2006, while the Ministry of Economy established a revolving fund to support the farming
credit market. In the past three years, such credit lines guaranteed approximately 78,000 short-
term loans with an average value of 83,000 RSD and 3,500 long-term loans with the average
value of 1.2 million RSD.

A key objective of Serbian agricultural policy is stabilizing production and enhancing

agricultural productivity. Increasing the competitiveness of the sector requires an expansion of
farmers’ market share in domestic and export markets and the shifting of many subsistence
farmers and small producers into off-farm employment. In the medium term, the ratio of
agricultural employment to GDP contribution will decline due to the lowering of trade barriers,
increasing exposure to competition, migration flows of the rural population to urban areas and the
progressive retirement of older farmers. The development of industries like tourism and food
processing in rural areas will contribute to absorb rural labour shed by restructuring and
potentially increase rural incomes and reduce poverty.82 However, such process needs to be
accompanied by policy measures to mitigate the negative impact of restructuring on rural

Another reform aimed at enhancing regional development is the adoption of the Serbian Rural
Development Strategy and the Action Plan. The Strategy aims at reducing regional disproportions to 1:3
from the current 1:7 at the district level and 1:15 at the municipal level by 2012. Government of Serbia,
Regional, rural and urban aspects of Poverty, Second progress report on the implementation of the PRS in
Serbia, 2007. op.cit
80
Krstić G., “Poverty profile in Serbia in the 2002-2007 period” in: RSO, Living Standard Measurement
Study Serbia 2002–2007,Belgrade 2008.
81
World Bank, Supporting Serbia’s agriculture strategy, Report No. 37825-YF, Washington D.C., 2006
82
World Bank, Supporting Serbia’s agriculture strategy, Washington D.C., 2006, op.cit

47
employment and especially on survival farming activities involving young people. Despite
increasing investments, the central administration of the regional development and agricultural
policies does not appear to have been particularly successful. Fiscal decentralization may prove to
be a better alternative to improve policy effectiveness and targeting.

3.1.2 Small and medium size enterprise development

The Strategy for the Development of SME and Entrepreneurship in the Republic of Serbia
(2003-2008) builds on the principles of the European Union Charter for Small Enterprises and
aims at promoting employment-generating economic sectors, at facilitating access to financial
and non-financial services and at reducing the incidence of the informal economy. The assistance
to SME translates into non-financial support (comprising the self-employment and
entrepreneurship training offered by the employment services and Regional Development
Agencies) and financial support (subsidies to employers, start-up credit under the Serbian
Development Fund and support to NGO-based micro-credits). The Strategy envisages an increase
of the number of SME from 270,000 to 400,000 and the creation of one million net new jobs by
2008.83 The implementation of the SME Strategy is coordinated by the Agency for the
Development of SME, established in 2001.

Box 2: European Charter for Small Enterprises in the Western Balkans —The SME policy index

The adoption in 2003 of the European Charter for Small Enterprises – a pan-European instrument developed
under the framework of the Lisbon Agenda – by all the Western Balkan countries contributed to a change in
policy perspective. Since then, the Charter’s policy guidelines have become a key reference for enterprise
policy development in the region. A report prepared in 2007 by the European Commission presents a
comparative assessment of implementation since the Charter was adopted. The report is structured around
the Charter’s ten policy dimensions: 1) entrepreneurship education; 2) cheaper and faster start-up; 3) better
legislation and regulation; 4) availability of skills; 5) improving on-line access; 6) more out of the single
market; 7) taxation and financial matters; 8) strengthening technological capacity; 9) e-business models and
small business support; 10) stronger and more effective representation. The assessment was carried out by
applying the SME Policy Index. The Index is a common framework for evaluation that capture the critical
components of each policy dimension on a scale of 1 to 5. The lowest level (1) indicates a lack of policy
initiative, while the highest level (5) denotes implementation that is close to good practice.

Source: Enterprise policy development in the Western Balkans. Report on the implementation of the
European Charter for Small Enterprises in the Western Balkans in 2007. European Commission and OECD
Investment Compact.

83
Government of Serbia, A Strategy for the Development of Small and Medium Enterprise and
entrepreneurship in the Republic of Serbia, 2003-2008, Belgrade 2003. By 2006 the SME sector was
accounting for over 870,000 employees. However, the concentration of SMEs in Serbia varies widely by
region and sector, with Belgrade and South Backa, trade and manufacturing prevailing, respectively.

48
 The SME strategy identified food processing; manufacturing, tourism and e-commerce as
priority sectors, given their potential for adding value, generating foreign earnings and providing
employment. All four sectors appear to have a potential for generating new jobs for youth.
However, no analysis on the elasticity of youth employment of these sectors was carried out
during the design of the strategy. Consequently, it is rather difficult to measure ex-ante the
relevance of these priority sectors for youth employment. Notwithstanding this, the experience of
other countries may provide some useful insights. Food processing will certainly be relevant to
absorb the workforce that will be displaced from agriculture due to the increasing productivity of
the sector and land consolidation. Tourism generally, and rural tourism especially, is another
sector that may generate sustainable employment opportunities in rural areas for young people.
However, the employment trends in both sectors need to be closely monitored to ensure that
growth does not revert into informal employment or only into casual and seasonal work. The
promotion of manufacturing (mainly light manufacturing and engineering) and e-commerce may
contribute notably to youth employment, if such promotion is accompanied by a re-orientation of
the education and training system.

As depicted by the SME Policy Index (see box 2), Serbian procedures in certain SME
development areas —business registration, legislation, taxation and financial support— have
improved considerably. However, implementation is still relatively limited and Serbia scores
lower than other countries in skills availability, entrepreneurship education, quality assurance and
representation of SMEs (figure 3.1).

Figure 3.1 Serbia’s performance in the 10 dimensions of the EU SME Charter

0
5. Improving on-

models and small

1.Entrepreneurship

2. Cheaper and

6. More out of the

10. Stronger and

3. Better legislation

8. Strengthening

business support
financial matters
7. Taxation and
4. Availability of
faster start-up

representation
more effective
technological

9. E-business
single market
and regulation

line access

capacity
education

skills

Source: Enterprise policy Development in the Western Balkans. Report on the Implementation of the
European Charter for Small Enterprises in the Western Balkans in 2007. op.cit, p. 165.

49
 A number of other issues also hamper progress in SME development: i) most enterprises
are sole proprietorship with a limited number of employees; ii) there are still limited forms of
venture and equity capital that limits the impact of FDIs, and iii) the unfair competition exerted
by companies in the informal economy. In addition, no impact evaluation has been carried out on
the measures taken to foster enterprise development (especially with regards the many training
initiatives undertaken by various institutions and agencies).

Despite the limitations caused by the delays in the privatization process, by 2005 the SME
sector in Serbia accounted for 60 per cent of all employment, 65 per cent of total turnover and 55
per cent of gross value added. In response to the low index achieved in entrepreneurship
education, the Government has included entrepreneurship modules into university courses
(business administration and economy courses) and is designing a Strategy on Entrepreneurial
Education. Also, twenty business centres have been established in local employment offices.
Such information points have been used in 2005 by more than 16,000 people, 25 per cent of
whom were youth less than 30 years old.

3.2. Education and training policy

One of the key findings of the analysis of previous chapters revolves around the strong
relation between young people’s education and skills level and labour market outcomes. There is
not doubt that education and training is one of the most relevant policies to tackle the youth
employment challenge in Serbia.

The export drive of Serbia is shifting from unskilled and labour-intensive processes (textile
and clothing) to value-adding jobs.84 Serbia has also been gearing its policies to attract more
foreign and greenfield investments. However, these structural shifts will succeed only if
accompanied by an increase in quantity and quality of the skills of the workforce. The experience
of other countries demonstrates that the better qualified and adaptable the workforce, the higher
the competitiveness of the country.

Chapter 2 described the unusual situation of Serbia, where young people with secondary
education are not more successful in the labour market compared to youth with only primary
education. A number of factors may help explaining this finding. First, there is still a prevalence
of low-skills jobs in the economy. Second, the youth labour market in Serbia is characterized by a
high degree of turbulence with high rates of movement from employment to unemployment and
inactivity year-on. Young people employed in low-skills jobs are more likely to move from

84
Since 2000 there has been a sustained increase in the share of imports of machinery and equipment,
evidencing that enterprises are shifting their production focus. World Bank, An Agenda for economic
growth and employment, Washington D.C. 2004, op.cit.

50
employment to unemployment and inactivity. Finally, young university graduates appear better
able to navigate the labour market: not only they have higher employment rates, but wages and
contract tenure are better and the probability to be employed in casual and temporary jobs is
lower. Furthermore, the fact that the exposure to the informal economy decreases as workers
become older indicates that work experience — and the acquisition of skills that goes with it— is
an important factor in getting stable and decent employment.

The education system in Serbia is characterised by high drop-outs rates, lack of

qualification and accreditation system, poorly developed adult education and training and
difficulties in managing decentralisation drives. The Ministry of Education (MoE) is currently re-
aligning the Vocational Education and Training (VET) system and developing an adult education
policy.85 Public spending on education increased from 3.2 percent of GDP in 2004 to 3.5 percent
in 2006. This increase is, however, still far from the target of the PRSP that envisages a 6 per cent
of GDP allocated to education by the year 2010.

The Serbian education and training system faces both quantitative (lower stock of highly
educated people compared to other countries in the region) and qualitative challenges. In
addition, the percentage of people with higher education attainment is stagnant across generations
and has actually been deteriorating for men.86 Reliable measures of educational quality in Serbia
are incomplete, but available data give rise to concerns. The scores of Serbian 15 year olds in
PISA 2003, summarized in figure 3.2., show gaps in all four basic skills assessed (reading, maths,
science and problem solving).

In addition, the findings of the youth labour market analysis suggest that the mismatches
between educational outcomes and labour market requirements are partly responsible for the poor
employment performance of Serbian youth. One cause of the poor quality and the low overall
educational attainment is the performance of the country’s vocational education system. This
suffers from lack of funding, low popularity among students and parents, obsolete equipment,
narrow and early specialization approaches, poorly qualified teaching force and lack of labour
market relevance.

85
The Serbian Government adopted at the end of 2006 two strategic frameworks to improve the efficiency
and effectiveness of the education and the training system: the Strategy of Development of Secondary
Vocational Education and the Strategy of Development of Adult Education. The two strategies, to be
complemented by National Action Plans in mid 2007, envisage: i) the alignment of the vocational
education system to the Copenhagen Declaration and Process (qualification nomenclature, vocational
standards and certification system); ii) the reform of vocational courses and curricula; iii) the introduction
of career education and guidance in schools; iv) the establishment of a flexible system of adult learning;
and v) increase accessibility of education, training and lifelong learning especially for the most vulnerable
groups of the population.
86
M. Arandarenko, Transition from education to work. Serbia country report, ETF 2007, op.cit.

51
Figure 3.2: PISA scores for Serbia and selected countries (2003)

Mathematics Reading Science Problem Solving

600

500

400

300

200

100

0
Serbia Latvia Hungary Poland Slovak Republic Czech Republic

Source: OECD, First results from Programme for International Student Assessment (PISA) 2003, Paris,
2004

Serbia’s tertiary education system also fails to provide a steady supply of graduates with
the skills necessary to enter and remain in the labour market. On some labour market measures—
such as employment rates and wages— the tertiary system seems to do reasonably well.
However, these figures hide the fact that many graduates are employed in jobs for which they are
over-qualified, since employers, out of the large pool of jobseekers, select those with the highest
levels of education. Moreover, young graduates are few in numbers due to low enrolment rates,
high dropout and repetition rates, which double the time of graduation and result in over 60 per
cent of enrolled students never graduating. The organization of university education and its
programmes reinforces this conclusion. The autonomous faculty system leads to costly
duplication in teaching, administration and services; curricula and teaching methodologies are
outdated, with many mono-disciplinary and theory-centred programmes unrelated to labour
market needs.

Such shortcomings in the formal education system are compounded by the lack of quality
of adult education and training, which, in turns, put foremost at a disadvantage those population
groups with weak or inappropriate skills. The legacy of the FRY adult education institutions
offering remedial courses to adults was lost: the number of schools offering second-chance
courses decreased from the several dozens of the 1980s to sixteen in 2003. Secondary vocational
schools allow adults to take exams in certain subjects, but do not make special provisions for
adult training, while the few programmes of continuing education available at university level are
available only to former students.

52
 Another constraint affecting all levels of the education and training system is the lack of
certification and quality control. There is no qualifications system in adult education and courses
offered by training providers usually do not lead to a vocational qualification recognized in the
labour market. Thus, enterprises looking for off-plant training for their workers as well as the
National Employment Service (NES) contracting training as part of active labour market
programmes, have no guidance on the quality of training on offer. Enterprises, generally, invest
little in training and no substantial progress in organizational performance is to be recorded. The
Productivity and Investment Climate Survey (PICS) suggests that the proportion of companies
offering training to their employees fell from 56 percent in 2001 to 31 percent in 2003, with small
companies lagging behind larger enterprises.87 Moreover, the training programmes offered by
enterprises benefit only a limited number of workers. Against this backdrop, attracting direct
foreign investment may well be a means of upgrading skills and of increasing competitiveness.

The education and training policy of the Government of Serbia addressing the above
mentioned challenges rests on four pillars. The first pillar foresees increased access and quantity
of education through: i) raising the upper secondary enrolment rate, ii) accelerating the graduation
rate of students at tertiary level, and iii) providing a certification and quality control framework
within which adult education and lifelong learning can flourish. The second pillar envisages an
improvement of the quality of the education and training system. This is to be achieved by
shifting teaching and learning approaches towards broad and flexible skills demanded by the
labour market; by decentralizing management to schools within the framework of a national
system for curriculum and assessment; by reducing the weight of vocational education relative to
general secondary education; and by increasing teachers’ salaries and infrastructural investment.
The third pillar revolves around the access to education for vulnerable groups. This is to be
guaranteed by improving the labour market outcomes of vocational education; by introducing a
funding formula to give more funds to schools with students from poor backgrounds; and by
nurturing a culture of enterprise-based training. The last pillar regards the improvement of the
effectiveness of public spending in education and training.

The actions envisaged by the Serbian government to improve the educational outcomes of
young people appear adequate. However, the impact education policy reform can be measured
only in the long-term. For the medium term, the government needs to enact remedial policies to
address the needs of those young people who already left the formal educational system and are at
risk of labour market exclusion.

87
Only 21 per cent of small firms train their workforce compare to 46 per cent of larger enterprises WB, An
agenda for growth and employment, Washington D.C., 2006, op.cit

53
3.3. Labour market policies
The commitment of the government of Serbia to address the employment situation of
young people – because of their exposure to vulnerability and social exclusion – is emphasized in
the PRSP, in the 2005 National Employment Strategy and accompanying National Action Plan on
Employment, 2006-2008 (NAPE). Furthermore, the government has prepared a National Action
Plan on youth employment. Although a first draft, the NAP on youth employment states a number
of principles that should guide policy and programme development. This Plan on youth
employment should now be accompanied by a strategic document that identifies the priority
action to be taken to improve employment opportunities for young people as well as the public
and private institutions to be involved and the financial means required for its implementation.

The key challenges of the employment policy in Serbia include: (i) moving employment
from the informal to the formal economy and reducing the duration of unemployment by
improving the absorption capacity of the formal labour market; (ii) increasing the overall level of
employment and participation especially for women, young people and people with low
educational attainment; and (iii) improving the quality of jobs and decent work for all. Meeting
these challenges will require synchronized policies in the areas of labour legislation, severance
and unemployment benefits and active labour market measures. These policies need to
accompany the reforms in macroeconomic policy (including tax policy and administration),
privatization and private sector development as well as education and training policies.

The National Employment Strategy encompasses three goals of the EU Lisbon Strategy –
full employment, improving quality and productivity of labour and strengthening social cohesion
and labour market inclusion – and it fully embraces the integrated approach of the EU
Employment Strategy (2003). The strategy includes ten of the priorities set by the EU –
preventing long-term unemployment, fostering entrepreneurship and enterprise development,
promoting workers’ adaptability and geographical mobility, ensuring higher investment in human
capital, reducing informal labour, making work pay, promoting active ageing and gender equality
– and further adds the reduction of regional disparities and the promotion of investments as an
engine to job creation. To increase youth employment and combat unemployment, the NAPE
envisaged four key measures: i) the design of active labour market programmes to promote youth
employment and self-employment; ii) the provision of incentives to enterprises to recruit young
people, iii) the setting up of career guidance and counselling centres, and iv) the provision of a
package of employment services to long-term unemployed youth. All the planned measures were
implemented, but their impact on the youth labour market remains to be ascertained. The
combined impact of such measures should have been an increase in the youth employment rate of
2 percentage points per year. However, in 2006 the youth employment rate measured by the LFS
increased by less than one percentage point and it decreased in 2007 to return to its 2005 level of
18.7 per cent.

54
 In mid 2006, the Government of Serbia amended the Law on Income Tax and the Law on
Mandatory Social Security Contributions to stimulate employment and lower the tax burden on
employees earning low wages. Such amendments corrected the pronounced regressiveness of the
wage taxation system that has been present since 2001.88 Specifically, the law prescribes a
reduction of the personal income tax (PIT) on wages from 14 to 12 percent and of the social
security contributions from 40 per cent to 35 per cent; the introduction of personal allowances;
and two to three year exemptions from personal tax and the employer’s portion of social security
contributions for the recruitment of younger (less than 30 years old) and older (45 and over)
unemployed and first entrants in the labour market. Such reforms decreased the average fiscal
burden of employees’ net salaries from 73 per cent to 62 per cent.89 The expected fiscal costs is
estimated at 1.4 per cent of GDP, to be compensated by a reduction of current spending through
better fiscal administration and an increase of broad-based indirect taxes (mainly VAT).90

The effectiveness of the measures for the young and near retirees is still unclear. While the
measure could help bring young workers into the formal economy — and thus increase the tax
base—the benefits from these wage and social security reductions may be limited by deadweight,
substitution and displacement costs.91 Even though the legislation contains a provision requiring
employers not to reduce the number of employees without exemptions as of September 2006, the
effect of exemptions on overall employment may be minimal as substitution and displacement
effects may prevail. Finally, administering these exemptions could be a major burden for the
employment service still under organizational and functional reform. Furthermore, the impact of
prior labour tax reforms on employment and earning was never rigorously evaluated. It appears,
however, that the initial reforms on labour taxes did not bring a visible reduction in informal
employment and an increase in overall employment. Informal employment was until recently also
encouraged by the ease in gaining access to a range of social benefits by the simple act of
registering as unemployed with the employment service. The fact that many registered
unemployed were in fact working in the informal economy and had easy access to health
insurance represented a hidden subsidy to informal enterprises. Such occurrence has now been
corrected and the employment service is no longer responsible for covering health insurance for

88
The tax burden on a person earning an income equal to 33 per cent of the average wage was, until end
2006, 47 per cent, while the tax burden on a person earning eight times the average wage was 34.5 per cent.
See M. Arandarenko, Transition from education to work. Serbia country report, ETF 2007, op.cit.
89
More importantly, 5,000 SRD of the monthly wage is not taxed, which brings substantial relief to lower
wage earners. M. Arandarenko, Transition from education to work. ETF 2007, op.cit.
90
IMF, Serbia: Selected issues, 2006 op.cit. and Government of Serbia, Macroeconomic framework and
fiscal limitations in PRS Implementation, Second progress report on the implementation of the PRSP in
Serbia, 2007. op.cit
91
The deadweight effect is expected to have its strongest impact on young graduates in some highly-
demanded occupations, such as economists, managers, IT experts etc; but also in those regions with
relatively solid labour markets. See Government of Serbia, Increased employment opportunites, Second
progress report on the implementation of the PRS in Serbia, 2007. op.cit.

55
jobseekers. There are several options that policy-makers may consider to reduce the extent of the
informal economy. Formalization may be promoted by better enforcement of tax collection and
more effective tax administration, by an improvement of the public authorities’ IT system and by
changes in the labour inspection system. A better administrative coverage of the self-employed
and farmers and more intensive controls on “unemployed” recipients may also help.

3.3.1 Employment protection legislation

In 2005 a number of amendments were introduced to labour legislation. Such amendments
maintained the basic principles of the Labour Law of 2001, but featured higher severance
payments, introduced retirement gratuity and experience pay, increased non-wage benefits and
prescribed more stringent layoff procedures. The new regulations now envisage annual leave to
be taken for three consecutive weeks and a 12-month limit on fixed-term appointments without
the possibility of renewal. Many of these steps were taken to protect existing employment, but
they may as well discourage new hiring. On the other hand, the sharp increase in young people’s
involuntary part-time employment, temporary contracts and other atypical forms of employment
since the enactment of the 2001 labour law, point to a misuse by employers of the provisions of
the reform. Such phenomena need to be closely monitored to avoid that these form of
employment become the norm, rather than the exception for youth employment.

The Employment Protection Index (EPL) calculated for Serbia in 2008 indicated a rigidity
of 2.2, not far from the index measured for OECD countries in the early 2000s and equal to the
index calculated in 2003 for Austria, the Slovak Republic and Poland. The shift away from
legal/administrative employment protection enshrined in the 2001 Labour Law is positive, but it
needs to be complemented by well-targeted, effective and affordable support programmes for
jobseekers, especially the ones that are more at risk of exclusion. Protecting employment by
directly restricting layoffs may discourage the creation of new jobs and hinder labour reallocation
to higher productivity uses. Conversely, programmes that provide financial and other direct
support may protect redundant workers and first time labour market entrants, while accelerating
labour reallocation.

In Serbia, the two main employment protection programmes are cash unemployment
benefits and severance payments (including those under the government Social Programme). The
unemployment benefits system of Serbia does not represent a limiting factor to job creation in
terms of benefit granted and coverage, but is under-funded and it hardly reaches young people.
The duration of unemployment benefits payment is three months for workers with unemployment
insurance paid for 1 to 5 years, and up to 24 months if the insured is older than 55 years and has
paid insurance contributions for more than 25 years. Despite the modest benefits and low

56
coverage, the full and timely payment of unemployment benefits was, until recently, a significant
problem for the employment service. This eroded the ability of the unemployment benefit system
to act as an effective social safety net and possibly drove many workers into the informal
economy. The Social Programme is targeted at employees who become jobless through the
privatization, restructuring or liquidation of selected enterprises. Severance payments under this
program tend to substantially exceed the limits specified under the labour law. In 2003, the
programme spent SRD 5.4 billion (equivalent to 0.5 per cent of GDP). This is much more than,
for example, the SRD 0.9 billion invested on ALMPs, or the SRD1.2 billion spent on Material
Assistance for Families, the main social assistance program in Serbia.

Generally, the growth of minimum wages above market clearing levels may negatively
affect employment, especially among young and less skilled workers. This does not appear to be
the case for Serbia, where the minimum wages were 38.8 percent of average salary in 2002 and
39.4 percent in 2003.92 Furthermore, in 2005 the growth in real wages was 6.4 per cent, in line
with productivity growth.93 However, the findings of the survey seem to point to some sort of
wage reservation mechanism, especially for young people with higher education. This needs to be
investigated further, to precisely identify those factors that push young educated workers out of
the labour market.

3.3.2. Active labour market programmes

The National Employment Service (NES) of Serbia offers a number of active labour
market programmes (ALMPs), which include advisory and mediation services (counselling,
vocational guidance, vacancy notification and job fairs), training and retraining, special
employment programmes for the disabled and entrepreneurship assistance. The training and re-
training programmes contracted by NES normally last up to three months and include: (i) basic
training designed to improve the skills of jobseekers with little or no education; (ii) training for
current and future skill needs (such as English language and information technology); and (iii)
employer-focused training in response to the expressed needs of enterprises.

Many ALMPs are being introduced in an ad hoc fashion as a quick response to perceived
problems. The tracking of programme participants, and consequently the evaluation of
programme effectiveness, is still inadequate. Moreover, lack of funding and staffing problems
erode ALMPs’ effectiveness. During the first years of transition, NES spent only a small part of

92
In Serbia the level of minimum wage is established through social dialogue, in line with the ILO C131
Minimum Wage Fixing Convention, 1970.
93
Ministry of Labour, Employment and Social Policy (MOLESP), National Employment Action Plan
(2006-2008), Belgrade, 2006.

57
its overall budget (between 4 and 8 percent) on ALMPs. The income from the unemployment
insurance levy covers only 60 per cent of the NES budget, which is spent almost entirely on
employment benefits. Another problem was that until recently the NES had one of the heaviest
workloads compared to other employment services in the region (1:2,000).94 However, the reform
introduced at the end of 2006 – aimed at separating the health insurance and the employment
service system – caused a drop of approximately 25 percent in the number of people registered,
and consequently in the ratio unemployed/counsellor.95 In addition, the NES is planning to
segment the unemployment register into a “register of unemployed” (persons without a job,
looking for a job and available to take up a job within a specific timeframe) and a “register for
jobseekers” with a view to better allocate the workload of counsellors.96

In 2006, active labour market programmes covered approximately 80 per cent of all
registered unemployed. The whole range of active labour market programmes implemented by
NES is available to young people. The only available disaggregation of NES data is by category
of unemployed (table 3.2). Approximately 40 per cent of active programmes target young people
directly (category “First-time job search”) even though youth are also represented in the category
“Long-term unemployed”.

As a result of all activities undertaken by the NES – but mostly due to recently introduced
measures (individual employment plans, motivation trainings, employment fairs and job clubs)– a
total of 62,534 people entered employment in 2006, which is over a 40 per cent increase in
comparison to 2005 (even though the allocation for ALMP actually decreased by 0.3 per cent).
Call Centres were opened in Belgrade, Nis and Novi Sad branch offices and their services were
used by more than 41,000 unemployed people and over 4,500 employers. Unfortunately the
employment impact of these measures is still unknown. In 2006, the programme of individual
employment plans was implemented for the first time for newly registered job-seekers. More than
half of newly registered unemployed have undergone the programme, which makes it the most
successful among ALMPs. The data on impact of the individual employment plan programme
estimate gross placement rates varying from 6 to 25 per cent, with the lowest being recorded in
the employment office of Bor and the highest in the office of Pirot.97

94
This ratio refers to the number of counsellors over number of unemployed registered,
95
Unofficial data from the NES Central Office.
96
The separation of jobseekers from unemployed in employment services’ registers is instrumental to
match individuals to services available. In such systems jobseekers have access only to low intensity
services (labour market information, counselling and in certain instances job broking), while the
unemployed have access to all services (including, if applicable, unemployment benefits and active labour
market programmes).
97
Data reported in May 2006. CARDS 2004 Programme “Functional analysis and review of the National
Employment Service of the Republic of Serbia”, Belgrade 2006.

58
 Table 3.2: Active labour market programmes by type and population groups targeted
Impact (%
Total Long-term
First time job of
Active labour market measure individuals unemployed (24
seekers (% ) employed 6
covered (%) month+) %
month+)
Career counselling and guidance 89.1 20.5 43.6 14%
Individual employment plans 76.5 13.8 32.6 14%
Job fairs 10.6 3.5 4.0 13%
Job clubs 0.4 0.1 0.2 36%
Job search training 12.4 3.1 6.8 19%
Additional education and training 3.3 28.4 45.6 35%
Re-qualification courses 20.6 4.1 4.5 30%
Trainees 43.1 14.2 25.7 34%
Development of entrepreneurship 7.6 30.7 24.7 53%
Self-employment benefits 18.2 6.9 6.5 100%
Regional programmes 11.1 4.0 5.3 100%
Counselling 36.8 11.1 6.6 …
Total 100.0 21.7 41.8 …

Source: National Employment Service of Serbia, unpublished data, 2007

The impact of the measures introduced with the amendments to the Law on Income Tax
and the Law on Mandatory Social Security Contributions is still unclear. Since the three-year
exemption from social contribution envisaged by the afore-mentioned amendments is universal in
nature – i.e. it applies to every employed person who is under 30 or over 45 years old – the
probability of deadweight and substitution costs is very high. According to initial unofficial data,
the employment of around 2,500 young people was subsidised in the first four months of 2007.

The expected impact of various programmes, combined with limited financial and
administrative resources, means that ALMPs need to be very selectively chosen and carefully
targeted. The ALMPs implemented in various countries had shown different results for different
groups. Counselling and job search assistance have often been more effective than other measures
in helping jobseekers find a job at relatively low costs. Some training programmes, including on-
the-job and/or institutional training, have had a mixed record, while untargeted training
programmes, as well as employment subsidies, appear to yield the lowest impact. Also, self-
employment measure aimed at providing subsidized credits to redundant or unemployed workers
have proved to be costly and with a low success rate. Effectively implementing a few promising
and well-functioning programmes is preferable to maintaining many dysfunctional activities.
Since the various programmes are more effective at assisting some groups of people than others,

59
it is essential to match the programme to the client group. Better designed active labour market
policies (ALMPs) aimed at disadvantaged groups, notably young people at risk of long-term
unemployment, are sorely needed. Furthermore, the NES could be more effective in identifying
the skills demanded by enterprises and in providing relevant training opportunities. The
government should also consider whether a training levy grant is appropriate and affordable. The
international evidence shows that levies can increase the amount of training. If also training
quality and labour market relevance can be assured, such system may make a dent in young
people’s skills gaps.

The structure of participation and employment rates suggests also a need to focus on the
impact of labour market policies on women. The survey presented a number of findings clearly
demonstrating that labour market inequalities between men and women persist. The European
experience shows that women’s participation rates increase along with economic growth. Since
women’s participation is unusually low, there is need to design and implement active measures to
attract women’s into the labour market, accompanied by adequate collateral and financial support
(training allowances, childcare and transport) and by targeted measures to reduce discrimination
in employment and occupation.

As far as self-employment and entrepreneurship development is concerned, some public

investment is necessary to create a demand for training, but any such programme should start
small and be evaluated carefully. Presently, self-employment and entrepreneurship development
appeared to be considered as a panacea to lowering high unemployment rates. Out of the many
training initiatives on self-employment and entrepreneurship development carried out, none was
evaluated in terms of contribution to the long-term and productive (self)-employment of
beneficiaries.

60
CHAPTER 4 CONCLUSIONS AND POLICY IMPLICATIONS

4.1. Conclusions
The reform programme initiated in Serbia in 2001 succeeded in expanding the economy
and improving living standards. The growth of the economy – accompanied by an increase in real
wages and pensions and higher inflows of remittances– reduced the poverty rate from 14 per cent
to 6.6 per cent. Notwithstanding sustained growth, the 1990s trends of declining employment and
increasing unemployment continued in the period 2000-2006. The expansion of the private sector
proved insufficient to absorb the labour shedding caused by economic restructuring and
privatisation. Employment in the informal economy still accounts for a third of total employment
– unchanged compared to 2002 – and is increasingly absorbing unqualified and unskilled labour.

Despite a shrinking and increasingly better-educated youth population, young people in

Serbia face considerable problems in making the transition from school to work and many of
those who manage to enter the labour market often end up in unstable jobs with poor working
conditions. The relation between educational attainment and unemployment found for the adult
labour market — e.g. the higher the level of education, the lower the unemployment —is not so
marked for youth. Young people with university education are indeed four times more likely to be
employed compared to youth with only elementary education, but they also experience higher
unemployment rates – mostly due to the mismatches between their educational outcomes and
labour market requirements. While youth with lower educational level are less exposed to
unemployment, they are proportionally much more likely to be inactive.

What clearly emerges from the analysis is that, compared to adults, young people are more
likely to be employed part-time or in temporary jobs, often in the informal economy. The
informal economy is increasingly absorbing youth with a lower level of education, school drop-
outs and those living in rural areas, but the informality rate of young workers drops with age –
and possibly with work experience. The share of informal workers in the age bracket 25-54 is one
and a half times lower compared to that of young workers. The extensive involvement of youth in
the informal economy give raise to concerns as informal workers are more exposed to the risk of
being poor and mobility between informal and formal employment appear to be low. The
implications of extensive informality among young workers are multiple and relate to human and
financial resources wastage, forgone productivity and development. The involvement in the
informal economy early in working life can have a negative impact on future labour market
outcomes, increasing the risk of future unemployment, inactivity and poverty. Workers in the
informal economy are more likely to lose their job and become unemployed compared to formal
workers. In addition, informal workers are over twice as likely to become inactive year-on. In
addition, many young, highly educated people are stuck in low-skill and low productive jobs.

61
 The findings of the analysis indicate that young people often face problems in making a
smooth and quick transition from education to work. While some will, eventually, make it into a
permanent job, a significant part remains trapped in temporary and low-paid jobs from which
they find it difficult to exit. The labour market indicators of the 15-24 age group, compared to
those of adults 25-34, show that labour force participation and employment increases three-folds
and unemployment decrease by half. Education plays a key role in this: young people with low
educational attainment are much more likely to be affected by long-term unemployment,
inactivity and difficult school-to-work transition compared to their more educated peers.
Nevertheless, education does not always work against the risk of experiencing a difficult and
delayed transition into work. Much depends by the match between the job qualifications attained
and the requirements of the labour market. Young people affected by job-qualification
mismatches tend to have lower occupational status and are more likely to work under precarious
conditions. All this implies that quality education is crucial for a successful transition into work,
but it is even more important that education outcomes are aligned to labour market needs.

The overall employment impact of the economic and fiscal reforms pursued by the Serbian
government since 2001 appear to be negligible: gains in employment have been minimal, while
unemployment continued to increase. The same applies to the youth labour market: the activity,
employment and unemployed rates have remained virtually unchanged in the period 2004-2006.
However, 2007 may well be the year marking an overturn of negative employment trends: the
overall unemployment rate decreased by nearly 3 percentage points, the youth unemployment rate
dropped by 4 percentage points and employment increased – albeit by a mere 1.7 per cent. All of
this occurred with stable activity and inactivity rates for adults, while the inactivity rate of youth
increased by 4 percentage points, indicating that young people increasingly remain in education.
All this seems to suggest that the youth labour market in Serbia depends, at least in part, on the
performance of the overall labour market.

Job creation remains a complex challenge in Serbia that requires policies promoting
sustained growth through employment-centred strategies, accompanied by sound education and
training policies and effective labour market policies.

4.2. Policy implications

The findings of this paper points to a number of challenges affecting three main policy areas
that are of particular importance to the youth labour market: i) economic and social policies, ii)
education and training policies, and iii) labour market policies. The strategy to address youth
employment needs to be based on multi-sectoral approach that simultaneously tackles labour
demand and supply, address quantity and quality of employment and balance preventive and

62
curative measures. The formulation of a youth development policy is of the essence to address job
creation challenges and the low responsiveness of youth employment to sustained economic
growth. Such a policy requires coherent and coordinated action that spans all ministries and ensures
that long-term development objectives and targets are shared between several institutions, rather
than being confined to a few ministries

Economic and social policies

The investment patterns in Serbia indicate that reforms in the business environment, trade
law and privatization still need to be pursued to increase the share of investment to the level
required to sustain economic and employment growth. Greenfield investments, if steered towards
local economic development and centred on the development of human capital, can promote
youth employment, balanced growth and skills acquisition.

The promotion of non-agriculture sectors in rural areas may contribute to absorb labour
shed by the restructuring of agriculture, increase incomes, reduce territorial disparities and make
a dent in youth unemployment in rural areas. Despite increasing investments, the central
administration of the regional development and agricultural policies does not appear to have been
particularly successful in this sense. Fiscal decentralization may prove to be a better alternative to
improve policy effectiveness and targeting.

The efforts to promote economic sectors that have potential for adding value, generating
foreign earnings and providing employment need to be up-scaled and accompanied by a re-
orientation of the education and training system. To improve employment and reduce regional
disparities it will also be necessary to increase investment in infrastructure and human capital as
well as in targeted programmes to increase the qualifications level of the labour force.

There are several options that policy-makers may consider to reduce the extent of the
informal economy. Formalization may be promoted by better enforcement of tax collection and
more effective tax administration, by an improvement of the public authorities’ IT system and by
reforms of the labour inspection system. A better administrative coverage of the self-employed
and farmers and more intensive controls on “unemployed” recipients may also help.

Education and training policies

The actions envisaged by the Serbian government to overcome the quantitative and
qualitative shortcomings of the education system in Serbia appear adequate, but the pace of
reforms needs to be accelerated. As education reforms will have an impact only in the mid to
long-term, the government needs to enact remedial policies to address the needs of those young

63
people who have already left the formal educational system and are at risk of labour market
exclusion.

The lack of adult training and lifelong learning opportunities is a matter of concern.
Attracting direct foreign investment and providing incentives to enterprises to train their workers,
while minimizing “poaching” practices, may well be a means of upgrading the skills of the young
labour force and to increase their productivity.

Labour market policies

The shift away from legal/administrative employment protection enshrined in the
reformed Labour Law is positive, but it needs to be complemented by well-targeted, effective and
affordable support programmes for young jobseekers, especially the ones that are more at risk of
exclusion. The nearly-universal type of employment promotion measures recently introduced
could help bring young workers into the formal economy — and thus increase the tax base.
However, the benefits from these wage and social security incentives may be seriously limited by
deadweight, substitution and displacement costs.

Many active labour market policies (ALMPs) are being introduced in an ad hoc fashion
as a quick response to perceived problems. The tracking of programme participants and the
evaluation of programme effectiveness could be improved. The limited impact of the programmes
implemented to date, combined with limited financial and administrative resources, means that
ALMPs need to be very selectively chosen and carefully targeted. Effectively implementing a few
promising and well-functioning programmes is preferable to maintaining many dysfunctional and
overlapping activities. Since the various programmes are more effective at assisting some groups
of people than others, it is essential to match the programme to the client group. In addition, the
NES could be more effective in identifying the skills demanded by enterprises and in providing
relevant training opportunities. Thus, the government may consider whether a training levy grant
is appropriate and affordable; if training quality and labour market relevance can also be assured,
such system may make a dent in the mismatch between youth job qualifications and the labour
market.

The structure of participation and employment rates suggests the need to focus on the
impact of labour market policies on young women. The survey presented a number of findings
clearly demonstrating that labour market inequalities between men and women persist. Since
women’s participation is unusually low, there is a need to design and implement active measures
to attract women’s into the labour market, accompanied by adequate collateral and financial
support (training allowances, childcare and transport) and by targeted measures to reduce
discrimination in employment and occupation.

64
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