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Bucharest Process Employment Policy Review Bosnia and Herzegovina International Labour Organization

Bucharest Process - International Labour Organization · Bucharest Process Employment Policy Review Bosnia and Herzegovina International Labour Organization ID 7791

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Page 1: Bucharest Process - International Labour Organization · Bucharest Process Employment Policy Review Bosnia and Herzegovina International Labour Organization ID 7791

Bu

cha

rest

Pro

cess

Employment Policy ReviewBosnia and Herzegovina

InternationalLabour

Organization

ID 7791

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Employment Policy ReviewBosnia and Herzegovina

Prepared by the International Labour Officeand the Council of Europein 2007 and 2008

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The opinions expressed in this work are the responsibility of the authors and do notnecessarily reflect the official policy of the International Labour Office or of the Council ofEurope.

Acknowledgements:

The main authors of this work are:

Mr Gianni RosasSenior Employment and Skills Development SpecialistILO Subregional Office for Central and Eastern Europe, Budapest

Ms Vallì CorbaneseEmployment and Gender Equality ExpertILO Subregional Office for Central and Eastern Europe, Budapest

Mr Niall O’HigginsSenior Employment ExpertInternational Labour Office, Geneva

The other contributing authors are:

Mr Dominik RolandAttachéFederal Public Service for Employment, Labour and Social Dialogue of Belgium

Ms Lejla TanovicNational Co-ordinator for Bosnia and HerzegovinaILO Subregional Office for Central and Eastern Europe, Budapest

All requests concerning the reproduction or translation of all or part of the document shouldbe addressed to the Public Information and Publications Division, Directorate ofCommunication (F-67075 Strasbourg Cedex or [email protected]). All othercorrespondence concerning this publication should be addressed to the Directorate General ofSocial Cohesion, Social Policy Department.

Cover design: Graphic Design Workshop, Council of Europe© Council of Europe, 2009

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Table of contentsPage

Foreword....................................................................................................................... 5

Introduction.................................................................................................................. 7

1. Overview of the economic and social context ....................................................... 9

1.1. Macro-economic framework ...................................................................... 91.2. Poverty and social exclusion ..................................................................... 13

2. Labour market situation ...................................................................................... 15

2.1. Population and labour force participation ................................................. 162.2. Employment developments ...................................................................... 172.3. Unemployment trends................................................................................ 21

3. Main priorities for employment policy ............................................................... 24

3.1. Design, monitoring and evaluation of employment policy ....................... 243.2. Employment protection legislation and labour market flexibility............. 273.3. Human resources development and active labour market policies............ 30

3.3.1. Education ..................................................................................... 303.3.2. Vocational education and training and lifelong learning. ........... 34

3.4. Employment services and active labour market policies........................... 40

3.4.1. Employment services ................................................................... 403.4.2. Active labour market policies ...................................................... 44

3.5. Passive labour market policies................................................................... 50

3.5.1. Unemployment benefit................................................................. 503.5.2. Early retirement............................................................................ 523.5.3. Social welfare............................................................................... 53

3.6. Income policy ............................................................................................ 55

3.6.1. Wage policy ................................................................................. 553.6.2. Tax policy .................................................................................... 58

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3.7. Social dialogue........................................................................................... 61

3.7.1. Legal framework .......................................................................... 613.7.2. Social dialogue on employment .................................................. 62

4. Summary conclusions ............................................................................................ 64

Appendix I: List of relevant Council of Europe instruments ratifiedby Bosnia and Herzegovina .............................................................. 69

Appendix II: List of ILO conventions ratified by Bosnia and Herzegovina ........... 71

Appendix III: The Bucharest Declaration ................................................................ 75

Appendix IV: Main provisions governing recruitment and termination ofemployment in Bosnia and Herzegovina ........................................... 81

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Foreword

The period of political turbulence and restructuring that they went through presented thecountries of South-East Europe with significant challenges. They needed to restructure theirnational economies and get them back onto a path of sustainable growth, revive demand forlabour and raise employment, as well as fight unemployment, underemployment, increasinggender inequalities and the social exclusion of vulnerable groups.

The South-East European Ministerial Conference on Employment held in Bucharest on30 and 31 October 2003 acknowledged the serious employment challenges faced by theStability Pact countries. The Bucharest Declaration adopted at the Conference called forregional co-operation in addressing these challenges, so as to bring about majorimprovements in national employment policies. The International Labour Organization andthe Council of Europe were asked to give guidance and support to this effort by reviewingnational employment policies, in close co-operation with the social partners and labourmarket institutions, and by providing policy recommendations and assisting with theirimplementation. This joint remit is being fulfilled under the auspices of the Initiative forSocial Cohesion of the Stability Pact for South-Eastern Europe. The Ministers of Labour ofthe Stability Pact countries approve and update the objectives of this co-operation, and theactivities are designed and supervised by a Permanent High-Level Committee comprisingDirectors General of Employment and representatives of National Employment Services.

Meanwhile, the “Bucharest Process” has become a significant reference point for employmentpolicy development in South-East Europe. The Sofia Conclusions adopted at the2nd Ministerial Conference, held in Sofia on 21 October 2005, endorsed the process andplaced even more emphasis on policy coherency and social dialogue.

This series of Country Reviews of Employment Policy (CREP) is the major outcome of thisprocess. Each review is based on a national report produced by the relevant Ministry ofLabour in co-operation with the National Employment Service. They are adopted at NationalTripartite Conferences organised by the ILO, the promotion of social dialogue being a keycomponent of the process.

These country reviews can be used to strengthen labour market institutions and to makeemployment and labour market policies in the countries concerned more coherent andeffective within the framework of an integrated policy approach. Particular emphasis is placedon gender equality issues, and especially on developing strategies designed to mainstreamgender in employment policies and to promote gender equality in follow-up activities.

The review process is intended to help to promote decent and productive employment forwomen and men in Stability Pact countries, while converging with the guidelines of theEuropean Employment Strategy and strengthening stability and social cohesion in the region.

Alexander VLADYCHENKO Petra ULSHOEFERDirector General of Social Cohesion Director, Sub-Regional Office forCouncil of Europe Central and Eastern Europe

International Labour Office

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Introduction

Objectives

This Country Review of Employment Policy focusing on Bosnia and Herzegovina servesvarious purposes:

It highlights the main labour market and employment challenges facing the countryand provides a number of recommendations about addressing them.

It contributes to the implementation of international labour standards and principlesrelating to employment1 in Bosnia and Herzegovina, in particular the ILOEmployment Policy Convention (No. 122), 1964, requiring governments of ratifyingcountries, in close collaboration with the social partners, to formulate and implementan active policy promoting full, productive and freely chosen employment, Thegeneral principles of an active employment policy are further developed in the ILORecommendation No. 122 (1964). The review also seeks to support theimplementation of the provisions of the ILO’s Global Employment Agenda (GEA)that places decent employment at the heart of economic and social policies. Consistentwith the Millennium Development Goals, the GEA seeks, through the creation ofproductive employment, to improve the lives of the millions of people who are eitherunemployed or whose remuneration from work is inadequate to allow them and theirfamilies to escape poverty. The fundamental role played by employment in fightingpoverty and social exclusion was also a conclusion of both the World Summit onSocial Development in 1995 and the 24th Special Session of the United NationsGeneral Assembly in 2000, which called upon the ILO to develop a coherent and co-ordinated international strategy for the promotion of freely chosen and productiveemployment.

The review is also intended to make operational the standards on employment andlabour market policy that are defined by the European Social Charter and the coreelements of the Revised Strategy for Social Cohesion of the Council of Europe(2004). The latter states that access to employment for all and the promotion of decentemployment are key elements of social cohesion and that “investment in humanresources is one of the most crucial areas of investment for future economic growth”.The Council of Europe has also drawn up a number of guidelines andrecommendations on improving access to employment, especially for the mostvulnerable groups.

This Employment Policy Review is a contribution to Bosnia and Herzegovina’spreparation for its future membership of the European Union by converging with theGuidelines of the European Employment Strategy (EES). For this purpose, thepresent report has been drafted on the model of the Joint Assessment Papers onEmployment Policies formulated by the European Commission and the countriespreparing for accession.

1. See Appendices I and II for a list of international instruments ratified by Bosnia and Herzegovina.

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Background

Bosnia and Herzegovina was the seventh country, after Albania, Croatia, Serbia, Moldova,“the former Yugoslav Republic of Macedonia” and Montenegro, to have its employmentpolicies assessed by the Council of Europe and the International Labour Office in compliancewith the commitments made by the Ministers participating in the South-East EuropeanMinisterial Conference held in Bucharest on 30-31 October 2003. The “BucharestDeclaration”2 mandated the ILO and the Council of Europe to assess the employmentsituation of the Stability Pact countries involved in the process of regional co-operation onemployment, and draw up recommendations in a Country Review of Employment Policy(CREP).

On the basis of an outline for national background reports, jointly prepared by the ILO andthe Council of Europe, Bosnia and Herzegovina agreed to draw up a detail report on its labourmarket and employment policies. In order to obtain a comprehensive overview of theemployment situation in Bosnia and Herzegovina, the ILO and Council of Europe team incharge of the elaboration of the Employment Policy Review visited the country in June 2007.The aim was to collect additional information and examine more thoroughly specific labourmarket issues. This paper was mainly drafted in September 2007 and subsequently submittedfor discussion through the State Ministry of Civil Affairs of Bosnia and Herzegovina, beforeits presentation at the 6th Session of the Permanent High-Level Committee of the “BucharestProcess” that took place in Budva (Montenegro) in October 2007. The Review was alsodiscussed at a National Tripartite Conference organised in Sarajevo on 18 June 2008. Thisevent provided an opportunity for the social partners to discuss and assess the findings of thereview and the recommendations put forward.

Both the ILO and the Council of Europe are very grateful to the authorities of Bosnia andHerzegovina for their active support, guidance and efficient co-operation and, especially tothe Ministry of Civil Affairs and the State Employment Agency, which had been entrusted bythe government with the task of preparing and organising the visit.

2. See Appendix III to this report.

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1. Overview of the economic and social context

1.1. Macro-economic framework

The macro-economic environment of Bosnia and Herzegovina (BiH) is still adverselyaffected by the conflict of 1992-95. Real economic growth has remained strong and stablesince the beginning of 2000, although the level is not comparable to the growth ratesexperienced in the aftermath of the conflict, fuelled by massive international aid. GrossDomestic Product (GDP) per capita also seems to be on the increase even though comparisonover time is problematic given the lack of reliable data on the total population.3

Inflation has also remained low since 2000, although it showed some increase in 2005 and amore pronounced surge in 2006 due to the introduction of Value Added Tax (VAT).Government expenditure (as a percentage of GDP) is relatively high compared to that of othercountries in South-East Europe. Its level, however, has fallen significantly since 2000.4Since 2003 the government budget has been in surplus. Sustained growth along with thedecrease of government expenditure reduced the external debt from nearly two fifths of GDPin 2000 to just one fifth of GDP in 2006.

External imbalances remain the most serious macroeconomic challenge facing Bosnia andHerzegovina. The negative balance of payments is largely the result of an extremely negativetrade balance. Trade liberalisation coupled with an exchange rate pegged to the Euro meant arapid increase in imports – mainly consumer goods – whilst exports have largely been in lowvalue-added products such as raw materials, agricultural products and energy. There was avisible improvement between 2003 and 2006, with the trade balance falling from over 50% toless than 40% of GDP. In 2006, imports came mainly from Croatia (16.7%), Germany(12.3%), Serbia and Montenegro (9.7%) and Italy (8.9%). In the same year, an export growthrate of 29% helped – along with productivity gains and export price increases – to push realGDP growth over 6%. Although this trend slowed in 2007, export figures for the first quarterstill report an increase of 24% a year on. Between 2005 and 2006 the current account deficitwas almost halved as a percentage of GDP (from 21.3% to 11.4%).5

3. There has been no population census since 1991. The war and its aftermath caused fairly massive populationmovements, which, in the absence of a census, creates problems for population-based figures (such as, forexample, GDP per capita). Various population estimates are in current use; the official estimate for 2006was 3,843,000 persons. The State Statistical Agency used an estimate of 3,372,000 for the 2006 Labour ForceSurvey, whilst for the US Census Bureau (used for population data in the Transmonee 2007 database) itis 4,461,000. There is also disagreement over whether and/or when the GDP per capita level overtook its pre-warlevel. The European Training Foundation (ETF) reports GDP per capita as €1,600 in 2003 or “half the pre-warlevels”, whilst State Agency for Employment reports the overtaking of pre-war GDP per capita levels (US$2000in 1990) by 2004. In this case the apparent discrepancy is explained largely by the use of base currency.European Training Foundation (ETF), Labour Market Review of Bosnia and Herzegovina, ETF, Turin. 2007;State Agency for Employment, State Review of Employment Policies in Bosnia and Herzegovina for 2006,Sarajevo, 2007.4. There are some discrepancies between the figures. Table 1 in the text shows the Central Bank’s figures, whilstthe International Monetary Fund (IMF) estimates suggest that the reduction in government expenditure is muchmore modest.5. International Monetary Fund (IMF), Bosnia and Herzegovina: Selected issues, IMF Country reportNo. 07/269, Washington, D.C., 2007.

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Table 1: Main economic indicators, Bosnia and Herzegovina, 2000-20062000 2001 2002 2003 2004 2005 2006

(e)2007(p) †

Nominal GDP (KM) 10,713 11,599 12,829 13,443 14,678 15,791 17,750† 19,740

Real GDP growth rate 5.5 4.5 5.5 3.0 6.0 5.5 6.2 6.0Gross investment (% ofGDP) † … … … 20.4 19.4 22.0 16.2 19.8

Industrial production†(% growth rate)

… … … 3.0 13.6 11.0 10.4 6.0

Inflation rate 4.8 3.1 0.4 0.6 0.4 3.8 7.4 …

Nominal GDP percapita (KM) 2,833 3,054 3,351 3,508 3,819 4,108 4,671 …

Governmentsurplus/deficit(% GDP)

-6.5 -3.3 -0.1 0.8 1.7 2.6 3.0† -1.4

External debt (% GDP) 37.9 38.1 33.4 29.9 27.5 27.5 22.6 20.5Governmentexpenditure (% GDP) 56.9 50.2 40.1 44.0 41.7 41.5 … …

Balance of payments(% GDP) -7.8 -14.1 -19.1 -20.9 -19.2 -21.3 -11.4 -13.4

Trade balance -54.8 -55.8 -53.7 -53.4 -49.0 -49.6 -37.1 …

FDI (% GDP) … … 4.3 4.9 7.1 5.2 3.7 11.5Notes: e= estimated; p= projected; † IMFSource: Central Bank of Bosnia and Herzegovina, Annual Report 2006, Sarajevo. 2007; IMF, Bosnia andHerzegovina: 2007 Article IV Consultation, IMF, Washington D.C., 2007

Figure 1 shows gross domestic product by broad economic sector for 2005. Services nowaccount for more than 60% of GDP. The sub-sectors contributing most to observed economicgrowth in 2005 and 2006 were wholesale, retail and real estate, with manufacturing,electricity, gas and banking making significant contributions. Together these five sectorsaccounted for 54% of growth in 2006. Other data sources suggest that both the tourism andconstruction sectors are showing healthy growth trends, although not significant in terms oftheir contribution to registered economic activity.6 The problem lies in the fact that these twosectors are the most exposed to informality and thus their contribution is not recorded inofficial statistics. The share of GDP hidden for economic purposes has been estimated tocomprise 33% of national output.7

6. For example, for tourism, the number of overnight stays.7. Dell’Anno, R., Piirisild, M., Estimate of Non-Observed Economy in Bosnia and Herzegovina, paper preparedfor USAID and the Central Bank of BiH, 2004. The informal economy comprises all economic activities byworkers and economic units that are – in law or in practice – not covered or insufficiently covered by formalarrangements. These activities are not included in the law or they are not covered in practice. The latter meansthat – although they are operating within the formal reach of the law – the law is not applied or not enforced; orthe law discourages compliance because it is inappropriate or burdensome, or imposes excessive costs. ILO,Decent Work and the informal economy, Report IV, International Labour Conference (ILC), 90th Session, 2002.

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Figure 1: Output by broad economic sector, 2005

11,5

27,8

60,7

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

Agriculture Industry Services

Source: World Bank, Bosnia and Herzegovina at a Glance, World Bank,Washington D.C., 2006.

Figure 2 shows registered employment by sector in 1991 and 2006. Again, the data seems toindicate, inter alia, a significant level of informality. A comparison of Figures 1 and 2 showsthat GDP in agriculture represents over 10% of total GDP, but that registered employment inagriculture accounts for less than 4% of registered workers. Since labour productivity inagriculture is typically lower than in industry and services, one would expect the percentageof workers employed in agriculture to be significantly greater than the share of GDP producedby the agricultural sector. The data suggests the opposite – employment in agriculture is, inpercentage terms, less than half the contribution of agriculture to GDP. This inconsistencycould be explained by the existence of informal employment in agriculture. Figure 2 alsoshows the substantial shift from employment in industry to employment in services that hascharacterised the post-war period. Some of the previously state-owned enterprises have beenprivatised and have re-activated their production, but many remain either at very low levels ofproductivity or not functioning due to unclear ownership structure. In the service sector, thefastest growing areas have been banking and retail and wholesale trade, both supported byForeign Direct Investment (FDI).

Figure 2: Formal employment by broad industrial sector, BiH, 1991 and 2006

3,23,7

35,051,1

45,2 61,8

0%10%20%30%40%50%60%70%80%90%

100%

1991 2006

Agriculture Production Services

Source: Bosnia and Herzegovina, State Agency for Employment, National Report onEmployment Policy 2005, op. cit.

The medium-term outlook is reasonably positive. Notwithstanding a significant drop inforeign and domestic investment in 2006 – due to a reduced participation of foreign firms inthe privatisation process and a failure of BiH to attract other forms of investment, such as

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Greenfield investments and joint ventures – investment is expected to recover in 2007 andgross capital formation to return to its level of approximately 20% of GDP.8 This is in linewith the average in both the EU-15 and EU-25 countries.9 Concern has been expressed overthe low level of investment, which is attributed to the expansion of lending to householdsrather than to businesses.10 However, the IMF notes that both the pace of financial deepeningand the initial concentration on lending to households are in line with those of other countriesin Central and South-East Europe.11 The privatisation of telecommunications and substantialinvestment projects in hydro-electric power plants and roads are also expected to make asignificant contribution to growth in the coming years.12

Over the period 1994 to 2006, FDI originated mainly from the EU-25 (58.1%) and South-EastEuropean countries (22.6%). The two main investors in this period were Croatia and Austria,accounting for 15.9% and 15.4% of FDI respectively. In 2006, FDI was heavily concentratedin the banking sector (73.5%), most of which came from Austria. In both 2005 and 2006, themajority of FDI came from countries of the former Yugoslavia.

Figure 3 shows that persistently high levels of economic growth have mainly led toimprovements in productivity and have not yet translated into employment growth, at least inthe formal economy, although there has been some modest growth in formal employmentsince 2003.13

The relative slowness of employment to respond to economic growth is a common feature ofthe “early” phases of transition throughout the region and – given the delayed transitionprocess in BiH due to the conflict – it is not unreasonable to expect that formal employmentgrowth will follow, particularly if the efforts to encourage the formalisation of economicactivities are further strengthened and expanded.14

8. Economic Planning Policy Unit (EPPU), Economic Trends, Annual Report 2006, Council of Ministers,Sarajevo, 2007.9. However, this level is lower than in other SEE countries. Croatia, for example, has an investment rate of closeto 30% of GDP.10. See in particular United Nations Development Programme (UNDP) Jobs and more jobs, UNDP, Sarajevo,2006.11. IMF, Bosnia and Herzegovina: Selected Issues, op. cit.12. EPPU, Economic Trends, Annual Report 2006, op. cit.13. Since the employment figures are based on registered employment, they ignore developments in the informaleconomy. A recent World Bank report suggests that, on the basis of LSMS data, there was strong employmentgrowth between 2001 and 2004 in the informal economy. However, for reasons explained below, caution shouldbe exercised in interpretating these estimates. World Bank, Bosnia and Herzegovina Labour Market Update: TheRole of Industrial Relations, World Bank, Washington, D.C., 2005.14. In particular through the introduction of VAT in 2006.

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Figure 3: Output and employment in BiH, 1999-2006 (1999=100)

80

90

100

110

120

130

140

150

1999 2000 2001 2002 2003 2004 2005 2006

Employment (1999 = 100) Real GDP (1999 = 100)

Note: The output index is calculated from real GDP growth rates and the employment index isbased on registered employment data.Source: Calculations based on the data of the Central Bank of BiH, op. cit and of the BiH StateAgency for Employment, op. cit.

1.2. Poverty and social exclusion

The most recent estimates of poverty in Bosnia and Herzegovina are based on the LivingStandard Measurement Survey and refer to the year 2004. Although suffering from problemswith sample size and representativeness constraints,15 this survey has the major advantage ofhaving collected annual data consistently in 2001 and 2004.16 According to this source, thepoverty rate fell from 19.5% in 2001 to 17.8% in 2004 as shown by Table 2.17

Table 2: Poverty rates in Bosnia and Herzegovina 2001-2004Poverty rate

2001 2004Percentage change

2001-2004Bosnia and Herzegovina 19.5 17.8 -8.7Federation BiH (FBiH) 16.3 15.4 -5.5Republika Srpska (RS) 24.8 20.8 -16.1Source: EPPU, Economic Trends, Annual Report 2006, op. cit.

15. The sample size in 2004 was a little over 6,500 or about 1.5%-2% of the population depending on whichpopulation estimate one uses. The last census was undertaken in BiH in 1991 with the consequent difficulties inconstructing a sample base, particularly in the light of subsequent conflict-induced population movements.16. As well as being essentially a panel study and thus allowing the analysis of individuals’ experiences over afour-year period.17. There are many ways to measure poverty. The table presented in the text is based on the concept of absolutepoverty measured by the cost of an essential consumption bundle. For international comparison purposes, morecommon indicators relate to a fixed poverty line (i.e. US$4.30 and US$2.15 per day are used by the World Bankto define poverty and extreme poverty) or use relative poverty indices (for instance UNDP uses 60% of medianincome to define those “at risk” of poverty).

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Although poverty seems to have fallen as a whole, it is heavily concentrated amongst specificgroups, in particular among members of households with three or more children (66%),refugees and displaced persons (37%), elderly persons (31%), the unemployed (29%) andpersons with low educational attainment (24%).18 Households with three or more children arethe poorest category of the population. Their risk of falling below the poverty line increasedduring the period 2001-2004. This indicates that the potential for the inter-generationaltransmission of poverty is on an upward trend. In the same period, the poverty of displacedpersons deteriorated in terms of number of people affected, depth and severity, although theshare of displaced persons in the overall poor population dropped by 50 percentage points(from 29% in 2001 to 16% in 2004). Such a situation may be partly caused by aninappropriate targeting of social policies (i.e. the welfare system helps primarily those peoplewho are closest to the poverty line so that they can be easily lifted out) that could be failing toaddress the situation of the poorest of the poor. Both single- and two-member householdswith a person aged 65 or more are poor (28.8% and 36.1%, respectively). Although in 2004the average pension (184 KM per month) was below the poverty line (185 KM per month),the right to receive a pension reduces the risk of poverty, particularly for women. The pensionsystem in BiH appears to generate poverty and is the part of the social welfare system mostdirectly affected by the country’s low employment and high inactivity rate, which negativelyaffects pension contributions.19

The analysis carried out by the Unit for Economic Planning and Implementation of the Mid-Term Development Strategy on the LSMS panel data suggests that the poverty rate hasincreased amongst people employed in the informal economy, and this more than offsets adrop in poverty rate in the formal economy, resulting in an increase in poverty amongstemployed people. Owing to the increased supply of labour – caused by the entry into thelabour market of people who were previously inactive – individuals are taking low-payingjobs that do not lift them out of poverty. The data also suggests that, while the poverty ratehas declined for unemployed people, the total number of poor people who are unemployedhas increased.20

The Roma population is far more likely to be poor than members of the majority, as indeed isthe case in other countries in the region. A recent report on the Roma and Internally DisplacedPersons (IDPs) in South-East Europe found that the unemployment rates of the Romapopulation were over 70% higher than those of the non-Roma population living in thevicinity. 21 Moreover Roma individuals were approximately nine times more likely to be poor– i.e. living on less than US$4.30 a day – than individuals from the majority.22 This means

18. UNDP, Social Inclusion in Bosnia and Herzegovina, UNDP Human Development Report BiH, Sarajevo,2007, pp. 192-193.19. UNDP, Social Inclusion in Bosnia and Herzegovina, UNDP, Sarajevo, 2007, op. cit.20. Unit for Economic Planning and Implementation of the Mid-term Development Strategy (EPPU), TheMedium-Term Development Strategy of Bosnia and Herzegovina 2004-2007 (PRSP), Revised Document, EPPU,Sarajevo, May 2006.21. UNDP, At Risk: Roma and the Displaced in Southeast Europe: Dimensions of vulnerability, UNDP,Bratislava, 2006. The UNDP study was based on surveys carried out in seven countries in the region amongstRoma, IDPs and majority populations living in “similar circumstances”, which essentially meant living in closeproximity – i.e. in the same or nearby communities. This was done to facilitate the comparison between thetwo groups, but it also meant that the surveys were not to be intended to be nationally representative.22. Approximately 27% of Roma and 3% of the majority were found to be living in households with a dailyadult equivalent expenditure of less than US$4.30. The corresponding percentages for adult equivalent incomewere 26% and 2% respectively. However, given the unreliability of self-reported income, the expenditure basedfigures probably provide a more accurate picture. UNDP, At Risk: Roma and the Displaced in Southeast Europe:Dimensions of vulnerability, UNDP, Bratislava, 2006, op. cit., p. 18.

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that, although the Roma are doing better in Bosnia and Herzegovina than in other countries inthe region – the only country with a lower poverty rate amongst the Roma is Croatia – Bosniaand Herzegovina is in almost the worst position in the region in terms of the relative positionof Roma vis-à-vis the majority population. The only country with a higher divergencebetween the Roma and the majority population – in terms of the ratio of poverty rates ofRoma to those of the majority – is Bulgaria.

The Medium Term Development Strategy adopted in 2004 set the target of a 20% reductionin poverty by 2007. Although reliable data is not yet available, the poverty reduction rateachieved over the period 2001-2004 was not sufficient to achieve this goal, i.e. the sustainedrates of growth were not sufficient to achieve the target reduction. Consequently, the Unit forEconomic Planning and Implementation of the Medium-Term Development Strategy hassuggested, in its latest update, that policies are needed to ensure a greater participation of thepoor in the benefits of growth.23

International comparisons of poverty in the region are hampered by the lack of recentcomparable data. However, the poverty assessment conducted by the World Bank reports thatin 2001 the incidence of poverty in BiH was 6.9% – when calculated as 50% of medianincome – and 16.7% – when calculated as 66% of median income. This suggests that povertyis higher in Bosnia and Herzegovina than in Croatia, roughly the same as in Romania andAlbania, but lower than in Bulgaria. A 2005 report puts Bosnia and Herzegovina at the lowerend of the scale in South-East Europe, on the basis of absolute poverty indices, the incidenceof poverty (income below US$4.30 per day) and extreme poverty (income below US$2.15 perday). Both measurements were found to be below the incidence found in “the formerYugoslav Republic of Macedonia”, Bulgaria, Serbia and Montenegro, Romania andAlbania.24

As regards inequality, Bosnia and Herzegovina also appears to be doing reasonably well. Thepoverty assessment suggests that – using consumption-based estimates – there is lessinequality in Bosnia and Herzegovina than in Croatia and “the former Yugoslav Republic ofMacedonia” and slightly more than in Bulgaria.25

2. Labour market situation

In April 2006, the first national Labour Force Survey (LFS) was undertaken in Bosnia andHerzegovina. The exercise was repeated in 2007, thus creating the basis for reliable data onthe labour market in the country. Other available information consists of registeredemployment and unemployment records and the Living Standards Measurement Survey(LSMS) carried out for the period 2001-2004. As far as possible, the analysis that follows isbased on the LFS data, since this is both more recent than the LSMS and more comprehensive

23. EPPU, The Medium-Term Development Strategy of Bosnia and Herzegovina 2004-2007 (PRSP), RevisedDocument, EPPU, Sarajevo, May 2006.24. Although not included in this specific comparison, Croatia would presumably report a lower povertyincidence also according to these indices of absolute poverty. World Bank, Growth, Poverty, and Inequality:Eastern Europe and the Former Soviet Union,World Bank, Washington, D.C., 2005.25. World Bank, Bosnia and Herzegovina. Poverty Assessment, World Bank, Washington, D.C., 2003.Survey-based reporting of income is notoriously unreliable. The World Bank’s poverty assessment suggests thatthis is particularly the case in Bosnia and Herzegovina. However, anecdotal evidence from discussions withstatistical agency staff involved in conducting the 2006 and 2007 labour force surveys tends to confirm thisimpression.

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than the registered employment data in providing an accurate picture of labour marketdevelopments.

2.1. Population and labour force participation

The last population census in Bosnia and Herzegovina dates back to 1991. Given the majorupheavals and population movements since then, estimates of population and of populationgrowth rates are subject to substantial error. The population estimate used by most nationaland international institutions gives a population of 3,843,000 in 2006. However, thepopulation estimate used as the basis for the LFS was 3,372,000.

Table 3 and Figure 4 show labour force participation rates and dependency ratios for Bosniaand Herzegovina as a whole, as well as separately for the two entities and the Brčko District.For comparison purposes, the table and figure also include information on neighbouring andEU countries. Labour force participation rates in BiH are lower than in neighbouringcountries except for Montenegro. This is due to the extremely low participation rates ofwomen. The participation rates of men are only slightly below those in Bulgaria, Croatia andRomania, whereas those of women are around 20 percentage points lower than in their Balkanneighbours. The dependency ratio is actually lower than in Croatia and is comparable to EUlevels. In the absence of reliable data on population growth trends, it is difficult to say muchon the implications of this. However, if population growth is declining, the country may beconfronted with a crisis in labour supply in the next 15-20 years, unless the inactivity and lowlabour market participation of women are addressed.

Table 3: Labour force participation for BiH and neighbouring countriesCountry Men Women TotalBosnia and Herzegovina 65.5 37.4 51.3FBiH 66.0 35.9 50.7RS 64.7 40.3 52.5BD (Brčko District) 61.2 34.1 47.8

Bulgaria 67.0 57.3 62.1Croatia 70.0 56.7 63.3Montenegro 57.4 42.9 49.9Romania 69.4 55.3 62.3EU-25 77.8 62.5 70.0Source: Statistical Agency of BiH, Labour Force Survey 2006, Sarajevo 2007 and own calculations; for othercountries, European Commission, Employment in Europe 2006, Directorate General for Employment, SocialAffairs and Equal Opportunities, Brussels, 2006.Note: Data for BiH is for April 2006, while data for other countries is for 2005.

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Figure 4: Dependency ratios for BiH and neighbouring countries

Source: Statistical Agency of BiH, Labour Force Survey 2006, Sarajevo 2007 and owncalculations; for other countries, European Commission, Employment in Europe 2006,Directorate General for Employment, Social Affairs and Equal Opportunities, Brussels,2006.Note: Data for BiH is for April 2006, while data for other countries is for 2005. Thedependency ratio is calculated as the percentage of the population that is either below 16 orabove 64 years of age. EU-15 and EU-25 are the European Union members pre- and post-the 2004 accession. European Union-NMS comprises the 10 acceding countries at thattime (i.e. excluding the most recent entrants Bulgaria and Romania).

2.2. Employment developments

Table 4 shows employment rates for the working age population in BiH and in the entities aswell as in neighbouring countries. Employment rates are extremely low and there is a widegap between men and women. To some extent, the pattern is similar to that found inMontenegro, in terms of both rate level and the gender gap.26

Table 4: Employment rates in BiH and neighbouring countriesEmployment Rate Men Women TotalBosnia and Herzegovina 46.1 24.0 35.0

FBiH 46.4 22.3 34.1RS 46.0 27.6 36.8BD 40.3 18.6* 29.6

Bulgaria 60.0 51.7 55.8Croatia 61.7 48.6 55.0Montenegro 42.4 27.6 41.0Romania 63.7 51.5 57.6EU-15 72.9 57.4 65.2EU-25 71.3 56.3 63.8Source: Statistical Agency of BiH, Labour Force Survey 2006, op. cit. and own calculations; for Montenegro:ILO and Council of Europe, Country Review of Employment Policy of the Republic of Montenegro, op. cit.; forother countries, European Commission, Employment in Europe 2006, Directorate General for Employment,Social Affairs and Equal Opportunities, Brussels, 2006, op. cit.Note: Data for Bosnia and Herzegovina is for April 2006, while data for other countries refers to 2005.

26. ILO and Council of Europe, Country Review of Employment Policy of the Republic of Montenegro.

32.634.9

36.6

33.531.8

34.9

30.532.8 33.3

0

5

10

15

20

25

30

35

40

FBiH RS BD BiH Bulgaria CroatiaRomania EU-15 EU-25

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Inasmuch as comments on employment trends are possible on the basis of existing sources,registered employment data – shown in Figure 3 – suggests that there have been modest gainsin employment since 2003, whilst the LSMS (2001 and 2004) shows a substantial gain inemployment (and employment rates) although this was largely attributable to gains inemployment in the informal economy.27 Thus, although the employment rate is very low,there is at least some evidence that it has been increasing since 2001.

Figure 5 shows employment by broad industrial sector as recorded by the LFS. This gives asomewhat more accurate picture of sectoral employment than is possible with registeredemployment data.28 Employment in agriculture comprises around 20% of all employment andis concentrated in the Republika Srpska. Figure 5 also shows the concentration ofemployment in services, particularly with regard to women in the FBiH. A comparison ofFigure 4 with Figure 2 suggests that informal employment prevails in agriculture, since thepercentage of employees in registered agricultural employment is only a little over 3%compared to the 20% or so reported in the LFS.29

Figure 5: Employment rates by broad industrial sector, 2006, LFS data

42,6

60,2

48,745,9

52,5 51,8

42,1

30,4 31,2

14,316,613,2

20,522,019,8

31,6

17,8

26,832,1

17,9

40,9

30,8

17,8

37,733,2

36,2

65,5

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

Men Women Total Men Women Total Men Women Total

BiH FBiH RS

Agriculture Industry Services

Source: Labour Force Survey, 2006, op. cit.

There are substantial gaps in employment for groups with different levels of educationalattainment. Approximately 25% of workers had primary education attainment or less (28.2%women and 23.8% men) at the time of the LFS; 60.6% had secondary education (55% forwomen and 63.7% for men) and 14% had tertiary education (16.8% for women and 12.5% formen).30

As in other countries in the region, part-time employment is not widespread. It accounts for11.5% of employment, mostly concentrated in agriculture, in the FBiH and amongst women.

27. World Bank, Bosnia and Herzegovina Labour Market Update: The Role of Industrial Relations, WorldBank, Washington, D.C. 2005, op. cit. Indeed in the RS, formal employment fell between 2001 and 2004, whilstthe growth in informal employment was just sufficient to maintain overall employment at more or less the samelevel.28. The LFS captures overall employment, i.e. formal and informal employment.29. Such concentration of informal employment in agriculture is also confirmed by the World Bank study on thelabour market of BiH. World Bank, Bosnia and Herzegovina Labour Market Update: The Role of IndustrialRelations, World Bank, Washington, D.C., 2005, op. cit.30. Statistical Agency of BiH, Labour Force Survey 2006, Sarajevo 2007, p. 44.

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As much as 56% of women employed in agriculture in the FBiH work on a part-time basis.Given the existing legislative restrictions, part-time employment is largely concentrated in theinformal economy.31

Average hours of work differ substantially by sector of employment and by sex. Figure 6shows that women work less hours than men generally, but those working in agriculture workmore hours than men employed in the manufacturing and service sectors.

Figure 6: Average hours worked per week by sex and economic sector

42,6

44,4

41,4 41,0

48,6

44,0

36,0

38,0

40,0

42,0

44,0

46,0

48,0

50,0

Agriculture Industry Services

MenWomen

Source: Statistical Agency of BiH, Labour Force Survey 2006, Sarajevo 2007, op. cit.

Data from the LFS suggests that informal employment comprises around one third of allemployment. A comparison of these figures with those derived from the LSMS 2001-2004,shown in Table 5, suggests that informal employment is declining somewhat.32 However,differences in sample base and size across the two surveys do not allow firm conclusions.

Table 5: Informal employment as a percentage of all employmentLFS 2006 LSMS 2001 LSMS 2004

Bosnia and Herzegovina 33.6 36.5 41.3FBiH 28.3 32.8 36.3RS 42.4 40.9 48.8BD 33.2 … …

Source: Calculations based on LFS and LSMS data.Note: Informal employment is defined as the percentage of those working whose (principal) employment doesnot include either health or pension coverage.

31. According to the 2006 LFS, overall, 2.0% of men and 2.9% of women working in the formal economy havepart-time contracts. In the informal economy, part-time employment relations account for 27.9% of maleworkers and 33% of female workers. In the Federation, 95.6% of women working in agriculture are informalworkers; 58.6% of women working in informal agricultural activities do so on a part-time basis, while none ofthe remaining 4.4% of women who work with a regular employment contract in agriculture are on part-time.32. These estimates are in line with those found by other researchers. Informal employment, expressed as apercentage of formal (as opposed to all) employment, is around 51%. Given that informal employment isgenerally concentrated in labour intensive activities – in the specific case of BiH this is believed to be inagriculture, construction and tourism – the two estimates are compatible. Dell’Anno, R., Piirisild, M., Estimateof Non-Observed Economy in Bosnia and Herzegovina, paper prepared for USAID and the Central Bank ofBosnia and Herzegovina, 2004.

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Figure 7 looks at the sectoral division of employment in the formal and informal economy onthe basis of the LFS data. The concentration of informal employment in agriculture is ratherclear, as is the relative concentration of informal employment in manufacturing rather thanservices.

Figure 7: Formal and informal employment by industrial sector

3,4

54,5

2,5

44,2

5,2

66,4

1,3

47,434,1

24,1

34,9

29,0

32,9

18,5

26,5

25,6

62,5

21,4

62,6

26,8

61,9

15,1

72,2

27,0

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

80,0

90,0

100,0

Formal Informal Formal Informal Formal Informal Formal Informal

BiH FBiH RS DB

Agriculture Industry Services

Source: Calculations on LFS data.

Table 6: Incidence of informal sector employment by age, sex and entityMen Women Total

Bosnia and Herzegovina 15-24 52.3 46.9 50.4

25-49 30.2 26.5 28.9

50-64 32.8 33.9 33.2

Total 34.4 32.1 33.6

FBiH 15-24 53.1 50.7 52.2

25-49 26.4 24.0 25.6

50-64 25.5 21.7 24.3

Total 28.9 27.1 28.3

RS 15-24 51.8 40.4 48.2

25-49 37.7 30.8 35.1

50-64 45.3 48.5 46.5

Total 44.0 39.8 42.4Source: Calculations based on LFS data.

Table 6 shows the incidence of informal employment in the two entities by age and sex.Young people are disproportionately represented in the informal economy, particularly in theFederation, while there is a preponderance of men in the Republika Srpska. The incidence ofinformal employment is roughly twice as high for young people (15-24) as it is for prime-ageadults (25-49) in the FBiH, whereas the corresponding relative incidence in the RS is

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about 1.4.33 Interestingly, the incidence of informal employment is lower for women than formen, owing to the sectoral distribution of the informal economy and of men/womenemployment patterns. Women are slightly more likely than men to work informally inagriculture, with agriculture accounting for 20% of overall employment.

In industry, which accounts for 31% of all employment, men are much more likely to workinformally than women.34

With regard to the possible role of informal employment as a means of entry to a morepermanent job, the data from the LSMS – although not entirely representative – contains apanel element that allows analysis of movement between statuses over time. Table 7 showsthe labour market position of individuals in 2002 and 2004 according to respective statusin 2001. Of all those formally employed in 2001, 84.9% were also formally employed in 2002and 76.0% in 2004. Only about 14% of those in informal employment in 2001 had obtainedformal employment by 2002 and only about 19% managed the transition to formalemployment within three years. The main route out of unemployment and into employmentseems to be through informal as opposed to formal economy jobs. Of those unemployed in2001, only about one in five had managed to find formal employment three years later.Moreover, whilst the majority (62.4%) of the working-age population had a job at some stageover the four years covered by the survey, only 19.3% or about one in five had a formal jobthroughout the period 2001-2004.

Table 7: Mobility between labour market statuses, 2001-2004Activity in 2002 Activity in 2004

FE IE U I FE IE U I

Formal employment 84.9 4.7 3.3 7.1 76.0 7.6 6.0 10.3

Informal employment 13.9 51.6 13.4 21.1 18.7 48.8 12.2 20.3

Unemployed 12.3 25.3 32.4 29.9 19.9 25.3 24.4 30.4

Activity

in2001

Inactive 4.6 10.2 12.9 72.3 8.4 13.2 14.3 64.2

Source: ETF, Labour Market Review of Bosnia and Herzegovina, ETF, Turin, 2007, pp. 21.Note: The table reports row percentages.

2.3. Unemployment trends

Table 8 shows the main unemployment indicators of Bosnia and Herzegovina. Theunemployment rates – ILO strict definition – are very high, but not as high as registeredunemployment rates. The 2006 LFS estimates the overall unemployment rate in BiHat 31.8%. Owing to the absence of LFS time series, it is difficult to say much about trends.However, it would appear from the LSMS data that the increase in employment wasaccompanied also by an increase in the number of unemployed. This may be due to the factthat the employment gains encouraged some of the inactive population to start looking moreactively for work and thus increase the numbers of unemployed.35

33. The higher relative unemployment rates of young people (compared to adults aged 25-49) in the Federationthan in the RS, reported in Table 8 below, tend to point in the same direction.34. The percentages of men and women working informally in services are also broadly similar.35. There is, however, a divergence between different data sources. The LSMS suggests that between 2001and 2004 formal employment increased in the Federation and fell in the RS. Data on registered employmentsuggests the opposite, i.e. that formal employment fell in the Federation and increased in the RS.

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Table 8: Unemployment rates by entities and BD, sex and age groupMen Women Total

BiH 29.5 35.7 31.8- FBiH 29.7 38.0 32.7- RS 28.9 31.3 29.8

Unemployment rate

- BD 34.2 45.4 38.1BiH 60.2 65.7 62.3- FBiH 65.2 68.9 66.7- RS 48.7 58.4 52.3

Youth unemployment rate

- BD 74.6 63.5 70.0BiH 26.7 34.0 29.5- FBiH 26.1 35.1 29.4- RS 27.8 31.6 29.3

Prime-age adult (25-49)Unemployment rate

- BD 30.9 47.1 36.3BiH 2.3 1.9 2.1- FBiH 2.4 2.0 2.3- RS 1.8 1.8 1.8

Ratio youth to adult unemploymentrates

- BD 2.4 1.3 1.9Source: State Statistical Agency, Labour Force Survey 2006, Sarajevo 2007, op. cit. and calculations based onLFS data.

As in most countries of Central and Eastern Europe, unemployment rates are significantlyhigher for women than for men. Interestingly, the gender difference is less marked in the RS,despite the fact that women in the RS have significantly higher labour force participationrates.36 Youth unemployment rates are much higher than for adults, although the difference isless marked in Bosnia and Herzegovina than in other countries. The ratio of youth to (prime-age) adult unemployment rates is 2.1, slightly more marked for men in the FBiH where itreaches 2.4. This ratio is rather low compared to some neighbouring countries. In Croatia,Romania and Serbia the ratio of youth to adult unemployment is 3.5 and in Bulgaria it is 2.5.37The BiH ratio is closer to the one found in Albania (1.9 in 2001) or “the former YugoslavRepublic of Macedonia” (1.9 in 2005). One possible explanation for this is the relativelysmall size of the youth cohort in the country – just under 15% of the total population.Furthermore, the ratio is higher in the FBiH where young people comprise a slightly largerproportion of the population. Various studies have researched the extent to which the relativesize of the youth cohort influences the youth unemployment rate across a number ofcountries.38 The general consensus is that the relative size of the youth cohort has a rathersmall impact on youth unemployment and that this is overwhelmingly outweighed by demandfactors in the labour market. Moreover, the relative size of the youth cohort is fallingthroughout the region, but is relatively large in Albania and Croatia and relatively small in

36. See Table 3 above.37. O’Higgins, N., Youth Labour Markets in ECA, Report prepared for the World Bank Conference on Youth inECA, Rome, May 2007.38. See in particular: Korenman, S. and Neumark, D. “Cohort Crowding and Youth Labour Markets: Across-national analysis,” in D. Blanchflower and R. B. Freeman (ed.s), Youth Employment and Joblessness inAdvanced Countries, Chicago: University of Chicago Press, 2000; O’Higgins, N., Youth Unemployment andEmployment Policy: A Global Perspective, ILO, Geneva, 2001; O’Higgins, N. , “Trends in the Youth LabourMarket in Developing and Transition Countries,” Social Protection Discussion Paper No. 0321, World Bank,Washington, D.C. 2003; Fares, J., Montenegro, C. E. and Orazem P. F., “How are Youth Faring in the LabourMarket? Evidence from around the world,” World Bank Policy Research Working Paper No. 4071, Washington,D.C., 2006.

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Bosnia and Herzegovina, Bulgaria, Romania and Serbia.39 In other words, there is no obviousrelationship between youth cohort size and the ratio of youth to adult unemployment rates.This tends to suggest that the problem lies essentially with insufficient aggregate demand and,above all, that the extent to which the problems of youth unemployment can be solved bypurely supply-side measures is extremely limited.

Table 9 shows unemployment rates by education level for individuals 25+ and for those in thecohort 25-34 years old.40 The table illustrates the inverse relationship between educationallevel and the likelihood of being unemployed. If one confines attention to the cohort 25-34,the relationship is very clear.

Table 9: Unemployment rates by level of education (individuals 25+ and cohort 25-34)Unemployment rates BiH FBiH RS BD

Adults (25 and over) with:

Primary education or less 28.6 33.8 21.6 34.3

Secondary education 27.9 26.9 29.6 33.7

Tertiary education 11.4 10.6 13.0 11.3

Young adults (25-34) with:

Primary education or less 45.3 50.9 35.9 47.9

Secondary education 36.2 38.3 32.1 37.6

Tertiary education 22.8 21.2 26.5 33.3Source: Calculations based on the LFS 2006.

Table 10 provides information on probably the most worrying aspect of unemployment,namely the incidence of long-term unemployment. The longer one is unemployed, the harderit is to find and keep a job. Lengthy unemployment spells lead to the loss of skills andmotivation and this becomes a negative indicator for prospective employers. As the tableshows, the incidence of long-term unemployment throughout BiH is not far from 90%. Inother words almost nine out of ten unemployed persons have been searching for work for oneyear or more. This compares very unfavourably with other South-East European countrieswhere rates, although higher than in the EU, are still much lower. In Bulgaria the rate is 59%,in Croatia 54% and in Romania 57%. In the EU-15, the rate is 42% and in the EU-25, 45%.

39. Lam, D., The Demography of Youth in Developing Countries and its Economic Implications, World BankPolicy Research Working Paper No. 4022, Washington, D.C., 2006.40. This excludes those under 24 because they are still likely to be engaged in education. Including individualsunder 25 may mislead because those with higher levels of education will only just have entered the labourmarket. For further discussion of this specific issue see O’Higgins, N., Youth Unemployment and EmploymentPolicy: A Global Perspective, ILO, Geneva, 2001, op. cit.

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Table 10: Long-term unemployed as a percentage of all unemployedMen Women Total

BiH 85.4 86.8 85.9

- FBiH 85.3 88.0 86.3Long-term unemployed (% of all unemployed)

- RS 87.3 85.4 86.6Source: Calculations based on the LFS 2006.Note: The long-term unemployed are defined as individuals who experience unemployment spells of at least 12months.

Table 11 shows long-term unemployment rates by educational attainment. Although theincidence of long-term unemployment is high for all levels of education, there is a substantialdifference between those with primary and secondary education and those with tertiaryeducation. Once again the table suggests that policy-makers need to focus their attention onthose with lower levels of education.

Table 11: Incidence of long-term unemployment by level of education

Long-term unemployed with: BiH FBiH RS BD

Primary education or less 90.4 89.8 91.6 92.8

Secondary education 85.8 84.5 84.5 83.3

Tertiary education 69.1 66.7 66.7 83.7Source: Calculations based on the LFS 2006.

3. Main priorities for employment policy

3.1. Design, monitoring and evaluation of employment policy

The most effective means of promoting employment is to ensure an economic policyenvironment that stimulates growth with high job creation. This would generally require ahigh rate of economic growth coupled with incentives and institutions to make growthemployment-intensive and with labour market policies to improve employability, easetransitions in the labour market, contribute to better matching of labour demand with laboursupply and help reintegrate vulnerable groups.

The central goal of the Medium Term Development Strategy (MTDS/PRSP) is the reductionof poverty. This Strategy clearly recognises the connection between poverty reduction andemployment growth and assigns priority, for the period 2004-2007, to labour market reform,to be achieved through changes in labour laws and regulations and in institutions, as well asthrough the implementation of a series of labour market measures.41 Overall, theimplementation of several of the 11 policy changes and 12 labour market measures has notbeen completed or has not yet started. The Unit for Economic Policy Planning (EPPU) of theCouncil of Ministers of BiH is currently working on the new development strategy for the

41. The labour market measures provided for by the MDTS/PRSP will be discussed in the sections on labourmarket policies of this Review.

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period 2008-2013. This new strategy will combine priorities for poverty reduction with thoserequired by preparation for accession to the European Union.42

Making employment central to economic and social policies can do much to fosteremployment-rich economic growth. Employment could be a central element of the newdevelopment strategy of BiH. This would ensure that macro-economic and sectoral strategieswere geared to economic development and job creation. An active policy on employment canalso promote an efficient and equitable functioning of the labour market. The mid-termdevelopment strategy should identify policy priorities that foster employment and deviseemployment policy objectives and targets that are related to other economic and socialpolicies.

These priorities, objectives and targets can then be specified in employment strategies thatcould be framed by each entity and the Brčko District so as to reflect their realities. Theseemployment strategies can create specific conditions favouring employment generation. Theywould link the ends (policy objectives) to the means to achieve them. In other words, throughan employment strategy, the governments become actors of change through concreteoperational pushes and undertake to respond better and faster to employment problems. Thestrategies can be operationalised through periodical action plans on employment that policy-makers could develop together with the employment services and other stakeholders.

The development of such employment strategies linked to the employment policy objectivesto be set out in the Mid-Term Development Strategy is also an integral part of the processnecessary for accession to the European Union. The box below highlights the mainemployment policy instruments of both the ILO and the EU.

Box 1: ILO and EU instruments on employment promotionThe main international instrument for employment promotion is the Employment Policy Convention, 1964 (No.122). The ILOConvention calls on ratifying Members to “declare and pursue, as a major goal, an active policy designed to promote full,productive and freely chosen employment”. The general principles of the active employment policy are detailed further inEmployment Policy Recommendation, 1964 (No. 122) and Employment Policy (Supplementary Provisions)Recommendation, 1984 (No. 169). The Republic of Bosnia and Herzegovina ratified this Convention in 1993.

The European Employment Strategy (EES) of the European Union is an integrated employment policy approach centred on“employment policies aiming at achieving full employment, improving quality and productivity at work, and strengtheningsocial and territorial cohesion”. Countries are guided in establishing common objectives articulated around three areas(attract and retain more people in employment, increase labour supply and modernise social protection systems; improveadaptability of workers and enterprises; and increase investment in human capital through better education and skills).

Both the ILO Convention and the EES pay particular attention to consultation with the social partners while designingemployment policies. In particular, C122 stipulates that “representatives of the persons affected by the measures and inparticular representatives of workers and employers shall be consulted concerning employment policies with a view to takingfully into account their experiences and views”.

The Employment Guidelines of the EES assign responsibility to the social partners in the area of labour market policies,including negotiation of collective agreements, work organisation and flexibility.

Source: http://www.ilo.org/ilolex and http://europa.eu/pol/socio/index_en.htm.

The labour administration structure in Bosnia and Herzegovina is complicated by theexistence of multiple levels of responsibility for the implementation of employment policy

42. Bosnia and Herzegovina signed the Stabilisation and Association Agreement with the European Commissionon 16 June 2008.

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and the development of employment strategies. The current labour administration system isfragmented, with functions mandated to different administrative tiers and little co-ordinationat either horizontal or vertical level. There are several functions on which the roles andresponsibilities of different levels of the labour administration overlap, while other functionsare not covered by any of them (see Table 12 below). Such a framework makes theimplementation of employment policy as well as the enforcement of labour laws a dauntingtask, especially in the Federation of BiH, where there is no inventory of the labour andemployment legislation enacted by the Cantons and consequently no check on the complianceof cantonal provisions with those enacted at Federation level.

Table 12: Main labour administration functions in BiHLabour administration functions MoCA SEA FBiH RS BD CantonsInternational representation Yes Yes Yes Yes Yes YesMonitoring and reporting on internationalconventions and agreements Yes Yes Yes Yes Yes Yes

Design of labour legislation No No Yes Yes Yes YesImplementation of labour legislation No No Yes Yes Yes YesLabour legislation enforcement No No Yes Yes Yes YesTerms of employment No No Yes Yes Yes YesCollective bargaining No No Yes Yes Yes YesWorking conditions No No Yes Yes Yes YesWages No No Yes Yes Yes YesOccupational health and safety No No Yes Yes Yes YesKey: MoCA: State Ministry of Civil Affairs, SEA: State Employment Agency.Source: EU CARDS Programme, Vertical Review of the Labour and Employment Sector in Bosnia andHerzegovina, 2006, op. cit, p. 40.

The lack of a coherent employment policy framework makes labour administration reactiverather than proactive and the fact that labour law is not enforced fosters duality in the labourmarket, hampers worker mobility and could lead to violations of labour standards. A moreefficient and co-ordinated system of labour inspection would help ensure the implementationof minimum national labour standards and make headway with the enforcement of labour lawand the fight against the informal economy.

Labour market information and research is still underdeveloped with gaps at all levels of theadministration. Such knowledge and information gaps in turn have a negative impact on theframing and implementation of employment and labour market policies. The existence of anadequate system of labour market information is a key prerequisite for the development ofspecific interventions. It can help, inter alia, to identify priority areas for action and specificgroups to be targeted by interventions. In this regard the development of the annual labourforce survey is to be welcomed. It is hoped that, as soon as is feasible, the conduct of anational census will further strengthen the basis for survey-based information gathering.

The monitoring and evaluation of employment and labour market policies should also be anintegral part of any employment policy and strategy. Monitoring the implementation ofemployment policy allows corrective measures to be taken if specific targets are not beingmet. Monitoring – short-term and immediate in nature – is a way of ensuring that policy isbeing implemented as planned. Evaluation of employment policy essentially means assessingthe impact of policies on specific outcomes. Currently, in Bosnia and Herzegovina, muchwork remains to be done on improving the quality of policy monitoring as well as on

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introducing mechanisms for evaluating the impact of policy. Adequate monitoring requiresthe establishment of articulated (and relevant) targets. The introduction of evaluationmechanisms aimed at assessing the extent to which policy interventions helped (or did nothelp) in achieving specific policy goals – i.e. the reduction of informal employment or oflong-term unemployment – can be used to revise policy in order to improve it.

Recommendations

• The development of a national employment policy is a key priority in Bosnia andHerzegovina. This could be done by setting out clear employment policy provisions inthe new Mid-Term Development Strategy. The latter framework would allowemployment to be linked to other economic and social policies. The broadconsultation process underpinning the preparation of the Strategy would ensure theinvolvement of a wide range of stakeholders in the definition of employment policypriorities and objectives at all levels. The MTDS could also introduce an effectiveemployment policy monitoring and evaluation mechanism.

• The above-mentioned recommendation would entail the development of employmentstrategies and employment action plans (APs) under the responsibility of thegovernments of the entities and the Brčko District. The APs should be developedtogether with the Employment Agencies of the entities and Brčko District.

• There is a need to reform the labour administration at all levels in order to clarifyroles and responsibilities, avoid overlapping and fill the current gaps. In particular,this recommendation would entail strengthening the Employment Department of theMinistry of Civil Affairs and reviewing the labour administration in the FBiH. For thelatter, it is not known to what extent cantonal legislation complies with theFederation’s labour laws because there is no monitoring system in the FederalMinistry of Labour (for the other branches of labour administration see the section onemployment services).

• A labour market information system should be set up to network all producers oflabour market data. This system would monitor and evaluate employment and labourmarket policies.

• The introduction of an annual national labour force survey is a positive step forwardin building a labour market information system that should be further expanded andimproved. Specifically, a national census should be an important priority in themedium term, as should be the establishment of a labour force survey on a quarterlybasis.

3.2. Employment protection legislation and labour market flexibility

Employment protection legislation (EPL) has been suggested to have a variety of possibleeffects on employment and productivity, some favourable and others unfavourable.43 Theprincipal objective of EPL is to provide employment and income security to workers

43. EPL refers to the regulatory provisions affecting “hiring and firing”, particularly those governing unfairdismissals (termination of employment for economic reasons, severance payments, minimum notice periods,administrative authorisation for dismissals, and prior consultations with trade unions and/or labouradministration representatives).

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particularly when they are at high risk of being made redundant. In the transition economiesof Central and Eastern Europe fairly stringent protection was introduced following thecollapse of socialism, in an attempt to mitigate the negative consequences of the severerecessions which affected more or less all the economies in the region in their move fromplanned to market economies. Subsequently, under pressure from the Bretton Woodsinstitutions, and more recently from the EU, countries moving towards (and subsequentlyobtaining) EU membership began the process of reviewing their EPL. Given the delayed startof transition, countries in the Western Balkans have been slower to remove protections forworkers.

Essentially, the argument is that EPL raises the costs of firing workers and as a result wouldreduce both firing and hiring, thereby lowering labour turnover as a whole. However, whilstlabour turnover may facilitate industrial restructuring and improve productivity through betterjob matching, the lower job security it entails would also impede in-firm training and,generally, the accumulation of firm-specific human capital. Firms and individuals would beless willing to invest in human capital development when the returns on such investment havea shorter than expected and less certain duration, as occurs with the reduction of expectedtenure that accompanies more liberal EPL.

The main negative consequences of strict EPL are most likely to be felt by those on themargins of the labour market and in particular new labour market entrants. Strict EPL maycontribute to the creation of a significant pool of long-term unemployed who, as the durationof unemployment increases, find it increasingly difficult to reintegrate the world of work. Itmay also contribute, along with taxation and more generally restrictive business regulations,to the growth of the informal economy, as firms seek to avoid the application of such normsand regulations.

The most recent research in OECD countries views EPL as having more impact on thedistribution of unemployment than on its level per se.44 In particular, it makes it harder fornew entrants and re-entrants to (re-)gain a foothold in the labour market because of theinsider-outsider effect.

In Bosnia and Herzegovina, the situation regarding labour market regulation is complicatedby the lack of an overall state-level framework. EPL is decided at the entity level (and tosome extent at the cantonal level in the FBiH). In practice, however, the regulationsgoverning the hiring and firing of workers are very similar, albeit not identical, in the twoentities and the Brčko District. Table 13 below summarises the situation according to theOECD index of EPL and includes a comparison with neighbouring countries, while asummary of the main labour law provisions concerning EPL in the entities and the BrčkoDistrict is provided in Appendix IV to this Review. In common with other Western Balkancountries, the index in BiH is a little higher than the average index of EU and OECDcountries. This is particularly true for the Republika Srpska. Both the Federation and theBrčko District have indices comparable to those of the EU (in the late 1990s).

44. OECD, Employment Outlook, OECD, Paris, 2006.

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Table 13: EPL indices for BiH and neighbouring countries

Source: For BiH: own calculations on the basis of entities’ labour legislation; for Albania: World Bank, Albania:Labour Market Study, Washington D.C., 2006, p. 42; for all other countries, ILO (2006).

A few comments are in order. The major difference between the entities in the EPL indexarises from differences in the regulation of temporary and fixed-term contracts. Particularlyseen in this light, the relatively high index in the RS is consistent with the finding of a muchlarger informal economy noted above.45 It might also be observed, however, that more rigidEPL is not accompanied by higher relative unemployment rates of young people. The ratio ofyouth to adult unemployment rates is overall rather low in BiH, compared to other countriesin the region. Moreover, the RS – which has the strictest EPL – also has the lowest ratio ofyouth to adult unemployment rates. The suggestion on the basis of these purely descriptivestatistics is that, if anything, EPL contributes to the distribution of employment between theformal and informal economy, as opposed to overall employment or indeed distributionamongst age groups. However, proper investigation of this implication would require a moresophisticated analysis than the one presented here.

Recommendations

• There is no basis to recommend the further weakening of Employment ProtectionLegislation apart from possibly removing some of the obstacles to the use of fixed-term contracts in the RS. The Government of the FBiH and the social partners mayconsider reviewing the provisions concerning the notice period for termination ofemployment and harmonising them with those in force in the RS. The currentprovisions set at 14 days the notice to be given by the employer upon termination ofemployment, while those in the RS set it at a minimum of 30 days, with increasesaccording to tenure. Also, the authorities of the FBiH may consider reviewing theprovisions foreseeing the possibility of oral employment contracts. In contexts withlarge numbers of workers engaged in the informal economy, the lack of a writtencontract could hamper efforts to ascertain the type of employment relationship. For

45. Indeed, calculations from the Labour Force Survey 2006 data show that the incidence of both part-timeemployment and involuntary underemployment are much higher in the informal than in the formal economy.The incidence of part-time employment is 29.6% in the informal and 2.3% in the formal economy. The relativeproportions of time-related underemployment are 24.6% and 10.0% respectively.

Component indicesCountry Year Regular

contractsTemporarycontracts

Collectivedismissals

EPLSummaryindex

Bosnia andHerzegovina

FBiHRSBD

2007200720072007

2.01.92.11.9

2.92.63.62.6

3.33.33.33.3

2.62.42.92.4

Albania 2005 2.1 3.0 2.8 2.6

Bulgaria 2003 2.1 0.9 4.1 2.0

Croatia 2003 2.7 2.8 2.5 2.7

Romania 2003 1.7 3.0 4.8 2.8

EU-15 Late 1990s 2.4 2.0 3.4 2.4

OECD Late 1990s 2.0 1.8 2.5 2.0

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the same reasons, the provisions governing the handling of the workbook should berevised so as to oblige the employer to hand the workbook over upon separation.Although in principle the harmonisation of EPL can have an impact on labourmobility, it is unlikely to have any significant impact on mobility between the entitiesof BiH, as this depends more on the country’s current political setup as well as ondifferent legal frameworks for health care provision.

• In general, the tendency to make labour markets more flexible by easing regulationsgoverning temporary and/or part-time employment contracts needs to be balancedwith the need for employment protection and security for workers. The easing of EPLover the past years has not been accompanied by an improvement in the system ofincome protection during unemployment or by effective assistance in re-employment(see the recommendations under sections 3.4 and 3.5 of this Review). Changes in EPLlegislation need to take into account the likely impact on informal employment and theeffects of such changes should be carefully monitored.

• Urgent measures are required to combat the extent of the informal economy in thecountry. Although this is well recognised among policy-makers – as evidenced by theintroduction of VAT – measures need to be built and to place more emphasis on thewidespread informality of employment relations as opposed to just the informaleconomy per se. The institutions of BiH could consider adopting a two-prongedapproach with measures to encourage enterprises to formalise and betteradministration of penalties for non-compliance. Such strategy should build on thereduction of barriers to business development (administrative requirements, access tofinance, etc.) and on those factors that impact non-wage labour costs of formalemployees.

• The overall need for better enforcement of labour law entails strengthening the labourinspectorates and settling court cases on labour issues in good time.

3.3. Human resources development and active labour market policies

3.3.1. Education

Adult literacy levels in BiH are slightly lower than the average rates of Central and EasternEurope countries. In 2004 more than 97% of the adult population was able to read, write andmake basic calculations, with a gender parity index (GPI) of 0.9.46 Despite these reasonablyhigh rates, illiteracy is higher among women (5.6% of adult women are illiterate compared toonly 1% of men) and the Roma population.47

46. The Gender Parity Index (GPI) refers to the value of an indicator for women divided by that of men. A valueof less than one indicates differences of literacy and education in favour of men.47. The Human Development Report states that two in five Roma never went to school. See UNDP, NationalHuman Development Report, Social inclusion in Bosnia and Herzegovina, UNDP Sarajevo 2007.

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Table 14: Literacy rates, youth (15-24) and adult (15+) population by sex (2000)BiH FBiH RS CEE region

Adult literacy rate 97.1 97.7 96.1 98.7

Women 94.4 95.5 89.7 98.5

Men 99.0 99.2 98.7 99.0

Youth literacy rate 99.8 n.a. n.a. 98.6

Women 99.8 n.a. n.a. 98.1

Men 99.7 n.a. n.a. 99.1Source: UNESCO Institute of Statistics, downloadable at http://stats.uis.unesco.org/; for adults UNDP reportsthe same rates for the year 2004, UNDP, National Human Development Report, Social inclusion in Bosnia andHerzegovina, Statistical annex, Sarajevo, 2007.

Despite the progress made since the end of the conflict, the education system in BiH is stillfacing significant challenges. The Labour Force Survey (see Table 15) reports that in 2006 asmuch as 38.5% of the working age population (34.9% men and 58.8% women) had onlyprimary education or less.48 For the youth cohort, the 2007 Human Development Reporthighlights that in 2006 about 65% of youth 18-24 had completed only primary education orless and was not in education and training, with a significant difference between men andwomen (71.1% and 59.1% respectively).49 The same report estimates that in 2006approximately 65% of the Roma population had never attended or had not completed basiceducation, with around 18% of them having completed only primary school and only seven%having completed three-year secondary education.

Table 15: Working age population by highest educational attainment and sex (2006)BiH FBiH RS BD

Men Women Men Women Men Women Men WomenPrimary school or less 38.5 58.8 34.9 58.0 44.5 59.9 48.3 65.6Secondary school 53.4 36.2 56.6 36.7 48.1 35.8 (45.9) (30.4)Higher education 8.1 5.0 8.5 5.4 7.5 4.3 ((5.9)) ((4.0))Source: Statistical Agency of BiH, Labour Force Survey, 2006.

The estimates on education participation rates differ according to different sources (see Table16 below). Despite such differences, there is a clear gap between the BiH rates and theeducational targets set at EU level (i.e. 80% of youth completing secondary-level education).Although universal basic education (ages 6-15) has nearly been achieved, the share ofchildren not enrolling in primary education is on the rise (4% of the total) and the share ofchildren from poor households not enrolling in secondary education is double the percentageof youth from non-poor families.50

48. Statistical Agency of BiH, Labour Force Survey, 2006. The European Training Foundation (ETF) reports forthe year 2002 that 41.8% on the adult population (25-65) had ISCED 0-2 education level, Labour Market Reviewof Bosnia and Herzegovina, ETF, Turin, 2006, pp. 23-24.49. UNDP, National Human Development Report, Social inclusion in Bosnia and Herzegovina, Statistical annex,Sarajevo, 2007.50. UNDP, National Human Development Report, 2007, op. cit. p. 90. Approximately 43% of children frompoor households fail to enter secondary education compared to 23% of non-poor families.

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Table 16: Youth participation in educationSource Estimate

(%)WB, Addressing fiscal challenges and promoting growth(2006)

93.0

UNDP, National Human Development Report (2007) 95.9Enrolment in primaryeducation

LSMS 98.9WB, Addressing fiscal challenges and promoting growth(2006)

73.0

UNDP, National Human Development Report (2007) 66.0Enrolment in secondaryeducation

LSMS 68.3WB, Addressing fiscal challenges and promoting growth(2006)

24.0

UNDP, National Human Development Report (2007) 25.0Enrolment in tertiaryeducation

LSMS 23.0Source: World Bank, Addressing fiscal challenges and promoting growth, Washington D.C., 2006, pp. 76,UNDP, National Human Development Report, 2007, op. cit. pp.96-97.

The institutional setup governing education in BiH is rather complex. Currently, there arefourteen ministers responsible for education: one at state level (Ministry of Civil Affairs), onein each entity, one in the Brčko District and one in each of the ten Cantons of the FBiH. Since1996 a number of reforms of the education system have been discussed to remedy itscomplexity and inefficiency and to overcome administrative fragmentation and division.

In 2002 the education ministries of the two entities adopted the Education Reform Documentaimed at achieving by 2010 universal primary education, the elimination of all forms ofdiscrimination, modernisation and quality improvement at all levels of education and theadoption of a comprehensive legal framework and financing system. Since then, littleprogress has been made in enacting this legislation, which has been in preparation for years.The only comprehensive framework, enacted in 2003, relates to primary and secondaryeducation. It provides for the introduction of nine-year basic education and the establishmentof a common core curriculum. The nine-year cycle has already been introduced in all of BiHexcept for two Cantons.51 Despite the prescription of the Framework Law on the CommonCore Curriculum and the right of teachers and students to use their own mother tongue, thepractice of “two schools under one roof” remains widespread.52 The bill on Higher Educationhas been passed only by one of the two Houses of Parliament, while that on the EducationAgency, the Framework Law on Vocational Education and Training and the Framework Lawon Pre-school Education are still pending in both Houses.53

Table 17 below gives a snapshot of the current education system. The national classificationof education does not follow the International Standard Classification of Education (ISCED).For international comparison, however, the education structure has been matched with themain ISCED levels.

51. The nine-year cycle has not been introduced in West Herzegovina Canton or Central Bosnia Canton and hasbeen only partially introduced in Herzegovina-Neretva Canton.52. School facilities are used by teachers and students of two different ethnic groups with separate administrativeservices and different curricula. In such school students learn in ethnic isolation.53. The adoption of the Higher Education Law and Law on the Education Agency is considered of particularimportance for Bosnia and Herzegovina to meet the requirements of the Bologna Process and the LisbonConvention.

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Table 17: Bosnia and Herzegovina’s education system at a glance (2004 – 2005)ISCED National classifications0 Pre-primary education starts at the age of 3. In 2004, approximately 13,100 children (around 8%

of the age cohort) were enrolled in pre-primary education provided by 200 pre-school institutions(123 in FBiH and 80 in the RS).

1 and 2 Basic compulsory education, extending over 9 years since the reform enacted by the FrameworkLaw on Primary and Secondary Education, comprises 5 years of primary education (ISCED 1),starting at the age of 6 (level I to V), and 4 years (level VI to IX) of lower secondary education(ISCED2). In the school year 2005-2006, there were 1,830 schools with 375,690 students (51.4%boys and 48.6% girls).

3 Upper secondary education starts at the age of 15. It consists of three streams: general secondaryeducation (4 years) providing access to university, four-year technical education and three-yearvocational education. The majority of students enrolling in upper secondary education take thevocational education and occupational streams. A total of 165,192 students were enrolled in theexisting 304 secondary education institutions in the school year 2005-2006 (49.7% girls and 50.3%boys)

5 and 6 Higher education (according to the Law on Higher Education already approved by one of thetwo Houses of Parliament), is organised into three cycles. Colleges can grant Bachelor degrees,while only Universities can offer all three cycles. The first cycle of higher education (ISCED 5)lasts 3 to 4 years and leads to a Bachelor degree. The second cycle envisages postgraduatespecialisation (1-2 years) and leads to a Master of Arts or Science, while the third cycle (ISCED 6)gives the academic degree of doctor or equivalent and lasts three years. In the schoolyear 2005-2006 there were 105 higher education institutions in BiH of which 8 were universities(6 in FBiH and 2 in RS) with altogether 93,686 students enrolled (55.8% women and 44.2% men).At present, less than 25% of youth is involved in higher education, with an average graduation timeof 5 to 7 years.

Source: Statistical Agency of BiH, Gender 2007, op. cit; UNDP, National Human Development Report, 2007,op. cit.; Framework Law on Primary and Secondary Education (OG RS, No. 38/04), Draft Law on HigherEducation and information provided by the State Ministry of Civil Affairs.

Enrolment ratios for pre-primary education are dramatically low compared to the EU andregional average. In the school year 2004-2005 the ratio equalled 8% (see Figure 8 below).The low geographical coverage of pre-school facilities – especially in rural areas – coupledwith high enrolment fees makes pre-primary education inaccessible to poor households.However, the BiH Framework Law on Elementary Education, currently in preparation,provides for pre-school education to become compulsory in the year preceding the beginningof elementary school.

Figure 8: Children in pre-school institutions 2004/2005

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

Children 0-4 in 2004 Children in preschool education 2004-2005

Source: Agency for Statistics of BiH, Gender 2007.

The impact that pre-primary education has on future education and, ultimately, on labourmarket outcomes is well documented: it is at this stage that the foundations for employability

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are laid. More children in pre-primary education mean lower early school leaving and dropoutrates and also more opportunities to combine work with family responsibilities for theirparents. These implications may be of importance while seeking to achieve employmenttargets, especially for women, and to promote lifelong learning.

Since the reform of the primary education system, which now starts one year earlier, non-enrolment and repetition rates in the first grade have increased. School facilities are rarelysuited to working with children with special needs, with the result that only 1% of thesechildren are included in the regular schooling system. Less than 10% of Roma children attendprimary school and their attendance is frequently marked by hostility and discrimination,pushing young Roma to leave school early (on average they complete only three grades).54

Approximately 40% of the total number of secondary school students enrol in grammarschools and 60% in Vocational Education and Training (VET).

As in most countries, tertiary education in BiH remains a good investment for the individual.Completion rates average about 8%, with higher rates for the sciences and humanities andlower rates for agricultural sciences and other technical subjects.55 University graduates areless likely than those with lower levels of education to be unemployed and much more likelyto be employed in the formal economy. Interestingly, however, people with university degreesare also more likely to be discouraged workers, i.e. without work but not actively searchingfor employment.56 The tertiary education system seems to be failing to provide graduates withappropriate skills that respond to a dynamic labour market. Although the evidence is moreanecdotal than for secondary education, students, professors and other stakeholders report thattertiary programmes suffer from outdated curricula, teaching methodology, textbooks andmono-disciplinary programmes which are highly theoretical and unrelated to labour-marketrealities. In 2005 there were more graduate women than graduate men (57.5% and 42.5respectively) and the employed female-to-male index in 2006 was 1.5.57 A more in-depthanalysis would be required to determine whether the increases in women’s tertiary educationrates are really paying off in the labour market or whether women are required to haveeducation levels higher than men when competing for the same jobs.

The reasons for the disconnection between the demand for and supply of university coursespartly lie in the fragmented nature of the tertiary education system, with little effectivemanagement and accountability. Lack of inter-faculty co-operation leads to costly duplicationin teaching, with each faculty organising its own courses without gauging those offered byother faculties and universities. The inadequate organisation of the university system couldalso be a reason for the low graduation rates.

3.3.2. Vocational education and training and lifelong learning

The vocational education and training (VET) system is still undergoing reform. Many schoolshave been rebuilt and provided with new equipment and some of them have experimentedwith new approaches and curricula. Until the year 2000, some 130 different curricula andqualifications were offered in BiH, more than double the average in EU member states,mostly preparing students for jobs that no longer existed. The work done by the European

54. UNDP, National Human Development Report, 2007, op. cit. p. 96.55. Statistical Agency of BiH, Gender 2007, Thematic Bulletin, 3, Sarajevo 2007, pp. 32 seq.56. World Bank, Bosnia and Herzegovina Country Economic Memorandum, Washington, D.C., 2005.57. LFS 2006, Table 9.

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Union-PHARE Programme since 2001 has produced a new classification of occupations,composed of 13 major occupational areas with a total of 100 occupations.58 Together with thework undertaken on VET curricula, these elements are now part of the draft Framework Lawon Vocational Education and Training.

The main features of the VET framework revolve around the establishment of a common corecurriculum geared to occupational families (instead of single occupations); the adoption of themodular approach for VET curriculum development; the requirement for VET schools to havean advisory council comprising the social partners; and the possibility for VET schools tocanvass additional sources of financing. While all the VET schools in the RS have started toimplement the modernised curricula, only one third of all VET schools in the FBiH areimplementing one or more of these curricula.59

Overall, the VET reform has been slow. The planned large-scale modernisation of educationand training has not materialised yet. Most of the equipment available in VET schools isoutdated, the number of teachers trained in new teaching methodologies is still limited andopportunities for work experience in an enterprise are minimal. Up to now, most efforts havebeen centred on developing mutual understanding and consensus between the manyeducational stakeholders at cantonal, entity and state level.

The vocational education and training (VET) system currently attracts as many as 60% ofsecondary education students (slightly more than 60% of them are boys and less than 40%girls) who take vocational education for a period of three years (vocational education) or fouryears (technical education). The three-year VET programmes normally lead to employment,with the option to proceed to the next educational level by taking additional exams. Technicaleducation programmes lead to employment or to enrolment in non-university post-secondaryvocational education or in higher education.

Figures 9a and 9b below show the distribution by sex of pupils enrolled in secondary schoolsin the academic year 2005-2006 in the FBiH and the RS. The statistical data shows thatwomen in both entities prevail in traditional occupational areas. Economics, law andadministration are the most popular areas of study for girls enrolled in VET. They are also themajority of students in personal services, trade and hotel occupations and represent the neartotality of students in the textile sub-sector. Most boys are enrolled in the three clusters ofcivil, electrical and mechanical engineering and many of them take subjects relating totransportation, agriculture and forestry. The persistence of stereotypes regarding the role andresponsibilities of women and men in the family and in society is reflected in women’seducational choices and their situation in the labour market.

58. Strategy for VET Development in BiH for the period 2007-2010, EU VET programme, November 2006.59. European Training Foundation (ETF) Labour Market Review of Bosnia and Herzegovina, ETF, Turin, 2006,pp. 50.

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Figure 9a: Students in secondary education by occupational area of study,by sex 2005-2006 (RS, percentage)

0,010,020,030,040,050,060,070,080,090,0100,0

Mathematics,naturalsciences

Personal services

Culture

Chemistry

Textileand leather

Forestryand wood

Health care, socialwork

Agriculture, processing of food

Geodesy,civil engineering

Transport

Economics, lawand administration

Gymnasium

Trade, hotels,restaurant

Electrical engineering

Mechanical enginerring

Men Women

Source: RS, Institute of Statistics, Secondary education statistics (end of 2003/2004 and beginning of2004/2005), Banja Luka, 2005.

Figure 9b: Students in secondary education by occupational area of study,by sex 2005-2006 (FBiH, percentage)

0,0

20,0

40,0

60,0

80,0

100,0

120,0

Art school

Chemistry

Textileand leather

Forestryand wood

Agriculture, processing of food

Geodesy,civil engineering

Transport

Economics, lawand administration

Gymnasium

Trade, hotels,restaurant

Electrical engineering

Mechanical enginerring

Men

Women

Source: FBiH, Federal Statistical Office, Secondary education statistics (end of 2004/2005 andbeginning of 2005/2006), Sarajevo, 2006.

The relevance of VET outcomes to labour market requirements is rather mixed. While theinternational trend “the lower the education and training, the higher the unemployment”seems to be confirmed also in BiH, a number of considerations need to be expanded on for abetter understanding of VET performance. The fact that the number of unemployed withsecondary education attainment is higher that of unemployed with primary education shouldbe read with caution to avoid the misconception that education and training would not matter

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much to Bosnia and Herzegovina’s labour market. The fact that employment rates of workerswith secondary and higher education are almost three times those of workers with primary orlower education (74 versus 25%, respectively) gives a strong argument to policy-makers forinvesting in education and training. Similarly, inactivity affects 66% of those with primary orlower education, compared to 33% of people with secondary and higher education (see Figure10 below).

Figure 10: Employment, unemployment and inactivityby highest educational attainment BiH (2006)

0 10 20 30 40 50 60 70 80

Primary education or less

Secondary education

Higher education

Employed Unemployed Inactive

Source: Statistical Agency of BiH, Labour Force Survey, 2006.

The statistics on education do not offer enough information to gauge the output of the VETsystem. However, analysis of the statistical data combined with the employment service datapoints to a high skills mismatch, with low employment returns on VET. More specifically, thefood processing and hotel and catering industry are slowly but steadily reducing the numberof employees, while the number of students is not following the same trend. Similarly, tradeand other services are on upward trend in both entities, although there is no sign of increase ofnumber of students in training programmes relating to these two sub-sectors. Furthermore, thedata collected by the Federal Employment Service in 2006 shows that the number ofunemployed in the skilled category (i.e. people with secondary and higher educationalattainment) is on the increase, as is the number of skilled first-time job-seekers (5.6%). Thesame applies to the RS, where 67% of registered unemployed are classified as “expert” with apredominance of skilled workers. All of this would point to a narrowly defined content ofVET, rather than to broad competency-based training, so that VET fails to keep up with therequirement of adaptability and flexibility of a rapidly changing labour market.

The non-vocational elements of competence are still not part of VET programmes. Core workskills – such as communication skills, problem-solving and team-work – are highly demandedby enterprises because they allow workers to adjust to new technology and workorganisation.60 Although some attempts are being made to strengthen the involvement ofindustry in the VET system by setting up school advisory councils, there are currently veryfew links between school and the world of work.

The weaknesses of BiH’s formal education system are compounded by those pertaining to thesupply of quality adult training opportunities. As a result, those exiting the formal system with

60. A 2002 study found that only half of the surveyed employers considered technical skills important whileover 70% identified core work skills as essential. Birks Sinclair, Employment and labour market status andpotential for policy development in Bosnia and Herzegovina, Durham, 2002.

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skills that are ill-suited to the labour market have great difficulty overcoming theseshortcomings because of the lack of (re-)training and work experience opportunities. Only asmall proportion of the working age population (3.3% of youth and 1.9% of adults) currentlyhave the opportunity to upgrade or change their skills.61 Adult training is offered by a varietyof providers, including schools offering second-chance programmes for adults, universitiesproviding courses on management skills or other skills for enterprise development, a fewadult training centres and a number of non-governmental providers offering courses inentrepreneurial skills, ICT, foreign languages and work-related training for disadvantagedgroups.

Although training by enterprises was the principal source of adult training in the formerYugoslavia, very little job training by enterprises takes place in BiH today.62 For the limitedamount of enterprise-based training that does take place, there is no adequate institutionalstructure for recognising certificates and diplomas. When training is regulated, this is donemerely for (input) standards rather than for assessing trainees’ competencies (output).63 Adulttraining methodologies and approaches that are self-paced and learner-centred, build on priorexperience and allow flexible entrance-exit at various times in working life are scarcelyapplied in BiH.

The education sector is funded by the budgets of 13 administrative units, i.e. the state, theentities (the Cantons in the FBiH), the Brčko District and the municipalities. The RS allocatesapproximately 4% of GDP to education, the FBiH approximately 6% and the Brčko District3.5%.

Total public education expenditure has been growing steadily in the last three years.However, while the overall percentage of GDP spent on education is higher than the regionalaverage and than average spending in OECD countries, in nominal terms the amount spent isaround US$535 million per year, given the very low GDP of BiH. Moreover, the educationsystem is extremely expensive because of its fragmentation. Nearly 55% of overall publicexpenditure is allocated to primary education, with secondary education being allocated only28% and higher education 17% of the total. According to several reports, salaries account forby far the largest part of budget expenditure (88% of total expenditure on education). 64

The formula used for determining budgets in both entities is based on number of students,number and size of classes, number and structure of teaching staff, average number ofworking hours, administrative and support staff, and size of schools and of individualclassrooms. This formula does not recognise the results achieved, nor does it give schoolmanagement the freedom to spend the funds in a more flexible and efficient manner.

Recommendations

• The reforms of the compulsory education system initiated under the Framework Lawon Primary and Secondary Education should be continued and the provisions

61. UNDP, National Human Development Report, 2007, op. cit.62. This is despite the legal provision that obliges enterprises with more than 50 employees to provide training forworkers with work experience over 6-12 months, World Bank, Bosnia and Herzegovina EconomicMemorandum, 2005, op. cit, pp. 123.63. World Bank, Bosnia and Herzegovina Economic Memorandum, 2005, op. cit.64. EU CARDS Programme, Functional Review of the Education Sector in Bosnia and Herzegovina, March 2005.

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contained therein enforced throughout the territory of BiH. The reforms of thesecondary and tertiary education system should remain high on the policy agenda.

• The reform of the education system should be informed by accurate and reliable dataon enrolment, dropout and graduation rates aggregated at BiH level. The lack ofaggregation and analysis of education data at state level makes internationalcomparison rather difficult.

• The government needs to introduce alternative approaches to improve literacyoutcomes among all age groups of the Roma population. Well-targeted programmesthat combine remedial education with livelihood and work skills have been provensuccessful in many countries. Early action also needs to be taken to increaseenrolment rates and prevent school dropout amongst children belonging to poorhouseholds. Methods that can be used to address low enrolment and early schoolleaving include parental counselling, awareness-raising in the community andeducation vouchers based on attendance.

• Access and retention rates at all levels of the education system should be improvedespecially for population groups at risk of poverty and exclusion. The current gaps inthe education reform process in Bosnia and Herzegovina make school non-inclusiveand fail to provide quality education for all.

• Access to pre-primary education should be improved. Making pre-school educationmandatory for the year prior to compulsory education is a step in this direction. Wideraccess to pre-primary education is a strategy that helps to improve overall educationand labour market outcomes for all population groups, but especially for those at riskof poverty and social exclusion. Moreover, it helps parents to combine work withfamily responsibilities, with a substantial impact on the labour force participation ofwomen.

• Efforts should be made to ensure that the outcomes of the vocational education andtraining system are aligned to labour market requirements. To this end, it is essentialto mainstream the modernised VET framework throughout BiH. Mechanisms toimprove the integration of work and learning should be put in place and specialisationfurther reduced to ensure that students are not locked into narrow occupations. Coreemployability skills, as well as awareness of rights at work, should be included in thecurriculum. The legal framework being introduced at state level is an important stepin this direction.

• It is crucial to ensure a gender-sensitive education and training system at all levels.Core messages on gender equality and human rights should be included in thecurriculum and in teacher training programmes. Gender stereotyping, whichencourages young women to train in traditional occupations – and prevents them fromtaking part in training programmes that could lead them to higher long-term earningsand better-quality jobs – should be avoided.

• In recent years, adult training and retraining has been largely neglected. There is anurgent need for BiH to introduce adult learning and training, especially forlow-skilled workers and long-term unemployed, and to monitor the quality andoutcomes of public expenditure. Skills training is also important for improving

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productivity and promoting employment quality, especially among those workers whocannot find jobs other than in the informal economy.

• Lifelong learning should be a key priority of BiH’s education and training policy.Coherent strategies and practical measures that promote lifelong learning, make itaccessible to all and are supported by adequate methodologies are crucial.

• The social partners should be more fully involved in the design and implementation ofvocational education and training policies and programmes. Employers’ and workers’organisations can help identify the most appropriate forms of training for the jobopportunities available. They can also help to foster links between education andtraining and the world of work.

3.4. Employment services and active labour market policies

3.4.1. Employment services

The Public Employment Service (PES) of BiH comprises a state-level institution (StateEmployment Agency of BiH), one Agency in each of the entities (Labour and EmploymentAgency of the FBiH and Employment Agency of the RS) and one in the Brčko District. TheFederation of BiH has one employment agency in each Canton and seventy-four municipalemployment bureaux. The employment service of the RS is organised into six regional officesand sixty-three municipal employment bureaux.

The State Employment Agency (SEA) of Bosnia and Herzegovina has autonomous legalstatus. Its activities are regulated by the 2002 Law on the Labour and Employment Agency ofBiH and by the rulebook on internal relations.65 The Agency’s main competencies areinternational representation – including signing international agreements andmonitoring the implementation of international labour standards in the areas of labour andemployment – and co-ordinating activities with the entities’ authorities and employmentinstitutions on programmes that are countrywide in scope.66 Some of these functions actuallyoverlap with the mandate of the Ministry of Civil Affairs, while responsibility for organisingand co-ordinating services that are common to the Employment Agencies of the entities andthe Brčko District (i.e. organisation of staff development programmes, establishment ofcommon standards for the registration and placement of job-seekers, collection and analysisof labour market information) is assigned neither to the SEA nor to any other institution. Thisvacuum makes it difficult to implement the provisions for labour market reform contained inthe current MTDS/PRSP.67 The Agency has a Director and a Deputy Director who areappointed by the Council of Ministers and 15 staff who perform tasks in the areas providedfor by the founding law. The administration of the SEA is overseen by an Advisory Boardcomposed of one representative of the government of each entity and of the BD and three

65. The Agency started to function in 2003.66. The SEA is currently co-ordinating the twinning project with the employment services of the Republic ofSlovenia, which will mean reviewing the existing legal, institutional and organisational framework andstrengthening the Agency’s capacities to perform its role. The Agency represents the PES of BiH in the WorldAssociation of Public Employment Services (WAPES).67. For instance, the MTDS/PRSP provides for the establishment of a single compatible system (usinginformation technology) that would connect employment offices throughout BiH.

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members appointed by the Minister of Civil Affairs.68 Funding for the functioning of the SEAis provided by the state budget.69

The Federal Labour and Employment Agency has autonomous legal status under the 2001Law on Job Placement and Social Security for the Unemployed. The same law provides thateach Canton is responsible for the establishing and operating employment services. AllCantons have ministries in charge of employment and labour issues and employment agencieswith autonomous legal status that are directly responsible for performing the core functions ofthe PES.

Contrary to the FBiH, the Employment Agency of the RS, established by the RS Law onEmployment (2000, amended in 2003), is responsible for performing all employment servicefunctions (registration, counselling and guidance, mediation and employment programmes)through its regional branch offices and municipal bureaux.

The labour and employment service is organised differently in the Brčko District. Theemployment service is a department affiliated to the Mayor’s Office. It has eight employees,including the Head of the Employment Service.

Table 18 provides an overview of the distribution of core functions among the employmentagencies.

Table 18: Distribution of PES core functions in BiHCore function SAE ES FBiH ES RS ES BD ES FBiH Cantons

Job brokerage No No Yes Yes YesActive labour marketprogrammes No No Yes Yes Yes

Labour market information No Yes Yes Yes YesUnemployment benefit No No Yes Yes Yes

The financing system also differs between entities. The work of the Federal Agency and thecantonal employment services is financed by payroll contributions (for details of thesecontributions see the section on passive labour market policies), revenues from investmentprojects and income raised on movable or immovable assets. About 30% of the fundscollected through payroll contributions are transferred to the Federal Agency, while 70%remain in the Cantons to finance the work of the employment services. In the RS, theemployment service is financed by a payroll levy, interest rates on deposits, donations,solidarity funds and so on. In the Brčko District the employment service is entirely financedby the District budget.70

The revenue structure of the employment service in both entities shows that most incomeoriginates from wage contributions. However, since the wage levels on which thecontributions are calculated and the percentage levied are different in the two entities, therevenues available for the provision of services to the unemployed differ substantially, withthe lowest revenue in the RS (about 87 KM per registered unemployed) and the highest in

68. The Directors and Deputy Directors of the Employment Agencies of the entities and the Brčko District canparticipate in the meetings of the Advisory Board, albeit without voting rights.69. The Budget of the SEA totalled the equivalent of EUR 460,000 in 2006 and EUR 650,000 in 2007.70. The Director of the Brčko District Employment Agency reported to the ILO that in recent years the revenueallocated to employment services in the District has increased by 40%.

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Sarajevo Canton (nearly 560 KM per registered unemployed). On average, the availablefinancial resource per registered unemployed in BiH is 213 KM (approximately US$149),four times lower than the amount spent in Croatia and in Montenegro. This design of therevenue system makes annual allocation highly volatile, difficult to predict and dependent ontrends in net/gross wages and the number of persons employed. Paradoxically, this systemmeans a larger budget when employment is expanding and a smaller one when employment iscontracting. Notwithstanding the high levels of registered unemployed, some offices cannotspend the funds allocated in the yearly budget. This is the case, for instance, of the FederalEmployment Agency.

The employment services’ expenditure falls under three main headings (figure 11):administrative costs (34.3% of the budget in the RS and 21% in the FBiH in 2004),71unemployment benefit (50.4% of the total budget spent in the RS and 33.7% in the FBiH) andactive measures (15.2% in the RS and 45.3% in the FBiH).

Figure 11: Employment service expenditure structure (2004)

21,0

34,333,7

50,445,3

15,2

0,0

10,0

20,0

30,0

40,0

50,0

60,0

FBiH RS

Administrative costs Unemployment benefits ALMPs

Source: EU CARDS Programme, Vertical Review of the Labour andEmployment Sector in Bosnia and Herzegovina, 2006, op. cit.; Informationprovided by the State Employment Agency of BiH.

Although the number of registered unemployed in the FBiH is 2.28 times higher than in theRS, total expenditure in the Federation is nearly seven times higher than in the RS. At BiHlevel, 22.6% of all employment service expenditure goes to administration, 35.8% to passivemeasures and 41.5% to active programmes. The large share of the budget devoted to activelabour market programmes (ALMPs), however, represents approximately US$28 million inmonetary terms, with an annual disbursement per registered unemployed of less than US$61.

In 2006, the functions of the labour and employment agencies and the municipal bureaux inBiH were carried out by a total of 759 employees (508 in the FBiH, 243 in the RS and 8 in theBD). Most employees have higher education (45.2% in the RS, 51.2% in the FBiH and 62.5%in the BD) or secondary education (40.3% in the RS, 37.5% in the FBiH and 25% in the BD).

The ratio of front-line staff to the total personnel of the employment services varies widelythroughout the country, with an average of 52% in the Federation and 67% in the RS. At BiH

71. The MTDS/PRSP provides for a reduction of the employment agencies’ administrative costs as a share oftheir total resources. This was to be implemented by the first half of 2004. The Strategy also provides for theinstitutional reform of the employment bureaux, to increase the efficiency of the PES. The deadline for thisreform was set for the second half of 2004.

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level the staff to unemployed ratio is 1:1,100, quite unfavourable by comparison with theratios in other countries in the region.72

In Bosnia and Herzegovina there are a number of private employment agencies, mostlyspecialised in the search for qualified human resources for client enterprises.

Access to employment services in Bosnia and Herzegovina is universal, i.e. all job-seekerscan use the PES, provided that they register. Registration with the employment services givesaccess to health insurance. The employment service estimates that between 30 and 40% ofunemployed register to have access to health insurance and that as many as 50% of registeredunemployed are in reality not actively seeking work. The resulting high number of registeredunemployed causes poor service delivery, inadequate assessment of multiple layers ofdisadvantage and a lack of focus on the groups most at risk of labour market exclusion. Itappears that at present the primary function of the employment service in BiH is registeringthe unemployed, checking their eligibility for unemployment and health insurance benefitsand providing basic information on job openings. Employment service staff spend most oftheir time registering the unemployed and providing basic information (60% of working timein both the RS and the FBiH and 65% in the BD).

Job brokering, personalised counselling and guidance, screening of the unemployed forparticipation in ALMPs and systematic collection, analysis and dissemination of labourmarket information are functions not fully performed by the employment services in theentities and the Brčko District for a number of reasons. Firstly, the employment servicesoperate under laws and structures that are not conducive to efficiency and effectiveness. ThePES is the main institution for implementing labour market policy: when this is not coherentlyexpressed, it is difficult for the PES to be an effective mediator between labour supply anddemand. Secondly, unemployment registers that are inflated by individuals not actuallyseeking work and the predominance of back-office staff make it difficult to manageday-to-day work as well as to track the employment status of registered unemployed.73Slimming down the unemployment register, shifting the balance between back and front staff,better tracking of the job-search activities of registered unemployed and the availability of aself-service information system, as well as a more proactive approach in canvassingemployers, would improve the effectiveness of the service in both entities and in the BD.Finally, a revenue system based on unpredictable variables such as trends in net/gross wagesand the number of reported employees in a highly fragmented and dualistic labour marketmakes a coherent delivery of the services even more complicated.

Although the data collected by the employment service is quite comprehensive, its treatmentand analysis does not provide enough information about the characteristics of job-seekers,which is important in order to detect the multiple disadvantages that often cumulate on thesame individual and, therefore, to identify the labour market prospects that clients may have,as well as the remedial action to be taken in order to counter these labour marketdisadvantages. Given the short time allocated to the initial interview(approximately 10 minutes for each registered unemployed), no proper client assessment iscarried out. Educational attainment is used as a proxy for determining qualification levels.There is no “profiling” of job-seekers, although the electronic registration system – different

72. EU CARDS Programme, Vertical Review of the Labour and Employment Sector in Bosnia and Herzegovina,2006, pp. 78-79.73. The RS employment service already keeps two types of record, one for those actively seeking work andanother for those who register for other reasons (i.e. health insurance, childcare allowances).

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in the two entities, with the system of the RS employment service more advanced than that ofthe FBiH employment service – could be used to organise employment services on the basisof a tiered approach that identifies and deals with job-seekers at risk of long-termunemployment. Information and communication technology is still being developed by thePES. For instance, there is no database of vacancies as yet.

All segments of the workflow (i.e. registration, counselling, activation measures andplacement) should be given more attention to improve both the efficiency and theeffectiveness of the service and to address its current inability to target the most vulnerablegroups among the unemployed.

The approach followed by the PES in providing services to employers seems to be ratherpassive, i.e. meeting the requests of employers who contact the employment offices. A moreproactive approach of employment centre staff towards employers could certainly help toachieve better placement rates.

Human resources development strategies for employment service staff differ in thetwo entities. In the Federation, the Federal Employment Agency developed a comprehensiveprogramme in 2006 to mainstream modern counselling and guidance practices, includingsome elements of job-seeker profiling. In the RS, counsellors are mostly prepared throughin-service training. For the RS employment service, staff development is one of the mainpriorities.

The multiplicity of labour and employment institutions, the lack of uniformity ofadministrative structures and unclear or undefined reporting obligations on labour andemployment make the gathering and analysis of labour market information a nearlyimpossible task. The inability of the system to perform this basic function adequately has anegative impact on the design of labour market policies and programmes. It is somehow aparadox that the employment service of BiH spends most of its resources on registering theunemployed without being able to produce comparable and reliable statistical information onunemployment stock and flows. As the amount and range of administrative and labour marketinformation expands, it will be necessary for the state, entity and BD Agencies to develop aspecific competence for systematising labour market information in more user-friendlyformats, including the provision of data that helps identify more vulnerable groups.Challenges still remain in the comparability of data originating with the employment servicesof the two entities. The Agencies could organise and present their own data in a moreeffective way (i.e. disaggregation by sex, age group).

3.4.2. Active labour market policies

Active labour market policies are aimed at reducing labour market imperfections and arejustified when they are geared to alleviating inequalities and social exclusion through betterintegration of job-seekers and workers in the labour market and through fairer incomedistribution. International experience indicates that the impact of such active labour marketmeasures is higher if they are targeted, responsive to labour market requirements, linked withwork experience and part of a comprehensive package of services.

The legal framework for the provision of employment services in Bosnia and Herzegovinaprescribes that revenues must primarily cover the administrative costs of the service and theexpenditure on unemployment benefit. The allocation for active labour market programmes

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(ALMPs) is residual. As a consequence, the budget for active measures is rather uncertain andvaries from year to year. In 2004, the resources that remained for financing active labourprogrammes amounted to 0.27% of GDP, with the Federation having a slightly higherpercentage.

The current portfolio of active labour programmes in both entities and in the Brčko District israther limited, with an emphasis on wage subsidies to employers (to create new jobs but alsoto maintain existing ones) and self-employment. Simpler and more cost-effective programmes(i.e. job-search, counselling and other basic job brokerage functions) fall short in the PES ofBiH.

The RS Law on Job Placement specifies the forms of assistance and the types of labourmarket programme, while the Rulebook regulates the provision of job-search assistance aswell as the implementation of active labour market programmes. The Rulebook defineseligibility criteria for job creation programmes and prescribes the range and scope of sixdifferent active labour market measures. These include pre-employment; training newlyemployed workers; co-financing apprenticeship wages; co-financing the wages of “talented”people; self-employment (mainly in agriculture); re-training and additional training (see box 2below).

In 2006 the RS employment service reported an increase of 27.3% in the number ofindividuals employed after participating in ALMPs (job-search assistance, counselling andother active labour market measures). Over 40% of the people employed through theemployment services were skilled workers, nearly 30% had secondary education and 14.6%were unskilled workers.

Among the cantonal employment services of the FBiH, there are significant differences in theshare of expenditure allocated to different active labour market programmes. The types ofmeasure can be grouped into six main categories. Apart from the “loans to employers”programme – a practice that has been discontinued since 2005 – these measures comprisesubsidies to employers to recruit additional workers; grants for employment in agriculture;activities targeting demobilised soldiers; programmes for workers over 45 years of age;subsidies to employers for the recruitment of young workers; and training to improve jobprospects. The number of individuals placed in employment by the labour offices of theCantons increased by 19.1% in 2006. During the same year, the Brčko District employmentservice succeeded in placing 6.3% of the total number of registered unemployed throughparticipation in ALMPs.

In both entities the expenses incurred for counselling and job-search assistance are included inthe overall administrative costs. It is therefore not possible to provide an analysis of theeffectiveness of this job-brokering form of ALMP. However, in municipal employmentoffices simple registration activities are crowding out other activities such as job referral andcounselling. Since the employment services in both entities and the Brčko District alsofinance health and pension insurance contributions for the registered unemployed, thesebenefits are all too often the only incentive to register. This also applies to a significantnumber of people employed in the informal economy or engaged in subsistence agriculturewho ask for registration for the same reason.74

74. World Bank, Bosnia and Herzegovina Economic Memorandum, 2005, op. cit.

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The referral of unemployed individuals to active programmes is based on publicannouncement, i.e. both enterprises and individuals are invited through newspaper advertisingand public calls to apply to participate in active programmes. The role of the employmentservice is to inform registered unemployed about programmes available, to screen compliancewith eligibility criteria and to monitor programme implementation.

The portfolio of active labour market measures in BiH seeks to encourage employers to createmore jobs and recruit unemployed people through loans, grants and subsidies. These measuresare, by international comparison, among the least cost-effective ALMPs, especially fortreating long-term and other hard-to-place unemployed. More should be done to integrateactive measures with other aspects of employment service work (i.e. counselling andjob-search assistance) and to sequence them in order to match them with the disadvantagesfaced by the job-seeker. For instance, providing employment subsidies for the employment ofolder workers may be more effective if accompanied by labour market training to preparethese workers for the new job.

Box 2: ALMPs in Bosnia and HerzegovinaActive labour market measures in Bosnia and Herzegovina can be grouped in the following main categories:

• Loans to companies for job creation programmes (FBiH) were transformed in 2005 into a revolving credit lineavailable through the Investment Bank of the Federation of BiH to established enterprises, to business start-upsand to self-employed in agriculture. These loans, accessible through the presentation of an investmentprogramme and employment plan, amounted in 2006 to 8.5 million KM for 68 borrowers and are expected tocreate more than 500 new jobs.

• Employment subsidies are the most common type of ALMPs in both entities. They are used to reduce the cost ofhiring for enterprises. Participants include young people with a high level of educational attainment, workers withdisabilities, older workers and demobilised soldiers. The subsidies include in-company training components. Inthe Federation, these programmes last between 6 and 12 months and require the employers to keep participantsemployed for 12 or 24 months after programme completion (duration varies according to the programme). In2006, the first round of employment subsidies created 4,198 jobs for an overall expenditure of 12 million KM,while the second call, for the same amount, is expected to generate another 3,965 jobs. Currently in the FBiHthere are three employment subsidy programmes: the first programme targets educated youth with no workexperience; the second targets workers with disabilities, co-finances wages for a maximum of 12 months andprovides a lump-sum for workplace adaptation; the third targets the unemployed and provides employmentsubsidies for a maximum of 6 months. In the RS, the employment bureau covers the cost of insurance andprovides a small allowance for internship schemes (9 or 12 months) for young graduates under 30 years of age.In the BD, the bureau co-finances the wage of newly recruited workers from the employment register.

• Training programmes are included in the Employment Support Project (SESP) financed by the World Bank in bothentities. The Programme envisages a mix of employment services (counselling, labour market training,employment subsidies, self-employment assistance) tailored to the needs of long-term unemployed. In theFederation the programme is expected to employ at least 2,200 workers over 45 years of age, while in the RS thetotal number of vulnerable unemployed targeted is 1,894 individuals.

Source: Employment Agency of BiH, State Review of Employment Policies in Bosnia and Herzegovina for 2006,Sarajevo 2007.

The provision of labour market training in the mix of ALMPs appears to be confined in theFederation and in the RS to the employment Support Programme targeting unemployed agedover 45. The BD employment service, on the other hand, increased its provision of trainingcourses in 2006 (mainly in accounting, computer courses and foreign languages). Within theemployment service network there is only one training institution (in Una Sana Canton) that isregularly providing competency-based training to adult unemployed in the areas ofconstruction and IT.

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Employment counselling, vocational guidance and job-search assistance have passed the cost-effectiveness test of several evaluations around the world. They were assessed as cost-effective means to tackle frictional unemployment as they provide individuals withinformation about education and training, trends in the labour market and job openings. Thecounselling and job-search assistance process in BiH appears to be limited owing firstly to theburden formed by a high number of individuals registered with the employment service togain access to non-employment benefits, and secondly to the lack of skills and trainingopportunities of the PES staff.

Since 2001, BiH has spent significant resources on loans and grant programmes forestablished enterprises and for start-ups, but their overall impact is yet to be rigorouslyevaluated in terms of placement rates, career development of participants and businesssurvival rates. Although the efficiency of these programmes seems to have improved recently,they remain fairly expensive and benefit only a limited number of participants. Theexperience of other countries suggests that these programmes are more successful if they areprovided as part of a comprehensive package of labour market services. Put otherwise, theywork better if they are supported by other employment programmes such as training,counselling, assistance in developing a feasibility study and advisory services during thebusiness start-up.

Employment and vocational rehabilitation opportunities are negligible compared to thenumber of persons with disabilities, which increased exponentially during the conflicts of the1990s. The low number of beneficiaries in the past five years points to failures both in dealingwith work impairments – and the impact these have on performing work tasks – and inconvincing employers to recruit persons with disabilities. Currently, only the FBiH has aprogramme tailored to the needs of persons with disabilities. For the year 2006, it allocatedover a million KM to financing this programme. The need to increase the number of theseprogrammes throughout BiH and link them to social welfare measures is evident.

Most of the youth employment measures implemented by the employment services of BiHtarget young people with fairly high educational attainment. The employment measurestargeting disadvantaged youth that are provided for in the MTDS/PRSP have not yet been putin place.

The current design and targeting of ALMPs does not cater to the needs of the most vulnerablecategories among the unemployed, i.e. those who face multiple disadvantages in accessing thelabour market, such as individuals with a low level of education, displaced persons, refugees,Roma population and women heads of household.

Overall, both targeting and performance monitoring of ALMPs are weak, and rigorous impactevaluation analyses are not conducted. The importance of measuring the absolute and relativeimpact on men and women of the measures implemented by the employment services cannotbe overestimated. Evaluation is also important for assessing the cost-effectiveness, relevanceand impact of the interventions, as well as drawing lessons for future programmes to be fedinto the decision-making process. In this respect, the availability of labour market informationis essential for the design and monitoring of initiatives.

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Recommendations

• The functions and services of the PES of BiH should be aligned with the provisions ofthe Employment Service Convention of the ILO (C88), ratified by Bosnia andHerzegovina in 1993.

• Tasks relating to the organisation and co-ordination of services common to the PESare not executed by any institution. The SEA mandate should include the organisationof staff development programmes, the establishment of common standards forregistration and placement of job-seekers, the collection and analysis of labourmarket information and technical assistance to the entities and the Brčko District fordesigning, monitoring and evaluating active labour market measures. Some of thefunctions of the State Employment Agency, such as monitoring the implementation ofinternational labour standards in the area of employment, overlap with the mandate ofthe Ministry of Civil Affairs and should therefore be revisited.

• Not all the core functions of a modern public employment service are adequatelycovered by the employment services of Bosnia and Herzegovina. The coverage ofemployment counselling and job-search assistance for employment re-integrationneeds to be improved in both entities and in the Brčko District. This will requirelowering the counsellors/unemployed ratio, which could be achieved by slimmingdown the unemployment register. As it is clear that many people register asunemployed to have access to health insurance coverage whilst working in theinformal economy, it would be advisable to separate health insurance coverage fromregistration as unemployed. This would decrease the incentive to register to haveaccess to non-employment benefits and would shift employment service staff fromadministrative requirements to employment assistance functions.

• The financing system of the employment services in the FBiH and RS and therequirement to first cover the statutory obligations relating to unemploymentinsurance and the running costs make the planning of revenue and expenditure andthe designing of active measures unpredictable. In addition, different contributionrates and calculation methods create disparities in the availability of financingbetween the two entities. This system should be revised to provide a core fundingmechanism linked to the public budget for the administration of the service and theimplementation of active labour market measures.

• The employment service system in the Federation of Bosnia and Herzegovina shouldbe reorganised. The competencies of the FBiH Employment Agency and those of thecantonal services seem to be overlapping in certain areas while they leave gaps inothers. It is recommended to review the whole organisation and functioning of theFBiH Employment Agency and clearly define roles and responsibilities as well as thefunctional relationship between the Federation’s Employment Agency and theCantonal Agencies.

• It is important that the employment services in both entities and in the Brčko Districtpursue not only objectives relating to labour market efficiency but also equityobjectives through a more effective targeting of employment services and ALMPs atclients who are at a disadvantage in the labour market. This will require thedevelopment of an internal strategy that is cost-effective and based on the tiered

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approach, the establishment of a performance monitoring system based on clearindicators and the implementation of training programmes for the staff to be involvedin the treatment of “hard-to-place” job-seekers. This recommendation may entailamendments to the FBiH Law on Job Placement and Social Security for theUnemployed, the RS Law on Job Placement and the respective rulebooks onemployment promotion programmes.

• Joblessness and low educational attainment are key determinants of economicvulnerability and social exclusion. An adequate mix of preventive and curativepolicies could address these problems through cost-effective investments in education,as well as with targeted social and employment programmes that have clear equityobjectives and are well administered. This approach could lift certain groups of thepopulation out of poverty (i.e. Roma, refugees and IDPs) and prevent theeconomically vulnerable (i.e. the long-term unemployed) from falling into the povertytrap.

• Given its extraordinarily high incidence, measures are urgently needed to combatlong-term unemployment, which affects mostly unemployed with lower educationalattainment. Re-employment programmes should be specifically designed to supportworkers with a lower level of education and not be targeted at people with highereducational attainment.

• Adult training programmes designed to respond to labour market requirements shouldbe significantly expanded in both range and scope. An adequate mix of counselling,guidance and labour market training could effectively reduce the risk of long-termunemployment for poorly educated individuals. With regard to labour market training,the employment services may consider developing a training delivery system usingcompetency-based approaches. The current practice of delivering labour markettraining through secondary school may replicate the failures of the education system.Also, procedures for contracting labour market training to private providers andenterprises, as well as the monitoring of training outcomes, should be improved.

• There is an urgent need to assess the efficiency and effectiveness of the active labourmarket programmes and to establish a system of performance indicators to monitorwhether the programmes were adequately designed, targeted, sequenced andimplemented. This system should measure the impact on individuals in terms ofemployment and income, compare the outcomes of different programmes anddemonstrate what works and for whom. The focus on youth with a high level ofeducation in the design of active measures needs to be revisited and balanced withmeasures targeting disadvantaged youth and other groups more at risk of labourmarket exclusion such as the long-term unemployed and the low-qualifiedunemployed.

• In order to promote gender equality in the labour market, it is crucial to increasewomen’s access to ALMPs. Employment programmes targeted at disadvantaged andvulnerable groups, such as persons with disabilities but also Roma and IDPs, shouldidentify and address the different opportunities and risks facing men and women inthese groups. This entails improving the capacity of the employment service staff toaddress discrimination in employment and occupation. Such employment-orientedmeasures are important to challenge the social exclusion of vulnerable groups.

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• Given the increasing use of ALMPs it is essential that they are tightly monitored andrigorously assessed to inform policy- and decision-makers on future financialallocation for programmes that have proven successful but also to improve thetargeting and quality of programmes.

3.5. Passive labour market policies

The social protection system in Bosnia and Herzegovina comprises social insurance schemesfunded from payroll contributions and programmes funded from general revenues. For bothentities, the social insurance system provides pensions (old-age, disability and survivor),unemployment benefit and health insurance. In the RS, the system also provides childallowances and maternity benefit. The programmes funded from general revenues providebenefits for war veterans and surviving families, social protection and, in the FBiH, child andmaternity benefit.

The targets formulated by the Mid-Term Development Strategy on labour market reforms,which comprised the harmonisation of employment insurance rates and unemploymentassistance cash benefits, as well as the harmonisation of criteria for accessing benefits, havenot been reached yet. The differences between the entities in contribution rates, eligibilitycriteria, benefit calculation and duration are a constraint on labour force mobility.75

3.5.1. Unemployment benefit

Benefits under passive programmes include unemployment benefit for registered unemployedwith paid contributions, health insurance coverage for all persons registered as unemployed,and, in the RS, pension insurance coverage for recipients of unemployment benefit. Freehealth insurance coverage is a major incentive to register with the employment services.76

Unemployment benefit is granted on condition that: i) termination of employment was not thefault of the employee; ii) the individual is unemployed according to ILO definition, and iii)registration occurs within 30 days after termination of employment or 90 days aftercompletion of education.77 The person receiving the benefit is required to report to theemployment office every 60 days. The payment of unemployment insurance is discontinued ifthe beneficiary: i) finds a job, ii) does not report regularly to the employment bureau orrefuses to report upon call, iii) refuses a job offer that is compatible with the level ofqualification, or iv) is found to be working in the informal economy.

The FBiH amended the Employment Law in 2005 to provide unemployment benefitequivalent to three months’ wages for an insurance period ranging from 8 months to 5 years,rising gradually to 24 months for service longer than 35 years. The unemployment benefit

75. For a summary of the actions planned under the Mid-Term Development Strategy on labour market reforms,see World Bank, Bosnia and Herzegovina Labour Market Update: The Role of Industrial Relations, WorldBank, Washington, D.C., 2005, op. cit. Appendix III, pp. 96.76. In both entities, legislation requires the employment services to use available funds to finance unemploymentbenefit first, and active labour market programmes if, and when, there are residual resources. The free healthinsurance coverage was quoted by 80% of unemployed beneficiaries as the primary reason for maintaining theirunemployed status. World Bank, Bosnia and Herzegovina: Addressing Fiscal challenges and enhancing growthprospects. World Bank, Washington, D.C., 2006 op. cit.; UNDP, Jobs and more jobs, UNDP Early warningreport, UNDP Sarajevo, 2006.77. Deadlines can vary from canton to canton in the FBiH.

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replacement rate is a uniform 40% of the average net wage paid in the Federation in theprevious three months, irrespective of the number of years of service. In the RS, benefits canbe received for three months for an insurance period of up to 5 years, rising to 12 months foran insurance period of more than 25 years. The unemployment benefit amounts to 35 to 40%of the individual’s average salary over the preceding 3 months for those with ten or moreyears of insurance.

Table 19: Main features of the unemployment benefit systems in the FBiH, RS and BDEntity Contribution rate and

eligibility Benefit calculation Duration

FBiH − 2.5% of gross wage(2% paid by workerand 0.5 by employer)

− Paid unemploymentcontributions for anuninterrupted periodof at least 8 months inpreceding 12 months,or for an accumulatedtotal period of at least8 months in the past18 months

− 40% of average net wage earnedin the Federation in the 3 monthsbefore the termination ofemployment

− The benefit may be disbursed in alump sum for the establishment ofan independent or a jointcompany

− 3 months for a workingperiod from 8 months to5 years

− 6 months for a workingperiod from 5 to 10 years

− 9 months for a workingperiod from 10 to 15 years

− 12 months for a workingperiod from 15 to 25 years

− 15 months for a workingperiod from 25 to 30 years

− 18 months for a workingperiod from 30 to 35 years

− 24 months for a workingperiod of more than 35 years

RS − 1% of gross salary− Minimum of

8 months ofcontinuous qualifyingperiod in preceding12 months, or12 months withbreaks in preceding18 months

− Up to 10 years of qualifyingperiod: 35% of average wageearned in the previous threemonths of work

− More than 10 years: 40% ofaverage wage earned in theprevious three months

− The cash benefit may not be lessthan 20% of disbursed averagewage in the RS, nor may it exceedthe amount of an average netwage in the RS in the monthpreceding decision-making

− 3 months for a qualifyingperiod up to 5 years

− 6 months for a qualifyingperiod of 10 years

− 9 months for a qualifyingperiod of 15 years

− 12 months for a qualifyingperiod of 25 years

BD − 1.5% of gross salary− Minimum of

8 months ofcontinuous qualifyingperiod in preceding12 months, or12 months withbreaks in preceding18 months

− Up to 10 years of qualifyingperiod: 35% of average salaryearned in the previous threemonths of work

− Over 10 years of qualifyingperiod: 40% of average salaryearned in the previous threemonths

− The benefit cannot be lower than20% of disbursed average salaryin the district, nor may it exceedthe average net salary in themonth preceding decision-making

− 3 months for a qualifyingperiod up to 5 years

− 6 months for a qualifyingperiod of five to 15 years

− 9 months for a qualifyingperiod of 15 to 25 years

− 12 months for a qualifyingperiod over 25 years

Source: Law on Job Placement of the Republika Srpska, OG of the RS, No. 54, June 2005; Law on JobPlacement and Social Security for the Unemployed of the Federation of BiH, December 2000 and amendmentsOG of the FBiH, No. 22/05; Law on Job Placement and Unemployment Entitlements of the Brčko District, OGof the Brčko District of BiH, No.: 33/04.

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Unemployment benefit coverage in BiH is lower than in neighbouring countries: in 2004, lessthan 1.9% of the registered unemployed received benefits (2.2% in the RSand 1.5% in the FBiH),78 compared with 12% on average among the SEE countries (seefigure 12).79

Roughly two thirds of all registered unemployed received free health insurance coverage.Entitlement to free health insurance for the duration of unemployment registration provides anincentive to stay in the informal economy and avoid paying social insurance contributions.These arrangements have contributed to creating an unsustainable health insurance situationwhere only one fourth of those who get health insurance coverage actually pay contributions.

Figure 12: Coverage of unemployment benefit, BiH and SEE countries (2004)

Source: World Bank, Bosnia and Herzegovina: Addressing Fiscal challenges andenhancing growth prospects. A public expenditure and institutional review, World Bank,Washington, D.C., 2006, op. cit.

3.5.2. Early retirement

In Bosnia and Herzegovina the pension system is managed by the entities. It is regulated bythe Law on Pensions and Invalidity Insurance of the FBiH and the Law on Pensions andInvalidity Insurance of the Republika Srpska. For the Brčko District, both laws applydepending on the employee’s choice of location for contributory purposes (either theRepublika Srpska or the Federation of BiH).

Both entities allow early retirement for certain categories of workers or for persons with atleast 40 years of contributions. Early retirement is possible at 60 years of age for men and 55for women. Individuals employed in arduous occupations and war veterans are entitled tobonuses on their insurance period (i.e. 12 months of contribution payments are counted as 18or up to 24 months).

High dependency ratios and low coverage rates in both entities – due in particular to lowoverall labour force participation – are a threat to the financial sustainability of the system. In2004, the FBiH pension system had 292,200 beneficiaries and 466,000 contributors, with a

78. EU-CARDS, Vertical Review of the Labour and Employment Sector in BiH, op. cit., p. 68.79. World Bank, Bosnia and Herzegovina: Addressing Fiscal challenges and enhancing growth prospects. Apublic expenditure and institutional review, World Bank, Washington, D.C., 2006.

7

1,9

2022

12

6

9,6

24

0

5

10

15

20

25

Albania BiH

Bulgaria

Croatia

FYRMacedonia

Montenegro

Serbia

Slovenia

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system dependency ratio of 0.63. In the RS, the ratio was 0.6, with 174,000 beneficiaries and294,000 contributors. In the same year, the average pension was 184 KM per month, whilethe poverty line was set at 185 KM per month.

Approximately 60% of Bosnia’s population aged 15-64 do not accrue pension rights and morethan one fourth of the active labour force is not covered by pension insurance.

3.5.3. Social welfare

Social transfers financed via general revenues amount to 4% of GDP, with veterans’ benefitsaccounting for about two thirds of the total. Despite their share of GDP, social transfers havehad only a modest impact on poverty alleviation, as only a small fraction of them are means-tested to provide a safety net to the most vulnerable groups.

Veterans’ entitlements are similar in both entities, covering disability benefits for military warinvalids and survivor benefits for family members. Most of these benefits are financed by theMinistry of Veteran Protection in the FBiH and the Ministry of Labour and Veteran-InvalidProtection in the RS. The cantons and municipalities in the FBiH and the municipalities in theRS also finance additional entitlements. Table 20 provides a snapshot of cash transferspending for the period 2002-2005.

Table 20: Cash transfer spending for the period 2002-2005 (percentage of GDP)2002 2003 2004 2005

Total Bosnia and Herzegovina 4.0 4.0 3.7 3.5

FBiH 4.5 4.3 4.0 4.3

Child protection 0.3 0.4 0.4 0.3

Social welfare 0.6 0.6 0.6 0.6

Veterans’ benefit 3.2 2.8 2.7 3.0

Refugees benefits 0.5 0.5 0.3 0.3

RS 2.9 3.4 3.7 3.5

Child protection 0.4 0.3 0.4 0.5

Social welfare 0.2 0.3 0.3 0.2

Veterans’ benefit 1.8 2.3 2.4 2.4

Refugees benefits 0.5 0.5 0.6 0.4

Source: World Bank, Bosnia and Herzegovina: Addressing Fiscal challenges and enhancing growth prospects.A public expenditure and institutional review, World Bank, Washington D.C., 2006, op. cit.

Veteran disability benefits are not based on the inability to work, but on functional disability.Veteran disability beneficiaries can also qualify for a disability pension under the socialinsurance system or for an old-age pension, provided they meet the social insurance eligibilityrequirements. Similarly, survivor families can qualify for veterans’ survivor benefits andsocial insurance-financed pensions. Veterans’ benefits are high relative to other disabilitybenefits, pensions and average wages. The average size of veterans’ benefits is five times the

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average payment to civilian victims of war or the average disability benefit in the FBiH, and60% higher in the RS.80

The social welfare and child protection system in BiH still accounts for less than 1% of GDP,despite the poverty incidence in the country. Decentralised financing mechanisms result insubstantial regional disparities in coverage. Owing to resource constraints, eligibility criteriafor most benefits are established ad hoc, as local welfare offices use discretionary means toallocate available resources. The only notable exception is the child benefit system in the RS,financed and administered by the Child Protection Fund.

Coverage of the social protection system in both entities is low and varies considerably acrossthe cantons and the municipalities. The number of social welfare beneficiaries registered atthe Social Work Centres is large, but only a fraction receives benefits. Altogether, more than7% of Bosnia’s population is registered, but due to shortage of funds, only 1% of those belowthe poverty line in the RS and 4% in the FBiH receive social assistance benefits. Coverage ismore substantial for child and maternity benefits in the RS, while it is available only in somecantons of the FBiH. Similarly, disability benefits for civilian victims of war are provided inmost cantons, but with substantial variation in coverage and benefit levels.

Maternity leave benefit is based on the principle of universal and free health coverage forpregnancy, childbirth and child nursing. Statutory benefits are governed by the laws on healthinsurance, child protection and labour applicable in the entities. The labour laws of bothentities provide for twelve months of leave during pregnancy and after childbirth for eachchild, with reduced hours upon returning to work until the child is two years of age. Maternitybenefit in the FBiH is financed by the Cantons, but not all Cantons have passed the relevantlegislation, and fewer still actually pay the benefit.81 In the RS, maternity leave is twelvemonths for the first child and eighteen months for each succeeding child. Maternity benefit isset at full pay calculated on the average over the six months prior to giving birth and adjustedmonthly for any increase in salaries paid in the RS. The costs are paid by the public ChildProtection Fund, although the employer may bear some costs (for example, pay for the firstfour months of leave). This reimbursement is limited to those companies that have paid thechild protection contribution levied on the payroll.82

Recommendations

• The different systems applied by the entities with regard to workers’ benefits may havean impact on the mobility of the workforce. The state should investigate the possibilityof establishing a common framework to serve as an engine to mobility and as astrategy to combat informality.

80. World Bank, Bosnia and Herzegovina: Addressing Fiscal challenges and enhancing growth prospects. Apublic expenditure and institutional review, World Bank, Washington, D.C., 2006, op. cit.81. In fact, Sarajevo Canton is the only canton paying regular childcare and social welfare benefits. Sarajevocantonal legislation sets maternity benefit at 60% of the mother’s average wage over the previous 6 months.World Bank, Bosnia and Herzegovina Labour Market Update: The Role of Industrial Relations, World Bank,Washington, D.C., 2005, op. cit., pp. 59.82. World Bank, Bosnia and Herzegovina Labour Market Update: The Role of Industrial Relations, WorldBank, Washington, D.C., 2005, op. cit.

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• Both the unemployment benefit and the pension level in BiH are just above or on thepoverty line. Hence, it is not surprising that the elderly and the unemployed areamong the categories of the population who are poor or at risk of poverty. A pensionand unemployment benefit policy that provides equal and single rates for all shouldtherefore be considered. It is of the utmost importance that governments of the entitiesand the Brčko District review the coverage of unemployment benefit, whose currentlevel is the lowest in Europe.

• The free health insurance coverage is a key incentive to register with the employmentservices and is, unintentionally, a driver of informality and a drain on publicresources. The balance between the rights and obligations of the unemployed shouldbe revised to discourage registration just to have access to non-employment benefits.The resources freed by such reform could be more effectively invested in targetedactive labour market programmes to help the most vulnerable categories of workersfind jobs. The administration of passive programmes should be better linked to theprovision of active labour market measures so as to promote employment activationstrategies.

• Expenditure pressures, inefficiencies and inequities in the current system of multiplesocial benefits call for action to further streamline these expenditures and bettertarget them at the most vulnerable groups. The government should pursue the reformand redirection of social expenditure so as to promote inclusion in society throughwork for those who are able to do so, while protecting other categories such aschildren with social welfare programmes. More specifically, the disability assessmentsystem should be reviewed to give more weight to work-ability and to create a singleassessment system for all disability benefits.

• Additional cantonal and municipal veterans’ benefit programmes not targeted toneeds should be discontinued. This should be accompanied by the development of arigorous method for targeting the benefits, including greater reliance on means-testedsystems.

• As each Canton of the FBiH is empowered to define specific benefits and allocatefunding, this results in a system where Cantons essentially define their ownparameters for eligibility benefit amount and benefit types. In practice, only thewealthier Cantons actually provide a full range of benefits, including child andmaternity benefits, social assistance and disability for civilian victims of war. Inparticular, and despite the provision for maternity benefit, the latter often go unpaidin most of the Cantons of the FBiH.

3.6. Income policy

3.6.1. Wage policy

Nominal wages have risen fairly rapidly in recent years, faster than both inflation andproductivity.83 There has also been a convergence between the entities in terms of averagewages that coincides with a convergence in GDP per capita. Figure 13 illustrates the fact that,despite much more rapidly rising prices in the RS, the convergence in wages is real, albeit

83. World Bank, Bosnia and Herzegovina Labour Market Update: The Role of Industrial Relations, WorldBank, Washington, D.C., 2005

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much more modest than appears in Figure 13, and not just due to the differences in inflationbetween the entities. Between 1998 and 2006, overall real wages rose by around 61% in theFederation and by 85% in the RS.

Seen from the regional perspective, however, wage increases have been fairly modest. Table21 illustrates the relative position of Bosnia and Herzegovina vis-à-vis other countries in theregion. Bosnia does have the second highest average monthly wage, although it remains lessthan half that of the region’s leader, Croatia. In terms of wage growth, however, it is fifth outof the seven countries considered here, with wages rising by just over one half (in Euro terms)between 2000 and 2006, well behind Romania, Montenegro and above all Serbia, wherewages are now more than six times their 2000 levels.84

Table 21: Average net wages for SEE countries in Euros2006(€)

Rank Percentage change2000-2006

Rank

Bosnia and Herzegovina 300 2 + 57% 5

Bulgaria 178 7 + 88% 4

Croatia 625 1 + 44% 6

“The former YugoslavRepublic of Macedonia”

219 6 + 27% 7

Montenegro 246 5 + 255% 2

Romania 254 4 + 137% 3

Serbia 275 3 + 505% 1

Source: EPPU, Economic Trends, Annual Report 2006, Sarajevo, 2007, op. cit for 2006 data and World Bank,Bosnia and Herzegovina Labour Market Update: The Role of Industrial Relations, Washington D.C., 2005, op.cit., pp. 11 for the 2000 wage data.

The implication of this is that much of the sustained economic growth in recent years has fedrising wages rather than encouraging the expansion of employment. Rising wages tend tocause rising production costs, which are likely to damage the country’s export performance,whilst – at the same time – they increase demand for imported (as well as domesticallyproduced) consumer goods.

84. Albania is not included since comparable wage data was not available for 2006. Between 2000 and 2004,Albanian wages rose by around 71% in Euro terms so it is reasonable to presume that, if it were included in thecalculations, Bosnia and Herzegovina would rank sixth out of the eight SEE countries in terms of wage growth.

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Figure 13: Nominal net monthly wages in BiH and in the entities, 1998-2006

0

100

200

300

400

500

600

700

800

1998 1999 2000 2001 2002 2003 2004 2005 2006

Average

netm

onthlywages(K

M)

BiH FBiH RS DB

Source: State Agency for Employment, State Review of Employment Policies inBosnia and Herzegovina for 2006, Sarajevo, 2007.

Figure 14: Net monthly wages, FBiH and RS (1998 values)

0,0

100,0

200,0

300,0

400,0

500,0

600,0

1998 1999 2000 2001 2002 2003 2004 2005 2006

Average

netm

onthlywages(KM),1998

values

FBiH RS

Source: ILO calculations on the basis of the data of the State Agency for Employment, State Review ofEmployment Policies in Bosnia and Herzegovina for 2006, Sarajevo, 2007; data on the cost of livingfrom the Central Bank of Bosnia and Herzegovina, Annual Report 2006, Sarajevo, 2007.

Minimum wage setting is an area where the two entities differ markedly – at least in terms ofregulations. In the FBiH, the minimum wage, established in August 2005, currently stands at1.75 KM per hour, which corresponds to a net monthly wage of 308 KM.85 In the RS, theminimum wage is established on a monthly basis and – following its most recent revision inMarch 2006 – currently stands at 205 KM/month; in contrast to the FBiH, the RS allows a

85. This is on the basis of collective agreements rather than a legal minimum wage, owing to failure to arrive atan agreed sub-minimum wage for young people. The agreements also provide for differing minimum wages bysector.

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sub-minimum wage to be paid to young people. The absence of an hourly minimum wage inthe RS is certainly a contributory factor to the very low level of part-time employment in theentity (8.7% of the employed as opposed to 15.0% in the Federation as measured bythe 2006 LFS).

In addition to the significant divergence in average wages between the two entities, there isalso a substantial difference between minimum wages expressed as a percentage of theaverage wage. In the Federation, the minimum wage is around 53% of the average, whereas inthe RS it stands at just under 40%, although this has been significantly reduced by the latestincreases in the RS.86 The minimum wage might be expected to have a greater impact onwage compression (and therefore a greater detrimental employment impact) in the Federationthan in the RS. However, the detailed analysis of wage distributions reported by the WorldBank suggests that wage distribution (around the mean) in the FBiH – at least on the basis ofthe LSMS – appears to be almost identical to that found in the RS. The implication is that inthe Federation employers pay lower wages, as well as avoiding EPL, tax and social insurancecontributions, whilst in the RS, wages in the informal economy are more comparable to thoseof workers in the formal economy.87 Hence, the minimum wage does not seem to be animportant contributing factor to the lack of employment growth in the country, although, likeEPL, it may have some impact on the distribution of employment.

3.6.2. Tax policy

On the basis of the available data, tax revenue as a percentage of GDP fell very slightly in theperiod 1999-2005, from 42.5% to 41.7%. This is comparable to the level of tax revenues inthe EU-15 (40.6% of GDP in 2005) and puts Bosnia and Herzegovina in the higher rangeamongst the countries of Central and Eastern Europe.88

Tax revenues were more or less evenly divided between deductions on income and taxes ongoods and services, the lion’s share being taken by social security contributions whichamounted to 15.8% of GDP (or 38% of tax revenues) and by indirect (sales) taxes whichaccounted for 17.1% of GDP (or 41% of tax revenues). By comparison, income tax, whetheron businesses or individuals, is very small, contributing only 3.9% of GDP (or 9.4% of taxrevenues).

The introduction of flat-rate value added tax (VAT) at 17% in January 2006 throughout thecountry is likely to increase the proportion of tax revenues on goods and services. Preliminaryresults suggest that indirect taxes accounted for over 50% of tax revenues in the first tenmonths of 2006.89 The introduction of single-rate VAT also marks a significant move towards

86. This is a rather smaller difference than that reported by the World Bank study of 2005 (55% in the Federationand 20% in the RS). This is because the minimum wage has remained constant since 2005 in the Federation, butit has more than doubled in the RS with the latest revision in 2006. World Bank, Bosnia and HerzegovinaLabour Market Update: The Role of Industrial Relations, World Bank, Washington, D.C., 2005, op. cit.87. However, although the study found significant differences between formal and informal economy pay in2001 and 2002 in the Federation (with no such corresponding differential in the RS) this difference hadpractically disappeared by 2003. World Bank, Bosnia and Herzegovina Labour Market Update: The Role ofIndustrial Relations, World Bank, Washington, D.C., 2005, op. cit. This is supported by calculations on the 2006LFS data. According to the survey, the average informal economy monthly wage in the Federation wasaround 57% of the formal economy wages, whereas in the RS the proportion was 78%.88. World Bank, Bosnia and Herzegovina: Addressing Fiscal Challenges and Enhancing Growth Prospects,World Bank, Washington, D.C., 2006, op. cit.89. Own calculations on the basis of the data of EPPU, Economic Trends, Annual Report 2006, Council ofMinisters, Sarajevo, 2007, op. cit. However, this does not take account of income tax returns.

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the harmonisation of tax levels across the entities.90 However, a flat-rate tax withoutexemptions is likely to increase the pressures on the poor. Moreover, this is exacerbated bythe heavy reliance on indirect as opposed to direct (and progressive) forms of taxation.

Payroll taxes and contributions are probably far more significant than the minimum wage indetermining outcomes in the labour market in Bosnia and Herzegovina. Here again, there aresignificant differences in policy between the Federation and the Republika Srpska. Taxes andsocial contributions are levied at different rates and on different measures of income. In theFederation, personal taxes and contributions are levied on the basis of gross wages, whichcomprise the base wage plus employers’ social contributions, but exclude allowances (fortransport, meals and others). In the RS, taxes and contributions (paid entirely by employers)are levied on the basis of the net wage, which, however, includes allowances.

To a certain extent, these differences are more apparent than real in terms of their impact onoverall labour costs and the tax wedge, i.e. the percentage of total labour costs accounted forby tax and social security contributions. The World Bank calculates that, at the average wage,the tax wedge in 2004 was 34% in both the Federation and the Republika Srpska.91 This islower than that of all other countries in South East Europe apart from Albania, where thewedge is a couple of percentage points lower.92 Nevertheless, given the relatively high ratesof pay in the country compared to its neighbours, the existing tax wedge is likely to be asignificant factor in pushing firms towards the informal economy – far more so than theminimum wage. This is in line with recent findings in both OECD and Central and EasternEurope countries, which conclude that high payroll taxes – and for CEE countries the“business climate” – are much more significant factors in determining employment levelsthan either EPL or minimum wages.93

Moreover, the World Bank study points out that whereas in the Federation the tax wedge isprogressive in nature – i.e. as wages rise so does the tax wedge – in the RS the wedge ispurely proportional.94 A more recent analysis notes that in fact until 2006, the tax wedge inthe RS was essentially regressive. By 2007, it had become roughly proportional or veryslightly progressive.95 On the other hand, in the Federation the tax wedge (includingallowances) was significantly progressive although not necessarily so at lower incomes.Given the lower wages paid in the informal economy, this is a much stronger candidate forexplaining the pattern of informal employment observable in the country.

90. The process, however, has not been entirely smooth. The collection of VAT was interrupted several timesduring 2006 due to disputes over the entity-level division of the revenues. EPPU, Economic Trends, AnnualReport 2006, Council of Ministers, Sarajevo, 2007, op. cit.91. As conventionally measured, i.e. as a percentage of total labour costs.92. World Bank, Bosnia and Herzegovina Labour Market Update: The Role of Industrial Relations, WorldBank, Washington, D.C., 2005. The choice of wage is important since in the Federation, non-wage benefits andallowances are not subject to taxes or contributions, and as the value of these is fixed and therefore independentof income, thus as income rises so too does the tax wedge expressed as a proportion of labour costs (includingallowances).93. Organisation for Economic Co-operation and Development (OECD), Employment Outlook, OECD,Paris, 2006; World Bank, Enhancing Job Opportunities: Eastern Europe and the Former Soviet Union, WorldBank, Washington, D.C., 2005.94. Despite the fact that contributions are proportional also in the Federation. Progressivity arises becauseallowances are not taxed and, since they are largely fixed sums (independent of the wage), the percentage ofeffective income exempt from taxation falls as income rises.95. Arandarenko, M., and Vukojevic, V., “Labour Costs and Labour Taxes in the Western Balkans,”(forthcoming). In practice the calculation of the tax wedge depends on a number of factors.

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Some encouraging developments are apparent. The entities in BiH are reforming taxationwith a view to moving towards greater harmonisation of rates and improving their operation.Until the end of 2006, corporate tax stood at 30% of profits in the Federation (with acomplicated system of exemptions and allowances) and 10% in the RS. However, on1 January 2007, a new corporate tax rate of 15% was introduced in the RS and similarlegislation – reducing the tax rate from 30 to 15% – is expected to be introduced in theFederation. There are still problems with the overall corporate framework system, however,as domestic corporations from one entity are treated as non-resident companies in the otherentity, thus impeding the creation of a single economic space.

Also, a degree of progressivity in personal income tax was introduced in the RS in January2007. The flat-rate income tax of 10% was replaced by progressive rates ranging from zero to15%. In particular, the zero rate applies up to the minimum wage in an effort to encourage theformalisation of informal employees. In the Federation, the situation is a little morecomplicated insofar as income tax is determined also at the cantonal level and there is a widevariety of rates and taxes currently in operation. However, as it stands the system does have adegree of progressivity with a base rate of 5% of gross wages and a higher rate being appliedto incomes above a certain level (varying across the Cantons). Moreover, the personal incometax system is being reviewed in the Federation and it is expected that new legislation will beintroduced to rationalise the system.

Recommendations

• Minimum wage levels, as a percentage of entity-level average wages should graduallybe equalised mainly through an increase in the minimum wage in RS. This processneeds to be supported by cross-entity collaboration between the trade unionconfederations.

• An hourly minimum wage should be introduced in the RS to encourage the expansionof part-time employment.

• There is little or no evidence to keep a sub-minimum wage for youth as a means ofcutting unemployment or increasing the demand for young labour. Authorities in theRS should consider the removal of such provision.

• Although the introduction of a VAT flat rate has undoubtedly contributed to theformalisation of some productive activities, the absence of exemptions for basic needsis in conflict with one of the main goals of the MTDP, namely the reduction of poverty.Exemption or zero rate taxation on basic needs should be considered.

• The process of harmonising personal income tax needs to be continued. In particular,the establishment in the Federation of a system of progressivity, and foremost of taxexemptions for incomes up to the minimum wage, similar to the system alreadyimplemented in the RS, should be considered.

• Again, a key aim of the wage and tax policy needs to be the formalisation ofemployment and the widening of the tax base. To this end a greater degree ofprogressivity should be introduced in the tax wedge. More specifically, exemptionsfrom – or significant reductions of – social and pension contributions at lower levelsof income need to be considered.

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3.7. Social dialogue

Both the ILO and the EU have formulated employment policy instruments that stronglyadvocate a broad social dialogue between government and the social partners on employmentissues.96 The tripartite constituents of BiH can find very useful guidance in these instrumentswhen it comes to promoting effective social dialogue conducive to an efficient and equitableemployment policy, which is very much needed in view of the employment challenges facingBosnia and Herzegovina.

3.7.1. Legal framework

In Bosnia and Herzegovina social dialogue takes place at the level of the entities and theBrčko District and is governed by several laws, chiefly the Labour Law, the Law on Strikesand the Law on Associations and Foundations. The labour laws were enacted in 1999 in theFBiH and in 2000 in the RS and the BD.97 The laws on strikes were enacted in 1999 in theRS, in 2000 in the FBiH and in 2006 in the BD. The State Law on Associations andFoundations (enacted in 2001 and amended in 2003) and similar laws in force in both entities(enacted in 2001 in the RS and in 2002 in the FBiH) and the BD (enacted in 2002) govern theregistration of associations and foundations, including employers’ and workers’ organisations.

The labour laws define the operation of collective bargaining – without distinguishingbetween the public and private sectors, the levels at which these agreements may be signed orthe conditions under which they apply. Bargaining can take the form of general collectiveagreements, branch collective agreements, company agreements and individual employmentcontracts. General collective agreements cannot stipulate conditions that are lessadvantageous than those set forth in the Labour Law. The same applies throughout thehierarchy of bargaining instruments. The degree of enforcement of these agreements is high inthe public sector, but rather low in the private sector.98

The Labour Law of the RS defines the criteria for representativeness,99 which are not yetspecified in the labour laws of the FBiH and the BD. The laws on strikes protect the exerciseof the fundamental right to strike and stipulate the conditions under which it can be exercisedlawfully.

Tripartite co-operation between the governments and the social partners takes place in theEconomic and Social Councils (ESCs), consultative bodies provided for by the three labourlaws of the FBiH, the RS and the BD. At state level, an agreement on the establishment of theESC was drafted in 2006 but its signature is still pending.100 The range of issues discussed by

96. For example, the Tripartite Consultation Recommendation, 1963 (No. 113) of the ILO calls on memberstates “to take measures to promote effective consultation and co-operation between public authorities and socialpartners… in the establishment and functioning of national bodies responsible for the organisation ofemployment, vocational training and retraining”. In 2006, Bosnia and Herzegovina ratified the TripartiteConsultation Convention, 1976 (No. 144).97. The Labour Law of the FBiH was amended in 2000 and 2003, that of the RS in 2002, 2003 and 2007, andthat of the BD in 2003, 2004 and 2005.98. See The World Bank, Bosnia and Herzegovina: Labour Market update: The role of industrial relations, op.cit., chapter 3.99. These criteria were recently redefined.100. The establishment of the State-level ESC is also included in the action plan for the implementation of thelabour market reform under the MTDS/PRSP 2004-2007.

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these tripartite bodies as well as their functioning varies according to the entities and district.Overall, both employers’ and workers’ organisations are calling for the establishment of anESC at state level, better functioning of the ESCs at the entity and district levels and increasedallocation of both human and financial resources to these consultative bodies. They are alsocalling for the creation of an appropriate mechanism for conciliation and mediation to helpworkers and employers reach friendly settlements in disputes arising from the employmentrelationship. Together with the works councils, these mechanisms are set out in the labourlaws. However, neither of them have yet been established. As a result, labour disputes areexclusively dealt with by court proceedings, and the heavy caseload has led to an extremelylong waiting period between the application to the courts and the judicial decision settling alabour dispute.

On the trade union side the main players are the Confederation of Independent Trade Unionsof Bosnia and Herzegovina, the Confederation of Trade Unions of the Republika Srpska andthe Trade Union of the Brčko District. More specifically, the Confederation of IndependentTrade Unions of BiH reports 260,000 members, organised in 23 industrial branches in theFBiH (0.68 density) and the Confederation of Trade Unions of the RS numbers 157,000members, organised in 14 branches (0.66 density).101 As regards the distribution ofmembership between the public and private sectors, trade union density seems to be strong inthe public sector, the civil service and mass-privatised enterprises, while it is reported to beweak in private enterprises.

Currently, there are registered employers’ organisations at the state, entity and Brčko Districtlevels. These are the Association of Employers in the Federation of BiH, which comprisesapproximately 4,100 private companies employing about 90,000 workers, the Confederationof Employers of the Republika Srpska which has 800 companies, mainly small and medium-sized enterprises employing about 6,000 workers, the Union of Employers of the RepublikaSrpska and the Association of Employers of the Brčko District. There is also the Associationof Employers of Bosnia and Herzegovina, set up at state level, whose founding members arethe above-mentioned employers’ organisations with the exception of the Union of Employersof the RS. The state association is a relatively new organisation, officially established in 2005.

3.7.2. Social dialogue on employment

The social partners are striving to extend the areas of social dialogue to economic and socialissues other than those currently subject to collective bargaining. Apart from the employment-related areas that are traditionally dealt with by collective agreements (i.e. wage-fixing andother conditions of employment), employers’ and workers’ organisations have littleinvolvement in shaping the employment agendas in their respective entities and district. Thisis also due to the fact that there are neither explicit employment policies nor employmentstrategies at either state or entity level. However, both employers’ and workers’ organisationshave been quite active in discussing the employment issues that should be part of thecountry’s development strategies.

The employers’ organisations assign priority to a number of measures for shaping theemployment policy agenda of BiH: setting the rates of both social contributions and corporatetax at the same level throughout the country, reducing the tax wedge so as to createemployment and investing in skills development in order to increase productivity. They also

101. For more information on the distribution of membership by branch, see The World Bank, Bosnia andHerzegovina: Labour Market update: The role of industrial relations, op. cit., Figure 3.2, p. 49.

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attach importance to integrating passive and active labour market policies in order to enablepersons with disabilities to re-enter the labour market, especially war veterans, war widowsand their families.

The priorities of workers’ organisations in the area of employment policy revolve around thereform of the labour market “to achieve legal and secure employment in a market economy”,the pursuit of the privatisation process and the development of an efficient social protectionsystem to care for workers who lose their jobs during privatisation, bankruptcy andliquidation and to improve the current pension insurance systems.102 According to the tradeunions, the most urgent issues affecting the labour market are the high unemployment rate,which has created enough space for informal employment, and the need to ensure labour forcemobility in BiH.103 The unions advocate harmonising the labour market by equalising thesocial protection system, including the payroll contribution to the employment service, whichshould be set at a rate of 2.5% in both entities. They also call for the enforcement of labourregulations to prevent discrimination in employment and occupations, and for measures tostrengthen the labour inspectorates and the courts in charge of settling labour disputes.

Both social partners are in favour of introducing an active employment policy which theywould help to design, monitor and evaluate. They also request the establishment of tripartiteadvisory boards in all the employment services of BiH and greater involvement in theformulation and implementation of active labour market measures.104

Recommendations

• The poor enforcement of both labour laws and collective agreements is undesirablebecause it leaves workers without protection. That is why it is important to strengthenthe mechanisms for enforcing collective agreements in both the entities and the BrčkoDistrict.

• Strengthen the role and functioning of the Economic and Social Councils (ESCs) atthe entity and district levels.

• Consider setting up special committees of the ESCs to deal with employment issues.The members of these committees could participate in the designing, monitoring andevaluation of employment policy and programmes.

• Review the composition of the Employment Agencies’ advisory boards to make surethat the social partners are represented. This recommendation entails introducing atripartite board for the State Employment Agency and re-introducing a tripartiteboard for the Employment Agency of the RS, which was discontinued in 2006.

• Improve the social partners’ skills on employment policy issues and encourage them tointegrate employment concerns into their agreements.

102. See the document jointly prepared by the Confederation of Independent Trade Unions of Bosnia andHerzegovina, the Confederation of Trade Unions of the Republika Srpska and the Trade Union of the BrčkoDistrict, Employment and the reduction of poverty in Bosnia and Herzegovina: Recommendations by the Unionsof BiH, April 2005, pp. 2-17.103. The trade unions report that 40% of the unemployed are in fact informally employed.104. The establishment of tripartite management of employment agencies is one of the measures provided for bythe MTDS/PRSP. This provision was to be put in place by the second half of 2004.

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• Introduce representativeness criteria for social partners in both the FBiH and the BD.

• Enforce the labour law provisions governing the friendly settlement of disputes toreduce the caseload and waiting time in court proceedings.

4. Summary conclusions

The economy of Bosnia and Herzegovina has been sparking over the past few years, with anannual average GDP growth of 5.7% during the triennium 2004-2006. The Central Bank ofBosnia and Herzegovina estimated a growth rate of 6% for the year 2007.

This positive economic performance, however, has not been accompanied by employmentgrowth. During the past few years, the economy has entered into a jobless growth path, atleast with regard to jobs in the formal economy. Although available labour marketinformation from household surveys conducted prior to 2006 is not comparable to that of thefirst Labour Force Survey, administrative data for the triennium 2004-2006 indicates anincrease in employment levels that is rather modest compared with the vigorous economicgrowth experienced during the same period.

According to the first Labour Force Survey, the overall unemployment rate in 2006 was ashigh as 31.8% (29.5% for men and 35.7% for women). During the same year, the youthunemployment rate of 62.3% (60.2% for young men and 65.7% for young women) wasamong the highest worldwide. Inactivity rates are higher than average for the South EastEuropean (SEE) region, mostly owing to the non-participation of women in the labourmarket. Almost 63% of working-age women are inactive, while the inactivity rate of men(34.5%) compares with the average rate for the SEE region.

Although precise data on the magnitude of informal employment is not available, numericalestimates of Labour Force Survey data put the figure of informal employment at 33.6% oftotal employment. Informality varies according to age, with young workers over-representedin informal employment compared to prime-age workers (50.4% and 28.9% respectively).

This Review of the employment policy of Bosnia and Herzegovina has been conducted tosupport the government in identifying priority areas that could help refocus employment onthe economic and social development agendas. Situation analysis is the first step in the policycycle. This Review can be used as a basis for designing of employment policy objectives tobe anchored to national development frameworks, as well as for developing employmentstrategies and action plans. These objectives and instruments would foster progress in theemployment area. They would also support the establishment of a mutually reinforcingrelationship between employment and economic and social policies as set out by theEmployment Policy Convention (C122), which is the main international labour standard onemployment policy, ratified by Bosnia and Herzegovina in 1993.

The main employment policy priorities for Bosnia and Herzegovina should revolve aroundthe development of the following objectives and policy areas: i) development of an activepolicy on employment, ii) enforcement of employment protection legislation to coverunprotected workers in the informal economy, iii) education and training, iv) employmentservices and active labour market policies, v) unemployment insurance, vi) income policies,and vii) social dialogue on employment. These priorities are briefly summarised below.

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Development of an active policy on employment

Although employment promotion is identified as a priority in the national policy agenda, thereare no stated employment policy objectives that go in tandem with other economic and socialdevelopment objectives, nor are there quantitative targets for employment growth. Thegovernments of Bosnia and Herzegovina may consider establishing inter-institutionalmechanisms which include representatives of various line ministries and the social partners,tasked with identifying the mix of economic and social policies considered most effective inpromoting not only more but also better employment. To make sure that employment isconsidered in its own right and is anchored to economic and social development objectives, itis essential that these representatives take part in shaping the country’s developmentframeworks. In parallel, employment objectives should be made operational by developingand implementing gender-sensitive employment strategies and related periodical action plansthat address both efficiency and equity targets.

To ensure that these plans translate into action and therefore achieve the pre-establishedtargets, tight monitoring and evaluation should underpin the overall implementation process.The latter would require strengthening the labour administration system in order to make itmore efficient as well as clarifying tasks that are mandated to institutions at different levels.The setting up of a labour market information system is equally important to ensuremonitoring and evaluation of employment and labour market policies.

Tackling the informal economy: sharing the gains between enterprises and workers

The overall rigidity of employment protection legislation in Bosnia and Herzegovina issimilar to that of other countries in the region and comparable to that of EU and OECDcountries. Despite initial attempts to tackle the informal economy, its size remains rathersignificant. The informal economy has high economic and social costs: it leads to unfaircompetition between enterprises in the formal and informal economy and leaves workers withno protection. The estimated number of workers not covered by employment protectionlegislation is quite high. Policy-makers could consider adopting a two-pronged approach withmeasures to encourage enterprises to formalise and measures to strengthen the administrationof penalties for non-compliance, especially in the case of flagrant violations of existing legalprovisions. This would require reviewing administrative and tax provisions on the one handand strengthening the labour inspectorates on the other.

Improving education and training outcomes and their relevance to labour marketrequirements

Despite the progress made since the end of the conflict, the education system in BiH is stillfacing significant challenges. The Labour Force Survey reports that in 2006 as much as 38.5%of the working age population (34.9% men and 58.8% women) had only primary education orless. During the same year, approximately 65% of the Roma population had never attended orhad not completed basic education.

Vocational education and training (VET) is currently undergoing reform. The work donesince 2001 has produced a new classification of occupations. Together with the reform of theVET curricula, these elements are now part of the draft Framework Law on VocationalEducation and Training. While all the VET schools in the RS have started to implement the

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modernised curricula, only one third of all VET schools in the FBiH are implementing one ormore of these curricula. The main features of the draft framework revolve around theestablishment of a common core curriculum based on broader occupational content, theadoption of a modular approach to competency-based VET, the requirement for VET schoolsto have an advisory council comprising the social partners, and the possibility for VETschools to canvass additional sources of funding through the establishment of public-privatepartnerships. To make VET more relevant to labour market requirements, it is of the utmostimportance to speed up the reforms by introducing and implementing the above-mentionedinnovations. Similar reforms, undertaken by other countries in recent years, have yieldedpositive results in terms of redressing the skills mismatch and reducing unemployment amongyoung people.

Progress on the reform of adult training and lifelong learning has been less than satisfactory.Current adult training and lifelong learning opportunities only extend to a very small share ofthe working age population (3.3% of youth and 1.9% of adults). This is in clear contrast withthe profound changes experienced by the Bosnian economy over the past few years and couldput many workers at risk of losing their jobs because their skills become obsolete. Policy-makers should promote learning and training for adults, especially low-skilled workers andlong-term unemployed. Skills training is also important to foster enterprise competitivenessand enhance worker productivity, as well as to improve the quality of employment, especiallyamong those workers who cannot find jobs other than in the informal economy. Adult trainingand lifelong learning reforms are urgently needed to introduce employment-orientedapproaches that allow flexible entrance/exit at various times in working life while recognisingprior learning acquired through work experience.

Modernising employment services and targeting active labour market policies atdisadvantaged groups

Access to employment services in Bosnia and Herzegovina is universal and provides access tohealth insurance. The primary function of the employment service is registering theunemployed, checking their eligibility for unemployment and health insurance benefits, andproviding basic information on job openings. Job brokering, personalised counselling andguidance, screening of the unemployed for participation in ALMPs and systematic collection,analysis and dissemination of labour market information are functions not systematicallyperformed by the Bosnian PES.

The reform of the employment service in Bosnia and Herzegovina should be pursued in orderto achieve not only objectives relating to labour market efficiency but also equity objectivesthrough a more effective targeting of employment services and active labour marketprogrammes (ALMPs) at clients who are at a disadvantage in the labour market. Such reformshould also encompass a revision of the mandate of the State Employment Agency to includethe organisation of staff development programmes, the establishment of common standardsfor registration and placement of job-seekers, the collection and analysis of labour marketinformation and technical assistance to the entities in designing, monitoring and evaluatingactive labour market measures. The provision of a core funding mechanism linked to thepublic budget for the administration of the service and the implementation of active labourmarket measures would make the planning of employment services and active labour marketprogrammes more predictable.

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The current portfolio of ALMPs in both entities and in the Brčko District is rather limited andcentred on encouraging employers to create more jobs and recruit unemployed people throughloans, grants and subsidies. More should be done to integrate active measures with otheraspects of employment service work (i.e. counselling and job-search assistance) and tosequence them in order to match them with the disadvantages faced by the job-seeker.

An adequate mix of preventive and curative policies could address joblessness and loweducational attainment through cost-effective investments in education, as well as withtargeted employment programmes that have clear equity objectives. Sequenced counselling,guidance and labour market training – designed to respond to labour market requirements andtargeting unemployed with low educational attainment – could effectively decrease the risk oflong-term unemployment.

There is currently no knowledge of either the efficiency or the effectiveness of ALMPsimplemented so far in Bosnia and Herzegovina. Impact evaluation of ALMPs should becarried out to determine whether these programmes are adequately designed, targeted,sequenced and administered. The establishment of a system of both quantitative andqualitative indicators could help assess the programmes’ performance. More specifically, thismonitoring and evaluation system would serve to measure the impact on individuals in termsof employment and income, identify distortions often produced by these programmes,compare the outcomes of different programmes and identify what works and for whom. Theevaluation results would in turn help improve both the quality and the targeting ofprogrammes as well as inform policy- and decision-makers on future financial allocation forprogrammes that have proven successful. A general finding of this Review of employmentpolicy points to the need for a more gender-balanced approach in the administration of theseprogrammes, but also to their extension to workers at risk of unemployment and to thoseengaged in the informal economy, as well as to other hard-to-place unemployed andsocially-excluded groups, including persons with disabilities, RAE and IDPs.

Providing adequate income support during unemployment

The unemployment insurance system aims to provide a safety net in terms of income supportduring job search and, therefore, to promote efficient allocation of resources in the labourmarket. In Bosnia and Herzegovina, the level of the unemployment benefit is just above or atthe poverty level. Hence, it is not surprising that the unemployed are amongst the categoriesof the population most at risk of poverty and social exclusion. The benefit covers only a verysmall number of unemployed persons. The coverage rate of approximately 2% is the lowest inEurope. Both the low level and the low coverage of the benefit increase the risk of falling intopoverty and thus may constitute an incentive to take up work in the informal economy.

A review of the overall structure of the unemployment benefit should be conducted to ensurethat its short duration is combined with an appropriate level of benefit that would allow theunemployed to search for a new job without losing income support and, at the same time,without creating work disincentives. This review should also establish proper links betweenunemployment insurance and active labour market policies.

Ensuring an effective and equitable income policy

Nominal wages have risen fairly rapidly in recent years; faster than both inflation andproductivity. The implication of this is that much of the sustained economic growth in recent

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years has fed rising wages rather than encouraging the expansion of employment. Seen fromthe regional perspective, however, increases in wages have been fairly modest. There has alsobeen a convergence between the two entities in terms of average wages that coincides with aconvergence in GDP per capita.

Wage policy should continue to support macroeconomic stability. Future wage increasesshould be aligned to GDP growth so as to enhance competitiveness and increase employment.At the same time, investments in human capital should increase labour productivity and thusjustify higher wages in future.

Recent tax policy reforms have attempted to introduce a degree of progressivity of the wageand tax policy with the aim of promoting the formalisation of employment and the wideningof the tax base. Targeted exemptions from or reductions of non-wage labour costs should bepursued in order to curb long-term unemployment, youth unemployment and informalemployment, particularly among disadvantaged groups. There is empirical evidence from theregion that such measures can have a positive employment impact, especially when non-wagelabour costs, long-term unemployment and informality are quite high.

The process of harmonising personal income tax needs to be pursued. In particular, theestablishment in the Federation of a system of progressivity, and foremost of tax exemptionsfor incomes up to the minimum wage, similar to the system already implemented in RS,should be considered. Although the introduction of a VAT flat rate has undoubtedlycontributed to the formalisation of some productive activities, the absence of exemptions forbasic needs is in conflict with one of the main national and international goals, namely thereduction of poverty. Exemptions on goods and services for basic needs should be considered.

Promoting social dialogue on employment

The social partners are striving to expand the areas of social dialogue to economic and socialissues other than those currently subject to collective bargaining. Apart from the employment-related areas that are traditionally dealt with by collective agreements (i.e. wage-fixing andother conditions of employment), employers and workers’ organisations have littleinvolvement in shaping the employment agendas in their respective entities and the BrčkoDistrict. However, both employers’ and workers’ organisations have been quite active in thediscussions about the employment issues that should be part of the country’s developmentstrategies.

Both employers’ and workers’ organisations advocate strengthening the role and functioningof the Economic and Social Councils (ESCs) at the entities and district levels. In this respectand to promote social dialogue on employment, it is important to set up a select committee ineach ESC to deal with employment issues. Employers’ and workers’ organisations considerthe introduction of an active employment policy to be a key priority. They should help todesign, monitor and evaluate it.

The establishment of tripartite advisory boards in all the employment services, as well as thesocial partners’ involvement in designing and implementing active labour market measures,are considered to be important in responding to the needs of both workers and enterprises; thetripartite advisory board of the State Employment Agency and the RS employment serviceshould be (re-)established.

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APPENDIX I

List of relevant Council of Europe instruments ratified byBosnia and Herzegovina

Convention Signature/ratification date Status

Revised European Social Charter 07.10.2008 Ratified

Framework Convention for the Protection ofNational Minorities 24.02.2000 Ratified

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APPENDIX II

List of ILO conventions ratified by Bosnia and Herzegovina

Convention Ratificationdate

C2 Unemployment Convention, 1919 02.06.1993

C3 Maternity Protection Convention, 1919 02.06.1993

C8 Unemployment Indemnity (Shipwreck) Convention, 1920 02.06.1993

C9 Placing of Seamen Convention, 1920 02.06.1993

C11 Right of Association (Agriculture) Convention, 1921 02.06.1993

C12 Workmen’s Compensation (Agriculture) Convention, 1921 02.06.1993

C13 White Lead (Painting) Convention, 1921 02.06.1993

C14 Weekly Rest (Industry) Convention, 1921 02.06.1993

C16 Medical Examination of Young Persons (Sea) Convention, 1921 02.06.1993

C17 Workmen’s Compensation (Accidents) Convention, 1925 02.06.1993C18 Workmen’s Compensation (Occupational Diseases) Convention,1925 02.06.1993

C19 Equality of Treatment (Accident Compensation) Convention, 1925 02.06.1993

C22 Seamen’s Articles of Agreement Convention, 1926 02.06.1993

C23 Repatriation of Seamen Convention, 1926 02.06.1993

C24 Sickness Insurance (Industry) Convention, 1927 02.06.1993

C25 Sickness Insurance (Agriculture) Convention, 1927 02.06.1993C27 Marking of Weight (Packages Transported by Vessels)Convention, 1929 02.06.1993

C29 Forced Labour Convention, 1930 02.06.1993C32 Protection against Accidents (Dockers) Convention (Revised),1932 02.06.1993

C45 Underground Work (Women) Convention, 1935 02.06.1993

C48 Maintenance of Migrants’ Pension Rights Convention, 1935 02.06.1993

C53 Officers’ Competency Certificates Convention, 1936 02.06.1993

C56 Sickness Insurance (Sea) Convention, 1936 02.06.1993

C69 Certification of Ships’ Cooks Convention 1946 02.06.1993

C73 Medical Examination (Seafarers) Convention, 1946 02.06.1993

C74 Certification of Able Seamen Convention, 1946 02.06.1993

C80 Final Articles Revision Convention, 1946 02.06.1993

C81 Labour Inspection Convention, 1947 02.06.1993

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C87 Freedom of Association and Protection of the Right to OrganiseConvention, 1948 02.06.1993

C88 Employment Service Convention, 1948 02.06.1993

C89 Night Work (Women) Convention (Revised), 1948 02.06.1993C90 Night Work of Young Persons (Industry) Convention (Revised),1948 02.06.1993

C91 Paid Vacations (Seafarers) Convention (Revised), 1949 02.06.1993

C92 Accommodation of Crews Convention (Revised), 1949 02.06.1993

C97 Migration for Employment Convention (Revised), 1949 02.06.1993

C98 Right to Organise and Collective Bargaining Convention, 1949 02.06.1993

C100 Equal Remuneration Convention, 1951 02.06.1993

C102 Social Security (Minimum Standards) Convention, 1952 02.06.1993

C103 Maternity Protection Convention (Revised), 1952 02.06.1993

C105 Abolition of Forced Labour Convention, 1957 15.11.2000

C106 Weekly Rest (Commerce and Offices) Convention, 1957 02.06.1993C109 Wages, Hours of Work and Manning (Sea) Convention (Revised),1958 02.06.1993

C111 Discrimination (Employment and Occupation) Convention, 1958 02.06.1993

C113 Medical Examination (Fishermen) Convention, 1959 02.06.1993

C114 Fishermen’s Articles of Agreement Convention, 1959 02.06.1993

C116 Final Articles Revision Convention, 1961 02.06.1993

C119 Guarding of Machinery Convention, 1963 02.06.1993

C121 Employment Injury Benefits Convention, 1964 02.06.1993

C122 Employment Policy Convention, 1964 02.06.1993

C126 Accommodation of Crews (Fishermen) Convention, 1966 02.06.1993

C129 Labour Inspection (Agriculture) Convention, 1969 02.06.1993

C131 Minimum Wage Fixing Convention, 1970 02.06.1993

C132 Holidays with Pay Convention (Revised), 1970 02.06.1993

C135 Workers’ Representatives Convention, 1971 02.06.1993

C136 Benzene Convention, 1971 02.06.1993

C138 Minimum Age Convention, 1973 02.06.1993

C139 Occupational Cancer Convention, 1974 02.06.1993

C140 Paid Educational Leave Convention, 1974 02.06.1993

C142 Human Resources Development Convention, 1975 02.06.1993

C143 Migrant Workers (Supplementary Provisions) Convention, 1975 02.06.1993

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C144 Tripartite Consultation (International Labour Standards)Convention, 1976 11.07.2006

C148 Working Environment (Air Pollution, Noise and Vibration)Convention, 1977 02.06.1993

C155 Occupational Safety and Health Convention, 1981 02.06.1993

C156 Workers with Family Responsibilities Convention, 1981 02.06.1993

C158 Termination of Employment Convention, 1982 02.06.1993C159 Vocational Rehabilitation and Employment (Disabled Persons)Convention, 1983 02.06.1993

C161 Occupational Health Services Convention, 1985 02.06.1993

C162 Asbestos Convention, 1986 02.06.1993C182 Worst Forms of Child Labour Convention, 1999 05.10.2001

Source: ILOLEX – 30.01.2009

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APPENDIX III

The Bucharest Declaration

South East Europe Conference on Employment (SEE-EC)Bucharest, 30-31 October 2003

Improving Employment in South Eastern Europe

The Delegates to the Conference of Bucharest, meeting under the chairmanship ofMrs Elena Dumitru, Minister of Labour, Social Solidarity and Family of Romania, at herinvitation and at the invitation of the Council of Europe and of the Belgian Federal PublicService Employment, Labour and Social Dialogue, under the auspices of the Initiative forSocial Cohesion of the Stability Pact for South Eastern Europe,

Bearing in mind the expectations with regard to further co-operation with the EU and withinthe region,

Recalling the Thessaloniki Declaration adopted on the occasion of the EU-Western BalkansSummit on 21 June 2003,

Considering the important preparatory work leading to this Conference,

approved unanimously the following declaration:

We, the Ministers responsible for Employment of Albania, Bosnia and Herzegovina,Bulgaria, Croatia, Moldova, Romania, Serbia and Montenegro and “the formerYugoslav Republic of Macedonia”, as well as the Head of the Economic Administrationof UNMIK,105 recognise the common problems we face in the area of employment as aresult of the restructuring linked to the transition to market economies, insufficientlevels of investment as well as the damaging effects of the conflicts in the region in the1990s.

We acknowledge:

• the substantial reduction in employment and, despite the reforms and restructuringalready under way, the consistently high unemployment and relatively slow pace ofjob creation, the wide skill mismatches and regional disparities, and their adverseconsequences for poverty and social cohesion;

• the need to improve employment policies and employment services, includingtraining;

• the need to further develop specific measures and programmes to improve access toemployment of vulnerable groups;

105. Associated to this process according to Security Council Resolution 1244 on Kosovo.

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• the need to promote labour mobility and to remove obstacles preventing it;

• the need to improve social dialogue.

Together and in partnership with relevant national and international institutions, weare convinced that we can better address these common problems, throughimprovements of our policies, reinforcement of our institutional capacities, pooling ofour expertise in employment matters, and improved co-ordination of availableinternational assistance.

We commit ourselves to a process of regional co-operation in the areas of employment,labour markets and training, as described in detail in the Appendix to the presentDeclaration. The process, intended to better addressing the above-listed problems, isaimed at:

• preparing our future integration into the European Union by converging towardsthe objectives and guidelines of the European Employment Strategy;

• implementing the Council of Europe standards in employment matters – theEuropean Social Charter and the Revised Social Charter – and creating a situationconducive to the application of Council of Europe Recommendations concerning thepromotion of employment; and

• making operational the core elements of the International Labour Office’sGlobal Employment Agenda in our countries.

We are aware that the success of our effort will depend on the creation of a favourableinvestment climate based on macro-economic stability, full co-operation with socialpartners, sound legal and regulatory frameworks and governance standards as well ason the development of small and medium enterprises. In this context, we commitourselves to concentrate our efforts on the following areas:

• promotion of entrepreneurship;

• greater mobility, by:

o fostering a more flexible labour market but balanced with reasonableemployment and income security for workers;

o examining the possibility of promoting the free movement of workers in theregion by means of bilateral agreements;

• incentives for employment creation and training;

• improvement of the performance of the national employment services;

• non-discrimination in access to employment, in remuneration and in workingconditions, with particular attention to gender equality;

• handling of the social consequences of privatisations and restructurings;

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• improvement of the quality of employment (contracts, remuneration, skills andqualifications, health and safety at work, employment related social protection, etc.);

• specific programmes for vulnerable groups (including access to credit);

• improvement of social dialogue and enhanced involvement of social partners in theformulation and implementation of social and economic policies;

• the transformation of undeclared work into regular work;

• adequate and comprehensive labour market information.

We issue a plea for assistance from international stakeholders to achieve the goals ofthis Declaration. We acknowledge the important support we have been receiving frominternational and bilateral institutions. In particular, we acknowledge the important analyticaland policy development work of the International Labour Organization, the Council ofEurope and the World Bank.

Under the auspices of the Initiative for Social Cohesion of the Stability Pact for SouthEastern Europe, we look particularly to the Council of Europe and the InternationalLabour Organization for strategic guidance and support in ensuring an efficient follow-up to our meeting along the lines described in the Appendix.

We commit ourselves to meet again in the Spring of 2005 to assess progress achievedover the next 18 months in implementing the goals set out in this declaration.

Done in Bucharest on 31 October 2003

Valentina LESKAJ Safet HALILOVIĆMinister of Labour and Social Affairs Minister of Civil AffairsAlbania Bosnia and Herzegovina

Rumen SIMEONOV Davorko VIDOVIĆDeputy Minister of Labour and Social Policy Minister of Labour and Social WelfareBulgaria Croatia

Valerian REVENCO Elena DUMITRUMinister of Labour and Social Protection Minister of Labour and Social SolidarityMoldova Romania

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Dragan MILOVANOVIC Jovan MANASIJEVSKIMinister of Labour and Employment Minister of Labour and Social PolicySerbia and Montenegro “The former Yugoslav Republic of

Macedonia”

as well as Jürgen VOSSAssociate Head for Economic ReconstructionUnited Nations Interim AdministrationMission in Kosovo

We, the representatives of the Stability Pact for South Eastern Europe, the Council ofEurope and the International Labour Organization, commit ourselves to ensure thefollow-up to this Conference.

Miet SMET Gabriella BATTAINI-DRAGONIChair, Initiative for Social Cohesion Director General of Social Cohesion

Stability Pact for South Eastern Europe Council of Europe

Bernard SNOY Göran HULTINDirector, Working Table II Executive Director – Employment SectorStability Pact for South Eastern Europe International Labour Organization

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Appendix

Operation of the process of co-operation on employment in South Eastern Europe

1. The Council of Europe is in charge of co-ordinating the process of co-operation, inclose relation with the International Labour Office, under the auspices of the SocialCohesion Initiative of the Stability Pact for South Eastern Europe.

2. The Ministers responsible for employment of the beneficiary countries of theStability Pact for South Eastern Europe will approve and regularly update the objectivesof the co-operation on employment as well as the programme of activities. They will meetevery 18 months. The next meeting will take place in the Spring 2005.

3. An assessment process of national employment policies will be launched for eachcountry:

3.1. This assessment process will take into account the key elements of the GlobalAgenda for Employment of the International Labour Organization, the EuropeanEmployment Strategy and the relevant Articles of the European Social Charterand of the Revised Charter and relevant Recommendations of the Committee ofMinisters of the Council of Europe;

3.2. In the case of Bulgaria and Romania, the assessment process will rely on the JointAssessment Papers (JAPs), prepared with the European Commission;

3.3. The national social partners will be fully associated in the process;

3.4. The assessment process will be inspired by the methodology applied between theEuropean Commission and candidate countries in their co-operation onemployment within the framework of the EU enlargement;

3.5. Employment experts from Belgium and other EU member states will be invited tocontribute with their experience in implementing the European EmploymentStrategy.

4. A Permanent High-Level Committee (PHLC) composed of the General Directors ofEmployment of the beneficiary countries of the Stability Pact for South Eastern Europe willdesign the programme of activities; set up working groups; mobilise human and financialresources in support of the programme of activities; supervise its implementation and preparethe ministerial meetings.

4.1. The following partners will be able to participate in the meetings of the PermanentHigh Level Committee, as observers:

4.1.1. the social partners of the countries concerned by the review of nationalreports;

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80

4.1.2. representatives of international organisations of social partners (IOE,ETUC);

4.1.3. representatives of interested international organisations (UNDP,UNECE, OSCE, OECD,…) and international financial institutions(World Bank, CEB, EBRD, EIB,…);

4.1.4. representatives of interested donor countries.

4.2. The technical contribution of the European Commission will help the process ofco-operation.

4.3. The Permanent High-Level Committee will meet at least twice in betweenministerial meetings. It will meet in Working Groups with experts to examine, inparticular, the following questions:

4.3.1. Review of national employment policies (Working Group I). TheWorking Group I will meet under the leadership of the ILO;

4.3.2. Capacity-building, quality of service delivery in employmentservices and improvement of programmes specifically designed forvulnerable groups (Working Group II). The Working Group II willmeet under the leadership of the Council of Europe;

4.3.3. Each Working Group will meet at least once in between ministerialmeetings.

4.4. The Working Groups will pay particular attention to the identification of projectsto be funded by international stakeholders and donors. The collection and co-ordination of demands and offers for assistance will be monitored by theInitiative for Social Cohesion of the Stability Pact for South Eastern Europe.

5. The terms of reference and rules of procedure of the Working Groups will be set upat the first meeting of the Permanent High-Level Committee, to take place in Brussels on 9and 10 December 2003, at the invitation of the Belgian Federal Public Service forEmployment, Labour and Social Dialogue.

6. Financing the co-operation process:

The above-mentioned international organisations and international financial institutions areinvited to provide long-term assistance to our process of co-operation on employment.

In particular, we ask for support from the stakeholders of the ISC of the Stability Pact forSouth Eastern Europe.

7. Entry into force of the process of co-operation:

The process of co-operation, as described above, will enter into force on 9 and10 December 2003, at the occasion of the first meeting of the Permanent High-LevelCommittee.

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APP

ENDIX

IV:M

ainprovisionsg

overning

recruitm

entand

term

inationofem

ploymentinBo

sniaandHerzegovina

1.EM

PLOYMEN

TCONTR

ACT

RepublikaSrpska

FederationofBo

sniaandHerzegovina

BrčkoDistrictofBo

sniaandHerzegovina

Employmentcontractsmay

beconcluded

foran

unlim

itedor

limitedperiod.Acontractnotspecifying

atim

e-lim

itisdeem

edto

beacontractof

indefinite

duration.

Employmentcontracts

may

beconcluded

foran

unlim

itedorlim

itedperiod.Acontractnotspecifyinga

time-lim

itis

deem

edto

beacontract

ofindefinite

duration.

Employmentcontractsmay

beconcludedforan

unlim

ited

orlim

ited

period.

Acontract

not

specifyingatim

e-lim

itisdeem

edtobe

acontract

ofindefinite

duration.

Probation

3monthswith

aminimum

noticeperiodof

7days

renewableforanadditional3

months.

Probation

6monthsw

ithaminimum

noticeperiodof7days.

Probation

6monthswith

aminimum

noticeperiodof7days,

renewableonlyonce

fora

durationof12

months.

Fixed-termcontracts

Afixed-term

contractmay

notexceed

2years.Such

contractsm

aybe

used

for:

a)performance

ofajobforupto6months;

b)temporaryincreaseso

fthe

workload;

c)replacem

entof

aworkertemporarilyabsent

forupto1year;

d)performance

ofajob

whose

duration

isdetermined

bythenatureandtype

ofjob.

Theparties

toafixed-term

contract

may

mutually

agreetoextend

theem

ploymentrelationship–oneor

moretim

es–within

themaximum

2-year

period.

Iftheem

ployee

continuesworking

with

theem

ployer’s

consent(either

explicit

orimplicit)

foraperiod

exceeding

2years,

the

employmentrelationship

becomesoneofindefinite

duration.

Workers

with

fixed-term

contractswho

workedfor

thesameem

ployer

for24

monthsin

thepreceding

3yearsaredeem

edto

have

been

employed

with

contractso

findefinite

duration.

Fixed-termcontracts

Afixed-term

contractmay

beconcludedfora

periodof

upto2yearsincaseso

f:a)

seasonaljobs;

b)replacem

ent

ofa

temporarily

absent

employee;

c)engagementinaparticularproject;

d)temporaryincreaseoftheworkload;

e)other

cases

specified

bythe

collective

agreem

ent.

Ifan

employee

explicitlyor

implicitlyrenewsafixed-

term

contractwith

thesameem

ployer,orexplicitlyor

implicitlyconcludessuccessive

fixed-term

contracts

fora

continuous

period

exceeding

2years,

such

contractisregarded

asacontractofindefinite

duration,

unlessotherwiseprovided

bythecollectiveagreem

ent.

Fixed-termcontracts

Afixed-term

contract

may

beconcludedfora

periodofup

to2yearsincaseso

f:a)

seasonaljobs;

b)replacem

ent

ofa

temporarily

absent

employee;

c)engagementinaparticularproject;

d)temporaryincreaseoftheworkload;

e)othercasesspecified

bythecollective

agreem

ent.

Ifan

employee

explicitlyor

implicitlyrenewsa

fixed-term

contract

with

thesameem

ployer,or

explicitly

orimplicitly

concludes

successive

fixed-term

contracts

for

acontinuous

period

exceeding2years,such

contractisregarded

asa

contract

ofindefinite

duration,

unless

otherwise

provided

bythecollectiveagreem

ent.

81

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2.TE

MPO

RARYWORK

RepublikaSrpska

FederationofBo

sniaandHerzegovina

BrčkoDistrictofBo

sniaandHerzegovina

An

employmentcontract

may

beconcluded

for

temporary

andoccasional

jobs,provided

that

such

jobs: a)

areestablishedby

collectiveagreem

entor

workrulebook;

b)do

notam

ount

tojobs

that

require

the

conclusion

ofa

contract

oflim

ited

orindefinite

durationeitherfullorpart-tim

e;c)

donotexceed

thedurationof

60days

ina

calendaryear.

Acontractmay

beconcluded(in

writing)

fortemporary

andoccasionaljobs,providedthatsuch

jobs:

a)areestablishedby

collectiveagreem

entorw

ork

rulebook;

b)do

not

amount

tojobs

that

require

the

conclusion

ofacontractof

limitedor

indefinite

durationeitherfullorpart-tim

e;c)

donotexceed

thedurationof

60days

ina

calendaryear.

An

individual

can

beem

ployed

fortemporary

orseasonal

jobs

orjobs

including

specialtasks

oractivities,providedthatsuch

jobs:

a)areestablished

bycollectiveagreem

entor

workrulebook;

b)do

notam

ount

tojobs

that

require

the

conclusion

ofa

contract

oflim

ited

orindefinite

durationeitherfullorpart-tim

e;c)

donotexceed

thedurationof

60days

ina

calendaryear.

82

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3.TE

RMINATIONOFEM

PLOYMEN

T

RepublikaSrpska

FederationofBo

sniaandHerzegovina

BrčkoDistrictofBo

sniaandHerzegovina

Individualdismissal

Anem

ployermay

terminatetheem

ploymentcontract:

a)incaseofworker’sserious

misconductasspecified

bytheLabourLaw;

b)incaseofdism

issaloneconom

ic,structuralor

technologicalgrounds;

c)whenan

employee

isunfit

toperformtheduties

specified

intheem

ploymentcontract;

d)ifaworkerfailstoreturntoworkwithin5working

days

afterthe

expiryofunpaidleaveorsuspension

period.

Anem

ployershallnotify

terminationinwriting,indicatingthe

grounds.

Anem

ployer

may

terminatetheem

ploymentcontract

ofa

designated

workers’representativein

theworks

councilor

trade

unionbodiesduringtheperformance

ofthisfunctionand

1year

aftercompletionof

such

functiononly

with

theprior

consentofthe

Ministerincharge

oflabouraffairs.

Individualdismissal

Terminationof

theem

ploymentcontract

may

bewith

orwithoutnotice.Itmustbewith

notice:

whenterminationisjustified

byeconom

ic,technicalor

organisationalcircum

stances,or

whenan

employee

isunfit

toperform

thedutiesspecified

intheem

ploymentcontract.

Anem

ployer

may

terminatetheem

ploymentcontract

ofan

employee

withoutn

oticeiftheem

ployee

isguiltyof

serious

misconductor

ifthebreach

ofthedutiesspecified

inthe

contractissuch

thatitwould

beunreasonableto

require

the

employertocontinue

theem

ploymentrelationship.

Anem

ployer

may

terminatetheem

ploymentcontract

ofa

trade

unionofficerduringhis/hermandateandfora6-month

periodfollowingtheperformance

ofsuch

duty

only

with

the

priorconsentof

theFederalMinisterin

charge

oflabour

affairs.

Individualdismissal

Anem

ployermay

terminatetheem

ploymentcontractwhen

followingcircum

stancesh

avearisen:

a)econom

icor

technicalchanges

adverselyimpacting

the

employer

and

which

make

impossible

the

reassignmentto

orretrainingof

theem

ployee

for

otherjobs;or

b)theem

ployee

isunfit

toperformthejob.

Anem

ployer

may

terminatetheem

ploymentcontract

ofan

employee

withouta

noticeperiodiftheem

ployee

isguiltyof

serious

misconductor

aserious

breach

oftheem

ployment

dutiesor

ifitwouldbe

unreasonabletorequire

theem

ployer

tocontinue

theem

ploymentrelationship.Afterconsulting

the

trade

union,

anem

ployer

may

terminatetheem

ployment

contract

ofatrade

unionofficer

either

duringtheofficer’s

mandateorduringa3-monthperiodfollowingthecompletion

ofthetrade

unionofficer’sduties.

Noticeperiod

Minimum

15days

iftheem

ploymentcontractisterminated

byaworkeror

30days

ifterminated

byan

employer.E

xtended

noticemay

beestablishedby

thecollectiveagreem

ent,rule

book

orem

ploymentcontract.It

dependson

theworker’s

serviceperiodwith

theem

ployer.

Noticeperiod

Minimum

14days

iftheem

ploymentcontractisterminated

byan

employer

or7

days

ifterminated

byan

employee.

Extended

noticeperiodmay

beestablishedby

thecollective

agreem

ent,rulebook

orem

ploymentcontract.

Noticeperiod

Minimum

14days

ifterminated

either

byem

ployer

orem

ployee.

Noticeperiodisgoverned

bythecollectiveagreem

ent,rule

book

orem

ploymentcontract.

Severancepay

Establishedby

thecollectiveagreem

ent,workrulebook

and

employmentcontract

and

dependson

theperiod

ofthe

worker’semploymentw

iththatparticularemployer.

Thelawestablishesminimum

severancepaythatmay

notbe

less

than

1/3of

theaveragemonthly

salary

disbursedin

the

3months

prior

totermination

for

each

full

year

ofem

ployment.

Maximum

severance

pay

isdefined

asa

percentage

oftheworker’saveragemonthly

salary

disbursed

inthe3monthspriorto

terminationof

theem

ployment

contractforeachfullyearof

employmentdepending

onyears

ofservice.Exceptionally,the

employerandworkerm

ayagree

onothercom

pensationinlieuoftheseverancepay.

Severancepay

Establishedby

thecollectiveagreem

ent,workrulebook

and

employmentcontract

and

dependson

theperiod

ofthe

worker’semploymentw

iththatparticularemployer.

Thelawestablishesthatminimum

severancepaymay

notbe

less

than

1/3of

theaveragemonthly

salary

disbursedin

the

3months

prior

totermination

for

each

full

year

ofem

ployment.

The

amount

issubjectto

the

employee’s

continuous

period

ofem

ployment

with

that

particular

employer.

Exceptionally,the

employer

andworkermay

agreeon

other

compensationinlieuoftheseverancepay.

Severancepay

Payableto

workers

with

contractsof

indefinite

duration,

dism

issed

aftera

minimum

of2

years

ofcontinuous

employment.Theam

ountdependso

ntheperiodofcontinuous

employment,

unless

termination

occurred

becauseof

the

employee’sfailuretoperformtheem

ploymentduties.

Paym

entmay

notbe

less

than

1/3of

theaveragemonthly

salary

paidinthe3monthspriortoterminationforeach

full

yearofem

ployment.

Bywrittenagreem

ent,an

employer

andan

employee

may

agreeon

othercom

pensationinlieuofseverancepay.

83

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3.TE

RMINATIONOFEM

PLOYMEN

T(cont.)

RepublikaSrpska

FederationofBo

sniaandHerzegovina

BrčkoDistrictofBo

sniaandHerzegovina

Collectivedismissal

Anem

ployer

employingover

15em

ployeesandconsidering

thedism

issalofa

minimum

of10%ofthetotalw

orkforce,but

nolessthan

5workersovera3-monthperiodduetoworkload

decrease

orothereconom

ic,technicalor

organisational

changes,hasaduty

toconsulttheworks

councilor

atrade

unionrepresentingaminimum

of10%

oftheworkersifno

works

councilw

asestablished.

Theem

ployershallnotify

theworks

councilortrade

unionin

writingno

laterthan30

days

priortodism

issal:

•groundsforworkers’dismissal;

•numberand

qualifications

ofworkersinvolved;

•measuresthatmightpreventthe

dism

issalofallor

some

workers(byworkers’reassignment,retraining,reducing

working

hours,etc.);

•measuresthat

would

encourageworkers’em

ployment

with

otheremployers.

If,w

ithin

1yearof

workers’dism

issal,theem

ployerintends

toem

ploy

workerswith

thesamequalifications

asthosewho

weredism

issed,

s/he

hasaduty

toofferem

ploymentto

the

latterbeforehiringotherindividuals.

Collectivedismissal

Anem

ployer

employingover

15em

ployeesandconsidering

thedism

issalofa

minimum

of10%ofthetotalw

orkforce,but

nolessthan

5workersovera3-monthperiodduetoworkload

decrease

orothereconom

ic,technicalor

organisational

changes,hasaduty

toconsulttheworks

councilor

atrade

unionrepresentingaminimum

of10%

oftheworkersifno

works

councilw

asestablished.

Theem

ployershallnotify

theworks

councilortrade

unionin

writing30

days

priorto

giving

noticeto

theem

ployees

concerned.Such

notificationincludes:

•groundsfortheplannedtermination;

•number

and

category

ofem

ployees

likely

tobe

dism

issed;

•measures

that

may

prevent

some

orall

planned

dism

issals

(employees’

reassignment,

retraining,

temporaryreductionofworking

hours);

•measuresthatm

ayfacilitatere-employmentofw

orkers;

•measuresforretrainingem

ployeesto

prom

otetheirre-

employmentw

ithanotheremployer.

If,w

ithin

1yearof

workers’dism

issal,theem

ployerintends

toem

ploy

workerswith

thesamequalifications

asthosewho

weredism

issed,

s/he

hasaduty

toofferem

ploymentto

the

latterbeforehiringotherindividuals.

Collectivedismissal

Anem

ployer

employingover

15em

ployeesandconsidering

thedism

issalofa

minimum

of10%ofthetotalw

orkforce,but

nolessthan

5workersovera3-monthperiodduetoworkload

decrease

orothereconom

ic,technicalor

organisational

changes,hasaduty

toconsulttheworks

councilor

atrade

unionrepresentingaminimum

of10%

oftheworkersifno

works

councilw

asestablished.

Theem

ployershallnotify

theworks

councilortrade

unionin

writing1month

priorto

giving

notice.

Such

notification

includes:

•groundsfortheplannedtermination;

•number

and

category

ofem

ployees

likely

tobe

dism

issed;

•measures

that

may

prevent

some

orall

planned

dism

issals

(employees’

reassignment,

retraining,

temporaryreductionofworking

hours);

•measuresthatm

ayfacilitatere-employmentofw

orkers;

•measuresforretrainingem

ployeesto

prom

otetheirre-

employmentw

ithanotheremployer.

If,w

ithin

1yearof

workers’dism

issal,theem

ployerintends

toem

ploy

workers

with

thesamequalifications

asthose

dism

issed,

s/he

hasaduty

toofferem

ploymentto

thelatter

beforehiringotherindividuals.

84

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rest

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cess

Employment Policy ReviewBosnia and Herzegovina

InternationalLabour

Organization

ID 7791