DUSHANBE, November 11, 2013, Asia-Plus -- Unemployment in Europe and Central Asia (ECA) is high and job creation is  weak,  despite  impressive reform efforts in many countries of  the region  and  a decade of strong economic growth before the 2009 crisis,  says a  new World Bank report  “Back to Work: Growing with Jobs in Europe and Central Asia”.

The report recommends actions in two main policy areas to create more and better jobs in ECA: 1) laying the fundamentals  for job creation  through an  enabling  macroeconomic and business environment that allows  existing firms to grow and new firms to emerge and succeed  or fail quickly  and at low cost; and 2) supporting workers  to tap into  new job opportunities, so that they have  the right skills  and work incentives, unhindered access to the labor market,  and  are able  to  move to places with more job creation potential.

According to the report, employment creation in the region was slow even before the crisis (2000-2007), when the region grew faster than many other emerging economies.  ECA economies and employment levels in particular were then severely affected by the 2009 crisis; and job creation remains sluggish in the post-crisis recovery.  In 2012, the average unemployment rate for Europe and Central Asia stood at 14 percent.  A worrying factor is that about half of all unemployed people have been looking for a job for more than a year.  Young and older workers, women, and ethnic minorities are more likely to be jobless or employed in informal or low-wage jobs.  For example, one in five young people in ECA is neither working, nor searching for work, nor studying.

In analyzing the factors behind this worrying situation, the report arrives at five main conclusions:

1.  Market reforms that increase competition in domestic markets pay off in terms of achieving both job creation and productivity growth, although results take time to materialize.  Initially, economic restructuring means that jobs are both created and destroyed.  As countries further modernize their economies, job creation outpaces job destruction and this then translates into higher levels of employment.  Countries that reformed early and have integrated into global markets, the so-called ‘advanced modernizers’, have been more successful in creating more jobs  than ‘late modernizers’, which have implemented reforms slowly or unevenly.

2.  A small fraction of high-growth firms (the so called “Gazelles”), largely young, account for most of the new jobs created in the region.  Entrepreneurship levels, however, remain low, especially among late reformers, compared to other middle-income regions and the OECD.  Thus, countries need to translate entrepreneurship potential into successful creation of new businesses that can accelerate job creation.

3.  Skills gaps hinder employment prospects, especially of youth and older workers, due to the inadequate response of the education and training systems to changes in employers’ demand for skills.  Addressing this challenge will require rethinking the fundamentals of education, training, and life -long learning systems.

4.  Employment is also hindered by high implicit taxes on work for those transitioning to formal jobs from inactivity or unemployment ,  and  by  other  barriers  to employment  that affect  particularly  low-wage and part-time workers and second-earners in the household,  who tend to be  women, minorities, youth, and older workers.

5.  Low labor mobility within countries prevents worker relocation to places with greater job creation potential.  Migration abroad substitutes for low internal mobility, but worsens the demographic outlook in many countries.

Policies to address the jobs challenge in the region need to reckon with  the legacy of centrally  planned economies,  which is  related to  the  speed of reforms towards modern market economies, and  also with  the mounting demographic pressures due to  the  rapid aging of the population in most of ECA countries and a large number of youth entering the labor market in Turkey and Central Asian countries.

To better prepare workers for new job opportunities, the report recommends policies to help workers acquire skills for the modern workplace; removing work disincentives and other barriers that keep people out of productive employment, including obstacles to internal migration.