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Two out of every three tax changes on a local level are in an upward direction

Yavor Aleksiev

In the period between April 2012 and June 2016 the IME conducted 5 separate surveys of the levels of local taxes and fees, as a part of the project “Regional Profiles: Indicators of Development”. Our requests were sent to all municipalities in the country under the Access to Public Information Act (APIA). The scope of the study includes five types of taxes and fees:

• Immovable property tax for legal entities (‰)
• Vehicle tax – commercial and passenger vehicles, 74 kW to 110 kW (BGN per kW)
• Annual license tax for retailers – up to 100 sq. m. of retail space - for most favorable location of the site (BGN per sq. m.)
• Annual waste collection charge for properties of legal entities (‰)
• Local tax on the sale of immovable property (‰)

Results from the Survey

During the 2013-2016 period we have identified 107 cases of a decrease of local taxes and fees and 209 cases of an increase. This means that two out of every three changes on the local level lead to higher taxes and fees for citizens and businesses. Most probably the actual number of changes (in both directions) is higher than those registered by us, but official and comprehensive information about this is absent. The data we have collected cover around 80% of the municipalities and gives a good enough idea of the changes in the main taxes and fees on a local level.

Number of cases of increase and decrease of local taxes and fees for the period 2013-2016

Source: IME, based on requests to the municipalities under APIA

When we last did a similar review (for the period 2013-2015), the waste collection fee and the license tax for retailers proved to have been more frequently decreased, rather than increased. Adding up the data from 2016 as well, however, changes the overall number of increases of the waste collection charge to 76 for the period 2013-2016, while the total number of decreases is 68. In the case of the license tax for retailers the number of increases and decreases equalize at 10. Thus, according to the most recent data that we have, there is no longer a case of a tax or a fee, which has been decreased more times than it has been increased for the period.

It is evident from the data that the trend in regard to the tax on the sale of immovable property and the immovable property tax for legal entities is one and the same – upwards. Both taxes have been increased 7 times more frequently than they have been decreased. Increases in the vehicle tax are also becoming more and more frequent.

The changes during 2016

The problems for municipal budgets in the wake of the crisis and the intensive utilization of EU funds (which implies pre-financing and co-financing from municipalities) obviously had an impact on the fiscal policy of local authorities. According to the information provided by the municipalities themselves, during 2016 there was a record number of increases of local taxes and fees – a total of 81 times. The occasions, in which a tax or a charge was lowered, are barely 17, which is the second lowest value for those 4 years.

Number of changes in the level of the local taxes and charges throughout the years

Source: IME, based on requests to the municipalities under APIA

During 2016 there are 25 occasions of an increase of both the waste collection charge and the Immovable property tax for legal entities. The number of increases of the vehicle tax is 15, and that of the local tax on the sale of immovable property is 10. The license tax for retailers has been increased barely 6 times, but this is also a record on this type of tribute, which is among the most infrequently changed.

What are the explanations?

The numerous cases of increase of the amount of local taxes and fees in 2016 act as evidence for the fiscal difficulties of municipalities at the end of the previous programming period of the EU, and indicate the lack of real tax competition between them.

The low share of local taxes in total tax burden on enterprises and businesses places objective limits to the degree of tax competition between municipalities. It is very unlikely that whether the immovable property tax is 1‰ or 2.5‰, for example, is a prerequisite for the movement of investments in and out of a given municipality. The vast majority of the tax burden is tied to the central government, which largely undermines the attempts of municipalities to compete in attracting business (not to mention citizens) by reducing the local tax burden.

The recent local elections as well as the practical discreditation of the process of fiscal decentralization during the fall of 2015 most likely also played their own role in the numerous increases in taxes and fees in 2016. In 2015 the government managed to discredit the concept of fiscal decentralization (linking it with higher taxes) and to shift the whole issue, moving the attention from the insufficient revenues of municipalities to their debt problems. In addition, we have to mention the calls by Prime Minister Boyko Borissov to increase the size and collection of local taxes and charges. Nearly half of the cases of increase (39 out of 81) are in municipalities won by his party – the CEDB. However, given the total number of municipalities in which the party won the elections, this share is rather insufficient to show some kind of pressure from the central government.

Thus, we can differentiate two main reasons for the observed increases in local taxes and charges in 2016:

1. Structural reason - lack of real tax competition between municipalities in the country which is a consequence of their limited fiscal powers;
2. Cyclical reasons - the end of the previous programming period and its effect on municipal budgets, the passing of local elections and the terminated process of fiscal decentralization.

Yavor Aleksiev

Just a year after the topic of fiscal decentralization briefly entered the public debate, the political volition for taking actual steps in this direction seems exhausted. The government stifles to a large extent the initiative of local authorities in two steps:

1. The successful transformation of the debate of last year’s fall into a debate about higher taxes. After delaying for years the discussion about transferring part of the proceeds from taxes on personal income to the municipalities, Finance Minister Vladislav Goranov made a move that largely discredited the idea of ​​fiscal decentralization. The proposal to maintain the level of taxes on personal income at the national level and to give municipalities the power to additionally "burden" workers with up to 2 percentage points increase of this tax (on the eve of local elections) silenced the local authorities to a large extent on the topic, at least for the fiscal 2016 year, and probably for later on as well.
2. The adoption of a mechanism for financial recovery of municipalities, which even though provides tools to promote higher collection and optimization of administrative costs for troubled municipalities, makes local finances even more dependent on the central government. Particularly worrying is the possibility of pardoning the accumulated interest-free loans of distressed municipalities from the central budget, in the case of satisfactory results in the recovery of the local finances – an obvious tool for favoritism towards certain mayors.

With the first step the government managed to make the concept of fiscal decentralization sound unappealing by linking it with a rise in taxes and with the second step it managed to change the subject completely by diverting the attention of municipalities from the lack of income sources towards their debt problems.  In other words, while the supporters of fiscal decentralization were trying to give Bulgarian municipalities the image of a responsible and less dependent local authority, the mechanism for financial recovery managed to portray those same municipalities as fiscally irresponsible.

Despite these steps made by the MF (Ministry of Finance), the public remains enthusiastic towards fiscal decentralization, which is why we want to draw attention towards two recent reports published on the National Association of Municipalities in the Republic of Bulgaria (NAMRB): "Analysis of the implementation of municipal budgets for 2015" and "Indicators for the development of fiscal decentralization in South-East Europe: 2006-2014."

• There is practically no country in South-East Europe, where the debt of local authorities has not grown over the last decade. In general, this fact is explained by the need for higher capital costs and relatively smaller tax powers of local authorities compared to municipalities in Central and Western Europe.
• The increased indebtedness of Bulgarian municipalities (especially in 2015) is to a large extent a direct consequence of the lack of alternatives for co-financing investments for EU projects. It should be noted, also, that 2015 was the last year in which payments for European projects from the previous programming period (2007-2013) could be made.
• Revenues of local authorities in Bulgaria as a share of GDP fell from 7% in 2008 to 5.3% in 2015. At the same time this decrease occurred at a time of a gradually rising tax burden in the economy as a whole. As part of the consolidated budget the revenue for the same period fell from 19.6% to 14.4%.
• Lacking other opportunities to raise their own funds, Bulgarian municipalities have resorted for the most part to an increase in property taxes. The collection of these taxes, however, remains below 70% in 118 of the 265 municipalities in the country.  In addition, these taxes are subject to a number of tax exemptions. Practically, all sudden increases in the revenue are observed in smaller municipalities and are due to one-time proceeds, grants or sales of property.
• The structure of the municipal revenue collection disallows the use of the budget as a policy-making tool, including debt management. Actually, the last things that depend on local spending policies in Bulgaria are decisions of municipal councils and preferences of local communities.

There exists a problem with municipal debt in Bulgaria, indeed. However, in the general case the debt is not created by arbitrariness and fiscal irresponsibility of the local authorities, but by structural problems of the tax policy. In order for a municipality to negotiate first, and then successfully repay the loan, it must manage the bulk of its revenues (i.e. its revenues have to play a significant role) and have more control over their spending. Unfortunately, except for a few major cities and resort communities, most municipalities in Bulgaria have a much lower share of disposable income and rely heavily on transfers from the central governent.

The differences in the capacities of municipalities to generate their own revenues are significant, which is a problem that will not resolve itself with remising a portion of the proceeds from taxes on personal income. However, some improving process should be initiated and the only action that is logical and technically feasible in the medium-term is namely linking the economic processes on the territory of a municipality with its budget.

In 2015 the number of registered crimes continued falling and reached 98 thousand in comparison with 135 thousand back in 2000. Crime levels have also decreased in relative terms - from 16.6 per thousand people to 13.6 per thousand people for the 2000-2015 period.  This trend was interrupted only during the first years of the crisis (2009 and 2010), during which the number of registered crimes was rising. One possible explanation for the surge in the beginning of the crisis is the quick increase in unemployment and the overall drop in per capita income.

Despite the decrease in registered crime rates, the number of unsolved cases has been decreasing even faster.  The total registered crimes have dropped by 28% in 2015 compared to the year 2000 but the number of unsolved crimes is 37% less for the same period.

Overall, this data shows that in 2015 only 39.2% of registered crime cases were solved. In the year 2000, on the other hand, 45.4% of the registered crimes were solved (55% remained unsolved).

This significant decline in the number of solved crimes can be explained with the lack of reform in the Ministry of Interior (MI) and mainly the fact that its huge budget is being spent primarily for salaries and maintenance and not for capital investment. Additional reasons are the sluggishness and the anachronistic characteristics of the system, the possible existence of corruption and unregulated practices between the MI and the judiciary system.

Additionally, the data shows significant differences between the number of crimes registered and solved in different Bulgarian districts.

In 2015 the lowest number of per capita crimes was registered in Kardzhali and Smolyan, where crime levels are over three times lower than those in the districts with the highest crime rates: Burgas and the capital Sofia. It is worth noting that the more economically developed districts are also the ones with the highest registered crime rates. Of course, there are exceptions. For example, in the moderately developed regions Ruse, Plovdiv, Veliko Tarnovo and Blagoevgrad there are comparatively low crime rates, while the districts Vidin and Pernik perform poorly in economic terms and register rather high criminal activity.

Compared to 2000, the number of registered crimes has decreased the most in the districts Varna, Shumen and the capital.  Only in four districts the rates per 1000 people from the local population are rising: Gabrovo, Sliven, Sofia and Haskovo.

The share of unsolved criminal cases varies significantly among different districts. In 2015 the share of solved crimes in Varna and the Capital is barely 30%, while in Razgrad, Silistra and Targovishte it is over 60%. On the one hand, in the districts, which are more economically developed, the registered crimes are more and the relative share of successfully solved crimes is lower. Targovishte, Razgrad and Silistra, on the other hand, are the districts with the lowest crime rates (per capita) and also have the highest disclosure rates.

In comparison with the year 2000, the success rate of solving crimes has declined in 20 of the country’s 28 districts, with the biggest drops being registered in Gabrovo, Burgas and Montana. 

Yavor Aleksiev, Bozhidar Radev*

On the background of the frequently discussed data about the external migration of the population, the migration processes in the country itself are often left aside from the public interest. The examination of the data from NSI (National Statistical Institute) for the period between 2007 and 2015 shows, that 79% of the migration is actually internal for the country and migration toward the capital is 2.7 times lower than the total migration toward the other 27 districts.

The mechanical movement of the population between the districts tracks people who have changed their current address. Here, the data describe both the internal and external migration by means of the emigration of the population from a given district. Since 2007 the data of the mechanical movement of people between the districts of Bulgaria include also data about external migration, because of which our focus is exactly on the period 2007-2015. More detailed data about migration to and from each district throughout the years is available on the website of NSI.

In this article, we divide the population of each district into three groups: 1) headed toward the capital; 2) headed abroad; 3) headed toward foreign countries. The individuals who change their current address without leaving the borders of the district, which they inhabited before (for example, a person who moved from Nessebar to Burgas), are not subject to the current analysis.

Source: NSI, calculations of IME

In the time period between 2007 and 2015 the individuals who change their current address, while at the same time leaving the district, in which they reside, constitute almost 743,000 people. Around 157,000 of them move to the capital, and almost 156,000 abroad. The remaining 430,000 change their current address with one in another district of the country.

In each year of the period 2007-2015, over 50% of the people who change their current address, actually go in one of the other 27 districts of the country. The most people move to Plovdiv (47,000), Varna (44,000) and Burgas (34,000), and the least move to Vidin (6,700), Smolyan (5,700) and Kardzhali (below 5,000).

The peak of the migration toward the capital is in 2011, when almost 26% of the individuals who have changed their current address head precisely toward it, and only 15% go abroad. 2011 is the year with the least amount of mechanical movement of the population and the reason is the fall of external migration. In 2011 the number of people who have changed their current address with one abroad drops around three times compared to 2010: from 27,000 to 9,500 people. In the period 2012-2015, however, there is a tendency that more people prefer foreign countries rather than the capital, while in the last two years of the period for the first time a bigger proportion of the population leaves the country rather than moves to the capital.

A quick analysis of the interaction between different socio-economic indicators and the mechanical movement of the population shows moderately positive relation between the migration toward Sofia and the age structure of the population by districts. The greater the age correlation (measured as the ratio between the number of individuals of age above 65 and those of age from 0 to 14, or as a ratio between those of 65 years or above and those in the age 15-64), the higher the proportion of people who have moved to the capital. Vice-versa: the more unfavorable the age structure, the lower the migration toward both foreign countries and other districts.

MIGRATION TOWARD SOFIA

The distance to the capital definitely has an effect on the decision to move to it. The three districts, from which the largest portion of the population in the period 2007-2015 has headed toward the capital, are the Sofia district (56.3%), Pernik (50.5%) and Kyustendil (43.8%). In unison with the tendency of concentration of the employment in the South-West region of the country in Sofia (already above 66% of the employed in the region work precisely in the capital), the most likely cause along with the proximity is the labor migration.

The least are the migrants from the distant Razgrad (9.4%), Sliven (13.9%) and Targovishte (14.1%), followed closely by Kardzhali and Shumen (each with 14.3%). The only districts, from which the migrants in the capital have been less than 10% in any of the years, are Razgrad (in every year of the period 2011-2015) and Kardzhali (in 2015).

There are no clear tendencies of a more intensive migration toward the capital from none of the districts of the country. In accordance with the overall picture, more and more individuals are headed abroad, while a traditionally large portion (above 50% in each of the years) in other districts. However, a gradual fall of the migrants toward the capital from almost all districts in the Northern part of the country can be noticed, including from Vidin and Vratsa, which are among the districts with a traditionally high level of migrants in Sofia. Given the depopulation in large areas of those districts, it is possible that those who had the plans to move have already done it.

MIGRATION TOWARD FOREIGN COUNTRIES

The migration toward foreign countries has its peak in 2014, when 25.9% of the individuals are headed this way. In 2015, this portion falls to 25.4%, which, however, is the second highest for the period. Most significant for the whole period is the migration toward foreign countries from the districts Kardzhali (35.5%), Varna (30.5%) and Plovdiv (29.8%).

In contrast to this data, only one of every five people, who have left Sofia in the period 2007-2015 has gone abroad, while the rest have headed toward other districts. This portion is even smaller in neighboring the capital districts, like the broad Sofia district (only 9.8%) and Pernik (15.4%), from which the greatest amount of people change their current address exactly with one in the capital.

MIGRATION TOWARD OTHER DISTRICTS

A huge part of the capital’s residents, who change their current address, move to the broad Sofia district. Varna continues to be a center of attraction of the population in the North Central and North-East regions of the country, while the districts Plovdiv and Burgas are such for those of the South Central and South-East regions. Precisely this process explains the positive mechanical growth in these districts in the observed period (with the exception of 2009-2010 for district Plovdiv and 2012 for Varna and Burgas). In other words, in those three districts more people continue to immigrate, rather than emigrate.

* Bozhidar Radev is an intern in IME

[1] Due to the fact that the data from NSI shows a change in the current and not the permanent address, it is possible that the same individual shows up in the statistic two or more times in the duration of the observed period.

[2] Although Kardzhali is the district, in which the inflow of people from inside the country is the smallest, it is one of the districts with the most intensive external migration. At the same time the migration of the population of district Kardzhali toward other districts in Bulgaria is relatively low, i.e. the movement of the population abroad and from abroad (of course, mostly from and to Turkey) has a much bigger influence, compared to the other districts.

Yavor Aleksiev, Bozhidar Radev*

The current inability of Bulgarian municipalities to carry out independent fiscal policy leaves EU funds as the only option for financing local projects. The prior statement is especially true for undertakings, which require significant capital investment, such as building a sewage-treatment plant. It goes without saying that the efficiency of the use of EU funds depends highly on how and for what purpose they are spent. This means that 1 million BGN spent in one municipality may lead to greater benefits than 10 million BGN spent in another. Therefore, the actual amount of operational program funds, provided for municipalities as beneficiaries, is one of the main indicators of the success or failure of municipal administrations – if nothing else, at least it is a signal of activity and administrative capacity.

Up until mid-May 2016 Bulgarian municipalities have received close to 5 billion BGN, as beneficiaries of the EU operational programs. This sum includes only the amounts that have already been paid (and not those that have been agreed upon) for the entire period since Bulgaria’s entry into the European Union, which means that the data is cumulative and includes previous program periods as well as the beginning of the new period. In order to make a comparison between different regions and municipalities we divide this sum by the annual average population.

Bulgarian municipalities have received 689 BGN per capita of the annual average population by the middle of May 2016 compared to the 565 BGN/capita in the beginning of 2015 and 380 BGN/capita in 2014, when our previous analysis on the subject were published.

This higher rate of absorption of EU funds during the past two years was expected in light of the end of the prior 7 year program period (2007-2013) and the opportunity for using the funds until 2015.  Of course, the more efficient utilization somewhat reflects the increased managerial and administrative capacity of some Bulgarian municipalities, at least concerning the governance of EU funding.

The analysis of the data leaves these main impressions:

• The absorption rate of EU funding of municipalities as beneficiaries of the operational program is notably uneven. Proportionally to the population this rate varies from 4,773 BGN per capita in Sozopol to 0 BGN per capita in Gramada.
• There is no correlation between the size of the municipality and the absorbed funds per capita of the local population. There plenty examples of small municipalities, with high utilization of EU funding (such as Kostinbrod, Lukovit, Sozopol, Pirdop) as well as large municipalities (such as Plovdiv, Pazardjik and Kyustedil) where the absorption rate is below the average for the country.
• The difference in the ability of municipalities to manage EU funding is increasing. While some of the municipal administrations are able to continue to win and carry out successfully EU funded projects, others are yet to adopt best practices and attain the necessary administrative capacity.

Utilization on a Regional Level

Gabrovo continues to be the district with the highest absorption rate of EU funds (166.5 million BGN up until mid-May 2016, an average of 1,444 BGN per capita. The runner up is the district of Burgas in which the utilized funds are 585.3 million BGN, but the larger local population of the region leads to a lower average of 1,414 BGN per capita.

The lowest absorption rates are in the districts Kjustendil (367 BGN/capita), Sliven (378 BGN/capita) and Ruse (472 BGN/capita). The municipalities within the Burgas district have utilized significantly more funds per capita for the period January 2014 – May 2016 (578 BGN), than these three municipalities for the entire program period.

Utilization on a Municipal Level

The worrying fact is that the number of municipalities, which utilized less than 100 BGN per capita, remains unchanged (30) since 2015. The majority of them are small and the biggest ones are Kirkovo (Kurdzhali) and Dulovo (SIlistra) with a population of respectively 21.4 and 28.0 thousand people in 2015.

Problems with the absorption of EU funds exist due to many factors such as the lack of administrative capacity of some municipalities, the low quality of their strategic development documents, the central government’s tendency to pick political favorites from certain municipal administrations, the failures of public contractors etc. In many cases the strategic documents follow pre-made templates instead of serving as long-term sustainable planning instruments for the development priorities of municipal governments.

Utilizing EU funds isn’t a panacea for the challenges faced by the Bulgarian regions. On the contrary, the fixation of municipal administrations on EU projects leads to negligence towards other aspects of regional development such as creating an environment that is favorable to investment. Unfortunately, for many Bulgarian municipalities EU projects are used not as means of increasing investment but as its alternative. This is due to the last few governments’ renouncement from a financial decentralization policy. 

The growing gap between the municipalities achieving high absorption rate and those at the bottom of the list shows that the demographic reality in Bulgaria leaves some municipal communities with serious challenges in terms of securing enough administrative capacity for managing EU funds. Despite territorial-administrative reform not being a priority, this is a process which cannot be avoided, especially if the fiscal authority of municipalities remains unchanged.

* Bozhidar Radev is an intern at the IME.

Yavor Aleksiev

The long-awaited data for the development of the labor market in the first quarter of 2016 shows dormant structural problems disguised as betterment. Just as the IME predicted, the economic activity of the population stopped increasing and remained at last year’s levels, which led to a slower increase in employment. In the period January-April 2016 the amount of people employed increased by 25.3 thousand, which is the lowest growth rate on a yearly basis since the beginning of the labor market’s recovery.

Annual change of the number of people employed (quarterly data), thousand people

Source: NSI

The slower increase of the number of people employed was expected taking into account the stagnation in the economic activity and the structural character of the unemployment in Bulgaria. More than half of the people currently seeking occupation are long-term unemployed, which means that until now the labor market recovery has passed them by. If the economic activity doesn’t begin surging again the potential rise of the amount of people employed in the following quarter may be even lower, since the economy will have to create additional conditions for including, specifically, the long-term unemployed.

The data on youth unemployment continues to disappoint. In comparison to the first quarter of 2015 the amount of young people employed aged between 15 and 24 falls by 8.4 thousand, which leaves the employment coefficient to be only 19.4%. A serious decrease can be seen in the youth unemployment – from 23.2% in the first quarter of 2015 to 18.4% for the same period in 2016. This however, isn’t caused by higher youth employment but as a side effect of their lower economic activity.

Current Situation on a Regional Level

Considering the labor market data from a regional standpoint shows that the increase in number of people employed is more evenly distributed in comparison to previous periods.  Most jobs are created in Sofia (capital) and Burgas.

Most notable is the improvement of the labor market in the capital where the employment level is growing for a 14-th consecutive quarter and already overshadows the pre-crisis levels reaching 666.3 thousand people, while it was 656.0 thousand in the same period in 2015. Sofia (capital) continues to concentrate a huge portion of the Southwestern region’s labor force - 2/3 of the employed people in this region work in the capital. A notable surge in employment can be seen in the wide Sofia region as well as in the Kyustendil region however it is too early to assume the existence of positive tendencies in the labor market of these districts.

In the Northern parts of the country there is an increase in the people employed in the districts Gabrovo (hike of 3.2 thousand people), Silistra (2.8 thousand people), Targovishte (6.1 thousand people) and Shumen (3.9 thousand people).

The number of people employed in Veliko Tarnovo and Varna falls for the first time in respectively two and three years. In Varna however, the drop is somewhat symbolic (only 700 people less than the first quarter of 2015) and the number of the employed remains close to 210 thousand people.

For a second consecutive quarter the only region in which the number of the people employed falls on a yearly basis is the Northwest.  In this part of Bulgaria there is growth registered only in the Montana district.

The Effects of the Rise in the Minimum Wage and the Minimal Thresholds

The persistent decline in employment of some of Bulgaria’s poorest regions seems to be caused by demographic processes and not by the increasing price of labor. In the Vidin district, where the last increase of the minimum wage to 420 BGN meant that it now equals 65% of the average salary, the number of people employed via labor contract has surprisingly been increasing steadily from the start of this year. The drop in the number people employed according to NSI’s analysis of the labor force and the increase in the number of people employed via labor contract is not a rare phenomenon in the past few years and it does not necessarily imply the existence of contradicting statistical data. One possible explanation seems to be the decrease of the unregistered employment especially considering the recorded upsurge in the salaries in the private sector during the last few quarters.

Of course there’s always the possibility that the increase in the minimum wage and the minimal thresholds has slowed down or stopped the job creation process in some districts.  This is one probable explanation of the sluggish increase in the number of people employed for the difficulties in including young people in the labor market. One thing is certain, at this moment the upturn in the minimum wage does not help attract more people to the labor force. In the absence of demand for low qualified workers the new minimal salary can additionally slow down the job finding process for the long-term unemployed. The cumulative effect of a stagnating economic activity and a slower transition towards employment of the currently unemployed, can lead to a lethargic increase in the number of people employed in future periods as well.

Yavor Aleksiev

The labor market in Bulgaria continued creating jobs in 2015. The number  of the employed in the last quarter of 2015 is 72 thousands higher than during the same period of 2014, while the average unemployment rate dropped below 10% for first time since 2009.

Employment prospects in early 2016 are also positive and in line with a faster than expected GDP growth in 2015 and the increase in the number of workers on a labor contract.

It is notable that unlike previous years there is a much smoother job-creation in the north and the south of the country. To some extent this can be explained by the stronger 2013 and 2014 for large parts of Southern Bulgaria. In other words, while labor market recovery in some southern areas has completed or is about to do so, in parts of northern Bulgaria the recovery is yet to begin, or has just begun.

Northern Bulgaria

Positive development

Veliko Tarnovo and Varna are the districts with the best performance of the labor market in Northern Bulgaria in the past two years. Both recorded respectively 9 and 12 consecutive quarters of growth in the number of people employed - the longest period of growth after the capital (13 quarters).

After a long period of job losses the labor market in Ruse has finally bottomed out and in the last quarter of 2015 the number of people employed is 5,600 higher than the same period of 2014.

In Pleven the number of employees remained above 100,000 people for the second consecutive quarter and is at the highest level since the end of 2012.

Negative development

The number of people employed in Vratsa continues to decrease - in the last quarter of 2015 there are 54.5 thousand employed people compared with 60.6 a year earlier. The labor market in Montana and Silistra also remains depressed. Dobrich recorded four consecutive quarters of decline in the number of people employed, but decreases have been relatively moderate and part of it can be explained by a declining population.

Shumen failed to repeat the good results of 2014, but the last quarter was relatively favorable for the labor market and the decline in employment from April-September 2015 may prove short termed.

Southern Bulgaria

Positive development

The Southeastern region is the only one in which the number of employees during the last quarter of 2015, was higher in all districts than the same period of last year. It seems that in 2015 Burgas has already surpassed pre-crisis levels of employment and the labor market in the Stara Zagora district is gradually shaking off the hardships of 2013 and 2014.

The number of people employed in 2015 in the capital is now higher than in 2008. However, it will need additional time to reach the employment levels before the crisis, as the population of the district for the period increased by about 80 thousand.

Employment data for Plovdiv also remains positive, but only as far as the last quarter of the year is concerned, when the local labor market was able to compensate for job losses that occurred in the first half of the year.

Negative development

There is a somewhat surprising inverse relationship between the improvement of the situation on the labor market in the capital and deterioration in the neighboring districts of Pernik and Sofia. The number of people employed in Pernik bottomed at 49 thousand in the third quarter, while those in the Sofia district fell to 85 thousand in the second quarter of 2015. The labor market in both areas remains highly volatile.

Conclusion

The main threats to the continued recovery of the labor market are the rapidly slowing growth of economic activity, the lack of progress in regard to employment among young people and the stubbornly high number of discouraged people. On the one hand, because of the serious labor shortages that Bulgarian companies are experiencing, we can expect a slower recovery of the labor market in 2016. On the other - if the rate of increase in employment continues, in 2016 we can start talking not only about recovery, but about an expansion of the labor market - i.e. overtaking the pre-crisis employment levels.

The data for the first quarter of 2016 is extremely important, as it will show whether and to what extent the sharp increase in the minimum wage and minimum insurance thresholds has affected jobs in poorer areas of the country. This is an important point, because even in the midst of increasing employment on the national level, the exclusion of the poorer areas from this process poses challenges not only for the labor market, but also to the overall socio-economic development of these areas.