News

The economic crisis continues to deepen the differences between the capital and the rest of the country’s districts. This is true not only for indicators such as unemployment and employment, but also for the levels of average annual income. In this case, we take a look at the total earnings, which include monetary income (salary and other income, pensions, social benefits, income from sales and other transfers), as well as quantified natural income.

For the period from 2001 to 2011, the average annual growth rate of income in the capital is 12.36%, while the national average is 9.05%. In 19 out of the 28 districts, income is rising at a rate, lower than the national average. The only districts, which shows a higher growth rate of the income, compared to the capital, is Stara Zagora – 12.54% per year. Despite this, the average annual income in Stara Zagora remains � less than that in Sofia (capital) in 2011, because of the lower base in the beginning of the period.

Graph 1: Average annual growth rate of the total income per household member in the period 2001 – 2011, %

Source: NSI, IME’s calculations

Note: We have defined the growth rate as “fast” in districts, where the latter is higher by at least 1 percentage point the national average. The “medium” growth rate is lower or higher by less than 1 percentage point. A rate lower by more than 1 �percentage point means that the district falls into the category of those with “slowly” growing total income.

If the average annual growth rate, observed in the period 2001 – 2011, stays the same, it would be impossible to catch up to the capital[1]. Because of this, in order to illustrate the lag in the level of income in years, we assume that the income in the different districts will continue to rise with same average annual rate as in the period 2001 – 2011. Also, we assume that the real rise in income in the capital stops in 2012 and from this point on it rises only with the rate of inflation.[2]

Graph 2: When the rest of the country’s district will catch up to the capital

Source: NSI, IME’s calculations

If the income in the capital stopped rising in 2012 and income in the rest of the districts kept its rate of increase, the first ones to catch up to Sofia would be Stara Zagora and Pernik (in 2014). Several years later, the same would achieve Smolyan, Ruse, Pleven, and Plovdiv. The last ones to do so would be Vidin (in 2033), Silistra (in 2037), and Pazarzhik (2039).

This dynamic is, of course, conditional, but it gives a good idea of the time lag between the levels of total income in the capital and the rest of the country.

We should also note the different way, in which the crisis has affected the growth rate of income in the individual districts. For example, in recent years, in districts such as Stara Zagora and Sofia (district) the average annual growth rate of total income is higher than the one in the capital. Despite the development of this trend, significant changes in the overall dynamics in the long term seem unlikely.

Working meeting in the Chamber of Commerce and Industry – Stara Zagora (June 18, 2013). The meeting was attended by the economists Kaloyan Staykov and Yavor Alexiev from IME, the chairman of the Chamber Oleg Stoilov, the CEO of the Regional Economic Development Agency Rumiana Grozeva, and representatives of industry and business organizations.

Starting from mid July 2013, IME began a tour of the 28 Bulgarian districts for a second year in a row, as part of the preparation of the forthcoming publication “Regional profiles: Indicators of Development 2013”. Through meetings with representatives of NGOs, the business and the administration, IME aims to gain insights of the socio-economic situation of the various Bulgarian districts and to identify the common problems and issues, which they have.

| read more |

The project “Regional Profiles: Indicators of Development” is carried out with the financial support of the America for Bulgaria Foundation.

Yavor Alexiev

Starting from mid July 2013, IME began a tour of the 28 Bulgarian districts for a second year in a row, as part of the preparation of the forthcoming publication “Regional profiles: Indicators of Development 2013”. Through meetings with representatives of NGOs, the business and the administration, IME aims to gain insights of the socio-economic situation of the various Bulgarian districts and to identify the common problems and issues, which they have.

During the first part of the tour IME visited Pazardjik, Plovdiv, Stara Zagora, Sliven, Yambol, Haskovo, Kurdzhali, and Smolyan. IME’s observations will be used in the preparation of the individual district profiles in the forthcoming second edition. Some of the main trends, observed in the districts in the south-central and southeast regions are:

Operation of the administration: in most of the visited regions, there are still not enough traditions and examples of successful cooperation between the administration and non-government sector. The quality of the administrative services is gradually improving, but e-government and transparency continue to be a major problem. In a lot of districts personal acquaintances and contacts are seen as a necessary condition for quick and easy interaction with the local administration. At the same time, cooperation with the local administration is of crucial importance to the overall state of the business environment in smaller regions.

Business environment: micro and small enterprises in the smaller regions experience serious difficulties in their attempts to adjust their business to constantly changing laws. The lower turnover does not allow them to comply with the legal requirements quickly enough. Because of this, they are often targets of financial sanctions. The frequent changes in the regulations mean that investments are being made under certain conditions, while economic activities are being carried out under others. This interferes with the implementation of the business’ development plans and hinders loan demand.

Tax policy: A large part of the representatives of the business and non-government sector agree with the proposal to set the minimal wage and the social security thresholds on a regional level. Raising the level of the social security threshold has a negative effect on employment in the smaller and poorer districts. In many cases this leads to firms entering the grey economy.

Raising the tax assessment on properties led to an increase in costs covering the waste tax. In recent years property prices are falling, but tax assessments remains the same, despite the fact that properties are unsellable at these prices. The method of determining the tax assessment is improper, because it has nothing to do with generated waste and has a negative effect on investment activity.

European projects: Infrastructure in the region is gradually improving. A large part of the projects are in the area of urban development and are financed via European programmes. Programmes for improving the qualification of workers are seen as far more effective than those aimed at training the long-term unemployed. The business sees the latter as a clear manifestation of social welfare aid.

Education: There is a severe lack of professionals in many areas. The reasons for this lie not only in the falling interest in professional high schools (the ex technical schools), but also in the insufficient training of young people entering the market, who have actually graduated from such school. Businesses are often forced to re-train their employees, which takes time and resources and hinders development.

Public procurement: There are widespread infringements in the area of public procurement procedures. Reasons for these are not only the lack of necessary capacity of some districts to establish the parameters of these procurements, but also the purposeful misappropriation with the intent to benefit certain firms.

Working meetings of IME with representatives of the local business, non-government organizations, administration and media

IME participated several working meetings – in Stara Zagora, Plovdiv, Haskovo, and Kurdzhali.

Working meeting in the Chamber of Commerce and Industry – Stara Zagora (June 18, 2013). The meeting was attended by the economists Kaloyan Staykov and Yavor Alexiev from IME, the chairman of the Chamber Oleg Stoilov, the CEO of the Regional Economic Development Agency Rumiana Grozeva, and representatives of industry and business organizations. You can find more information about the meeting here: chambersz.com

�

Working meeting in the Haskovo Chamber of Commerce and Industry (June 20, 2013). The meeting was attended by the economists Kaloyan Staykov and Yavor Alexiev from IME, Nikolay Nanev, temporary regional governor of Haskovo, Yancho Yanev, chairman of the Haskovo Chamber of Commerce and Industry, and representatives of the business, trade unions, banking sector and media. You can find more information on the meeting here:haskovo.net | infobusiness.bcci.bg | novinarug.com

IME would like to thank the Chamber of Commerce and Industry of Stara Zagora, Plovdiv, Haskovo, and Kurdzhali districts for their cooperation in organizing and conducting the working meetings.

The project “Regional Profiles: Indicators of Development” is carried out with the financial support of the America for Bulgaria Foundation.

Yavor Alexiev

A little over a month ago, IME traced the dynamic of the increase in income and unemployment levels in the different districts of Bulgaria.[i] The goal was to determine how the labor market in the various regions reacts to the combination of rising wages and continuously high unemployment. In that analysis, we divided the regions in four groups:

• Group 1: Districts with slowly increasing wages and falling unemployment in 2012: Burgas, Vidin, Gabrovo, Dobrich, Kyustendil, Pleven, Smolyan and Haskovo. In these districts unemployment in 2012 was falling, while at the same time the annual average level of wages increased at a slower rate than the national average.
• Group 2: Districts with slowly increasing wages and rising unemployment in 2012: Blagoevgrad, Varna, Veliko Tarnovo, Vratsa, Lovech, Pernik, Ruse, Sliven, and Yambol. The combination of low rate of increase in wages and the continuous rise of unemployment is evidence of the lack of flexibility on the labor market in these regions.
• Group 3: Districts with rapidly increasing wages and rising unemployment in 2012. In these regions the wages in 2012 have increased at a rate higher than the national average, which is accompanied by the rising unemployment. These are Montana, Pazardzhik, Plovdiv, Razgrad, Silistra, Sofia (capital), Stara Zagora and Targovishte.
• Group 4: Districts with rapidly increasing wages and falling unemployment in 2012 – there are only two districts, in which the rate of wage increases is higher than the national average, without negatively affecting the labor market. These are Shumen and Sofia (district).

Keeping these four groups, in the current analysis we will take a look at what happened with the annual average employment rate of the population above 15 years old.

In times of continuously high unemployment, monitoring the employment level is of crucial importance to the interpretation of the labor market processes, because it shows what part of the population in working age actually has a job. By itself, the fall in unemployment in some regions (if not accompanied by increase in employment) doesn’t show real recovery of the labor market.

Graph 1: Change in the employment rate in the districts with slowly increasing wages and falling unemployment in 2012 (Group 1), percentage points

Source: NSI, IME’s calculations

In seven of the eight districts, in which in 2012 wages increased at a rate that is lower than the national average we see a rise in employment. Burgas is the region with the largest number of created jobs – almost four thousand. In Dobrich and Smolyan, the number of employed has increased by 3.3 and 2.9 thousand respectively. Only in Kyustendil employment is shrinking and in 2012 the employed decreased by 1.7 thousand people.

This is also the group with the most favorable labor market development in 2012, manifesting itself in decrease in unemployment and increase in employment. The slower rise in income in these regions helps people keep their jobs and in the same time leads to creating new ones.

Graph 2: Change in the employment rate in the districts with slowly increasing wages and rising unemployment in 2012 (Group 2), percentage points

Source: NSI, IME’s calculations

In five out of the nine regions, in which in 2012 we see a simultaneous increase in unemployment and a slow rise in income, employment is also decreasing. This is evidence of a serious lack of flexibility in the labor markets in these regions.

Most worrisome is the situation in Sliven. The minimal increase in income in combination with falling employment and rising unemployment, can be seen as a sign that the labor market does not seem to be able to cope with the administrative increase of wages. This increase in wages affects most of all the districts with lower salaries, such as Sliven.

In addition to Sliven, the rate of increase of the average annual wages is lowest in Blagoevgrad, Veliko Tarnovo, Pernik, Ruse, and Yambol. These are also the districts that show the biggest improvement in terms of employment – in four of them employment increases.

Graph 3: Change in the employment rate in the districts with rapidly increasing wages and rising unemployment in 2012 (Group 3), percentage points

Source: NSI, IME’s calculations

In four of the eight regions, in which in 2012 income levels increased faster than the average national rate and unemployment also rose, we see a fall in the level of employment as well. Only Plovdiv shows a significant increase in the number of employed, but even this district is below the level of 1 percentage point. We also have to note here that in this group the districts that showed an increase in employment in 2012 (Plovdiv, Silistra, and Montana), are also the ones with the lowest deviation from the average national rate of wage increase. In the other five regions wages have a much faster rate of increase, which has a negative effect on employment.

Graph 4: Change in the employment rate in the districts with rapidly increasing wages and falling unemployment in 2012 (Group 4), percentage points

Source: NSI, IME’s calculations

In 2012 there are no significant changes in the rate of employment in the two districts with decreasing unemployment and rapidly increasing wages. Despite the increase in income and employment in Shumen, the district remains one of those with the highest unemployment.

Graph 5: Distribution of the four groups of districts according to the change in the rate of employment of the population above 15 years old in 2012, percentage points.

Source: NSI, IME’s calculations

As is evident, employment in 2012 increased by more than one percentage point only in districts with lower than the national average rate of monthly wage increase.

There is an increase in the employment level in 11 out of the 17 districts, in which wages in 2012 increased at a rate lower than the national average. The slow increase in income in some of the poorest districts in 2012 continues to aid the increase in employment in the same districts since the start of 2013. But in other districts, even the slow rise in wages cannot positively influence employment. In the same in five out of the ten districts, in which the increase in wages is higher than the national average, the average annual level of employment in 2012 waslower than the one in 2011.

Groups 1 and 2 (districts with slower rise of wages) include four of the six regions, in which in the first quarter of 2013 there was an increase in the number of employed in comparison to the end of the fourth quarter of 2012. These are Vidin, Gabrovo, Kyustendil, and Pernik. With the exceptions of Montana and Shumen, employment in the first quarter of 2013 fell in all of the districts of Bulgaria.

Yavor Alexiev

The recently held parliamentary elections in Bulgaria have once again been a reflection of the effect diverging socio-economic conditions exert upon electoral moods. The election results of the three leading parties – GERB (Citizens for European Development of Bulgaria), BSP (Bulgarian Socialist Party) and DPS (Movement for Rights and Freedoms), exhibit a more or less robust relationship with three main socio-economic indicators – ethnicity, age and employment rate.[1]

DPS takes advantage of the “ethnicity” factor

As expected, the distribution of votes according to administrative regions has been significantly affected by the ethnic origin of the local population. In regions where over 30% of those who declared to consider themselves as Turks during the last national census in 2011, DPS won between 28.3% (Silistra) and 59.8% (Kardzhali), while nationwide, the party managed to win as much as 11.3% of electoral votes nationwide. Another observation exemplifying the role of the ethnicity factor in shaping DPS’s electoral support is that in some regions in Western Bulgaria, which have common socio-economic characteristics with the above-mentioned regions, DPS managed to secure only modest electoral support, amounting to as little as 1.1% (Vidin) and 0.7% (Kiustendil).

Sources: CIC (Central Electoral Commission), NSI (National Statistical Institute), IME calculations

BSP takes advantage of the “AGE” factor

In order to illustrate the relationship between BSP’s election results and the age factor, we use data of the Bulgarian National Statistical Institute (NSI) concerning two indicators - the number of citizens aged above 65 years per region [2] and the ratio of citizens above 65 over citizens in the 15-64 age group (i.e. the coefficient of age dependency).

Out of the nine regions, where the latter ratio exceeds 33.3%, i.e. there is more than one person aged 15-64 years per three people over 65 years of age, the results show that BSP took the upper hand in eight of them. The only exception is Gabrovo, where GERB took 37.2% of the votes, which also happens to be the highest regional result of the former ruling party.

Sources: CIC (Central Electoral Commission), NSI (National Statistical Institute), IME calculations

GERB takes advantage of the “Employment” factor

In the majority of the administrative regions, out of the four parties that made it to Parliament, GERB can be deemed to be the only one the electoral support of which exhibits a positive correlation with district employment rates.[3] GERB is the second political power after BSP in the five regions where unemployment is highest in the country – Vidin, Lovech, Montana, Vratsa and Pleven. Accordingly, in regions where the unemployment rate is lower than or close to the average for the country, GERB wins the highest number of votes, with the notable exceptions of Stara Zagora and Pernik.

Sources: CIC (Central Election Commission), NSI (National Statistical Institute), IME calculations

[1]The featured graphs represent a conditional comparison of various socio-economic indicators and election results in different administrative regions. These are under no circumstances to be considered as proof of the electoral moods of citizens based on their ethnic origin, age or socio-economic status; rather, these depict common tendencies in the shaping of political preferences of groups of people living in a different social, economic, political and cultural context.

[2]The five regions where DPS’s electoral dominance can be primarily attributed to the ethnicity factor have been excluded from the comparison between the age dependency ratio and the results of BSP.

[3]The five regions where DPS’s electoral dominance can be primarily attributed to the ethnicity factor have been excluded from the comparison between the employment rate and GERB’s results.

Yavor Aleksiev

In 2012, the unemployment rate at national level has kept increasing, reaching 12.3%. Despite this, the average monthly salary of employees under labor contracts has increased by 8.6% on annual level. Even accounted for inflation (3% annual average in 2012), actual wage growth is still staggering at 5.4%.

Overall, in 2012 the unemployment rate increased in 18 districts and decreased in 10. But only in two of those the decrease of unemployment rate was accompanied by higher than the average national growth rate of monthly wages.

The main issue here is how the labour market in the various districts of the country has responded to the combination of rising wages and persistently high unemployment. If we take a closer look at the dynamics of unemployment and wages by districts in 2012, we can differentiate four main types of districts:[1]

Slowly increasing wages and falling unemployment rate

Source: NSI, IME calculations

In eight districts: Burgas, Vidin, Gabrovo, Dobrich, Kyustendil, Pleven, Smolyan, and Haskovo, unemployment has fallen, and at the same time the average wage on annual level has increased, although at a lower rate than the national average. The slow rise of wages in some of the country’s poorest districts (Vidin, Smolyan, Haskovo, and Kyustendil) has resulted in a decrease of the unemployment rate.

Slowly increasing wages and rising unemployment rate

Source: NSI, IME calculations

Unemployment increased in nine districts, although wages in them grew at a lower rate than the national average. These were: Blagoevgrad, Varna, Veliko Tarnovo, Vratsa, Lovech, Pernik, Ruse, Sliven, and Yambol. In most of these districts, nominal average monthly wage increase was minimal, being less than 3%in Ruse, Sliven, and Yambol. Especially striking was the case of Varna, where unemployment rose by 6%. The combination of slow wage growth and a continued rise of unemployment rate testified to the lack of flexibility in the labour markets of those districts.

Rapidly increasing wages and rising unemployment rate

Source: NSI, IME calculations

In eight districts, wages increased by a higher-than-the-national-average rate, and in the same time unemployment rose as well. Among those districts appear the ones with the lowest annual average unemployment rate – Sofia (cap.) and Stara Zagora. The significant rise of average wages in Razgrad in combination with increased unemployment possibly indicates the layoff of low-skilled employees.

Rapidly increasing wages and falling unemployment rate

Source: NSI, IME calculations

The only two districts where the wage increase has outpaced the national average, without a negative effect on the labour markets, are Shumen and Sofia (district). The latter continues to close the gap with Sofia (capital), while the only districts with higher wage levels are Stara Zagora and Vratsa. Sofia (district) is the district with the third lowest unemployment rate after the capital and Stara Zagora. Meanwhile, Shumen remains one of the districts with the highest unemployment rate in the country in 2012.

What’s next?

The effects of the recent increase of the minimum wage and social insurance thresholds is yet to be evaluated. The fact that in most districts the wage growth rate, which is higher than the national average, goes hand in hand with an increase in the unemployment rate, indicates that the labour market needs more time before we can speak of a true recovery.

The simultaneous increase in the unemployment rate and wages, observed in many districts, demonstrates the lack of flexibility in local labour markets. Their low adaptability is caused by administrative interference, namely the constant increase of minimum social insurance thresholds and minimum wages, which in turn hinders the downward wage adjustment and fuels the layoff of workers.

The project “Regional Profiles: Indicators of Development” is carried out with the financial support of the America for Bulgaria Foundation.

Yavor Alexiev

The results of the Labour Force Survey for 2012 and the revised labour market statistics for 2011, published about a month ago, reveal some interesting trends on district level.

To start with, the employment rate of the population aged 15+ has been revised downwards in only three districts-Pazardzhik, Blagoevgrad and Smolyan (Table 1). In Varna and Sofia (city) the rate of employment has remained unchanged, while in all other districts the rate of employment has increased. The average increase of employment for the country as a whole is by 1 percentage point – from 45,6 to 46,6%.

Table 1: Effect of revision on the employment rate for the population aged 15+ by districts, difference in percentage points as compared to preliminary data for 2011

Source: NSI

What stands behind the increase of employment?

The increase of the employment rate is a result of the modified procedure [1] for estimating the weights, applied since the beginning of 2012. It is also a consequence of the correction in the estimates of the population that followed the 2011 Census. The Census information has helped establish the actual demographic status [2] of the districts, which has led to a more accurate assessment of the economic activities of population. Graph 1 depicts a part of the effect arising from the census of the average annual population by districts on revising the employment data.[3]

Graph 1: Revision of employment data in 2011, and difference between regular estimates of the annual average population and Census 2011 results.

Source: NSI, IME calculations

The Graph shows the underestimated employment rate for the period 2002-2011 in most districts due to higher estimates of the population by the National Statistics Institute. The bad news is that this is the statistical effect of a population and hence – labour force shrinking much faster than the rate of job creation. The population has diminished much quicker than projected in 26 out of the 28 districts. The only exceptions are Varna and Sofia where it increases faster than expected.

What happened in 2012?

According to the last published data of NSI for 2012, employment increased in 16 districts and declined in 11. The only region where change is not observed is Stara Zagora.

Table 2: Year-on-year changes in the employment rate in 2012, difference in percentage points as compared to revised data for 2011.

Source: NSI

Despite this positive tendency in employment rates, the number of jobs increased in only 9 districts. In 2012 the number of those employed in the district of Burgas increased by 3.9 thousand, in Plovdiv – by 3.5 thousand, in Dobrich – by 3.3 thousand and in Kyrdzhali and Smolyan - by around 3 thousand. The trend in Varna is alarming because the employment rate there decreased by 2,3 percentage points, while the number of employed people – by 10 thousand. In other words, about one third of the jobs lost in 2012 are in the in district of Varna, and roughly the same number of job losses occurred in the districts of Sofia and Pazardzhik.

Graph 2: Employment rate dynamics and number of employed 2012-2011

Source: NSI

Data on the developments of the labour market on regional level for the last two years do not provide reasons for joy in 2013. At this moment the increase in employment is not the result of jobs’ recovery, but of the quick decline of the population, including the economically active people. The 2011 Census data shows a higher employment than earlier estimated precisely because the number of people of working age decreases faster than expected. The actual job recovery is yet to come.

The project “Regional Profiles: Indicators of Development” is carried out with the financial support of the America for Bulgaria Foundation.

[1] See the methodology of the study “Labour Force Survey”, pages 5-6 (http://www.nsi.bg/img/MRUBRIK/LFS_Methodology.pdf)

[2] The projection for the demographic development of the population in each district is important in determining the employment rate, because its value affects the weights in the sample, on the basis of which the economic activity of the population is estimated.

[3] The red line in Graph 1 depicts the difference between preliminary data on employment rates for the population aged 15+ for 2011 and the revised information based on the Census. The blue line represents the registered deviation from the increase or decrease of the population aged 15+ in each district, arising from the annual demographic estimates of NSI. The data is derived when from the dynamics of the average annual population for the period 2002-2010 we subtract the difference between the annual average value for the period 2002-2010 and the data for 2011 alone. The latter have a corrective function because they are based on the Census 2011. For instance, the average annual population of Plovdiv for the 2002-2010 period dropped by 1845 people on average per year. In 2011 alone, as a result of the census, an annual decline by 16 865 people is observed. The difference between the 2011 values and the average value for 2002-2011 period is 15 020 people. After that, the number of people aged 15+ (within those 15,020) is estimated based on the share of the population aged 15+ in the starting year 2001. Their percentage in the entire population aged 15+ for 2001 is actually the change of the average annual population aged 15+ for the entire period 2002-2011 that has missed by the regular annual demographic estimates of NSI.

Of course, the values thus derived are conditional due to the constant changes of the age characteristics of district population. But in view of the tendencies for increase of the average age in all districts, the share of people is unlikely to be lower than the values obtained using this method.