Lowest unemployment rate in seven years

High unemployment is a long-term problem of the Slovakian economy as well as affecting society. Although considerable effort has been expended to reduce unemployment levels, a substantial downturn has been visible only in the last few years when unemployment started to continuously decrease. In the first quarter of 2006, the unemployment rate declined below 15% for the first time in seven years. The decrease in unemployment was mainly due to both the implementation of active labour market policy measures and the creation of new jobs by foreign investors in Slovakia. Furthermore, a certain proportion of the decline is related to the migration of a large number of people to work abroad.

For several years, Slovakia has had one of the highest rates of unemployment in Europe. Since the establishment of the independent Republic of Slovakia, unemployment has been at a level of 11% or more, reaching 19% in 2000–2002. Significant regional differences in unemployment rates are apparent, ranging from approximately 5% in Bratislava to as much as 25% or more in the east and south of the country. Moreover, 55% of those currently unemployed have been out of employment for more than a year.

According to data from the Slovakian Statistical Office (Štatistický úrad Slovenskej republiky, ŠÚ SR), the average unemployment rate decreased to 14.9% in the first quarter of 2006, representing a total of 396,000 unemployed people. It is the first time since 1999 that the unemployment rate has not exceeded 16%. The number of people employed in the national economy stood at 2,257,000, and the employment rate, compared with the same period of the previous year, increased by 3.7%.

High unemployment impacts negatively not only on the labour market but also on the living standard of citizens, particularly in regions where unemployment reaches 25% or even more of the population. Furthermore, an imbalance in the labour market hampers the activity and position of trade unions during collective bargaining on employment conditions, especially with regard to wages.

A combination of factors explains the positive changes in the country’s employment levels.

Active labour market policies

Implementing active labour market policy measures within the framework of the national action plan for employment (NAP) has contributed to the gradual decrease in unemployment levels. These measures included improving the quality of employment services through counselling and guidance, and offering support for retraining unemployed people and for creating temporary jobs (SK0411103F). The social partners were involved mainly through implementation of a more flexible organisation of work. Nevertheless, implementation of these measures alone did not make a breakthrough in reducing the high unemployment level.

Foreign direct investment

The unemployment rate started to decrease noticeably only after the creation of more favourable business conditions in Slovakia. Factors such as the availability of a comparatively cheap and qualified labour force, a flat tax rate including corporate tax, and state aid to investors that offer new jobs in regions with high unemployment rates attracted many foreign investors to Slovakia.

Initially, foreign investments were mainly in the automotive industry; however, at present, they also feature in the services and information technology (IT) sectors. Thus, as a result of both the new jobs created by foreign investors and the NAP measures, the situation has gradually started to change and unemployment levels have declined since 2001.

Foreign companies respect the local labour law and provide relatively high employment security. Most of them recognise the trade unions as employee representatives and support the development of social dialogue, including collective bargaining. Overall, industrial relations in many subsidiaries of multinational companies have improved. Nevertheless, trade unions are not present in all foreign companies.

According to analysts, the unemployment level has decreased mainly due to the fact that new investment created new jobs. However, another factor contributing to the decline in unemployment is the migration of a relatively large number of citizens to work abroad. The number of people leaving Slovakia for work abroad increased substantially after 2004 when the country became an EU Member State. According to the ŠÚ SR data, more than 140,000 people worked abroad in the first quarter of 2006, which was approximately 30% more than in the same period of the previous year. Unofficial estimates suggest that this number could be even higher.

Commentary

Obviously, the situation in the Slovakian labour market needs to improve further. Today, there is a real prospect that unemployment will continue to decrease and will come close to the average unemployment rate in the EU25 (8.7% in 2005) if current economic and industrial relations trends continue. Greater commitment of the social partners to solving unemployment issues through social dialogue could be significant in this context. In addition, a more effective use of industrial relations tools aimed at supporting implementation of the Lisbon Strategy is expected.

In Slovakia, the plan is to achieve the Lisbon Strategy goals through implementation of flexicurity principles, based upon a better balance of flexibility and security in employment. The government and social partners in Slovakia could take lessons from the positive results arising from flexicurity in some EU countries, such as Denmark (DK0506103F).

According to the trade unions, employment flexibility is already widespread in Slovakia while employees have little employment security. Therefore, trade unions would support an improvement of this balance within the framework of the flexicurity model.

Ludovít Cziria, Institute for Labour and Family Research

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