62253 Unemployment Registration and Benefits in ECA Countries Arvo Kuddo responsible for all aspects of employment services and programs - registering the unemployed, paying Key Messages 1 unemployment benefits, providing guidance and Public Employment Services (PES) in several counseling to job seekers, and coming up with ALMPs Europe and Central Asia (ECA) countries are like training, wage subsidies or public works. severely limited by underfunded labor market However, PES in most ECA countries are severely programs, understaffing, and fragmented challenged by a lack of funds, understaffing, fragmented networks of employment offices. networks of employment offices, limited labor market Cash benefits and other entitlements like information, and the limited menus and scope of their health insurance often act as incentives to job employment services and ALMPs. seekers to register with PES. However, such benefits can and often do encourage Registration of the Unemployed unemployment registration by economically Unemployed people in ECA countries register themselves inactive individuals. with employment service offices for various reasons: to Registered unemployment exceeds survey- secure new jobs, participate in and benefit from ALMPs, based unemployment rates in about half of ECA and receive unemployment benefits and other entitlements countries (mostly Central Europe and Western - such as, maintaining eligibility for health insurance Balkans). Registered unemployment is much lower benefits (even for those who are de facto inactive or than survey-based unemployment in the Baltic informally employed). States and CIS countries, primarily due to low Registered unemployment rates exceed survey-based access to unemployment benefits and active labor unemployment rates in about half of ECA countries (see market programs (ALMPs). Figure 1), mostly in Central Europe and the Western The numbers of unemployment assistance Balkans, possibly because many economically inactive or beneficiaries vary significantly across ECA. In informally employed individuals register themselves as 2009, for example, 85% of the registered well. In Croatia, for example, the number of registered unemployed in Russia received benefits but, in unemployed in 2009 was 65% higher than the number of eight ECA countries, less than 10% of the survey-based active job seekers. There are several reasons registered unemployed received such assistance. for this phenomenon. First, unemployed people who wish to retain eligibility for state-provided health insurance benefits (in case they are not insured through their Public Employment Services in ECA employed family members) often register themselves at Public employment services (PES) emerged in the early PES offices. In FYR Macedonia, for example, around 1990s in most of the transition countries in ECA, in 25% of total registered job seekers are individuals who response to massive labor market adjustments in the register themselves only to receive free health insurance economy associated with restructuring and privatization and not necessarily look for new jobs. Second, in most of state - owned enterprises. Typically, PES are ECA countries, unemployed persons of working age who are eligible for “income-conditioned” social assistance (whereby benefits are paid only if household income falls 1 This Knowledge Brief is based on the report: A. Kuddo, “Labor below a certain threshold) are usually required to register Market Monitoring in Eastern Europe and Central Asia Countries: at the PES for this support. Employed individuals who are Recent Trends (Round Three)”, 2010, World Bank. ECA Knowledge Brief looking for other jobs can also register as job seekers but of “rights and obligations” that emphasize obligations on they have only limited access to employment services. the part of the unemployed to seek and accept work, and However, the mandatory requirement of showing economic incentives/sanctions provided/imposed by the “unemployed status” for obtaining social welfare authorities to encourage the unemployed to register and payments and benefits is also causing the registration of look for work. Cash benefits and other entitlements are an persons who are not active job seekers and do not classify important incentive for job seekers to register as as unemployed. unemployed. In other countries, particularly in the Baltic States and CIS Employment promotion legislation in ECA countries countries, registered unemployment is much lower than allows for at least 20 different types of benefits to be survey-based unemployment, predominantly due to low provided to unemployed people (Table 1). Some access to unemployment benefits and ALMPs. For countries, primarily in the Balkan region, try to entice example, in Kazakhstan only 15% of the total number of unemployed individuals (even those who are not actively unemployed registered with PES in 2009, and in Armenia looking for work) with incentives to register at PES. Other only 16% of the unemployed registered with PES in 2008. countries, like Turkey for example, do not provide enough In this group of countries, expenditures on labor market incentives for the unemployed to register. It is important programs are especially low - as a rule, not exceeding for employment services to get this balance right so that 0.1% of GDP annually. Also, relatively few job seekers actual job seekers 'self-select' themselves into registration. benefit from the passive (providing unemployment Some types of benefits provided to unemployed people in benefits) and active (providing training, wage subsidies, ECA countries act directly to stimulate registration, active etc.) labor market programs. job search and rapid placement in jobs. In most CIS Figure 1: Ratio of Registered Unemployed to the Total countries, for example, the duration of severance pay Number of Unemployed in 2009 (in percent) provided by employers is conditional to finding a new job B&H, F of B&H* and/or registration at the employment service within a certain period of time, typically in 10 days after contract Croatia termination. In Russia, for example, severance pay is Serbia usually equal to the employee’s average monthly wages. However, the unemployed individual’s monthly wages are Czech R. preserved until the person finds a job, but not for more Poland than two to three months from the date of dismissal, provided the individual applies for registration within two FYR Macedonia weeks of dismissal. Rapid registration at the PES also Slovakia allows the employment agencies to immediately offer unemployed persons available vacancies, job counseling Lithuania and job search assistance, thus shortening the transition Estonia from one job to another. Montenegro In the Czech Republic, in order to stimulate attachment to jobs, registered job seekers are given the right to have Turkey extra earnings even if they draw unemployment support, Ukraine although the earnings may not exceed half the official minimum wage and the work should not take up more Azerbaijan* than 20 hours a week. In Slovakia, an employed or self- Kazakhstan employed individual can apply for an allowance for commuting to work (payment of monthly travel expenses 0 50 100 150 200 250 for commuting from place of residence to place of *2008 employment provided in the employment contract or Note: B&H: Bosnia and Herzegovina; F: Federation; R: Republika. implementation of self-employment). The allowance for Source: A. Kuddo, “Labor Market Monitoring in Eastern Europe and commuting is provided to job seekers who have been Central Asia Countries: Recent Trends (Round Three)”, 2010, World registered with the employment agencies for at least three Bank. months and have found a job. Refunds for relocation costs Benefits Available to the Registered Unemployed (mobility grants) are provided in several ECA countries if Policy measures designed to activate the unemployed and the new places of work were referred to and agreed upon by the PES. help them become gainfully employed use a combination ECA Knowledge Brief Table 1: Cash Benefits and Other Entitlements Available to the Unemployed in ECA Countries 1. Additional severance pay for timely registration at PES Most CIS countries following layoffs 2. Unemployment insurance/assistance benefit Most countries except Georgia and Kosovo 3. Early retirement FYR Macedonia, Hungary, Poland, Slovakia 4. Social assistance Most countries 5. Health insurance Most countries 6. Pension and disability insurance Bosnia and Herzegovina, Slovenia, Serbia 7. Earnings from work The Czech Republic 8. Transport benefit Bulgaria, Estonia, Slovenia, Azerbaijan, Slovakia, Montenegro 9. Accommodation benefit Estonia, Slovakia 10. Allowance for commuting to work Slovakia 11. Refund of relocation costs Slovenia, Croatia, Moldova, Azerbaijan, Slovakia, Armenia, Montenegro 12. Child supplement to the unemployment benefit Slovenia, Azerbaijan, Uzbekistan 13. Training stipend/allowance Most countries 14. Salary/pay for participation in public works Most countries 15. Sick leave benefit Kyrgyzstan 16. Maternity leave benefit Kyrgyzstan 17. One-off financial assistance Russia, Montenegro, Serbia 18. One-time incentive for employment Serbia 19. Lump-sum unemployment benefit for self-employment Croatia, Serbia, Ukraine 20. Funeral benefit for the deceased unemployed person Latvia, Ukraine, Armenia Note: The list of countries with relevant benefits and other entitlements is not exhaustive. Source: National Employment Promotion Legislation. Rapid return to work is supported by some other types of Unemployed people in Russia retain the right to receive benefits. Job seekers in Serbia, who have been receiving unemployment benefits while participating in public works. unemployment benefits for at least three months and who Some other benefits act as “acquired rights” which are have open-ended work contracts, are entitled to one-time politically hard to remove although they have no particular incentives for employment in the amount of 30% of the objective to activate job seekers. In several countries, for total amount of monetary compensation which would have example, job seekers of pre-retirement age can maintain been paid for the time remaining until the expiration of the their unemployment benefits until they reach pensionable right to financial compensation. In Croatia, Serbia and age; their job-search requirements are relaxed as well. Ukraine, a cash compensation (unemployment benefit) for However, providing subsidized early-retirement benefits is the entire period of eligibility may be paid as a one-time now increasingly seen as a second-best solution which is (lump sum) amount to launch self-employment at the maintained only because other policies to absorb older request of the unemployed. unemployed workers are ineffective. Some types of benefits are aimed at supporting the Several countries provide pensions and disability insurance participation of job seekers in active labor market programs to recipients of unemployment benefits and pay social to enhance their employability. In several ECA countries, contributions to the relevant funds so the job tenure will not for example, the PES may provide a training be interrupted for pension purposes. In Kyrgyzstan, stipend/allowance-along with reimbursement for food, unemployment beneficiaries can apply for sick leave accommodation, and travel expenses from place of benefits and maternity leave benefits (females) during which residence to the education and training venue--for job job search requirements are relaxed and the benefit payment seekers who are provided education and training for the periods extended. labor market. Unemployment insurance and/or unemployment Participants in public works in all ECA countries receive a assistance benefits are paid in most ECA countries, salary which is typically not less than the minimum wage. except in Georgia and Kosovo. However, the numbers In some countries like Lithuania, for example, the PES also of unemployment assistance beneficiaries vary pays insurance contributions so that the beneficiaries are significantly across ECA. In 2009, for example, 85% of socially insured during their participation in public works. the registered unemployed in Russia received benefits ECA Knowledge Brief but in eight ECA countries less than 10% of registered Conclusion job seekers received such assistance. For the 26 countries in the ECA region, the overall average Low registration rates in many ECA countries and low numbers of unemployed beneficiaries, especially in many percentage of registered unemployed who received CIS states, indicate that the PES (as well as unemployment benefits in 2009 was around 30% (Figure 2). The low benefits and ALMPs) in these countries fail to reach the percentage of benefit recipients can be attributed to the majority of job seekers. fact that among the registered unemployed in ECA are a large number of long-term unemployed people who Using or threatening financial sanctions against the have exhausted their entitlements and also many first- unemployed who do not actively look for work (or refuse to accept reasonable job offers) is likely to have a limited time job seekers who lack a sufficient insurance record impact in ECA due to the low numbers of unemployed to claim benefits. beneficiaries in the region. However, health insurance and Unemployment benefits remain the costliest labor market social assistance entitlements for the registered policy measure. In Serbia in 2009, for example, only one- unemployed can be utilized for the purpose of activating tenth of the registered unemployed received unemployment job seekers, after taking into consideration the limits in the benefits but these benefits consumed over 87% of the total number of PES registered job vacancies and availability of expenditure allocated for the national employment agency ALMPs. that year. The right to receive most types of unemployment benefits Figure 2: Ratio of Unemployment Beneficiaries to Total should be directly linked to the active status of job seekers who are actually looking for jobs. In order to achieve this, Number of Registered Unemployed in 2009 (in percent) eligibility and entitlement rules of some of the benefits Russia should be changed. Currently, in about half of ECA Ukraine countries, especially in Central Eastern Europe (CEE), the Estonia PES are overburdened with serving registered job seekers Romania Latvia who are actually not actively looking for jobs. Other Belarus countries do provide limited incentives for registration. Montenegro Finding the right balance is core for countries to be able to Bulgaria Czech R. support those actively looking for jobs. Hungary Lithuania Slovenia Armenia Croatia Poland Turkey Slovakia Serbia FYR Macedonia About the Author Albania Arvo Kuddo is a senior labor economist working on labor Moldova market policies and institutions in the HDNSP unit of the Azerbaijan B&H, R. Srpska World Bank. Kyrgyzstan Kazakhstan B&H, F of B&H* Tajikistan 0 20 40 60 80 100 *2008 Note: B&H: Bosnia and Herzegovina; F: Federation; R: Republika. Source: A. Kuddo, “Labor Market Monitoring in Eastern Europe and Central Asia Countries: Recent Trends (Round Three)”, 2010, World Bank. “ECA Knowledge Brief” is a regular series of notes highlighting recent analyses, good practices and lessons learned from the development work program of the World Bank’s Europe and Central Asia Region http://www.worldbank.org/eca