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Economic Transformation and Employment in Central Asia RECEIVED 4 OCT 1994 tat#msfonel Labour Ofltoe "-0 W8C BIT 40101 Economic Transformation and Employment in Central Asia EDITED BY Per Ronnas and Orjan Sjoberg International Labour Office •» Ankara Copyright © International Labour Organization 1994 Publications of the International Labour Office enjoy copyright under Protocol 2 of the Universal Copyright Convention. Nevertheless, short excerpts from them may be reproduced without authorization on condition that the source is indicated. For rights of reproduction or translation, application should be made to the Publication Branch (Rights and Permissions), International Labour Office, CH-1211 Geneva 22, Switzerland. The International Labour Office welcomes such applications. ISBN 92-2-109592-4 The designations employed in ILO publications, which are in conformity with United Nations practice, and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of the International labour office concerning the legal status of any country, area or territory or of its authorities, or concerning the delimitation of its frontiers. The responsibility for opinions expressed in signed articles, studies and other contributions rests solely with their authors, and publication does not constitute and endorsement by the International Labour Office of the opinions expressed in them. Reference to names of firms and commercial products and processes does not imply their endorsement by the International Labour Office, and any failure to mention a particular firm, commercial product or precess is not a sign of disapproval. ILO publications can be obtained through major booksellers or ILO local offices in many countries, or direct from ILO Publications, International Labour Office, CH-1211 Geneva 22, Switzerland. A catalogue or list of new publications will be sent free of charge from die above address. Printed in Turkey Preface The development of representative democracies and the introduction of a market based economy in the newly independent republics of Central Asia is inevitably a difficult process. There is a growing awareness that this process of transformation requires appropriate policies to mitigate social hardship for the populations concerned. The ILO has always emphasized that the social dimension of the economic reforms should be taken fully into account. This means that the introduction of market mechanisms has to be combined with the establishment of effective institutions and measures for labour market policies, labour relations and social protection. One of the key elements to promote the development of a socially oriented market economy is the sharing of experience among the countries in transition and their international partners, such as the ILO. Therefore the ILO associated itself wholeheartedly with die initiative of the Ministry of Labour and Social Security of Turkey to convene a Conference of Central Asian Labour Ministers in Ankara in May 1993. The Conference, which brought together the Labour Ministers of uiese countries for the first time since their independence, was honoured by the presence of the Acting Prime Minister of Turkey, who made the opening statement. The ILO provided technical assistance to the Conference and submitted papers on labour market policies and problems of tripartism in the Central Asian republics. These papers, together with articles on the problems related to the transition to market economies in Central Asia, are published in this book with a view to disseminating the findings of die Conference to a wider public and to draw the attention to the serious labour market problems with which these countries are and will be confronted. The final communiqud of the Conference calls, inter alia on the ILO to "support effectively, with means and methods appropriate to regional and IV national realities, ...these countries undergoing a transition process towards democracy and a market economy'. It is this challenge which the ILO has endeavoured to meet on the basis of its principles and mandate and with the aim of furthering social justice everywhere in the world. A sincere word of thanks is due to the Minister of Labour and Social Security of Turkey, Mr. Mehmet Mogultay, who took the initiative of convening the Conference of Central Asian Labour Ministers. The present publication has been produced by the Active Labour Market Policies Branch of the ILO and is published with the assistance of the ILO Office in Ankara. Oscar de Vries Reilingh, Director, Regional Office for Europe. 1 Contents Preface 1 2 iii The Transition from Central Planning to the Market: The Record, Per Ronnds and Orjan Sjoberg De-Linking the Externally Planned Economies, Per Ronnds and Orjan Sjoberg 1 15 3 Background Information on Population, Economic Developments, Labour Markets and Employment, Alexander Samorodov 23 4 Unemployment, Labour Market Policies and Social Protection: A Synopsis, Alexander Samorodov et. al. 5 6 45 Problems of Establishing Tripartism, International Labour Office 67 Labour Markets in the Central Asian Republics: Issues and Policy Implications, Peter Duiker 77 7 A Policy Agenda, Per Ronnds and Orjan Sjoberg 8 The Road Ahead: A Comment, William Clatanoff Appendix One: 95 105 Concluding Statement by the Ministers of Labour of the Central Asian Republics 115 Appendix Two: List of Participants 119 Appendix Three: Statistical Tables 127 1 The Transition from Central Planning to the Market: The Record Per Ronnas and Orjan Sjoberg Under the system of central planning employment was largely divorced from economic performance. At the enterprise level soft budget constraints ensured that the link was virtually non-existent as labour was allocated to enterprises according to the priority given the type of production pursued rather dian efficiency and economic performance. With budget constraints for capital investments - especially in non-priority sectors - usually being somewhat harder, many enterprises also found it expedient to substitute labour for capital. Thus, for individual enterprises labour was a scarce resource to be hoarded and accumulated in as large numbers as possible to permit future growth. The same mode of thinking prevailed at the macro level. The inefficient economy had a seemingly insatiable demand for labour as well as for capital and other resources. Labour was primarily perceived as a scarce resource imposing constraints on a strategy for economic growth which, despite rhetoric to the contrary, by and large depended on mobilizing more inputs to produce more outputs. With the shift to a market economy the rules of the game change fundamentally as employment becomes directly linked to economic performance at the enterprise level and, by implication, at the aggregate national level. Experiences from East Central Europe indicate clearly that it takes a long time before the full implications of this fundamental change in the rules of the game dawn upon policy-makers and planners in the countries concerned as well as on overseas expertise called in to provide advice and guidance. The newly independent states in Central Asia1 are in many ways today in a 2 more precarious situation than the countries in East Central Europe were after the soft revolutions in 1989. Driven to independence by the force of circumstances rather than through own initiative they are ill-prepared to face the dual challenge of transformation from centrally planned economies to market economies and from integrated parts of a larger economy to economic sovereignty. Young and rapidly growing labour forces combined with a high population pressure on land and a generally precarious state of agriculture render crucial importance to the employment aspects of the overall economic transformation processes. For policy-makers steeped in the traditions of central planning this presents a major challenge. They have the potential advantage of being able to draw on the considerable experience and knowledge accumulated on the problems of transformation from centrally planned to market economies in other countries over the past few years, but diey can ill afford to repeat the mistakes made elsewhere. The newly independent states in Central Asia face a twofold transition from centrally planned to market economies and from regions integrated in a larger country to independent states - which will inevitably result in fundamental changes in the economic and social structure of these countries. It is yet much too early and there are far too many uncertain factors involved for predictions on the precise nature of these changes. However, sufficient knowledge has now been accumulated from the experiences of the economies in East Central Europe and elsewhere, notably China and Vietnam, for drawing some general conclusions which, when combined with more specific information about the characteristics of die Central Asian countries, provide a reasonable basis for identification of the main issues and problems ahead. Among the salient features of the transition process the following deserve to be noted as having particular relevance for employment and income generation and policy-making in mis field.2 For a number of reasons, the transition inevitably results in a weakening of the state. Firstly, the transition invariably erodes the state finances. This is because old sources of incomes, primarily enterprise profits and implicit sales taxes in the centrally determined price system, decrease abruptly before new sources of revenues are opened up through the development of a tax system more adapted to a market economy.3 Secondly, the administrative capacity and capability of the state machinery is weakened by the shift from 3 direct central planning to indicative planning and the use of new and unfamiliar tools for policy making and policy implementation in an overall environment over which the state has largely lost control and can no longer expect direct and predictable responses to policy measures. This problem has an important organizational aspect. The previous system was strictly hierarchical and top-heavy, organized along sectoral lines with a virtual absence of horizontal links, particularly at the lower levels of the hierarchy. The result was a situation which can perhaps best be described as sectoral autarky. Another consequence of the top-heavy system was limited room for manoeuvre and decision making at the lower/regional/municipal levels and an accompanying limited capability and competence for independent action. Thirdly, there is a severe lack of reliable information and statistics. The problem is partly inherited from the past when a policy of secrecy prevented the development of information channels and there often were strong incentives to give misleading information and distort statistics. The transition to a more market oriented economy calls for the development of an entirely new system for collection of statistical information and also, often, for new types of statistics. Meanwhile, policy makers and planners lack the information base at a time when it is more needed than ever. Lastly, the collapse of the socialist ideology and the accompanying centrally planned economic system has inevitably had a demoralizing effect on the cadres staffing the bureaucracy. There is an obvious danger that a feeling of despondency and impotence may come to prevail at a time when the demands on the state for flexibility and innovativeness have become much greater than in the past. In the case of the newly independent states in Central Asia the previously subservient status and lack of a full-fledged and sovereign state apparatus can only compound me weaknesses of the state. A main conclusion must be that institution building and enhancing the institutional capacity for policy formulation and implementation must be accorded importance in technical assistance. Active labour market policies are only developed gradually and after some delay. This has been a salient feature in all transition economies, with the possible exception of China and Vietnam where concern about poverty alleviation was a contributing factor to the reform process as such. The often slow response to the emerging employment problems can readily be 4 explained as a consequence of the onslaught of a wide range of more acute problems and the limited capability of the state to tackle these problems. However, there are also more fundamental explanations. Under the previous regime, development objectives were typically stated in terms of physical output, while labour was seen as a scarce resource and a constraint to the attainment of the production targets. In sharp contrast to the situation in most developed and developing market economies, full, though inefficient, utilization of the labour force was more or less taken for granted and there is no tradition of focusing development planning on the objective of employment and income generation. Even in a country like Hungary, which has been comparatively exposed to the market economies in Western Europe, the preparedness to effectively deal with the emerging employment problems has been little.4 Furthermore, the experience from the transition economies in East Central Europe reveal a considerable time lag before the disruption of the economic system and decline in output is reflected in falling levels of employment. Growth of unemployment has generally been slower than might have been expected,5 thus luring policy-makers and planners into a false sense of lack of urgency. Romania provides a telling example in this respect. Despite a fall of GNP by 20 per cent and of industrial production by 40. per cent in 1990 and 1991, open unemployment was still no more than 3 per cent, though increasing by the end of 1991.6 A main reason behind the delayed effect on employment of economic decline is that continued soft budget constraints and lack of effective competition have made it possible for enterprises to retain surplus labour. Work sharing, reduced work hours and temporary layoffs are often resorted to in order to avoid outright dismissals. In some instances there are also reasons to expect faulty statistics. While the delayed employment effects of economic restructuring and decline may buy policy-makers valuable time, there is a severe risk that it results in an unwarranted sense of relief that the problem of unemployment will prove to be less than initially anticipated. This is clearly an illusion as the lag in the employment response to the changing economic conditions does not imply that employment effects will somehow be avoided, but merely that the bottom has not yet been reached and that there is still a long way to go before the full effects are felt. When the governments react to the emerging employment problems it has 5 initially been in the form of passive labour market policies, such as schemes for unemployment benefits and other types of protection against loss of income.7 This is obviously the easiest type of response, and as such may be explained by the lack of tradition and experience in the field of employment and labour market policies, but it is inadequate and likely to rapidly become unsustainable for cost reasons. Privatization has proved to be a protracted and technically difficult process. A number of technical solutions have been tried with varying degrees of success and the late starters have today a considerable body of knowledge to draw upon.8 Privatization has often been portrayed as a key aspect of the economic transition. However, although divestiture of state enterprises and other assets is important as it ensures the institutional separation of the economy from the polity, privatization is no guarantee for resolving the economic woes associated with the centrally planned economic system. It is useful to make a distinction between privatization of enterprises on the one hand and marketization and commercialisation on the other. From the point of view of transition to a market economy, what matters is the enforcement of unambiguous property rights (e.g., through privatization) and the subjecting of enterprises to the competitive pressures of markets (i.e., marketization). This implies basically a rupture of both the vertical links between state enterprises and their superior ministries and horizontal links between the enterprises and local authorities. Enterprises must be given complete responsibility for the management of their own affairs including, most importantly, responsibility for the economic results of its activities. Subsidies and reliance on the state as a lender of last resort in case of financial difficulties must be brought to a definite and unambiguous end in order to impose hard budget constraints on the enterprises and complete accountability through commercialization of their operations. While the necessity of marketization of enterprises is universally recognized, it has proved difficult to implement in practice. A major problem is the lack of alternative suppliers and buyers and the ensuing dependence of enterprises on each other. To illuminate this problem the economy of the former Soviet Union has been likened to an assembly line.9 Just as closure of one work station along the assembly line will affect all other work stations, bankruptcy of one enterprise will disrupt production in many other 6 enterprises. The result is accumulation of inter-enterprise debts and continued soft budget constraints. Another problem is 'technological pluralism',10 or the considerable technological diversity usually to be found in manufacturing plants in the formerly centrally planned economies. Under the previous economic system new technologies were added to, but did not replace, old ones. As a consequence technologies vary widely both within and between enterprises, as do efficiency, labour productivity and product quality. Under such circumstances imposition of hard budget constraints may in many instances be tantamount to a death warrant. Additionally, acute financial difficulties is not necessarily an indication of lack of long term viability and closure of enterprises in the wake of imposition of hard budget constraints may therefore result in unnecessary waste of productive capacities. The lack of efficient markets lends further support to this argument. In the absence of an independent and competent system for credit appraisal judgments must necessarily remain arbitrary. Lastly, social considerations are an important deterrent to the commercialization and marketization of enterprises as large scale redundancies and unemployment inevitably follows in its trail. Most enterprises suffer from considerable overstaffing and even if bankruptcies are averted, the need to increase cost efficiency will in most instances necessitate reductions in the labour force. Slow commercialization and marketization of enterprises is the main reason for the relatively modest unemployment effects of the economic contraction. However, while it provides a respite, it does not offer any long term solution. Another universal experience is that markets take a long time to develop, in particular in countries that are shielded from the effects of foreign trade. In the absence of competition the price elasticity of the supply of many goods remains low. Lack of alternative suppliers and poor information channels easily result in monopolistic abuses in the wake of price liberalizations. A related problem is the difficulty to assess production costs in a situation of extreme technological plurality. While capital and labour markets often emerge early, often at the very instant the old economic system gives way, they take a particularly long time to develop into full-fledged markets. Neither can be expected to develop spontaneously, except in a highly rudimentary form, and as both are instrumental to economic growth and 7 employment and income generation active government policies in these fields are required. The need for fundamental economic restructuring has, if anything, proved to be even greater than previously expected. The past development strategy and economic system created highly dysfunctional economic structures. While the individual countries display different needs of economic restructuring, these differences are largely variations around the same theme and it is quite possible to make a number of generalizations. Firstly, all the former socialist countries have a bias towards heavy industry in their economic structure as a result of the emphasis under the previous development strategy on producer goods industry as a spearhead of economic development and modernization. Thus, they are left with a bloated heavy industry which, as a result of the priority in terms of allocation of production factors that it enjoyed in the past, typically also suffers from particularly pronounced over-staffing. The emphasis on physical production and the division of the economy into a productive and a non-productive sphere during the socialist period resulted in an underdevelopment of most services. Generally speaking, the share of the labour force in the industry is ten to twenty percentage units higher than in market economies at corresponding levels of development.'' Under the past economic system these sectoral priorities were also reflected in the wage structure. Beyond the general practice of 'determination of wages from the residual left by accumulation',12 tariff rates, based on skill classification and production norms, tended to be biased in favour of not only the 'productive sphere' (as opposed to the non-productive sectors, including services), but also in favour of the heavy end of manufacturing. As a consequence the supply of many services is not only under-dimensioned, but also of poor quality. Although this state of affairs would seem to reflect the existence of a rather substantial wage spread, it was partly off-set by two countervailing tendencies. Firstly, for egalitarian and other ideological reasons, attempts were made to keep money wages within a radier narrow range (both wage drift and non-wage benefits, however, worked to the advantage of those in priority sectors). Secondly, reclassification of skill grades were often made, so as to enable employers to pay higher wages should labour supply at the official rate fall short of actual demand. In rum, 8 the discretionary nature of such measures conspired with the importance of non-wage benefits and the narrow range of cash remuneration to reduce labour mobility. By and large it is fair to say that the wage structure displayed considerable rigidities and that in the absence of any genuine mechanisms for wage bargaining the links between demand and supply of labour on the one hand and the wage structure on the other hand were poorly developed. Remnants of these rigidities remain an important obstacle to smoothly functioning labour markets. The former socialist countries also display an exaggerated bias towards large scale enterprises and a severe lack of small and medium sized economic units.13 The emphasis on large scale enterprises was ostensibly due to a belief in economies of scale, but is more likely to have been conditioned by the limited capacity at the central level to monitor and plan a large number of units. Largely as a result of very high inter-enterprise transaction costs under the previous system, the degree of specialization at the enterprise level is very low. Most enterprises produce a large variety of goods and services that are often seemingly unrelated to their main line of production. Under the centrally planned economic system, such diversification made good sense as a means of achieving internal flexibility and lessening the dependence on highly arbitrary supplies of outside services and goods. However, as the economies shift towards a market economy, the lack of internal specialization within enterprises becomes a handicap. More often than not the production of the subsidiary or supplementary goods and services is costly and inefficient. It detracts resources from the main line of production, prevents economies of scale and is likely to have an overall negative effect on the viability of the enterprises. A complicating factor in this regard is that the degree of mechanization tends to be much higher in the main line of production than in the auxiliary and ancillary activities. Comprehensive restructuring of the economies will have obvious and farreaching effects on employment. Restructuring results, within a relatively short period of time, in severe mismatches in the supply and demand structure of labour which puts unreasonable strain on the nascent labour markets. Increases in the overall unemployment are paralleled by severe shortages of critical skills, which appear already at an early stage of the transition. To give but one example, there is typically a surplus of engineers 9 and several other related professional skills, while there is be a shortage of competence in almost all fields of economics and business administration and in the legal professions. To make matters worse, labour mobility - both occupational and geographical - tends to be low. The reasons are severalfold. Some are related to an inappropriate structure of incentives and may fairly easily be remedied, although the deterring impact of a poor supply of food products in urban areas on rural-urban migration may prove less easy to redress. More fundamental reasons behind low geographical mobility include the existence of administrative restrictions facing those wanting to change domicile, the lack of a housing market and the continued importance of an extensive network of informal contacts, while a main reason behind the low occupational mobility is the narrow educational profile of much of the labour force as a consequence of past policies of favouring skill related over general education. The bias towards large scale enterprises has left most regions and towns with an extremely narrow and lopsided economic base. In fact, many towns are best characterized as 'company towns' as their economy rests on (and falls with) one or two large enterprises. In most of the Central Asian republics this problem is aggravated by a poorly developed urban network and poor economic and physical infrastructure outside the main city, or cities. The previous reliance on vertical chains of command imply that horizontal contacts and linkages, vital to regional economic revival, need to be developed from scratch. The regional aspects of the economic restructuring and transition must therefore be given close attention, as the closure of individual enterprises may have devastating effects on local economies and non-farm employment opportunities. This is particularly important, as democratization and decentralization of decision making have given local authorities a totally new and much more powerful mandate. However, the local administrative apparatuses, which in the past were mere extended arms of the central authorities, are ill-equipped to tackle the daunting regional development problems. In the wake of the sweeping economic reforms, most of the formerly socialist countries have seen a rapid increase in small scale entrepreneurship. Because of the more lenient attitudes of their respective governments during the years leading up to 1989, Poland and Hungary had a head start in this 10 respect, and the establishment and expansion of private businesses quickly got under way there. 14 But even where prospective entrepreneurs were not encouraged in this manner the private sector is flourishing and small scale enterprises are mushrooming. Thus, two years after the revolution Romania boasted over 300,000 new private enterprises and an Albanian organization for entrepreneurs claims a membership of over 20,000. 15 While this is obviously very encouraging for a variety of reasons, not least that of employment and income generation, it should be seen as an opportunity for active policy making and assistance rather than as an excuse for complacency. The process of 'privatization from below' is impressive in terms of numbers of enterprises rather than in terms of production or employment. The vast majority of the new enterprises are extremely small and tend to suffer from a lack of capital, know how, supply sources and market outlets. They are heavily concentrated to certain types of services, while the establishment of new enterprises in the manufacturing sector has been slow. The scant statistical data available also indicate high turnover rates. The small scale of the enterprises implies that they generate primarily selfemployment and very little wage employment. As such they do not provide a ready solution for absorbing the increasing ranks of unemployed. There is nothing to suggest that unemployed industrial workers are particularly suited for self-employment and as entrepreneurs. Indeed, a recent study of Hungary 16 revealed that only 8 per cent of the new entrepreneurs had a background as previously unemployed. On the contrary, empirical evidence from other countries suggests that rather specific skills and personal characteristics are required to become a successful entrepreneur, quite apart from the fact that it requires access to capital, inputs, markets and so forth.17 Hence, the main challenge and potential lies in fostering the growth of the new enterprises rather than in their multiplication. Only through growth will they be able to assume an important role as instruments for employment and income generation and make a contribution towards rectifying the lopsided and unbalanced economic structure. Thus, favourable conditions for growth of small enterprises need to be created. The Central Asian republics may here benefit from the experiences of other countries in transition, not least China and Vietnam, but also Poland and Hungary. A conducive political climate 11 and institutional setting, including an adequate framework of economic legislation and efficient law enforcement, and efficient markets for capital and labour are essential conditions.18 Experience from China strongly suggest that fostering of linkages between the nascent small scale sector and the established large scale enterprises may be a key factor,19 as has also been observed with respect to, for instance, Czechoslovakia.20 This would seem to be of particular relevance to the Central Asian republics where the incipient disturbance of trade with the rest of the former Soviet Union has created an urgent need for new backward and forward linkages for existing enterprises. Provision of physical premises, technical assistance and extension services would also seem to be highly needed.21 The severe dislocation of trade and economic contacts resulting from the breakdown of the Soviet Union must also be taken into consideration. For the countries in East Central Europe and Vietnam the effects were felt with full force in 1991. Two main conclusions may be drawn from their experiences. Firstly, that the effect on the domestic economies are likely to be both abrupt and devastating. Thus, the sharp decline in industrial production in Romania in the second half of 1991 by some 22 per cent can largely be attributed to an acute energy shortage following a disruption of deliveries from the Soviet Union.22 Similar effects were, to a varying degree, registered in the other countries. Secondly, the recovery of the domestic economies and compensation of trade losses through reorientation of trade has in several of die countries been surprisingly rapid. This is. particularly the case in Vietnam, where a complete reorientation of trade patterns has been achieved in a very short period of time and the dislocative effects on the economy would seem to have been overcome after only a year. Though less dramatic, the adaptation of the countries in East Central Europe also provide reason for cautious optimism. However, there is nothing automatic about the recovery and any terms-of-trade losses from a shift to world market prices are likely to become permanent. The disruption of trade may both act as a catalyst to reform, by speeding up reform measures and forcing enterprises out into the cold, and make it more difficult. In particular, it makes it difficult to impose hard budget constraints on enterprises as enterprises with sound long term development perspective may face acute difficulties due to temporary shortages of energy or inputs or loss of markets. 12 Lastly, it may be noted that countries that have opted for swift comprehensive reforms and adjustment have been relatively more successful than those which have taken a more gradual and partial approach.23 The contrasting cases of Vietnam and Poland on die one hand and Russia and Romania on the other are persuasive illustrations of this. The strategy adopted by Vietnam would seem to be of particular interest, as the transition in Vietnam has been both swift and highly successful and has confuted odds which initially seemed rather poor. However, in reality the choice is obviously not so straight forward. The discussion above provides ample illustration of the difficulties of achieving a rapid transition, at the same time as external factors and the force of circumstances may necessitate improvisations which imply a risk that strategies become reactive rather than proactive. Notes 1 Central Asia is here understood to comprise Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan. 2 This is, not the place for any exhaustive analysis of the characteristics of neither central planning nor the transition process. This has been done elsewhere, see for example Jinos Kornai, The Socialist System: The political economy of communism (Princeton, NJ: Princeton University Press, 1992), and Anders Aslund, Postcommunist Economic Revolutions: How big a bang? (Washington, DC: Center for Strategic and International Studies, 1992), respectively. 3 One of the reasons for the relative success of the efforts of fellow Soviet successor state Estonia to move to financial and monetary stability has been its ability to simultaneously 'nationalise' and 'modernise' its system of taxation, processes that were in fact well under way prior to the achievement of full independence; see Ardo H. Hansson, Tranforming an Economy while Building a Nation: The case of Estonia (Working paper, 62. Stockholm: Stockholm Institute of East European Economics, 1992), p. 6. 4 Economic Transformation and Employment in Hungary (Geneva: ILO, 1992). 5 Tito Boeri and Mark Keese, 'From labour shortage to labour shedding: Labour markets in Central and Eastern Europe', Communist Economies and Economic Transformation, Vol. 4, no. 3 (1992), pp. 373-394, esp. 384. 6 Buletin statistic de informare publico, 1991:12 and 1992:1; Romania Libera, 29 13 January 1992. By November 1992 the unemployment rate had increased to 9.1 per cent (Buletin statistic de informare publico, 1992:11). 7 OECD Employment Outlook, July 1992 (Paris: OECD, 1992), pp. 258-263. 8 For a review of individual country experiences, see, e.g., Irena Grosfeld and Paul Hare, 'Privatization in Hungary, Poland and Czechoslovakia', European Economy, Special Edition No. 2 (1991), pp. 129-156; Morris Bornstein, 'Privatisation in Eastern Europe', Communist Economies and Economic Transformation, Vol. 4, no. 3 (1992), pp. 283-320; and E.S. Savas, 'Privatization in post-socialist countries', Public Administration Review, Vol. 52, no. 6 (1992), pp. 573-581. 9 Axel Leijonhufvud, 'Problems of socialist transformation: Kazakhstan 1991', paper presented at the Arne Ryde Symposium 'Transition Problems' at Rungsted Kyst, Denmark, 11-12 June 1992. 10 Alin Teodorescu, 'The future of a failure: the Romanian economy', in Orjan Sjoberg and Michael L. Wyzan (eds.), Economic Change in the Balkan States: Albania, Bulgaria, Romania and Yugoslavia (London: Pinter, 1991), pp. 69-82, at p. 75. 11 OECD Employment Outlook, July 1991 (Paris: OECD, 1991), pp. 17-19. 12 Silvana Malle, Employment Planning in the Soviet Union (Basingstoke: Macmillan, 1990), p. 228. 13 OECD Employment Outlook, July 1991, p. 19. 14 Simon Johnson, 'Private business in Eastern Europe', paper prepared for the 'NBER conference on the Economic Transformation of Eastern Europe', Cambridge, MA, 26-29 February 1992. 15 Buletin statistic de informare publico, 1991:12, and Qirjako Noti, personal communication, 18 April 1992, respectively. 16 Economic Transformation, p. 33. 17 Per Ronnas, Employment Generation through Private Entrepreneurship in Vietnam (New Delhi: ILO-ARTEP/SIDA, 1992). 18 Ronnas, Employment Generation. 19 Per Ronnas and Orjan Sjoberg, 'Township enterprises: A part of the world or a world apart?', paper prepared for the '3rd European Conference on Agricultural and Rural Development in China', 15-18 April 1993, SchloB Rauischholzhausen, Gieflen, Germany. 20 Gerald A. McDermott and Michal Mejstrik, 'The role of small firms in the industrial development and transformation of Czechoslovakia', Small Business Economics, Vol. 4, no. 3 (1992), pp. 179-200. 21 Ronnas, Employment Generation. 22 Social and Economic Standing of Romania in the Year 1991 (Bucharest: National Commission for Statistics, 1992), pp. 6-7. 23 E.g., Aslund, Post-communist Economic Revolutions. 2 De-Linking the Externally Planned Economies Per Rounds and Orjan Sjoberg The institutional and economic setting in Central Asia displays many of the same inherited features as that of East Central Europe and the other former constituent republics of the now defunct Soviet Union. To a considerable extent Central Asia also shares with them die agenda for change, now diat central planning has been given up. It is nevertheless important to recognize the existence of dissimilar features, some of them singular to the Central Asian republics. These unique features do not detract from the argument that the state finds itself weakened because of the political and economic processes unleashed by the collapse of Soviet hegemony and central planning. Rather, the case can be made that these peculiarities weaken the state further still, thereby eroding its capacity for making positive contributions to reform. Firstly, as Martha Brill Olcott has observed, '[f]ew peoples of the world have ever been forced to become independent nations. Yet this is precisely what happened to the five Central Asian republics after Russia, Belarus and Ukraine - the three original signatories of the USSR's founding 1922 constitution - met in Minsk on December 8, 1991, and created a new Commonwealth of Independent States (CIS).'1 The Central Asian republics thus faced the choice of full independence or becoming members of the new Commonwealth and as 'Central Asia's leaders knew that the mere act of declaring independence would resolve few of dieir economic or political problems',2 the latter alternative appeared to have considerable merit. Secondly, although difficult in practice, it is useful to distinguish between 16 the effects of economic transformation and nation building.3 With no recent history of independence, the Central Asian republics are in a quite different position as compared to those former republics of the Soviet Union that have the cause of re-establishing their sovereignty to rally around, the difference being larger still as compared to the countries of East Central Europe which never had to give up their formal independence in the first place. While the latter group of countries can, by and large, focus their attention and efforts on economic reform, the Central Asian republics have also to consider the demands of nation building. These demands may, but need not, require similar sets of policy action. Thirdly, being an integral part of a larger political entity, Central Asia has been strongly influenced by that entity. In particular, two characteristics which follow from the fact that Central Asia was integrated into the centrally planned economy of the Soviet Union deserve to be singled out. Firstly, central planning authority vested with the all-union Gosplan effectively removed a sizable portion of economic activities in the region from the control of republican and local authorities in Central Asia. Secondly, and as a corollary, central planning made it possible to impose on Central Asia a measure of regional specialization without therefore necessarily taking comparative advantage into account.4 Combined these two strands worked to turn the Central Asian republics into suppliers of raw materials (fossil fuels, minerals and cash crops), with little domestic processing, premature resource depletion and environmental degradation as major consequences. In particular, in agriculture regional specialization implied a substitution of cash crop mono-culture (cotton) for diversification and food production, diereby increasing the dependence on food imports. It has been argued that the above described situation amounted to no less than an outright colonial pattern,5 and that the Central Asian republics are now entering a phase of 'decolonialization'. While suggestive, this characterization conceals a number of peculiarities, such as the role of transfers from the all-union budget in favour of Central Asian republics. Above all, and despite the removal of direct control from a geographically distant centre, it conceals the fact that the transition from central planning to a market economy, a process which runs in parallel to the de-linking of the 'externally planned' economy, erodes the capacity of the state to act 17 autonomously. Central Asia and the other former republics of the Soviet Union are in a more precarious position than the former centrally planned economies of East Central and South Eastern Europe, as the latter have entered the process of economic transition with full-fledged (though often inadequate) state administrations in place. 6 Taken as a whole, the above features constitute an important backdrop to the transition as such and are therefore worth looking into in greater detail. The high degree of integration of the Central Asian countries with the rest of the former Soviet Union and their extreme trade dependence on Russia and the other CIS member states renders paramount importance to the issue of dislocation of trade and economic contacts. The extremely serious effects of trade dislocations are further underscored by the poorly diversified vertical linkages and die high dependence of enterprises on a small number of suppliers and buyers. To pursue the parallel widi the assembly line,7 it is as though the line would be cut off between the various work stations. Although it is beyond the scope of the present study to examine in depth the consequences of the dislocation of trade within the former Soviet Union, it is clearly a factor of utmost importance to the development of the economies in Central Asia. It must therefore be a major consideration in policy making. At first glance the more pronounced integration into, and hence dependence on, the all-union economy and the limited capacity to compensate for any negative effects of such a disruption of trade would seem to put Central Asia in a much worse position than the former East and Central Europe Comecon members were. A closer examination of the effects of the adjustment of the terms of trade of individual CIS member states shows a rather mixed pattern. Preliminary calculations made by the World Bank suggest that energy exporters among the republics of tiie former Soviet Union stand to gain from the introduction of world market prices; in Central Asia, this includes Turkmenistan and Kazakhstan.8 Exporters of other raw materials such as precious metals and minerals may also be expected to gain, although to a lesser extent. Furthermore, republics running deficits in their trade with other republics (such as Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan), may find that the loss of inter-republic transfers is more of a shock to their economies than the adjustment of their terms of trade. Nevertheless, in countries dependent 18 on imports of fossil fuels, the impact of these changes will be most severely felt in energy intensive industries, and governments may therefore find a need to identify means whereby the impact can be reduced in die short term. In the medium and long term, however, there is no viable option but to realign die operations of those enterprises severely hit by the adjustment in die terms of trade. However, this worst case scenario has not yet materialized. Two circumstances appear to explain why this is the case. Firstly, the reorientation has not been as swift as was the case with intra-Comecon trade. Indeed, Central Asian leaders have been careful not to immediately severe economic ties with the fellow members of the CIS, the reason being the acute awareness of Central Asian economic vulnerability.9 Secondly, the trade pattern between Russia and Central Asia is dissimilar to the intra-Comecon trade in as much as it is not one of Russia exporting unprocessed raw materials, and receiving manufactured goods in return. Russian-Central Asian trade comprises flows of raw materials from Central Asia and with manufactured goods being exported from the centre. This might in die past have reduced any positive impact of receiving subsidized Russian fuels and ores, but makes local industry less exposed today. Furthermore, it implies that gains are to be made, should the Central Asian republics find buyers willing to pay world market prices rather than the low procurement prices obtained in intra-Soviet trade. The fact that the policy of regional specialization pursued in the former Soviet Union has left the Central Asian countries extremely trade dependent and with lopsided economic structures implies that, irrespective of the political philosophy of the future governments in Central Asia, diversification of the economic structure and increased self-sufficiency will inevitably be a main objective of the economic strategy. Economic diversification and a higher degree of processing of domestic raw materials will also provide the main context and area for future entrepreneurial development and employment and income generation. A tentative conclusion would therefore be that in die long term the de-linking from the economy of the former Soviet Union may well be advantageous from die point of view of employment generation. However, a rapid and uncontrolled disruption of diis link would more likely than not wreck havoc on these economies and 19 result in mass unemployment and economic misery. All told, a swift reorientation of trade away from the CIS countries, as witnessed for instance in Estonia and Latvia, seems unlikely. Unlike these Baltic countries, the Central Asian republics are distant from the main world markets and lack natural alternative trading partners, at least in the short run. The geographical layout of existing physical infrastructure will also continue to favour trade relations with CIS members for the foreseeable future. In particular, railways and pipelines are predominantly oriented towards Russia, and it will be some time before alternative routes are opened up. Therefore, a geographical restructuring of trade patterns is likely to be gradual and the Central Asian countries will no doubt remain heavily dependent on trade with Russia and other CIS members for some time. The low level of complementarity between the Central Asian republics (except for fossil fuels) will continue to reduce the scope for intra-regional trade. By implication, economic recovery will be heavily dependent on the fortunes Russia and its economy. The only thing which might distort this picture would be increases in exports of energy and other raw materials. A caveat therefore needs to be introduced for Kazakhstan and Turkmenistan. On a more positive note, it should also be clearly recognized that independence has given the Central Asian republics much more power than they had in the past to shape their own destinies. The governments now have in their hands a whole gamut of policy instruments, which were previously denied them. Most important of these are no doubt the possibility to pursue independent macro-economic policies. Macro-economic stability provides an indispensable base for successful economic reforms. With the introduction of national currencies and establishment of national financial and other economic institutions the individual governments have in dieir power to pursue policies for achieving such stability. Through a combination of fiscal and monetary policy the governments can influence the relative prices of capital and labour and bring them better in tune with relative factor endowment in each individual republic. In view of the long tradition of extremely capital intensive development policies this is not a trivial issue. Combined with skillful trade and exchange rate policies a sound macroeconomic base for employment-based development can be created. From the point of view of both short and long term employment and income 20 generation, the possibility to pursue independent policies in the fields of education, training, regional and industrial development is also of inestimable potential value. There are also strong reasons to believe that the possibilities for undertaking forceful and successful economic and institutional reforms are enhanced, making the transition towards a market economy a somewhat more manageable task. Firstly, the relatively greater homogeneity of the individual republics, as compared to the former Soviet Union, makes it possible to tailor make policies to fit the particular circumstances in the individual republics. Secondly, the creation of the necessary institutional framework for a market economy is likely to be more easily achieved on the small level of an individual republic than on a larger level. Thirdly, it may be argued that the gains from independence in terms of socio-economic and cultural homogeneity and proximity between policy-makers and 'grassroots' may make consensus-building easier and facilitate the task of creating the necessary popular support for the reform policies. By way of summing up, it may thus be argued that the 'de-linking of the externally planned economies' and independence has created vastly improved possibilities as well as challenges for effective policy-making at the national level. In its turn, assisting the individual governments in the region to live up to this task presents a challenge to international organizations, such as the International Labour Organization, that are committed to assisting the Central Asian republics in various fields. Notes 1 Martha Brill Olcott, 'Central Asia's catapult to independence', Foreign Affairs, Vol. 71, no. 3 (1992/93), pp. 108-130, quotation from p. 108. 2 Ibid., p. 114. 3 As convincingly argued by Ardo Hansson, Transforming an Economy while Building a Nation: The case of Estonia (Working Paper, 62. Stockholm: Stockholm 21 Institute of East European Economics, 1992), p. 13. 4 Basing himself on oblast level per capita investment data for the period 19561985, Ronald D. Liebowitz, 'Soviet geographical imbalances and Soviet Central Asia', in Robert Lewis (ed.), Geographic Perspectives on Soviet Central Asia (London: Routledge, 1992), pp. 101-131, at p. 116, concludes that 'it appears as if Soviet investment practice has been geared more toward developing the economic capacity of Central Asia to meet the needs of the national economy than with developing and equalizing the productive capacities and socioeconomic conditions of the southern tier.' 5 E.g., Martin C. Spechler, 'Regional development in the USSR, 1958-78', in Soviet Economy in a Time of Change: A compendium of papers submitted to the Joint Economic Committee of the Congress of the United States, Vol. 1 (Washington, DC: US Government Printing Office, 1979), pp. 141-163, labelling the phenomenon 'welfare colonialism' (p. 145); Michael Rywkin, Moscow's Muslim Challenge: Soviet Central Asia (Armonk, NY: M.E. Sharpe, 1990, rev. ed.), speaking of, for instance, 'colonial conquest' (p. 18) and approvingly quoting Spechler (p. 56); Leslie Dienes, Soviet Asia: Economic development and national policy choices (Boulder, CO: Westview, 1987), p. 6, who contends that Central Asia is a '"plantation economy" in its relationship to the metropolis [i.e., Moscow]'; and Liebowitz, 'Soviet geographical imbalances', pp. 119-122, who adopts the term 'internal colonialism' originally coined by Michael Hechter, Internal Colonialism: The Celtic Fringe in British national development (London: Routledge & Kegan Paul, 1975). 6 For useful distinctions in this regard, see Hansson, Transforming an Economy. 7 Chapter 1. 8 David G. Tarr, How Moving to World Prices Affects the Terms of Trade in 15 Countries of the Former Soviet Union. (Policy Research Working Papers, WPS 1074. Washington, DC: Country Economics Department, The World Bank, 1993). 9 Olcott, 'Central Asia's catapult', pp. 115-118. 3 Background Information on Population, Economic Developments, Labour Markets and Employment Alexander Samorodov This chapter does not contain any in-depth analysis of the population and economic issues of the employment situation in the Central Asian republics. Rather it is a summary of relevant information and stylized facts. Within each section the significant points and key issues are highlighted. It was produced to serve as a source of background information for the participants in the meeting of Labour Ministries of the Central Asian republics in Ankara, 29-30 May, 1993, coming from other parts of the world. For the Ministers themselves, as well as for their staff, it was designed to serve as a source of information on countries other man their own. The Setting The Central Asian republics, comprising Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan, cover an area of more than 3.9 million square kilometres and constitute an important part of Eurasia, bordering Russia, China, Afghanistan and Iran. They are all landlocked, although two of them - Turkmenistan and Uzbekistan ~ have access to the inland Caspian Sea. The ethnic composition of the region as a whole as well 24 as of the constituent republics is highly heterogeneous. By most criteria the Central Asian republics can be ranked as developing countries. The region is richly endowed with mineral resources, in particular hydrocarbon, but these resources are not evenly spread. Deserts and arid regions make up a large part of the territory of me Central Asian republics and agriculture and food production is severely constrained by the availability and quality of water. Many parts of the region face acute ecological problems. The transition to a market-oriented economy poses a great challenge and a difficult task, not least because the Central Asian republics for many decades were integral parts of the centrally planned economy of the former Soviet Union. Kazakhstan. With a total area of 2,717,300 square kilometers and a population of 16.9 million people, Kazakhstan ranks among the largest republics of the former Soviet Union. It comprises 12 per cent of the total land area of the former Soviet Union and 35 per cent of its arable land. The capital is Alma Ata. The natural resources include oil, bauxite, coal, gold, iron ore and natural gas. The country has experienced rapid urbanization and a consequent growth of the urban population since the 1950s. The ethnic composition of the population of Kazakhstan is complex, with more man 100 ethnic groups. The two largest are Kazakhs and Russians. The share of the Kazakhs in the total population has grown constantly in the past few decades and is currently receiving a further impetus as ethnic Kazakhs have started to return from China and Mongolia, where more man a million Kazakhs have been living. Kyrgyzstan has a total area of 198,500 square kilometres and a population of 4.4 million. The capital in Bishkek. The country is mountainous and many parts of it are not amenable to cultivation. Livestock breeding and wool production dominate the economy, although industry, such as engineering and modern electronics, has also been developed. The country has very close economic links wiui Russia. Birth rates are somewhat lower man in most of the other Central Asian republics, but still ramer high, not least among the ethnic Kyrghyzians. Approximately half of the population in Kyrgyzstan are ethnic Kyrghyzians, a quarter are Russians and some 12 per cent are Uzbeks. Tajikistan is the smallest of the Central Asian republics with a total area of 143,100 square kilometres and a population of 5.4 million. The capital is 25 Dushanbe. Agriculture has been diversified to include, in particular, production of jute, silk and cotton. However, the country is dependent on basic food imports and the prospects for sustainable development seem rather poor at present. Some 80 per cent of the population are Tajiks, followed by Uzbeks and Russians. Birth rates are very high. In 1979 about half of the families in Tajikistan consisted of six members or more. Urbanization has led to an increase in the number of cities and towns from seven in 1939 to 18 in 1983 and industrialization has resulted in the emergence of industrial workers and employees. Yet, Tajikistan remains the least urbanized of all the republics of the former Soviet Union. For climatic reasons the population has historically settled in oases and in valleys and is therefore very unevenly spread across the country. Turkmenistan is the second largest, but least populated, of the Central Asian republics, with a total area of 488,100 square kilometres and a population of a mere 3.7 million. The very low population density is due to natural conditions. Deserts make up much of the country. The capital is Ashkhabad. The rest of the urban network is primarily made up of small towns located near deposits of mineral wealth and along die main arteries of transportation. The country is a large exporter of natural gas and oil. The bulk of the population is made up by Turkmens and more than 90 per cent of all the Turkmens in the former Soviet Union live in Turkmenistan. Uzbekistan is the most populous of the Central Asian republics, widi a total population of 21 million and an area of 447,400 square kilometres. This gives Uzbekistan the highest population density among the Central Asian republics, with roughly 40 inhabitants per square kilometre. Arable land makes up no more than nine per cent of the total area of the country, and is largely devoted to cotton production. Hence, the country depends on food imports. The majority of the population are Uzbeks. Russians constitute the largest ethnic minority, accounting for approximately ten per cent of the total population. The share of Uzbeks in the total population is growing as a result of high birth rates. The Central Asian republics cover an area of more than 3.9 million square kilometres. 26 The Central Asian republics are all land-locked. The population is ethnically and culturally mixed. The natural resources are very unevenly spread. Large parts of the region is made up of deserts. The Population The Central Asian republics are home to some 55 million people. The largest ethnic groups in the region as a whole are Uzbeks, Russians and Kazakhs. Despite considerable urbanization since the 1950s, the majority of the people in Central Asia still live in rural areas. Kazakhstan is the only Central Asian Republic with more than half of the population in urban areas. Population growth rates are high, both relative to the other republics of the former Soviet Union and in absolute terms. As a result of the high growrn rates the population of the region doubled between 1959 and 1989 and, given current trends and the lack of family planning programmes, is forecast to double again by the year 2025. Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan registered the highest population growth rates of all the republics in the former Soviet Union during the decade between the 1979 and 1989 population censuses. The figure for Kazakhstan was considerably lower, but still above the average for the union. However, the population growth rates have declined considerably since the 1950s; from 3.1 to 0.6 in Kazakhstan, from 3.3 to 1.3 in Kyrgyzstan and from 3.5 to 1.9 in Uzbekistan.1 The decline in the past few years has primarily been due to net migration losses, although natural population growth rates have also fallen. Natural growth is sole main factor behind die population increase as international migration (including migration to other CIS republics) is now negative. Life expectancy ranges from 68.8 years (Kazakhstan and Kyrgyzstan) to 69.6 years (Tajikistan), which corresponds roughly to the average of the former Soviet 27 Union as a whole. The life expectancy for women is on average six to seven years longer than for men. Due to the high birth rates, the share of youths in the population is high. The percentage of the population below working age ranges from 33 per cent in Kazakhstan to no less than 45 per cent in Tajikistan.2 By comparison, less than a quarter of the population in Russia is below working age. As a consequence, the labour markets in the Central Asian republics are under constant demographic pressure. However, with approximately half of the population in working age and high participation rates of the working age population (viz. 86.7 per cent in Turkmenistan and 87.5 per cent in Uzbekistan), the dependency ratios are still quite favourable. The proportion of the population above working age is quite small; ranging from 7.5 to 11.3 per cent as against 18.7 per cent in Russia. A total population of 55 million. High rates of population growth in four of the republics (Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan) and moderate population growth in Kazakhstan. A large proportion of youth in the population. Life expectancy under 70 years. Participation rates of the working age population about 86 to 87 per cent. Less than half the population in urban, except in Kazakhstan. No family planning programmes. 28 Population Migration The pattern of inter-republican migration has changed in the past decade. In the 1960s and 1970s the Central Asian republics attracted large numbers of immigrants from the other Soviet republics. These were primarily highly qualified workers, who were sent by the Soviet Government to help in the industrialization of the Central Asian republics. In die late the 1970s and early 1980s the migration pattern reversed and ethnic Slav workers started to leave the Central Asian republics. All in all, the Central Asian republics registered a net out migration of some 850,000 people between 1979 and 1989. Migration to other republics among the native population of Central Asia has been very limited. Their spatial mobility tends to be low, something which is often ascribed to their devotion to the native land. The rather small number of workers who might nevertheless be prepared migrate to work abroad would probably orient themselves towards the affluent Arab countries rather than to Europe. In one republic — Kyrgyzstan ~ the Government is actively encouraging young workers to go abroad for training and work. Net out-migration from the region, and intensified internal mobility and migration from rural to urban areas. Skilled workers leaving the Central Asian republics. Economic Development The Central Asian republics have undergone a transition from predominantly agrarian to relatively industrialized nations. However, in line with the industrial development patterns in the rest of the former Soviet Union, the emphasis has been on heavy industry and industrial engineering rather than on light and consumer industry. The services sectors are also underdeveloped. Since all the Central Asian republics were part of the Soviet 29 Union until late 1991, the dependence on links with die odier republics of die former Soviet Union is great. The importance of these links are further emphasized by die geographical position of the Central Asian republics and the legacies from die command economy, where all enterprises in industry and agriculture were part of a unified centrally planned economic system. Under this system the inter-dependence of enterprises — which today often are located in different republics — was very high as there were few alternative sources of supplies or outlets for outputs. This dependence on the other republics of the former USSR are now gradually being overcome. Prior to embarking on the transition to a market-oriented economy, the Central Asian republics registered a stable growth in national income, even if negative per capita growdi rates were sometimes recorded. Still, the Central Asian republics had die lowest per capita GNP and productivity levels in the USSR. In agriculture they specialized on cotton production and grain cultivation. All of the Central Asia republics, except Kazakhstan, depended of food imports. Following the proclamation of independence, the Central Asian republics have tried to lessen their dependence on cotton production in order to improve the food supply. The transition to a market-oriented economic system and the near breakdown of inter-republican economic linkages have resulted in falls in the GNP and in industrial output in the Central Asian republics. Between January to August 1991 and the same period in 1992 the GNP fell by 20.3 per cent in Kazakhstan, 20.5 per cent in Uzbekistan and 25.2 per cent in Kyrgyzstan. The smallest fall in GNP, 10.5 per cent, was registered in Turkmenistan. In most of the republics output fell in both industry and agriculture. Only Kazakhstan recorded an increase in agricultural output. Inflation started to develop rapidly after the liberalization of prices and although industrial enterprises in 1992 reported a nominal growth of profits, this did not improve their financial situation, since it was counter-weighted by inflationary factors such as higher costs of supplies, higher wages and additional expenditure on social security. For instance, wholesale prices of industrial output in Kazakhstan, Kyrgyzstan, Tajikistan and Turkmenistan increased by 3.7 to 4.1 times. Enterprises began experiencing difficulties in settling debts. As a consequence, inter-enterprise arrears accumulated quickly, reaching billions of rubles. Under these conditions barter trade 30 started to proliferate, being considered a more reliable mode of transaction than settling accounts through banks. Most of the Central Asian republics have a negative trade balance with the rest of the former Soviet Union, notably with Russia on whom they depend for much of their supplies. It is expected that the eventual construction of die new Transasian railway will help to change die pattern of external trade of the Central Asian republics and encourage trade with neighbouring countries, e.g. China, Iran, Iraq, as well as with Turkey. Pan-Asian integration trends were recently manifested as the Central Asian republics joined the Islamic Regional Union, founded by Iran, Pakistan and Turkey. The Soviet Union was a closed economy. Following its disintegration, the individual republics have become open economies since trade between the republics is now considered external trade. As a result, these new republics are in fact more actively engaging in foreign trade than, for example, the countries of the European Union. Another aspect of the externalization of previously internal trade is a shift to world market prices in the trade between the republics. It has been estimated that the shift to world market prices is beneficial to Turkmenistan, while all the other Central Asian republics will suffer deteriorating terms of trade and an 'oil price shock'. Privatization is an integral part of the transition process. In the Central Asian republics it began in the services sectors. More recently, privatization of housing and of factories has also started. It is hoped that a privatization of the housing stock will make die work force more mobile, since workers will be able to change residence more easily when moving to new jobs. However, caution is exercised in the privatization of land, since arable land has always been scarce in the region. Nevertheless, land is being distributed to farmers free of charge. A fall in GNP in 1992 of approximately 20 per cent. Greater dependence on mutual trade within the CIS areas. An 'oil shock' if energy prices reach world levels. Dependency on food imports. 31 Developments in thefieldof regional integration. The Employment Situation Despite the economic slump and the fall in GNP in the Central Asian republics, employment remained stable in 1991, largely due to the policy of state enterprises to protect the work force and maintain employment levels. Total employment remained virtually constant or even registered a slight increase in 1991. Only in 1992 did unemployment start to increase notably. It should be recalled that, historically, employment generation has always been one of the main problems in the Central Asian republics because of the strong supply pressure on die labour market due to demographic factors. A distinct feature of the employment situation is the high proportion of workers in agriculture. For example, no less than 42 per cent of the wage labour force in Tajikistan is employed in this field. Similarly high percentages are registered Turkmenistan and Uzbekistan (41 and 38 respectively in 1987).3 Among the Central Asian republics only Kazakhstan has a larger share of the labour force in industry dian in agriculture. The share of the indigenous population in the work force varies considerably from one republic to another, e.g. from 33 per cent in Kazakhstan to 61 per cent in Uzbekistan.4 Indigenous workers predominate entirely in agriculture, whereas many European workers are still employed in industry. For instance, Kazakhs make up a mere 21 per cent of the industrial work force in Kazakhstan. Apart from agriculture, indigenous workers are also well represented in administration, education and in the Arts. However, the share of indigenous workers in the industrial sector will undoubtedly and without exception increase in the coming years. Until recently the wage labour force in all the Central Asian republics were almost entirely employed in the state sector, as there was no other sector represented. As the transition towards a market-oriented economy gain pace, 32 employment in production and services cooperatives and in the private sector, as well as self-employment, is becoming increasingly important. Enterprises operated on the basis of leases and joint stock companies are gaining ground at the expense of the state sector. It is estimated that up to 20 per cent of the wage labour force is now employed outside the state sector. The employment issues in the rural areas deserve special attention, since the rural population has doubled in the past 30 years, which has caused serious employment problems. As a result of the young population structure in rural areas, the share of the population not yet in the active age groups is very high in die rural areas, while no more than half of the population are in the active age groups. Hence, the rural labour markets will be under severe supply pressure in the years to come. The sharp falls in GNP have not resulted in commensurate increases in unemployment. Employment in the state sector is shrinking. Employment problems are especially acute in the rural areas. Almost half of the employed are in agriculture. In 1992 open unemployment emerged and has since accelerated. Unemployment In recent years the labour force has grown much faster than the population as a whole in the Central Asian republics. Employment creation has lagged behind demand, despite continued 'soft budget constraints' and the associated hoarding of labour. Furthermore, as the financial support from Moscow ceased, the possibilities for economic development and employment creation diminished further. Falling output and the worsening ecological situation in 33 rural areas, as a result of over-irrigation and excessive water intake from the few available rivers, will no doubt hamper rural economic development and employment creation. The situation looks even gloomier when one takes into account the negative aspects of a doubling of the population early next century. This will inevitably lead to both open and hidden unemployment. Although unemployment has always existed in the Central Asian republics it was not admitted officially until the National Employment Acts, which recognized unemployment as a legitimate activity, were adopted in 1990 and 1991. By definition, workers who have lost their jobs for reasons beyond their control, are available for work, have registered themselves with the employment service, but have not been offered suitable work by this service, are considered to be unemployed. However, empirical evidence shows that only a small portion of the workers apply to the employment service when they become unemployed (about 18-26 per cent in the case of Kazakhstan). Therefore, the data on unemployment supplied by the employment services, which typically are the only source of such information, cannot be considered as fully reliable. At the present, the rise of unemployment in the Central Asian republics is a result of several factors. Most important of these would seem to be the disruption of the commercial ties between enterprises in the republics of the former Soviet Union. Other factors affecting the unemployment are die pace of privatization and introduction of real market conditions, the environmental degradation and the efficiency with which labour authorities in the countries adjust to the situation by taking corrective and preventive measures and by providing assistance to redundant workers to reintegrate them back into work. On the even of the transition, unemployment in the Central Asian republics could be estimated at 2.3 to 3.2 per cent, if unemployment is measured in terms of workers interviewed by the employment services. According to the statistics from the employment services mere were in 1991, alongside rising unemployment, still a large number of vacancies in the Central Asian republics. However, while vacancies were primarily in blue collar occupations, for heavy manual jobs amongst others, those laid were mainly white collar workers. In Kyrgyzstan, 82 per cent of the vacancies were for lowly paid manual jobs, whereas the job seekers were often people with high education and mostly women. Thus, mismatches 34 between supply and demand made it difficult to fill vacant positions. Still, the availability of vacancies helped to ease the unemployment problem during the initial period of recession and transition. Youths are disproportionately represented among the unemployed. For instance, in some areas of Kazakhstan, they make up 50 to 70 per cent of the unemployed. In other regions of Kazakhstan the share of persons with higher education among the unemployed is as high as 90 per cent. Occasionally, high rates of unemployment develop in pockets. Particularly affected are small towns were the economy is dominated by one or two enterprises and were there are few alternative sources of employment. Cities and towns dependent defense industries are cases in point. Unemployment started to develop rapidly in 1992. For example, in Kyrgyzstan in grew eleven-fold from January to November 1992, albeit from a very small base. In Kazakhstan it grew five-fold during the first five months of 1992. However, the official figures on unemployment are somewhat misleading since in 1992 the countries had not yet switched to international standards of reporting on unemployment. Thus, the data need to be closely examined to ensure that they do not include women on maternity leave or at home bringing up children and workers on short time working or on enforced breaks or holidays. Officially, the employment rate in Kyrgyzstan was a meagre 0.07 per cent of the labour force in November 1992, whereas the number of 'redundant' workers at the same time stood at 5 per cent of the population. According to official data supplied by the Minstries of Labour in the region, unemployment was even estimated to be as high as 8.3 if figures on 'hidden' unemployment were included. The avalanche of work stoppages in enterprises due to interruptions and broken supply lines intensified in the autumn of 1992. For example, by September 1992 some 920 enterprises in Kyrgyzstan had announced plans to cut the work force. Forecasts for 1993 have suggested an increase in unemployment to 110,000 or more, depending on the scenario of economic development. It deserves to be reiterated that in 1992 the main culprit behind unemployment was still the disruption of the economic links between enterprises, which also explains why enterprises endeavoured to keep their workers, albeit on a shorter working week or on leave widi partial or no pay, 35 in expectation of an easing of this problem. For instance, in Kazakhstan in the summer of 1992, some 130 enterprises temporarily closed down, causing some 10,000 to be sent on leave without pay, while an additional 3,000 enterprises operated at less than full capacity. A decision by the Central Asian republics to establish a common market for goods to foster a replacement of the trade ties with Russia by trade among themselves might be considered a wise step in combating this specific type of unemployment. The development of unemployment has also resulted in the appearance of a 'gray' or illegal labour market, in which redundant workers are hired on a daily basis. Such workers are most frequently employed in private housing construction and are paid in cash and provided with free meals. Usually, private employers pick up workers at the doorstep of the labour exchanges and take them for work on a daily basis. The labour authorities estimate that as much as 10 per cent of the unemployed workers participate in such 'shadow' schemes. Poverty has recently started to proliferate in the Central Asian republics, as a phenomenon closely related to unemployment. The unemployment situation is especially difficult in the rural areas due to rural overpopulation and high rates of labour supply. Low territorial mobility of the rural population worsens the problem. The authorities in the agricultural settlements are facing the dilemma of either sharing the work around with low productivity as a result or providing productive employment to some at the cost of high levels of open unemployment. There are large numbers of women, youths and highly educated among the unemployed. So far, the disruption of the economic links between enterprises has been the main reason behind the rising unemployment. There are structural mismatches between the supply and demand for labour. A further deterioration in the labour markets may be expected as a result of the economic reforms. 36 Social Safety Nets for Redundant Workers According to the labour regulations in most of the Central Asia Republics, workers must be given two months advance notice in case they are laid off and are entitled to a severance payment amounting to three months' wages by the releasing enterprise. When recognized unemployed, workers are paid unemployment benefits for a period of six months, usually at a replacement rate of 50 per cent, which is adjusted for the number of dependents. However, in some cases unemployment benefits are at the subsistence level, or even below. So far, a large proportion of the workers have found new jobs in the course of the first months of redundancy. Only a very small fraction of the workers have remained unemployed for more than six months. If a worker rejects two (in certain cases one) offer of a suitable job, he or she becomes disqualified for unemployment benefits, or the level of the benefit is reduced by 50 per cent. Retraining, with a stipend hot lower than the minimum wage, may be offered to those for whom no suitable job can be found by the employment service. The Employment Funds or the Funds for Employment Promotion, which are responsible for dispersing the unemployment benefits and for financing retraining, became operational in 1991. These funds are primarily funded through a percentage fee on the wage bills of enterprises, which so far has not exceeded three per cent, as well as through grants and via the budget of the local authorities. 37 Special Groups of Workers Women Altogether 51 per cent of the population in the Central Asian republics are women. However, the share of women in the labour force is lower than in the former Soviet Union as a whole; averaging 38 to 49 per cent as against 51 per cent. The comparatively lower participation rate of women in the labour force is due to several factors, including: a high rate of child care due to high birth rates and long periods spent on maternity leave; tradition, not least in rural areas; and inadequate employment opportunities, which in particular affect women. Although lower than in the other CIS republics, the share of women in the work force has increased considerably since the 1950s. However, the transition induced unemployment has particularly affected women, who on average make up 70 per cent of the unemployed. The problems of women have several aspects. The first consists of those related to their family role, in particular as mothers of, more often than not, many children. In the Central Asian republics maternity is regarded as a social function. Women are protected by the provisions of the ILO Convention No. 103, concerning maternity leave protection. The second aspect concerns specificities of the utilization of female labour. The lack of economic growth reduces the possibilities to absorb women into employment. The time has probably come for positive action ,in favour of women, on top and above the measures mentioned above, because of their marginalization in the labour market during the transition period. Women are now the last to be hired and the first to be fired. With regard to entrepreneurship development among women, the success stories so far are exceptions rather than a rule. Furthermore, the future development of the female employment situation in Central Asia will be affected by the type of society which will finally be installed in these newly independent countries; in particular if they will be secular or Muslim states, since the Muslim faith is currently witnessing a rebirth in Central Asia. There is a high proportion of women in the workforce and in training. 38 Women are becoming marginalized as a result of the transition to a market-oriented economy. There is a need for positive discrimination in favour of women. Youth A specific feature of the Central Asian republics is the large supply of young workers in the labour market. Difficulties in finding jobs for the young and in providing initial training force considerable numbers of young people onto the open labour market. It is becoming increasingly difficult for school leavers to find employment. While in 1988 a mere 20 youths per 10,000 in the USSR were neither studying nor working, these proportions were 160 per 10,000 in Turkmenistan and 190 per 10,000 in Tajikistan. Presently, the level of unemployment among the young is growing, both relatively and absolutely, as a consequence of the transition to a marketoriented economy and the recession. In certain regions of Kazakhstan the proportion of youths in the total number of unemployed totals 61 to 69 per cent. In Tajikistan, the age group 18 to 24 accounts for a third of the unemployment, while the age group 25 to 29 make up 20 per cent of the unemployed. Youths graduating from secondary vocational schools oriented towards agricultural technologies have special difficulties in finding employment. In some republics, such as Uzbekistan, cotton provides at present work for some 30 per cent of the rural population. Consequently, employment opportunities for rural youths depend to a great extend on cotton production rather than on its processing, which was planned to take place elsewhere in the USSR. At the same time there are also problems with finding jobs in industry in urban areas. Only ten per cent of the young entrants into the labour market obtain jobs in the industrial sector. In Uzbekistan only 68 per cent of the new entrants to the labour market are provided with either employment or training. For the urban areas this proportion is 86 per cent and for rural areas 47 per cent. 39 However, in spite of the growth of unemployment, some advanced industries in the Central Asian republics continue to experience a shortage of labour widi specialized skills. This underlines the importance of appropriate training. A partial solution to the youth employment problem in Central Asia might be to extend the years in formal education and training, thus delaying uieir entrance into the labour market. The young are also marginalized in the transition process. School leavers in search of theirfirstjob face special difficulties. Jobs in agricultural depend largely on cotton production. There is a need to enhance training of the young in skills required by the market. Labour Market Policies The Institutional and Legislative Framework As part of the economic reform programmes and in view of the imminence of unemployment the Governments of the Central Asian republics have enacted special legislation conducive to the creation of labour markets in recognition of the fact that improved efficiency of production will result in unemployment during the period of transition. Most important has been the adoption of the employment ects. These state for the first time that unemployment is a legal activity and provide for measures to combat it. In addition they provide protection for unemployed workers in the form of unemployment benefits and provision of job counselling and retraining. The employment acts have institutionalized employment services, employment funds (or funds for employment promotion) and tripartism, although not always with employers and workers on an equal footing. In some of the countries the employment acts were adopted in early 1991 40 when these countries were still part of the USSR. Subsequently, these acts have been altered or amended, e.g. in Kazakhstan, to better suit the new realities brought about by the transition to a market oriented economy. Hence, the process of drafting the national employment legislation has not yet been completed. The employment funds are also financing special public works, jointly with the local authorities. Simultaneously with the establishment of the employment funds, reforms of the social security systems have been institutionalized. These reforms separate, where feasible, the pensions funds from the budget and transfer the responsibility for sick leave insurances from the trade unions to the State. Apart from the unemployment insurance, which is paid from the employment funds, there exist different benefits paid in respect of children,' for mothers on maternity leave and others. These benefits range between one half of the minimum wage and the average wage. Labour inspections, usually an organic part of the employment services, monitor the compliance of the employers to the new legislation regarding conditions of work. Adoption of national employment acts. Establishment of employment services and employment funds. Emerging tripartism. Creation of social safety nets. Labour inspections. Policies and Programmes Following the adoption of die Employment Acts, the Governments of the Central Asian republics started setting up new employment services where such had not existed and modernizing existing ones. As part of this process they have been equipped with modern computer facilities. However, the 41 employment services still use card systems to keep track of unemployed and as a consequence the process of job matching, as well as that of paying unemployment benefits, is not very efficient. At present, the employment services have outlets in all cities, large towns and regions. The organization of training and retraining of redundant workers as well as enhancement of the training of the young in employable skills is being pursued alongside the other tasks of the employment services. So far the employment services have managed to cope with redundancies, but the question is still open if they will be able to deal with much larger volumes of unemployed if it should come to massive layoffs as a consequence of privatization of state enterprises and elimination of 'soft budget constraints'. The use of special public works as an active labour market measure is a novelty in the Central Asian republics. In Kazakhstan it was foreseen to engage 58,000 out of a total expected number of 330,000 unemployed in 1992 in such works. Special public works usually include activities such as care of elderly, equipping houses with modern amenities, maintenance of parks, repair works, harvesting and loading/unloading operations. The local employment centres, assisted by the local governments, play a leading role in the organization of special public works. Another aspect of the new employment policies concerns facilitating the territorial mobility of workers from regions with high rates of unemployment to areas where there is a demand for labour. However, this is not an easy task because of the low predisposition of the rural population to move and the practical difficulties facing the potential migrant. The shortage of housing is a major constraint and in some instances the system of residence permits — propiska — also creates an obstacle to mobility. The situation is expected to improve with the creation of a housing market. In some cases, training in managerial and other skills required in a market economy has been organized with very good results. Vocational guidance and counselling services are also being provided to job seekers in the employment centres, which inter alia facilitates the selection of the appropriate candidates for specific types of training. 42 Main Conclusions Not least the demographic situation is highly similar in the Central Asian republics. High rates of population growth result in high levels of labour supply and large numbers of young workers in the labour force, while on the demand side falling output and growing external trade imbalances lead to redundancies. The degradation of the environment is undermining the employment creating capacity of agriculture. The economic crisis and decline in production resulting from the transition reached serious proportions in 1992 and 1993. This development was primarily due to the abrupt discontinuation of central planning in 1991 and the disruption of the trade ties between the republics. In the absence of an effective replacement of the previous trading partners, this had damaging consequences for employment at the enterprise level. Hence, the main reason for the rising unemployment in 1991 was the disruption of economic ties. The growth of unemployment has not bottomed out yet, since privatization and the introduction of real market relations has so far not touched the larger parts of the industrial sector, not even in the countries where the reforms are most advanced. Unemployment affects mainly the young (whose position in the labour market has become precarious), women, especially with small children, and workers above the age of 50. However, distortions and ambiguities in the assessments of the true number of unemployed workers and lack of alternative assessments call for the enhancement of labour market information systems, including unemployment statistics. Even given the current difficulties of slump and fall in industrial output, there are possibilities for alleviating unemployment and for employment and income generation for the needy in Central Asia. Taking into account the low mobility of the population and cultural traditions which are very strong and differ from those elsewhere in the former USSR, jobs should be moved to people, especially in rural areas, and not vice versa. This calls for the development of rural non-farm employment, which should be labour intensive rather than capital intensive. New entrepreneurs should play a major role in job creation at a time when the state sector is diminishing as a 43 result of privatization. Under such circumstances special attention should be paid to the development of local labour market programmes. Possibilities to open up new land and increase irrigation have more or less been exhausted, but prospects seem to be much better for the development of services and processing industries in rural areas. Most of the population in the Central Asian republics live in rural settlements. Encouraging entrepreneurs to establish new enterprises in such settlements can create jobs for the local population and combat poverty. According to some calculations, the development of the services sectors could provide for 350,000 to 400,000 new jobs in Tajikistan alone. Such jobs, if part time or done in the home, could help local women with children, since some 40 per cent of the unemployed in this country reportedly are mothers with children. Employment services offered to workers should be enhanced, possibly as a first priority. Such enhancement should include computer assisted job matching and unemployment benefit payments. The same pertains to labour market information systems, which need to be enhanced in order to be in a position to give appropriate signals to policy makers, job seekers and employers. Creation of social safety nets should take into account proper monetary and taxation policies as the state budgets are already overstretched, since the domestic tax bases have been reduced during the transition and the share of the non-working population to be supported is already high and increasing. Notes 1 2 3 4 See Appendix 3, table 3. See Appendix 3, table 4. See Appendix 3, table 7. See Appendix 3, table 8. 4 Unemployment, Labour Market Policies and Social Protection: A Synopsis Alexander Samorodov et. al.1 An examination of the issues of unemployment, labour market policies and social protection in the Central Asian republics needs to be done against the backdrop of the dismal performances of the economies of these republics in the past few years. Although modest economic growth was registered in the 1980s, at least up to 1988, subsequent retrogression has resulted in a return in the level of economic activity to that of the late 1970s or earlier.1 In most of the republics the absolute decline in national income started already in 1990 and has since accelerated sharply. Since 1991 all the Central Asian republics, except Turkmenistan and possibly Uzbekistan, have registered a decline in national income in excess of 20 per cent. In per capita terms the recent decline comes out even more dramatically. This sharp economic decline can primarily be attributed to the disruption of inter-enterprise linkages and the disappearance of long-established markets in the wake of the 1 The synopsis was prepared by Alexander Samodorov and Per Ronnas on basis of five unpublished country studies and a general background paper produced in anticipation of the conference ('Salient Features of Country Developments Kazakhstan' by T. Behgametov; 'Employment and Formation of a Labour Market in the Republic of Kyrgyzstan' by V. Roumyantsev; 'A Report on Tajikistan' by Sh. Zukhurov; 'Transition and Employment Policies in Uzbekistan' by R. Shadiev; and 'Employment and Economic Transformation in Central Asia' by Per Ronnas & Orjan Sjoberg). 46 collapse of central planning and of the Soviet Union as an economic unit and may therefore be seen as a discrete one-time decline in response to an externally induced shock with little or no value as a basis for forecasts for the future. However, it does underscore the need for forceful restructuring and reorientation of the economies. As the transition to a market economy has only just commenced, the overall economic effects of this transition have yet to be felt. This process, too, will inevitably take its toll in terms falling output and declining economic activity as enterprises are forced to adjust to increasingly hard budget constraints. The magnitude and duration of the net economic costs of the transition will primarily be determined by the abilities of the economies and societies to adjust, to mobilize the latent potential for entrepreneurship and to exploit the opportunities for new employment and income generating activities that are opening up. The generation of new employment through the establishment and growth of new enterprises will therefore become a key indicator. The employment aspects of the economic transition assume a special importance in view of the strong supply pressure on the labour markets. The sustained high rates of natural increase have resulted in broad-based population pyramids indicating that there will be a rapid increase in the working age population at least over the short and medium term. Tentative calculations suggest that the working age population will increase by more than three per cent per year throughout the 1990s in Tajikistan, Turkmenistan and Uzbekistan and by almost as much in Kyrgyzstan.2 Only Kazakhstan may be expected to register a growth rate of the working age population of less than two per cent. The fact that much of the increase will take place in rural areas offers little consolation as the potentials for using agriculture as an employment buffer are in most of the countries virtually non-existant. However, this rather gloomy picture needs to be modified by a few positive features. Firstly, the industrial structure of the labour force suggests that the economic transition may be somewhat less painful than in the heavily 47 industrialised formerly socialist countries in the western parts of the former Soviet Union and in East Central Europe. The Central Asian republics have retained a large proportion of their labour force in agriculture, while the share of the labour force in industry typically does not exceed 25 per cent. This may prove fortunate in as much as the costs in terms of losses of production and employment of the restructuring of the industrial sector are likely to prove much higher than in agriculture. However, the past policy emphasizing capital intensive agriculture deserves to be reviewed, in particular with regard to cotton production. There is evidence that the drive to mechanize cotton production has not paid off in terms of lower costs of production and that it may have been detrimental to quality.3 Most of the Central Asian republics are abundant in labour, but short of capital, and economic policies, not least in the field of agriculture, need to reflect this in order to bring capital intensity better in tune with the relative factor endowments. Such a shift would increase cost efficiency and competitiveness as well as promote employment generation. The services sectors are underdeveloped in all the Central Asian republics and hold out hopes for future employment and income generations. Some services can be expected to develop through spontaneous developments in the private sector, while others will require substantial investments in training and education. A second feature which brightens the otherwise rather gloomy picture is the evidence of increasing private entrepreneurship and of increasing labour mobility. Such evidence is still very patchy, but nevertheless suggestive. Thus, in Kazakhstan some 13,000 small scale enterprises with a total labour force of 200,000 had been registed by mid-1992, and the geographical mobility of labour has visibly increased.4 Kyrgyzstan, too, has recorded an encouraging growth of small-scale enterprises in the private sector. The economic decline has not yet resulted in any commensurate increase in open unemployment, but has primarily been translated into sharp falls in labour productivity and, to a lesser extent, in incomes. The reasons behind this would appear to be twofold. Firstly, managers and workers identify the decline in production as a consequence of the disruption of backward and forward linkages and thus, rightly or wrongly, as a temporary phenomenon. Secondly, continued soft budget constraints makes it possible for enterprises 48 to maintain a larger work force than they presently need in anticipation of a brighter future. However, there is a general awareness that while this development may provide employment planners with a certain breathing space, it does not present a viable solution. Work sharing is no substitute for employment generation and sooner or later the levels of employment will need to adjust to the levels of economic activity. This makes a review of the development of unemployment, labour market policies and policies for social protection, to which the paper now turns, especially pertinent. Unemployment Although there has always been unemployment in the Central Asian republics it was not admitted officially until the National Employment Acts, recognizing unemployment as a legitimate 'activity', were adopted, in most cases in 1991. By definition, workers who have lost their job for reasons beyond their control, are available for work, and have registered with the employment service, but have not been offered any suitable job by it, are considered to be unemployed. However, empirical evidence shows that only a small proportion of the unemployed register with the employment'service; e.g. 18 to 26 per cent in the case of Kazakhstan.5 The figures on unemployment supplied by the employment services, which currently is the only source of such statistics, are likely to severely understate the actual numbers. On the eve of the transition, estimates of unemployment based on information from the employment services ranged from 2.3 to 3.2 per cent. However, according to other sources of data unemployment was much higher and stood close to seven per cent in Uzbekistan, five per cent in Kazakhstan and even twelve per cent in Tajikistan.6 In Kazakhstan, the first legally unemployed were registered in July, 1991, when the 'Law on Employment of me Population' went into force. As per article 5 of this law, citizens who '... through reasons beyond their control 49 have no wage or salary (income from work), who are registered with the employment service as seeking work, able bodied and prepared to resume work, and who were not offered a suitable job by the above service ...' can be recognized as unemployed. In the second quarter of 1991 4,000 unemployed were registered on the basis of this definition. By November, 1992, the number of registered unemployed had increased to 63,000. The social safety net for the unemployed comprises unemployment benefits, grants when in training, and paid public works programmes. Unemployed workers are also entitled to a grant upon the expiration of the entitlement to employment benefits. Unemployment insurances are allowed, but not widely used.7 The rate of unemployment benefits for persons seeking a job for the first time is set at a level corresponding to 75-100 per cent of the minimum wage and is paid for thirteen calender weeks. The replacement rate for others is 50 per cent of the previous wage and is paid for a period of 26 weeks or 36 weeks in the case of workers who are about to retire.8 The entire country has by now been affected by unemployment, but small and medium sized towns with an economic base dominated by one or two enterprises have been worst affected. Unemployment is caused by and takes the form of retrenchment of workers, youth unemployment, self-employment on household plots9 and resettlement of ethnic Kazakh workers from abroad. Even short term forecasts of the development of unemployment are difficult to make, as different scenarios may be identified. Should the 1992 situation of soft budget constraints remain unemployment in 1993 might be confined to 2.6 to 3.4 per cent of the labour force, or 200,000 to 250,000. However, in a situation of continued privatization, sustained inflation, retention of former credit and tax policies, and an expected continued fall in production, unemployment might reach 350,000 to 400,000, that is 4.7 to 5.4 per cent of the labour force. Should the reforms assume a more radical course, with tight anti-inflationary monetary policies, accelerated privatization and attraction of foreign capital, unemployment might reach 700,000 to 800,000, or 9.4 to 10.8 per cent of the labour force.10 A 'middle of the road' scenario appears to be the most likely. The Ministry of Labour of Kazakhstan has taken the position that measures to artificially support full employment should be of a restricted nature in order not to contradict anti-inflationary policies and the 50 task of creating an effective labour market. Rural areas account for about 56 per cent of the unemployment, while 44 per cent of the unemployed are found in the urban areas The unemployed come both from the sphere of material production (43 per cent) and from the services sectors (42 per cent). Earlier hopes that the services sectors would absorb redundant workers from the sphere of material production have not materialized. On the contrary, the services sectors themselves have started to shed labour. This is particularly evident in the regions of Semipalitinsk, Pavlodar, Southern Kazakhstan and Atyraus. One third of the unemployed have involuntarily lost their job as a result of job reductions, a quarter of the unemployed have quitted work voluntarily or were dismissed for breach of discipline. Some 15 per cent of the unemployed are new entrants into the labour force or were previously working on the household plot. No less than 70 per cent of the unemployed are women. The vast majority of them (84 per cent) belong to the active age groups and 29 per cent of them are under the age of 29. However, the structure of the unemployed by sex, age and education varies greatly by region. In some regions, like Karaganda, Western Kazakhsatan, Mangystau and Akmolinsk, women account for 80 to 90 per cent of the unemployed. Some 57 per cent of the female unemployed live in urban areas, 69 per cent are married, 40 per cent have secondary education and 30 per cent higher education, and 42 per cent have a length of service of ten years or more. The increase in unemployment in 1992 took place against the backdrop of a falling number of vacancies. Still the number of vacancies exceeded in 1992 the number of unemployed. However, this does not mean that the unemployment problem can easily be solved. There are regional mismatches in the supply and demand for labour. Workers are retrenched in one place whereas they are needed elsewhere. There are also occupational mismatches. Unfortunately there is as yet no effective system for collecting information on reductions in the number of jobs at die enterprise level. In order to gain some information in this field the Ministry of Labour conducted a survey of some 455 industrial establishments in eight regions of the country in the second half of 1992. The survey revealed that only 20 per cent of the managers considered that manpower problems at the enterprise was a greater 51 cause of concern than other problems. However, the survey showed that conditions for production were far from ideal. The most severe problem concerned the supply of components and spare parts. Only four per cent of the enterprises had enough raw material and half of the surveyed enterprises had worn out equipment. As a consequence, the work load decreases. Only 21 per cent of the industrial enterprises and 16 per cent of enterprises in the transportation sector operated at 90 to 100 per cent of its capacity. It is against this background that the unemployment forecasts should be seen. Only half of the managers of the surveyed enterprises reported that they would manage to preserve the existing jobs, and a mere 11 per cent expected to hire new labour. One of ten enterprises were going to curtail production and, as a consequence, shed labour. All in all, some 40 per cent of the enterprises felt that they might have to reduce the number of employees. Every sixth enterprise was planning to cut employment by as much as 40 to 50 per cent. In Kyrgyzstan, the Law on Employment of the Population defines unemployment as follows: 'Citizens are recognized as unemployed if they are able bodied and in active age, if they have been made unemployed through reasons beyond their control, if they are duly registered with the employment service, are looking for a job, are prepared to resume work, and if they have not received any offer of a suitable job from the employment service'. In case the employment service is not in a position to offer a worker a suitable job, the worker is to be offered retraining or training.11 In 1991 and early 1992 there were still no more than 1,400 registered unemployed workers. The standard unemployment benefit is 50 per cent of the previous wage (calculated as the average for the three preceding months), with the provision that it must not be lower than the minimum wage and not higher than the average wage in the economy. However, first time job seekers, who are recognized as unemployed, are entitled to an unemployment benefit corresponding to 75 per cent of the minimum wage. Long term unemployed (with more than one year of unemployment) are entitled to 75 to 100 per cent of the minimum wage, depending on their qualifications. The average period of unemployment in 1992 was 10.3 weeks in rural areas and 9.7 weeks in urban areas. 52 As in Kazakhstan, the number of vacancies in Kyrgyzstan in 1992 exceeded the number of unemployed. In November 1992 there was a total of 6,620 vacancies as against 1,384 unemployed.12 However, matching supply and demand is difficult as 82 per cent of the vacancies were for low paid manual jobs, while most of the job seekers are women and often have high education. Among the Central Asian republics, Tajikistan is probably worst affected by unemployment. Civil conflict and unrest has greatly added to unemployment in this country. According to official information, as much as one third of the rural population was unemployed in early 1993. Besides, some 50,000 highly qualified specialists have left the country to escape the civil war, as a consequence production in either stopped altogether or been brought to a near halt in many establishments, with resultant unemployment.13 Turkmenistan stands out as a country where the problem of unemployment is relatively less severe. By the end of 1991 there were only 38,000 officially reported unemployed. The conditions in this country are however specific. It is probably the only country where workers are given two months of paid summer holiday.14 The situation in Uzbekistan has developed much along the same lines as in Kazakhstan and Kyrgyzstan. Forecasts for 1993 suggested that there would be at least some 110,000 unemployed in Uzbekistan. However, by November 1992 there were only 5,200 receivers of unemployment benefits, which must be considered very few for a country with a labour force of ten million. However, it should be recalled that in 1992 privatization and the introduction of a market economy were not the main reasons behind the rising unemployment. It was mainly the disruption of economic links between enterprises that caused the growth of unemployment. This explains the desire of enterprises at the time to retain their workers, albeit on a shorter working week or on leave with partial or even no pay, in expectation of improved market conditions. In Uzbekistan workers who have declined two offers of a suitable job has 53 his/her unemployment status revoked for thirty days, where after they have to register anew with the employment service. Jobs which correspond to the workers' skills or require retraining are considered as suitable. For first time suitable jobs for job seekers may include those for which no skills are required and may also include short term placements. However, a job is not considered suitable if it is in an area where living conditions are inferior to those the worker presently have, would involve excessive travel time, or offer remuneration and working conditions below the average level prevailing in the area. Solid family reasons may also be an acceptable excuse for declining a job offer.15 To sum up the main general features, it should be noted that unemployment in the Central Asian republics started to grow rapidly in 1992. For example, in Kyrgyzstan it increased eleven fold from January to November 1992, albeit from a very small base. In Kazakhstan unemployment increased five fold during the first five months of 1992.16 However, a caveat needs to be introduced as the official figures on unemployment are misleading since the Central Asian republics had not yet switched to international standards of reporting unemployment by 1992. Thus, in using these figures one must make sure that they do not include women on maternity leave or bringing up children or workers on reduced working time or temporarily sent home. The discrepancies in the available statistics are large. For example, while the official unemployment rate in Kyrgyzstan by November, 1992, was a meagre 0.07 per cent of the labour force, the number of 'redundant' workers at the same time was stated to be five per cent of the population. Unemployment was even estimated to stand at as much as 8.3 per cent if the number of 'hidden' unemployed were included.17 As a result of the poorly diversified economic base and predominance of a few large enterprises in many towns, unemployment in the Central Asian republics often develop in 'pockets'. Small towns where there might only be one or two enterprises and no alternative sources of employment are particularly affected. The situation is especially difficult in cities and towns which used to depend on defense production, which now needs to be converted, or in those affected by broken economic ties. A case in point is a sugar processing factory in Kyrgyzstan, which depended on sugar imported 54 from Cuba. When the supplies from Cuba stopped, the factory faced severe problems. The avalanche of work stoppages in enterprises due to interruptions and broken supplies intensified by the autumn of 1992. For example, by September 1992, some 920 enterprises in Kyrgyzstan announced plans to cut the workforce.18 The development of unemployment in the Central Asian republics has also given a strong push to the appearance of a 'gray' or illegal labour market in which redundant workers are hired on a day by day basis. Such workers usually find work in private housing construction, are paid in cash, and provided with free meals for the work performed. Private employers often pick up workers at the doors of the labour exchanges and take them to work on a daily basis. Recent poverty in the Central Asian republics is strongly linked to unemployment. An especially difficult situation with regard to unemployment in some of the countries is developing in the rural areas, as a consequence of rural overpopulation and large numbers of surplus labour. Low territorial mobility of the rural population and a propensity to stay within the local ethnic borders aggravate the problem. The local authorities in agricultural settlements face the hypothetical dilemma of either providing low productivity work for all or productive employment for some, but accompanied by high levels of unemployment. By way of conclusion, it may be said that by 1993 unemployment had not yet reached its peak in the Central Asian republics. Continued government subsidies helped to keep unemployment under control in all the countries concerned. The future development of unemployment is obviously difficult to foresee. Very much depends on if the development of labour markets will be influenced by large scale privatization and corresponding restructuring, as well as if the enterprises in the region will be able to find alternative sources of supplies and marketing, including export markets, to keep up production. 55 Employment and Labour Market Policies The transition to a market-oriented economy calls for a complete revision of the existing employment policies and for the creation of an absolutely new employment model. The transition implies 'a volt face' for labour market and employment policies, that is a shift from a situation of labour shortage to one of labour surplus, as large scale shedding of labour takes place. So how do the countries adjust? In Kazakhstan, the Government has sought to establish 'an employment policy, with periodic employment programmes, at different levels, including the national and local ones'. 19 The main idea is to intervene in the labour market through training and retraining, organization of special public works, assistance in employment creation and entrepreneurship development for women and the youth in particular, and assisting the handicapped to find work. According the principles embodied into the State Programme for Employment Promotion and Reduction of Unemployment, labour market policies in Kazakhstan in the period 1993 - 1995 will specifically focus on: - controlling the supply and demand for manpower; upgrading manpower; encouraging territorial and vocational labour mobility; controlling employment in the zones of ecological disaster, and; assisting the vulnerable groups of workers. Preferences has been given to such a principle as 'priority of working life' the design of the labour market policies in Kazakhstan. However, it would appear that a consistent implementation of the 'priority of working life' principle would not be altogether consistent with the market oriented reforms, since the days of administrative coercion of workers are gone. However, if 'priority to working life' is interpreted as full and productive employment, this would be a totally different matter. The policies of the Government of Kazakhstan also foresee direct employment creation in small enterprises, assigning job quotas to vulnerable 56 population groups with the backstopping of the employment fund. Along' with these measures to create new employment, measures were also taken to forestall the development of unemployment in specific industrial branches, such as the defense sector. In 1992, the Ministry of Labour decided to finance the retraining of workers in the defense sector enterprises under conversion, which face difficulties. It helped to take preemptive measures for some 7,000 to 10,000 highly specialized workers who were at risk to loose their jobs, and to protect the other unqualified 100,000 workers. The Government of Kazakhstan also helped the enterprises of the Society of the Deaf and the Blind of Kazakhstan by providing jobs for some 2,000 to 3,000 handicapped workers. Furthermore, some 20,000 jobs were created for immigrants to the country ~ mainly ethnic Kazakhs ~ to help them to integrate into society. The vulnerable groups in the labour market are considered to be single parents and mothers with many children under the age of 16, persons having to support at least two dependents, invalids (with third degree invalidity), workers approaching retirement age, demobilized soldiers, Afghan war veterans, former delinquents, and refugees. In Kyrgyzstan the above Law on Employment of the Population provides the legal prerequisites for new employment and labour market policies. The basic philosophy of the new approach is to create conditions of equal opportunity and treatment for workers in the labour market and possibilities to freely choose employment, irrespective of sex, religion, age, political views, nationality and social status. The State Employment Service, with 15 officers per 100,000 inhabitants, has been charged with implementing the law. In its operations it is paying special attention to regions with a surplus of labour and to vulnerable groups in the labour market which have difficulties in obtaining employment on their own. A special 'Programme on Employment of the Population' was adopted in the republic for the years 1992 - 1993. This programme was a path-finding event since social partners participated in its design on a tripartite basis for the first time, as opposed to what has been the case in other Central Asian republics where tripartism is weaker. The current state of the labour market as well as forecasts of the labour force growth were taken into account in the elaboration of the programme. The programme also takes into account die 57 specific conditions of various social, age and demographic groups in different regions of the country on the basis of qualitative and quantitative assessments, as well as trends in population growth. The programme includes sections on 'priority tasks', such as: creating conditions for productive and freely chosen employment, training and retraining for retrenched workers, reintegration of workers into the labour process, hiring, internal labour migration and temporary migration of workers abroad and social protection of workers, in particular women, youths, aged workers, pensioners, invalids, former delinquents and demobilized soldiers. The programme singles out regions for priority development, where the emphasis of labour market policies is specifically placed on employment creation. Enterprises in these regions are accorded special tax concessions and may enjoy other benefits and immunities. According the programme, enterprises with more than one hundred workers are required to reserve job quotas for special groups of workers. The size of these quotas is determined on an annual basis in collaboration with the local authorities. The quotas must not exceed five per cent of the total work force. However, if workers belonging to the designated special groups make up 30 per cent or more of the total work force of an enterprise, the enterprise becomes eligible for special tax concessions. If members of such groups account for more than half of the work force the enterprises are relieved from paying taxes and making contributions to the state budget. As of 1992, job quotas numbered in total 21,000 workers.20 In Tajikistan, as in the other republics, annual national and regional employment programmes are being elaborated. These programmes contain detailed employment policies for the transition period. The policies include, among other things, special public works. The main activities for special public works are harvesting, environmental cleaning, seasonal post-harvest agricultural work etc. The Government of Tajikistan is also taking measures to reduce the labour supply. These include, amongst others, early retirement of long term unemployed (who may retire one year prior to the standard retirement age). Short time working has also been introduced, and work in the home is being 58 encouraged. Short time work involved some 5,000 workers in 1993, half of them in industry and some 20 per cent in education. At the beginning of 1993 some 7,000 workers worked at home, mainly for local industries. By law, women are entitled to 1.5 year of paid, and 2.5 years of unpaid, leave to take care of children. As a result, some 300,000 to 360,000 women are on maternity leave at any point in time. Distribution of land parcels for individual farming also serves to relieve the pressure on die supply side. Training is organized in order to reintegrate workers. Workers' upgrading consists of on-the-job training, training in state establishments and short term training courses for self-employment.21 In Uzbekistan the Government has focussed on setting up a labour market. In order to increase labour mobility, administrative restrictions on the freedom to move, both within and beyond the republic, and on choice of employment have been lifted. Employers, irrespective of ownership form, have been granted the freedom of hiring and firing. The restrictions concerning maximum wages and salaries have also been lifted and income policies will henceforth rely on the tax system. The Government of Uzbekistan has also proceeded with a number of other measures aimed at improving the efficiency of the labour market, such as: - establishment of a network of labour exchanges; - creation of data banks on vacancies and job seekers; - employment programmes targeting on labour surplus regions; - launching research on the national labour markets, and; - introducing an unemployment insurance scheme. Social Safety Nets The Central Asian republics inherited a very ramified system of social protection from the USSR. There exist, as a rule, the following types of payments under different social protection schemes: 59 - state,'age and invalidity related pensions; state pensions in cases of loss of bread winner; benefits in case of temporary loss of ability to work, including traumas at the work place and occupation related diseases; benefits for taking care of the sick and invalids maternity benefits and child allowances; benefits for burial services; unemployment benefits; subsidized or free stay in rest homes and sanatoria for workers; employment insurance schemes, and; paid sick leave. Payments are effected from the state insurance funds, which typically comprise the state social security fund and, more recently, the employment fund. Contributions to the funds are made by enterprises of various ownership forms, collective farms, cooperatives and self-employed workers. However, the systems of social protection currently used in the Central Asian republics have drawbacks and are not suited for a market economy. In the opinion of Kazakh experts they have four major weaknesses.22 First, the social support measures embrace the entire population and are loosely targeted, whereas at the early stages of the transition only about a third of the population require social support. Second, the 'charity' like social protection has become an intolerable burden to the State at a time when government revenues are falling. The result is a vicious circle, where the State keeps increasing taxation in order to cover the costs of social protection, the enterprises respond by raising prices, which further depresses the standard of living of the population. Third, the current system of benefits is very complex and huge. It has no provisions for inflation, and hence requires repeated adjustments which leads to delays in payments and to discontent among those who are negatively affected. Fourth, the current system increases inequality in incomes among the population and thus serves to further divide the society into the rich and the poor. Benefits which are not adjusted for inflation only serve to proliferate 60 poverty, whereas the rich avoid depreciation of capital by investing in businesses. The Ministry of Labour of Kazakhstan, for instance, is of the opinion that it is possible to overcome the problems by shifting to targeting social support at vulnerable groups. However, in the absence of a system for income declaration and no other data base on incomes, and with no sound and accepted poverty criterion or, for that matter, statistical information on marginal groups in the society, such a shift is not altogether straight forward. The Government of Kyrgyzstan, too, considers that the sphere of social protection requires a complete restructuring, for much the same reasons. First, the state budget will only be balanced with considerable difficulty in the near future. This inevitably means reduced allocations for social protection as compared to the situation prior to independence. Indeed, the share of the state budget earmarked for social protection has already fallen from 29 per cent in 1991 to 16 per cent in 1992.23 Second, the economic reforms will result in considerable unemployment, at least until economic growth takes off. Estimates by international experts suggest that unemployment may reach 200,000 to 250,000 by the middle of the 1990s. Third, the emerging poverty needs special attention. Under die previous communist system incomes were distributed more or less evenly among the population, although the productivity and the rate of investment in the economy were low. In the short term some groups of the population with low incomes may be particularly severely affected. Such groups at risk include those living in slums, those which already have low incomes, those with limited capacity to work, members of large households and unskilled workers. Under socialism social protection of die population was also considered by many tantamount to charity. It concerned such measures as taking care of orphans, the aged, the sick, invalids etc. However, along with the transition to a market-oriented economy the situation has changed and some groups are being marginalized. These groups typically include long term unemployed whose entitlement to unemployment benefits have expired, large families with low aggregate income, and retired people with insufficient number of years of service to qualify for full pensions. It should also be borne in mind 61 that 'perestroika' and 'marketization' of the economy have led to much greater differentiation in incomes, thus widening the gap between the rich and the poor. Following the liberalization of prices, impoverishment was certain to grow and the issue of providing social support to the needy attained highest priority. Pensions and family allowances could no longer provide for a family budget above the minimum consumption basket. Hence, there is a need for a new approach which focuses on die poor. With this in mind, the Ministry of Labour and Social Protection of Kyrgyzstan, for instance, has adopted a decree on 'Mechanisms of Targeted Social Support for the Most Vulnerable Groups of the Population in the Republic' (November 4, 1992). This comprises measures to determine the poverty line, divide the population among different groups according to the criteria chosen, provide support to the most vulnerable groups, and establish sources for financing such programmes. In the elaboration of the decree, due heed was taken of me fact that the Government did not have at its disposal the necessary means to fully implement what was initially planned. Besides, surveys have revealed that 25 to 30 per cent of the incomes of workers, collective farmers, and pensioners is derived from work on the personal household plot, work at home, individual business and from dividends on securities. Thus workers have alternative sources of income.24 The poverty line was determined at a subsistence level providing for a minimum basket of food and social services, and enabling a worker to perform work. More specifically, the subsistence level is determined on the basis of die required calorie intake and the cost of tfie corresponding food items, the cost of required other goods and medicine, housing costs, transport costs and taxes and levies. However, the ravaging inflation renders a somewhat fluid nature to the subsistence level. In line with this methodology, the subsistence level on the basis of a consumer basket is calculated separately for each socio-demographic group; able-bodied workers, pensioners and invalids, students and trainees. The subsistence level determined in this way is considered to be the poverty line. Household incomes are reviewed periodically against the changing poverty, separately for each group. The results are used to determine concrete modes of social protection of workers. 62 In Tajikistan the development of poverty and die level of pauperization of the population is determined on the basis of aggregate income statistics generated dirough household surveys. Surveys of family budgets are made for two main groups; (i) workers and employees and (ii) collective farmers. In addition, the standard of living of young workers and their families is studied every third year. The poverty line is based on the value of a minimum consumption basket. However, the law on the minimum consumption basket has not yet been adopted. Hence, Uiere are no official statistics on the subject, but only official estimates. In 1990 the minimum consumption basket was valued at 98 rubles. More than two thirds of the population was assessed to live below this line, including 45 per cent with an income of no more than 75 rubles per month. At the present, based on the rate of inflation and other indicators on, in particular, the growth of nominal incomes, it may be estimated that 85 per cent of the population lives below the poverty line.25 A law on indexation of workers' incomes has been drafted in that country, but is not yet adopted as the country cannot yet afford such a measure. Wages and salaries of workers, as well as pensions and benefits in respect of children, are reviewed periodically on die basis of presidential decrees. Students at vocational secondary schools (with a curriculum of more than ten months) are provided with free board and uniforms. Besides, they are paid a grant amounting to 35 per cent of the minimum wage. Students at polytechnical schools and secondary special vocational schools (with a curriculum of more than ten months) enjoy grants amounting to 70 per cent of the minimum wage, while students at higher institutions of learning receive stipends at the rate of 80 per cent of the minimum wage. These rates are increased for well performing students. However, training in some occupations, e.g. drivers and bookkeepers, is not free. All citizens have a right to free medical services, including treatment in hospitals. Sick leave is paid depending on the length of service and is linked to trade union membership. Medicine is free of charge for patients interned in hospitals, but not for odiers. War veterans enjoy special benefits. An important feature of the social policies in Tajikistan is the unemployment benefit system introduced in January 1992. Such benefits are 63 paid to registered unemployed for a period not exceeding six months at a general replacement rate of 50 per cent. However, currently benefits are paid at the rate of die minimum wage due to a general budget constraint. Pensions are paid in accordance with an old law dating back to the Soviet period on pensions for aged citizens, invalids and persons without income (orphans and persons not eligible for an age related pension). Pensions are calculated at the rate of 55 per cent of the work income and arc adjusted for the lengm of service exceeding 25 years for men and 20 years for women, on the condition that the increment does not exceed 20 per cent of a nominal pension value. The minimum pension equals the minimum wage. However, due to current budget constraints, die President of die Republic has overruled die 55 per cent rule. As of January 1992 the old age pension is set at par witii the minimum wage, plus a one per cent increment for every year of service in excess of die 25/20 years stipulated for men/women, up to a maximum of 20 per cent. Still, some benefits for war veterans have been kept in full. Following a presidential decree of December 29, 1992, working mothers with a length of service not less than one year are eligible for child allowances at a rate of 60 per cent of die minimum wage. Similar allowances are paid for children of servicemen, children under tutelage, children of single mothers who are themselves former orphans, and children up to the age of 16 afflicted with HIV or AIDS. Allowances at the rate of 50 per cent of the minimum wage are paid to single mothers of children in the age group 6 to 16 (18 in die case the students not receiving grants), and to children whose parent avoids contributing allowances to the children following separation. Non-working modiers, and mothers with less man one years of service are eligible for a child allowance amounting to 45 per cent of the minimum wage until the child reaches the age of 18 mondis. There is also a system of one time payments. Thus, a payment amounting to three times the minimum wage is made on die occasion of the birth of the first child into a family. The birth of a second child carries an entitlement to a grant amounting to twice the minimum wage, while the grant associated widi die birth of a third child amounts to the equivalent of one minimum wage. 64 In Uzbekistan the Government initially rejected the 'shock therapy recipe' and opted for a 'soft' transition to a market-oriented economy. As a consequence, the basic elements of the old 'Soviet' social protection system have been preserved. It concerns first of all health care and education, which continues to be free to workers and their families members. The State has clearly aimed at preserving the earlier levels of consumption in an effort to maintain the purchasing power of the population through regular revisions of the minimum wage and salary levels, grants and pensions. This has led to a need to revise these levels at least four times a year in order to keep up with inflation. Food was rationed and sold against coupons or vouchers, and the population obtained meat and meat products, rice, bread and other basic food products at fixed prices. The State continued to subsidize food although this was becoming increasingly difficult. Since large families are common in rural areas the Government has introduced privileged treatment, inter alia with regard to taxation, for those with three dependents or more. These privileges are also extended to widows and widowers not in receipt of pensions for the loss of bread winners and to one of the parents bringing up invalid children in need of constant care. Other benefits have also been introduced, such as supply of gasoline at fixed prices, not least to pensioners. Contrary to the case of Kazakhstan and Kyrghyzstan, the policy in Uzbekistan was during the early phase of the transition to web as wide a social safety net as possible with a view to encompass the entire population. However, the apparent advantage of this approach is turning into a disadvantage as the resources at the disposal of the Government are not limitless. The policies and procedures for protecting displaced labour are quite similar in the Central Asian republics as they build on die former Soviet model. According to the labour regulations in most of the Central Asian republics, workers are given two to three months advance notice of layoff and are paid two months severance pay by the releasing enterprise. When the two months have lapsed, the worker have to register with an employment service. Upon this registration the enterprise pays him/her a third and last monthly installment, provided that the worker is still without a job. After that, the worker is paid an unemployment benefit for a period of six months 65 or until he finds a new job, usually at a rate corresponding to 50 per cent of his preVious wage (adjusted for the number of dependents).26 However, in some cases unemployment benefits is at the subsistence level or even lower. For instance, in the case of new entrants to the labour market. Draft laws on bankruptcies are currently under consideration in several Central Asian republics. Once these laws have been adopted, the three months rule for the severance payments will surely no longer be observed since a bankrupt enterprise will not be in a position to provide workers with such treatment. The displaced labour will have to be directly referred to me labour exchanges. So far, a large proportion of the workers find new jobs in the course of the first months of unemployment. Hence, they never become officially unemployed. Only a small fraction of the workers remain unemployed for longer than six months. This is in contrast to the situation in Western Europe, where long term unemployed make up 40 to 50 per cent of the total unemployment. Hence, a rise in the unemployment in the transition period, albeit initially on a moderate scale, and especially the impact of the high rate of inflation on the workers' purchasing power, have made the authorities in the countries concerned reconsider the attitude towards the existing schemes of social protection. This is leading to the establishment of safety nets more in tune with the conditions in a market economy. Notes 1 See Appendix 3, table 6. 2 See Appendix 3, table 5. 3 Gregory Gleason, 'Marketization and migration: The Politics of cotton in Central Asia', Journal of Soviet Nationalities, Vol. 1, no. 2 (1990), pp. 66-98. 4 T. Behgametov, op. cit. 5 T. Ibid. 6 Background Information on Population, Economic Developments, Labour Markets and Employment, (ILO, Active Labour Market Policies Branch, 1993) p. 11. 7 T. Behgametov, op. cit. 66 8 'The Law of the Kazakh SSR on Employment of the Population', Articles 31-32, Collection of Normative Acts on the Law of the Kazakh SSR on Employment and Population (Alma Ata: Ministry of Labour, 1992). 9 Self-employed workers are deducted as "not in official employment'. 10 T. Behgametov, op. cit. 11 The Law on Employment of the Population in Kyrgyzstan, Article 2, Decree of the President No. 440-XII of May 20, 1991 (Bishkek). 12 Reporting of vacancies is mandatory for state enterprises. The figures originate from the Statistical Office of Kyrgyzstan. 13 Information provided by the Ministry of Labour in Tajikistan. 14 Information provided by the Ministry of Labour 15 R. Shadiev, op. cit. p. 12. 16 See Appendix 3, table 10. 17 Assessment by the Main Employment Directorate of Kyrgyzstan as communicated to the ILO in December 1992. 18 Pravda September 12, 1992 (Moscow). 19 T. Behgametov, op. cit. 20 Main Employment Directorate Data (Bishkek, Ministry of Labour and Social Protection, 1993). 21 Response by the Government of Tadjikistan to ILO Questionnaire on Employment Policies for Transition (Geneva: ILO, Active Labour Market Policies Branch, 1993). Unpublished manuscript. 22 T. Behgametov, Employment in Kazakhstan op. cit. 23 Information provided by the Ministry of Labour and Social Protection of Kyrgyzstan in 1993. 24 V. Roumyantsev, op. cit. 25 Response by the Government of Tajikistan op. cit. 26 For first time job seekers unemployment benefits are paid for thirteen weeks. 5 Problems of Establishing Tripartism International Labour Office Many countries around the world are currently meeting the historical challenge of making the transition from highly centralized political and economic systems towards democracy and market economy. At the heart of this transition lies the acceptance of fundamental principles and practical models that are successfully applied in market economies. However, these need to be carefully adapted to the specific situation in each country, taking due account of historical, cultural, political, economic, and social factors. Under the old system the countries in transition were deprived of the major impulse for dynamic development since the officially proclaimed and cultivated belief in harmony of interests of all segments of their societies precluded the idea of dissimilarity of interests, which is an indispensable prerequisite for any form of progress. Having embarked on the road of freedom and democracy, diese countries have begun to shape new political, economic, and social systems based on the principle of plurality of interests. The divergence of interests of the social partners has also been recognised and the need to set up an effective machinery to balance such interests is now strongly felt. The method of tripartism, which has been successfully practiced by many Western countries for decades, is currently establishing roots in the newly emerging democracies. The term 'tripartism' in a broad sense refers to any system of labour relations in which me State, employers and workers are autonomous parties, each performing special functions. It is merely the transposition into social relations of the principles underlying political democracy: liberty, pluralism and participation of individuals in decisions affecting them. Thus understood, the term covers everything related to the structure, functioning 68 and attributes of the parties involved in labour relations (tripartite consultations and negotiations as such, that is to say between the government, employers and workers; bipartite collective bargaining; and workers' participation in decision-making at the enterprise level). Tripartism calls for commitment of the social partners to seek compromises and to respect each other's interests. The experience of many Western European countries has shown that recourse to tripartite instruments was especially desirable when those countries were in particularly difficult situations. This was especially the case during the period that immediately followed the end of the Second World War. In countries in transition from central planning to market based economies the economic and social situation is now extremely perplexed. The economic reforms are facing enormous difficulties. Living standards of a significant part of the population have decreased and social tension is high. In a situation like this social dialogue in all its forms can render inestimable services. This is particularly true of consultations and negotiations between the government, employers and workers on the preparation and implementation of major national economic and social policies. While bringing all the parties together, such arrangements afford the best opportunities for working out compromises between the demands of economic development and tiiose of social protection and, as such, will have the greatest chance of being applied and thus of ensuring social peace. Tripartism may play an invaluable role not only in stabilizing these young democracies economically and socially, but also in strengthening them politically. An examination of the major problems which the countries in transition are encountering in the establishment of the tripartism is therefore warranted. The Social Partners The Trade Unions Recent moves towards democracy and market economy have had a 69 profound impact on the trade union movements of die countries in transition. The main features that diey are currently acquiring are independence from political and state institutions, pluralism and a focus on the defense of workers' rights as a first priority. Many countries have already established a solid legal basis to encourage such positive changes. Examples are the laws on trade unions adopted in 1991 in Albania, Hungary, Poland, Romania and Lithuania, and in 1992 in Uzbekistan. Two processes are currently simultaneously evolving: the restructuring of the former 'traditional' trade unions and the emergence of new alternative trade unions. Under the former regimes, trade unions were integral parts of the political and economic systems. They performed a number of functions which in Western democracies with developed tripartite systems are normally performed by other actors. Examples are the right to parliamentary initiative, the function of labour inspections and control over the social insurance funds. The,successors to the former 'traditional' trade unions are now trying to redesign their role and functions to match the requirements of the new political, economic and social environment. Their organizational structures are being decentralized and are acquiring confederative features. At the same time, quasi-state functions are gradually being relinquished. This is a controversial and painful process which cannot be only confined to an organizational restructuring. The whole concept of unionism needs to be reexamined on the basis of an acceptance of the principles of democracy and pluralism. The new alternative trade unions are also facing a number of problems. There is a lack of organizational experience and professionalism which cannot be compensated for in full measure by the enthusiasm of their members. An active participation in political debates and struggles sometimes prevents these trade unions from properly discharging their genuine trade union functions of defending the interests of their members as employees. The most crucial problem for the alternative trade unions, however, is to become competitive with the former 'traditional' trade unions. During the pre-reform period, the latter have acquired assets allowing them to provide their members with a wide range of social benefits. This puts the new 70 alternative trade unions at a considerable disadvantage. As a result, frictions among trade unions are increasing and the trade union movement as a whole is weakening. There is also an overlapping of union membership, when workers, after having joined newly established trade union, do not leave dieir old unions which are still controlling social funds and welfare facilities. There is already an example of how this very delicate and complicated problem of distribution of trade unions' assets was solved by means of legislation. In Hungary, where the assets of the former 'official' trade unions (SZOT - the National Council of Hungarian Trade Unions), the Act on the protection of trade union property of 17 July 1991 provides that the final distribution of the assets will be made in proportion to the results of trade union elections scheduled for 1993. While the trade union movement as a whole is still divided into two opposing parts, there seems to be more cooperation between the old and new trade unions at the enterprise level. There are already cases where the workers from different trade unions have jointly negotiated and signed collective agreements. Employers' Organizations In the past, the domination of state ownership in the countries currently in transition left almost no room for employers as a distinct interest group. The main employer was the state. The economic reforms have facilitated the process of formation and institutionalization of specific employer interests. Privatization, which is likely to gain momentum in many of these countries, will hopefully accelerate the emergence of the class of employers. While in services and in retail trade privatization simply means a direct sale of enterprises to private owners (individual or corporate), the privatization of industrial enterprises, especially big ones, consists normally of two stages. During the first stage, which in Poland for example is called 'commercialization', such enterprises are transformed into commercial companies, which are mainly joint-stock companies, typically with a certain amount of shares given to their work force free (or sold at a preferential rate). Initially, such enterprises remain under control of the government 71 which keeps a controlling proportion of the shares. The introduction of a contractual system of hiring managers for such enterprises, which replaces the system of their appointment by state bodies or their election by the work force, is an important step towards entrusting these managers with employer functions. The second stage of privatization begins when stocks of such enterprises are sold on the market and control over them is taken over by me new owners. In the past, organizations such as chambers of commerce or associations of cooperatives represented the economic interests of enterprises and had no functions in the field of labour relations, viz. in collective bargaining. With the passage of die reforms, some steps have been taken in the establishment of an institutional framework to represent employers' interests. In many countries in transition employers' organizations have been set up either as independent bodies or as part of the existing organizations (the chambers of commerce, of industry, etc.). The process of institutionalization of employers' interests at the national level has also begun. Thus, national confederations of employers have been established in Hungary and Poland. The employers' organizations are assuming an active role in labour relations: many of them are engaged in collective bargaining and in national level tripartite consultations. The Role of the State With the advance of the economic reforms and privatization in the countries in transition uie role of die State in the field of labour relations is also changing. The function of the State as employer is gradually diminishing, while the function of the 'third' party in charge of setting up the 'rules for the game' and maintaining a social dialogue is being placed on the agenda. Traditionally, the State utilized legislation as a major instrument for governing labour relations. The principle 'what is not allowed is prohibited' was the rule of the government' intervention in labour relations. There was hardly any room for any autonomy of the labour relations partners. Legislation is now assuming the role of guarantor of minimum labour 72 standards as an instrument for setting up a normative and procedural framework for 'peaceful' social dialogue. The reforms of the labour laws are making significant progress. A legal basis for collective bargaining and collective labour disputes settlement has been established in many countries in transition. Some institutional changes are also taking place. The Ministries of Labour are redesigning their functions with a view to developing their capacities as facilitators of social dialogue. The process of establishing conciliation, mediation and arbitration services is also under way. Before going on from the problems that concern the parties in social dialogue to those concerning the dialogue itself, it is essential to emphasize that in order to ensure the smooth pursuit of this dialogue, it is not enough to construct the 'machinery' characterized by the existence of three distinct parties sufficiently well equipped to exercise the respective functions. The parties must also have a certain attitude. This implies, first of all, that they must accept the discomfort of a certain degree of insecurity. This means in no way that they have to give up the idea of lessening the social impact of change, but merely that they must accept the actual principle of change. There cannot be any substantial place for social dialogue unless there are a series of areas in respect of which trie State has not determined everything in advance, but has left the employers and workers considerable liberty. Next in exercising this liberty, the parties must be aware that notwithstanding the fact that there are numerous points on which their interests diverge, something which it would be absurd to deny, in the long term they are fundamentally engaged in a common task. This implies a consensus between all parties on the essential characteristics of the political, economic and social organization of society and die determination to contribute, often at the cost of certain sacrifices, to developing and maintaining the type of society thus chosen. The adoption of legislation, the creation of an institution or recourse to foreign experts may well contribute to the establishment or development of tripartism, but will never dispense the parties from the need to acquire and maintain die right attitude. 73 Relations Between the Parties In the past, labour relations in the countries in transition were void of any social dialogue, since almost everything, including wages and other major working conditions, was a prerogative of the State. Collective agreements were normally signed without any bargaining. To a large extent, they were just reproductions of legislative provisions. The right to strike was not officially recognized and there was no machinery for setting collective labour disputes. Indeed, there was no tripartite dialogue at the national level at all. The autonomy acquired by the social partners has facilitated an intense dialogue between them. An appropriate legislative basis to provide the partners with a necessary procedural and institutional framework is being established. A national level tripartite dialogue is in process of development and a number of national tripartite agreements have already been signed. National level tripartite bodies have been set up, for example, in Bulgaria, the former Czechoslovakia, Hungary, and the Russian Federation. They are empowered with negotiation and consultation functions. While, the National Tripartite Commission in Bulgaria and the Russian Federation, and the Council for Economic and Social Accord in the former Czechoslovakia were set up for the purpose of negotiating and reaching national (general, framework, social peace) tripartite agreements, the Hungarian Council for the Reconciliation of Interests is mainly a consultative body, but with a negotiation function as regards mass work force reductions and mandatory minimum wage. Social dialogue at a national level may also be successfully carried out on an ad hoc basis without any institutional set up. The recent example is a set of legislative acts (called "Pact on State Enterprise") elaborated at the end of 1992 in Poland through a series of informal consultations between the government and trade unions. The Pact aims to identify an ownership status of state-owned enterprises compatible with the emerging market environment, to facilitate privatization of such enterprises and to define their respective roles of the management and employees in this process. Since the labour relations machinery is still underdeveloped, there is a tendency to entrust the tripartite bodies with the function of labour disputes 74 settlement, which in Western countries normally is discharged by other bodies. This seems to be a temporary problem which will be resolved in die course of the reforms of labour relations. Another peculiarity of tripartism in some of the countries in transition (Bulgaria and the Russian Federation) is that the tripartite arrangements take place not only at the national level, but also at the sectoral and territorial (municipal) levels. As the process of establishing national tripartite dialogues is still in its initial stage, it runs into a number of difficulties which may be grouped into two kinds. A first set of difficulties, the most important of which have already been referred to above, concerns 'party related' problems that stem from the fact that the functions of the parties are not yet sufficiently separate and that all too frequently - on both the employers' and the union side ~ there are still too many rival organizations, some of which may not be very representative. This means that when it comes to tripartite national dialogue there are problems of party representation, difficulties in reconciling positions mat are too numerous and too remote from each other as well as difficulties in ensuring the effective application of the decisions reached. It would probably be unrealistic to think that these difficulties can be overcome quickly. The second set of difficulties — which are more technical and therefore easier to resolve ~ stem from the fact that there is a frequent tendency to entrust a single tripartite body with an unduly varied range of functions at the same time as the procedures for carrying out these functions are insufficiently differentiated. For example, the same body may be called upon, using the same voting procedure, to give its opinion on draft economic and social legislation, to reach agreements on major issues of national social and economic policy, and to settle disputes. In addition, the sphere of competence of diese bodies is sometimes defined in such a way mat they are liable to encroach upon the prerogatives of the parliament or the government. Certain indispensable distinctions should therefore be established between the various problems that are now being dealt with by the tripartite bodies, so that each of these problems, according to its nature, is entrusted to an appropriate body and settled by means of an appropriate decision-making procedure. 75 Bipartite negotiation at sectoral and enterprise levels is also becoming an important supplement to national tripartite arrangements in the countries in transition. The changing role of the State in labour relations facilitates the process of assigning collective bargaining with its genuine function of fixing wages and other working conditions. Recently adopted legislation provides for collective agreements at both sectoral and enterprise levels. The establishment of an effective collective bargaining machinery has just begun in the countries in transition. Due to the difficult economic situation and to inflation it is unrealistic to expect the countries in transition to switch overnight to a system of full freedom of collective bargaining. Wage bargaining is still underdeveloped since the system of prohibitive taxes on wage increases, imposed for anti-inflation purposes in many countries in transition, substantially limit die autonomy of the social partners to negotiate on wages. In this regard, experiences of limited freedom of collective bargaining in the countries of Western Europe might be of interest. The freedom to negotiate is nearly always subject to certain limitations in public enterprises in West European countries. In some of them there have also been limitations in the private sector, particularly on wages, during difficult economic periods such as that immediately following the end of the Second World War or between 1975 and 1985. Sometimes the government, the employers and the workers in these countries have managed to agree, at the interoccupational national level, to confer a less distributive character on collective bargaining by restricting its room for manoeuvre on wages and orienting it more towards other issues such as arrangements in respect of hours of work or the introduction of new technologies. Where these attempts failed, some governments turned to laws or regulations to impose limitations on wage negotiations. The competent bodies of the International Labour Organisation considered that certain of these limitations were incompatible with the fundamental principles embodied in the international labour standards, but that others were not. Even though a number of obstacles persist to the establishment of sound bipartite relations in the countries in transition, enterprise collective bargaining seems to be an area where such relations may, in the immediate future, receive a strong impulse for development. At this level there are 76 always partners to engage in dialogue: the owner or management on the one side, and the union — or the personnel — on die odier. Moreover, there will always be problems diat must be settled mrough consultation or negotiations at the enterprise level. The question of enterprise-level collective bargaining cannot be separated from that of workers' participation in decision-making at this level. Under the previous system in the countries in transition labour-management dialogue at the enterprise level took essentially place within the framework of the system of participation, through self-management workers councils empowered with a wide range of rights, some of which (e.g. the right to appoint and dismiss enterprise managers or die right to veto managements' decisions) were absolutely incompatible with the rules of die game in a market economy. Widiin the process of die reforms, die system of workers' participation is also being substantially redesigned in order to fit in die new market-oriented economic environment. In Poland, for example, die system of workers self-management in state enterprises envisaged by the act on selfmanagement of state enterprises of 25 September 1981 ceases now to be applicable to the enterprises which in the course of privatization are transformed into joint-stock companies. One of the most essential problems which the countries in transition encounter in reshaping dieir system of workers' participation is to find a manner in which workers will be represented within the enterprise. Three possible formulas widely practiced in Western labour relations systems are at their disposal: representation by trade unions, by bodies of the workers council type, or by both simultaneously. Each country should certainly avail itself of die particular formula mat meets its specific needs. Some countries in transition have already made their choice. In Hungary, for example, the Labour Code adopted in March 1992 provides for die two-channel system of workers' representation, i.e. through both die trade unions and workers councils. Turning from negotiations and participation to the subject of disputes, it can be seen mat laws and regulations on dieir settlement recently adopted in the countries in transition provide for conciliation, and sometimes for arbitration, but only rarely make provisions for die requisite procedures and institutions to be set up. This seems to be an area where many of these countries are currently concentrating their efforts. 6 Labour Markets in the Central Asian Republics: Issues and Policy Implications Peter Duiker This chapter considers some of the main issues in creating labour markets in the Central Asian republics (CARs). The assumption is that markets will be the main institutions in the new economic order of the Central Asian republics. This means that resources such as labor, land, capital, managerial and entrepreneurial talents will be allocated according to relative prices, based on the relative endowment of the factors concerned. It is a departure from the direct centralized planning system of the ex-USSR. The new situation will make possible the introduction of policies promoting full, productive and freely-chosen employment. Effective labour market policies will be instrumental in overcoming the difficulties of the transition to a market economy. There is particular need to activate emerging labour markets in the Central Asian republics in order to reach the development objectives of macroeconomic and employment policies. Labour market policies should respond to specific issues encountered in the Central Asian republics. It is necessary that these policies contribute to economic progress as well as to social justice. The ILO's labour standards are important building blocks for achieving social justice. Labour market policies should in particular aim at achieving equity, growth and efficiency. Equity will be enhanced through promoting equal opportunity in access to employment, through equality in treatment of all in the labour market and through facilitating the participation of vulnerable groups. The creation of jobs in productive and sustainable activities contributes to economic growth. Efficiency in labour markets will 78 be strengthened by improving the rewards from investment in human resource development. This will lead to higher incomes through increases in productivity. Experience in Eastern and Central Europe shows that some elements of a competitive economy, such as liberalization and price reforms, are much easier to introduce than creating market institutions. The Central Asian republics are still in the early stages of transition, and are trying to come to grips with structural reforms and stabilization. In some of the Central Asian republics output of goods and services is more than 30 percent below previous levels. Unemployment is increasing. It may take a long time before the benefits of private enterprise result in higher growth, better quality and productivity and new employment. This is despite the undeniable assets that the Central Asian republics possess, such as a relatively skilled and cheap labour force, land and other natural resources. Labour absorption is die aim of labour market policies. The conditions in the Central Asian republics and in the labour market systems being established will determine how and when this goal will be achieved. The objective of this brief paper is to highlight some of the issues and the options in labour market policies for the Central Asian republics. Labour Ministers and other policy makers will have to make difficult choices among options. They will have to set the priorities for development and employment programmes. This paper can only illustrate some of the implication of diese policies. Following a review of the special features of labour market systems during transition die priorities in terms of labour market policies are discussed. The paper concludes with a short review of the responsibilities for labour market efficiency, equity and social justice during transition. Labour Market During Transition The Central Asian republics face a twofold transition: from centrally planned to market economies and from regions integrated in a larger country 79 to independent states. This will inevitably result in fundamental changes in the economic and social structures of the Central Asian republics. The first year of the transition has been difficult. Reductions in demand and in production have led to under-utilisation of the industrial capacity. Labour shedding is increasing. Inflation and currency depreciation make it difficult to accumulate savings and to establish an environment for productive investments. Nevertheless, significant progress has been made in creating the conditions for transforming the Central Asian republics into market economies. The structures from the past determine to a certain extent what can be accomplished during transition. However, the achievements so far and the policies presently pursued by the Central Asian republics are more important for social and economic progress than the old structures. From Labour Scarcity to Labour Surplus Absorption of labour in competitive economies is the outcome of the interaction between economic growth, labour supply and the structure and functioning of labour markets. During transition employment becomes increasingly linked to economic performance. Under the system of central planning employment was largely divorced from economic performance. At the enterprise level soft budget constraints ensured that the link was virtually non-existent. Labour was allocated to enterprises according to the priority given to the type of production pursued rather than to efficiency and economic performance. With budget constraints for capital investments especially in non-priority sectors ~ usually being somewhat harder, many enterprises also found it expedient to substitute labour for capital. Thus, for individual enterprises labour was a scarce resource to be hoarded and accumulated in as large numbers as possible to permit future growth. The same mode of thinking prevailed at the macro level. The inefficient economy had a seemingly insatiable demand for labour as well for capital and other resources. These relationships changed fundamentally during transition. In market economies, employment is directly dependent on economic opportunities and production process. An economic slump and a fall in production during the early periods of transition can therefore lead to labour 80 shedding and unemployment. This could result in massive reductions in labour absorption. This is no moot problem, as output levels are falling at a yearly rate of more than 10 per cent. It is not a medium or longer term problem, but it could affect present workers. If this happens will depend on various factors. Enterprises might still practice some form of labour hoarding. Alternative employment opportunities, some of them in the informal sectors, might come up. However, the possibilities for creating additional productive employment are not very good. Growth of demand, through exports and higher level spending are not favourable in the immediate future. In addition, the prevailing production structure, with its relative emphasis on primary industries is not a good basis for increasing employment in the face of international competition. Increasing the share of service arid light manufacturing sectors beyond the present level of 40 per cent will be a good strategy for employment as these production processes are more labour and skill intensive. But changing economic structures takes time. Growing Labour Supply and Unemployment The emergence of unemployment is taking place against the background of the continuing strong labour supply. The arrival of young people and new entrants on the labour market is an economic, social and political challenge. Population growth in the Central Asian republics is high by standards of the former USSR1. It is comparable, diough, to countries at the same level of development. However, there are wide discrepancies in the Central Asian republics in this respect. Kazakhstan has a comparatively low rate of population growth (about 1 per cent), while Tajikistan's population has high natural increase (3 per cent). Such levels and differences have important consequences for labour market functioning. The supply of labour depends on the participation rates. A characteristic of some of the Central Asian republics is the low participation rate of the women. Socio-economic development policies can have a strong bearing on such rates, although the effect might be only felt in the medium to long-term. However, in the short run important changes can take place through selective 81 out/in migration and differential participation rates of the groups concerned. In addition, market economies encourage the mobility of labour. This has also important consequences for the participation rates, in particular for women. Other factors to be taken into account for evaluating die supply of labour are the general level of education of die population, as well as the health conditions. It should also be noted that 60 per cent of the population in die Central Asian republics is in the not directly productive age group. Economic hardship might force many people to re-enter the labour market. During the transition period, labour has ceased to be a scarce resource in economic terms. First and foremost affected, were workers in industries suffering from disrupted customer and supplier links: employees of the defense sector enterprise undergoing conversion, and civil servants, whose number had to be reduced as result of state management restructuring. This 'first wave' of dismissed workers was absorbed back into work after retraining. This was due mainly to die availability of vacancies left over from central planning. However, die availability of vacancies has rapidly diminished. Structural employment problems immediately emerged due to die fact diat the bulk of job openings was mainly for blue collar workers, in particular, in heavy manual jobs. Many of die unemployed comprised workers with a high level of education, among them women and youths. In general, diese two groups have suffered most from emerging unemployment in Central Asian republics. Aldiough unemployment rates are rising in all Central Asian republics and the danger of large scale unemployment looms large on die horizon, by early 1993 it had only assumed acute proportions in Uzbekistan. Employment policies have so far shown a bias towards passive policies, although the employment fund established in all the countries, except Turkmenistan, generally have a mandate to engage in job placement and training as well as in disbursement of unemployment benefits. While the establishment of die employment funds are a laudable step forward, this initiative does not amount to a full-fledged employment strategy and is, by itself, inadequate as a response to die emerging employment problems. Although unemployment rates are still at a manageable level of five per cent in die CAR, aggregate demand shortfalls can become devastating. Once die effects have taken root, 82 experience — dating back to the depression in western countries ~ indicates that such unemployment is hard to reduce. Policy Responses The response of the Governments and Labour Ministries in die Central Asian republics to the new situation of transition to a market-oriented economy and to emerging unemployment has been quick and manifold. National laws on employment have been adopted, providing a legal framework for conducting policies to reduce unemployment, create employment and financially support unemployed workers. The role of employment services has been strengthened. In some republics enterprises have also been made financially responsible for the organization of special public works. Systems for education and basic instruction of workers have been enhanced and training in managerial techniques and entrepreneurship introduced, but only on a limited scale. The replacement rate for unemployment benefits usually is 50 per cent in Central Asian republics (but not lower than the minimum wage and not higher than the average wage) and is paid for 26 weeks on the condition that the unemployed had been in paid employment prior to redundancy for a specified number of weeks in a calendar year. First time entrants to the labour market are also eligible for an unemployment benefit, but at a lower rate. Usually, rates of unemployment benefits take into account the number of persons (children, elderly) an unemployed worker has to support. In order to protect the interest of handicapped workers, some governments in the Central Asian republics have decided to reserve three to five per cent of jobs for them at die level of enterprise and establishments. These measures are part of the wider economic reforms conducive to the establishment of a market economy. This process comprises the introduction of price mechanisms to allocate factors of production and goods, but also includes the promotion of the private sector, currency convertibility and other trade liberalization measures, the guarantee of property rights and die right of access to factor and goods markets. For labour, of course, the introduction of true labour 'markets', in which job seekers choose employers 83 and employers choose (or do not choose) their workers is perhaps the most important economic reform. But a cost of free and flexible labour market is a stark reality of unemployment. Stable and sustainable, non-inflationary economic growth will be the best guarantee for labour absorption in productive, freely chosen employment. The policy of regional specialization pursued in the former USSR has left the Central Asian republics extremely trade dependent and with lopsided economic structure. This implies that diversification of the economic structure and increased self-sufficiency will inevitably be a main objective of economic strategy. Economic diversification and a higher degree of processing of domestic raw materials will also provide the main context and area for future entrepreneurial development and employment and income generation. However, increased self-sufficiency is no substitute for trade, in, particular as, except for Kazakhstan, all the countries register large deficits in food production. Thus, circumstances would seem to leave no option but strong emphasis on export-oriented, employment-based development strategies. Qualitative development and enhanced and more efficient utilization of the countries' human resources need therefore become key development objectives. However, rather than being seen as a development problem, the young and growing labour forces should be taken as the main resource for development in die design of strategies for structural change and growth. Such employment based-development strategies will need to address both the issues of upgrading the quality of the human capital and, in particular, increasing the efficiency in its utilization. Labour market institutions will not work without mechanisms which ensure full participation of the parties involved. This is an integral part of the democratisation processes in the Central Asian republics. Labour standards protect basic workers rights and promote social justice. A structured process of consultations and negotiations contributes to efficiency and equity in the pursuit of economic goals. Tripartism is a proven means of integrating social and economic goals. 84 Towards a Framework for Labour Market Policies Creating labour markets in the Central Asian republics is an integral part of the economic restructuring which these countries are undertaking. The fact that labour no longer can be automatically considered a scarce resource indicates that the transition process is underway. However, how labour markets will function depends very much on die structures of the institutions and on the policy environment created by the social partners. It is a challenge to make labour markets function efficiently and to ensure equitable outcomes of labour processes. Creating Labour Markets Labour markets in the Central Asian republics will not develop unless the parties concerned, in particular employers and workers, have acquired freedom of action in respect of individual decisions to participate in labour processes. Constraints on the mobility of labour, skills and jobs should be limited only in die interest of worker protection and of basic social justice. Free markets require the presence of many agents in order to ensure a fair outcome of the system. Economic pluralism is dierefore also a characteristic of mature labour markets. However, democratisation should go beyond the immediate economic relationships. Political reforms are important to individual workers, organized labour and employers because their success will mean the establishment of an environment supportive of decentralized decision-taking and private initiative, as well as democracy at the workplace. Workers' rights, such as freedom of association and the right to* organize and bargain collectively are the most visible labour related aspects of political reform. In a labour market, wages and other returns to labour serve as rewards to workers and also as market signals to employers about how to more efficiently use labour,resources, and more importantly, about whether or not to utilize (hired) labour. Some minimal level of unemployment is a natural characteristic of a functioning labour market. Workers who are free to leave 85 their current job do so for a variety of reasons, including the belief that a better job awaits them in a different occupation or with a different employer. Workers who are dismissed make possible their productive capacity to another employer or producer. A certain level of ' friedonal' unemployment is natural and facilitates the working of a market economy, but has not been experienced in most Central Asian republics. However, these labour processes depend on the conditions in specific markets. Rural labour markets are different from urban and formal sector markets. The status and bargaining power of the workers, the employers and the self-employed will vary according to the prevailing labour market conditions. Rural Labour Markets Rural labour markets are, the world over, less subject to institutional factors than urban and formal sector markets. Nevertheless, rural labour markets are of prime importance for the future development of the Central Asian republics. Rural areas are not only the environment for half of the population, but also a comparative asset in terms of their factor endowment. The way rural and regional labour markets are induced to function will have enormous consequences for the development and the standard of living in all Central Asian republics. The following are some of the main factors which thereby have to be taken into account: - Land distribution and utilization is a main determinant of labour absorption, in particular, but not only, in agriculture. It is a good illustration of the bearing which non-labour variables have on employment. Labour policies should take this into account. - Self-employment will, in the future, become a main characteristic of rural development. This has important consequences for labour policies and for the ways these can be made effective. - Labour absorption in rural areas can be increased substantially if the right type of linkages are developed between farm and non-farm employment; 86 rural non-farm enterprises will become increasingly important in a strategy of economic diversification. - A main problem in rural areas is the underutilization of labour. There is a high population pressure on arable land and productivity in agriculture is low. Remedial action will require simultaneous interventions in the use of several factors of production; land, labour, material inputs and organization, including appropriate levels of technology. It will be important to provide for the right type of institutions in support of rural employment. Cooperative and new forms of participatory development could be promoted in this area. Labour processes in rural areas are of prime direct and indirect importance for labour markets in the Central Asian republics. Directly, as the availability of surplus labour influences urban and formal-wage labour markets. Indirectly, as the linkages and income multipliers in die rural sector can create a strong demand. Comprehensive employment and labour policies in the Central Asian republics should take diese effects into account. Urban Labour Markets Formal wage contracts are a main characteristic of present labour relationships in the Central Asian republics. It was not unusual for 90 per cent of the workers to be employed in the state sector. Although that percentage is rapidly diminishing, it is still high. These enterprises have internal markets which are important from a labour point of view. In addition, labour analysts will be interested in the emerging private sector. As for die rural sector, it would be useful to monitor closely some of die main parameters in die urban labour markets: - Labour allocation processes in existing enterprises will remain important for some time to come. Beside die remuneration and wage costs aspects (see below), die development and die utilization of human capital in diese enterprises is an important variable. 87 - Labour markets suppose the pursuit of full employment, freely chosen employment and quality of economic growth. There will thus be an emergence of private sector employment. This will be heterogeneous in character. Some of it will rapidly evolve into formal, medium-sized enterprises or into small scale professional services. However, a large part will become 'informal' in nature. - Informal sector employment requires differentiated approaches. Some entrepreneurs simultaneously capitalize on several production factors. In that case informal sector activities can be an engine for growth and employment. Small business creation efforts can have many lasting direct and indirect effects. On the other hand, activities such as petty trading, which only provide a return to labour, should be considered mainly from the viewpoint of their income-maintenance and safety-net function. - There are strong reasons for developing labour and odier policies which aim at complementarity between formal and informal sectors. This concerns, in particular, the different types of demand for products which are being met by die two sectors. In addition, sub-contracting might be pursued as a viable economic and employment strategy. Access to Education and Training Creating a proper environment for human resource development and utilization is an integral part of labour market policies. Rewarding the investments in the upgrading of skills is an important function of labour markets. These rewards will be the outcome of higher productivity and competitiveness. The Central Asian republics inherited an extensive and highly developed system of education and training. Important successes have been achieved in the general education and skills levels of the population. As long as the basic educational system manages to cope with the rapidly rising absolute number of school entrants, prospects for further educational improvements are good. However, the relevance of the education and 88 training system for the emerging labour market conditions have to be carefully assessed. The quality and scope of secondary training will determine the ability of the work force to make a positive contribution to the development of the economy. Traditionally, the Soviet educational system has emphasized vocational training, the Central Asian republics have been no exception in this regard. However, besides the complaint that vocational and professional training has been of a sub-standard quality, concern has also been voiced that the training has been too narrowly focused on the needs of the profession for which training is given. This implies not only that occupational mobility is unduly limited, but also that flexibility and the ability to keep up with the times may be inadvertently restricted. Major revisions of the educational and training systems are likely to be required. The educational system inherited from the USSR needs to be reviewed to determine to what extent it is still appropriate and what changes are needed. The qualitative aspects deserve particular attention in view of the widespread criticism, particularly with regard to rural education. The system for vocational and skills training need to be revamped. An overhaul of the training system should be undertaken against the backdrop of the changes in the economic structure. A much stronger emphasis on training in entrepreneurship and rudimentary business administration as a complement to skills training should be given. Channels of communication need also be developed between the central agency responsible for employment and manpower planning and the training institutes. In addition to traditional training, it may be expected that there will be a considerable need for short term retraining of skilled labour, and of upgrading of skill levels among adults. Making Labour Markets Efficient Efficient labour markets contribute to competitiveness. The allocation of resources should take place according to relative prices, which correspond to the scarcity or relative availability of the inputs concerned. Information is a main factor in the decision-making process. Labour market participants have 89 only limited possibilities to monitor levels and trends in supply and demand. The acquisition of such information entails a cost. Employers as well as workers try to minimize those costs. Many aspects of internal labour markets can be more easily understood if such costs are taken into account. For example, employers prefer internal promotions partly because of the cost involved in searching for external candidates. Timely labour information can reduce that cost for both employers and workers. Increasing labour mobility and job diversification contribute to labour market efficiency. Employment services in the Central Asian republics should in the future concentrate on service functions, as job exchanges and support to prospective employers and local administrators. These tasks would give a new dimension to employment services, beyond the immediate function of catering for dislocated workers during transition. However, mobility has several wider aspects which should be kept in mind. For workers it includes not only geographical mobility, but also skill and sectoral movements. Each move represents a cost, in terms of alternative location, acquisition of new skills and perhaps (temporary) unemployment. Benefits should flow through future higher wages and better working conditions. The employer will seek higher productivity and a better return on the investment. In the process, posts might be relocated, some employment will be lost and new jobs will be created. These different types of mobility should be monitored in terms of costs and effects. The institutional aspects of labour markets, including processes of matching supply and demand cannot be considered in isolation from me wage rates. Wages constitute the prices through which factors are allocated on markets. However, wages are also incomes for the workers. The standard of living, if not the status, of the worker's family depends on that income. On the other hand, employers use wages as an important determinant of their total cost structure in production. Governments are monitoring and using wages in the framework of several economic policies. A wage policy is therefore a most important aspect of labour market policies. From the point of view of labour market policies, it is important to note that wages are still largely determined by institutional factors. In the future, a shift towards a role for economic forces, such as the relative scarcity of skills, will need to take place. Wage determinants should increasingly be 90 based on differences in skill and efficiency at the enterprise level. Investments in skills should ultimately be reflected in differentials in wages and remunerations. These indicators also guide the contributions which enterprises make to training of their workers. However, the present wage structure reflects also the sectoral distribution of prevailing economic activities. This distribution is not an optimal one in view of the future development potential of the Central Asian republics. Wages policies should be instrumental in correcting these imbalances. A major constraint for wage policies in the Central Asian republics is the high level of non-wage labour cost. In a competitive environment, all costs which are not directly related to compensation of workers can become a liability to the enterprise and not to the nation. On the other hand, many facilities provided through the workplace can not be obtained yet through the open market or from state services. A long term plan to bring these facilities and costs more in line with practices elsewhere would facilitate labour market functioning. Minimum wages should be an integral part of wage policies. In the early stages of the transition period, the protection of minimum standards of living for workers and their families as well as the safety-net aspects should be stressed. In the future, minimum wages can also be used as a basis for a remuneration system. However, in the present situation in which workers sometimes have to spend 50 per cent of their wage on food, the social protection aspects take precedence. Equity and the Labour Market An important lesson which the experience of mature labour market economies has to teach is that it is at times not only necessary to move a worker out of his or her job, but that it is also in society's interest to help him or her into another, more productive job as soon as possible. Moreover, the post-socialist countries should do something better than compensate the unemployed with a stream of income as long as they remain unemployed. All efforts and resources should be directed at re-allocating labour resources to more productive uses. 'Activating' income support measures is an important 91 task which serves both equity and efficiency objectives in the Central Asian republics. It is unfortunate, but true, that in each labour market some groups experience greater hardships and problems than others. Such manifestations include higher unemployment rates, lower participation rates, lower wages, and/or occupational segregation. The causes may be discrimination, social mores, market imperfections in education and training, etc. Groups likely to be adversely affected and thus be made special targets for active labour market policies may include women, youth, disabled, migrant workers, ethnic minorities, displaced workers, older workers and those with very low educational and skill levels. Social safety nets constitute a shield against hardships caused by changes in labour processes. The objective is to absorb labour from sectors which have to shed labour into productive employment. The ILO knows what it takes to design, implement and maintain a social safety net, which components of a safety net work best and at what costs, and how to share these experiences with the Central Asian republics. These capacities and the efforts of all concerned should be directed at active participation in the new social and economic order. Responsibilities During Economic Reforms In any country, regardless of its stage of economic development or its relative reliance on market forces or planning, the design of labour market and safety net programmes begins with die recognition that there are tihree 'players' in the economic adjustment game: - workers and their trade union representative; - enterprises which, regardless of their legal form or composition of ownership, play the role of employers, and; - governments, national as well as regional and local. 92 Each country has its own way of dealing with redundancies and lay-offs. In the Central Asian republics, it is likely that most of the burden in case of job losses falls on the workers. Those who live in a competitive market economy tend to understand that competition inevitably means die birth and death of firms. Market-oriented economists understand that this process is not only inevitable, but also desirable, so that inefficient firms will make their workers available for more productive and rewarding employment. In this light, the current and impending economic dislocations and unemployment in the Central Asian republics can be considered as an opportunity for those economies. The opportunity is to quickly move labour out of loss-making state enterprises and into private sector firms which produce goods and services for which there is a real demand. But it must be realized that, for die first time in a generation, workers and their families in these countries will experience unemployment. This unemployment will impose very real economic, social and psychological hardships on the affected workers. Unemployment may also generate worker unrest and a backlash against economic reforms. It is therefore necessary to get these unemployed workers re-employed as soon as possible, and also to take actions to protect the individual worker and his/her family while they are unemployed. In focusing on the economic aspects of active labour market policies and the reallocation of labour, this brief paper has ignored many other critical social aspects of the transition from a socialist to a market economy; housing, medical care, access to and quality of education, pension benefits, the quality of life and environment etc. Neither has it addressed all of the labour market aspects of the transition, such as; occupational safety and health, industrial relations, freedom of association and trade union representation, democracy in the work-place, wage determination systems, productivity, dispute resolution systems, etc. Some of these issues are discussed elsewhere in this volume. Active labour market policies can assist in creating efficient labour markets which also provide for equal opportunity in access to employment and for social justice. Such policies will constitute an effective framework for actions in specific (local) labour markets and for programmes in sectors" including in the areas mentioned above. 93 Notes 1 The average rate of population growth in the CARs was 2.3 per cent during the period 1980-90, as against only 0.9 per cent in the former USSR as a whole. 7 A Policy Agenda Per Ronnds and Orjan Sjoberg Since the Central Asian republics obtained independence in the second half of 1991 they have all opted for a policy of gradual economic liberalization and transformation. The aim has been to strike a balance between the need for fundamental economic reform and restructuring on the one hand and the risk of increasing economic disorder and political and social unrest on the other hand. The statement by the president of Turkmenistan, Saparmurad Niyazov, that '[w]e shall maintain a balance between the desired and the possible as we are making headway toward a market system' 1 is representative in this regard. During the first year after the collapse of the Soviet Union the main concern was inevitably to counter and mitigate as far as possible the economic disarray and slump in production that followed in its trail and to cope with the acute problems of nation building. As the economic links with Russia remain intimate, the room for independent macro-economic policies remain limited. Although it will increase following the introduction of national currencies. Considerable preparatory work for a privatization of the economy has been undertaken in all of the countries. Privatization plans have been drafted and much of the legislation is now in place. However, implementation will inevitable be difficult and slow. Already, fear of rampant unemployment and the economic slump is showing signs of slowing down the often ambitious plans for marketization of enterprises, viz. in Kyrgyzstan.2 Similarly, all the countries in the region have adopted land reform programmes, aiming at transferring the managerial and usufruct rights, but not necessarily the ownership, of agricultural land to the individual farm households. However, implementation in this area, too, has so far been slow and piecemeal. Despite 96 attempts at liberalization, state control over agricultural production remains large and, for example in Uzbekistan, artificially low state procurement prices in the face of sharp increases in the prices of agricultural inputs have deteriorated agricultural terms-of-trade. Although unemployment rates are rising in all the countries and the danger of large scale unemployment looms large on the horizon, by early 1993 it had only assumed acute proportions in Uzbekistan, where unofficial estimates placed die number at almost two million.3 Employment policies have so far shown a bias towards passive policies, although the employment funds established in all the countries, except Turkmenistan, generally have a mandate to engage in job placement and training as well as in disbursement of unemployment benefits. While trie establishment of the employment funds are a laudable step forward, mis initiative does not amount to a full-fledged employment strategy and is, by itself, inadequate as response to the emerging employment problems. Indeed, a main conclusion of the review of the issues and problems confronting the Central Asian republics is that the employment aspects are of absolutely paramount importance as these newly independent countries begin to chart their course ahead. The young population structures imply that the economies will need to absorb large increments in the labour force on top of those who are displaced and need alternative employment as a consequence of the transition process. At the same time, the structure of me economies make them ill-suited to assume this task, while poorly developed factor markets impair labour market flexibility and spontaneous growth processes. However, rauier than being seen as a development problem, the young and growing labour forces should be taken as the main resource for development in the design of strategies for structural change and growth. Such employment-based development strategies will need to address both me issue of upgrading the quality of the human capital and, in particular, increasing the efficiency in its utilization. To this end a three-pronged approach to confronting the employment issues facing the Central Asian republics may be identified. The first and most important component should be to ensure an effective integration of the employment aspects into overall economic development strategies and policies for structural change and transition to market oriented 97 economies. This point needs to be made with some force, as it by and large implies a break with past practices and requires that policy-makers and planners are imbued with a new mode of thinking. Furthermore, the states in these countries are weak and the temptation to replace dogmatic belief in the plan by a similarly unquestioning belief in the market presents a real danger, in particular as markets are for the most part not yet in place. Irrespective of the political and economic ideology adopted, the state will need to continue to play an active and major role in the economy in the foreseeable future and a policy of laissez-faire does not present a viable alternative to forcefully pursued development strategies. Restructuring die economies with a view to diversify the economic base and rectify the biases towards large scale heavy industry, and industry over services, will have fundamental, potentially positive, employment implications. Sound macro-economic and trade policies, the creation of an environment conducive to the development and growth of new enterprises and forceful regional policies are three broad areas for strategies to encourage and guide the restructuring of the economies. Policies of a more general nature need to be combined with more specifically targeted policies, requiring an assessment of each country's comparative advantages and clearly formulated objectives. It may be conceptually useful to distinguish me countries that are rich in energy and natural resources — Kazakhstan and Turkmenistan — from the other three: Kyrgyzstan, Tajikistan and Uzbekistan. The rich endowment with natural resources makes the former countries attractive targets for foreign direct investments4 and hold promises of enhanced earnings of foreign exchange and of government revenues. While such a development may provide an escape from the current impasse, it is by itself unlikely to have any major effect on employment generation. Mining and extraction of natural resources provides neither much employment nor does it have any significant linkages effects. On the contrary, a development based on extraction and export of energy and other raw materials carries die risk of 'Dutch disease',5 in particular as the absorptive capacities of these economies are limited and factor markets function poorly. Thus, the main risk would seem to be that successes in exploiting natural resources and in generating foreign exchange may cloud the need for economic diversification and 98 employment-based growth. The second tier of countries appears less lustrous in the eyes of foreign investers and face the starker problem of achieving economic development and increasing employment and income generation with limited resources at hand and in the face of tight foreign exchange and budgetary constraints. Employment aspects also need to be incorporated in the strategy for achieving the transition to market economies. Price liberalization, fiscal and monetary policies, trade policies, development of factor markets, privatization and, not least, de-collectivization of agriculture, have important implications on employment and incomes. Yet, as noted above, policies in this field in East Central Europe have typically been formulated and implemented without consideration of the employment aspects. As late starters, the Central Asian republics can benefit from the experiences of other transition economies and need not repeat this mistake. As a consequence of independence and the change of economic system the government administrative apparatuses are being remolded. This provides a unique opportunity to ensure that employment aspects are administratively integrated into the planning process. Ideally, an employment and manpower planning unit may be established, attached to a key ministry and with direct communication channels with other ministries and key organizations and backed up by a small research outfit. This would serve the purpose of concentrating scarce competence, ensure integration of employment aspects into overall planning, break down intersectoral/ministerial barriers to communication and create national focal points for external assistance and regional cooperation. A system for monitoring and forecasting changes in the supply and demand for labour and appearances of critical skills needs to be developed to remedy the current scarcity of quantitative information and in light of the volatile changes that follow in the trail of economic transition. Innovative approaches are needed to devise a system which is capable of collecting and processing information quickly and which makes maximum use of inadequate statistical information. It should be noted in this context that short and long term forecasting requires different approaches and that regional aspects are important. Apart from inadequate statistical information, the knowledge base on 99 employment related issues remains patchy and partly out of date. Investigative studies in a variety of areas will be required to fill information gaps and provide an adequate base for policy formulation. In view of the inappropriate policies and untenable development patterns in agriculture, and the large and rapidly increasing labour force in rural areas, studies aimed at providing a basis for new agricultural strategies and identification of avenues for increasing the labour absorptive capacity of the rural economy deserve special priority. Other obvious topics for studies include promotion of entrepreneurship and small scale enterprise development in general and the employment aspects of policies for economic transition. Mechanisms for regional cooperation and, in particular, exchange of information need to be developed. Given the unfamiliar and experimental situation, much can be gained from a regular exchange of information between the Central Asian republics, but also by learning from the experiences of more advanced transition economies in East Central Europe and from China and Vietnam, as well as from Turkey. Regional cooperation would also facilitate pooling of resources, for example in research and specialized training (in particular as language barriers between most Central Asian republics are small). ILO is well placed to provide technical assistance and advisory services in all the above areas. Apart from supplementing scarce local expertise, it has a key role to play in providing access to the vast body of experience in employment planning generated in ouier countries — which is neither wellknown nor easily accessible to policy-makers in the region — and by acting as a catalyst for international cooperation. The latter is particularly important in view of the rather weak traditional links between the Central Asian republics on the one hand and transition economies elsewhere on the other hand. Advisory services are also needed to make up for the limited domestic experiences in the formulation and implementation of employment policies in a market based economic system. The second component on the policy agenda should focus on active labour market policies. As noted above, the initial response to the emerging problems of unemployment in the transition economies in East Central Europe has primarily taken the form of traditional passive labour market policies. Such an approach is both inadequate and unsustainable. Drastic 100 changes in both the demand and the supply of labour in the wake of commercialization and marketization of state enterprises, economic restructuring and return migration of, primarily, Russians need to be matched by efficient labour markets and high labour mobility. Unfortunately, the Central Asian republics have inherited a legacy of inadequate labour market institutions and low labour mobility, to which may be added ethnically segregated labour markets. The main areas for policies include the creation of an institutional framework for efficient labour intermediation, a review of labour legislation, a shift from administrative wage determination to a modern system of wage bargaining, and revamping of the system for professional and vocational training (and re-training) with a view to increase the vocational mobility of labour. The establishment of employment funds in four of the five countries under study can be seen as constituting an important first step in this direction. Geographical decentralization of economic activities and diversification of the economic base in rural areas and small towns will inevitably require considerably investments in physical infrastructure. Efficient intermediation of labour requires a network of labour exchanges/ placement bureaus. Under the old system most hirings were done directly by the enterprises.6 In the 1970s a network of job placement bureaus were established throughout the country in response to perceived increasing labour shortages. However, the main objective of these bureaus was to mobilize labour in an overall environment of labour shortage rather than to serve as institutions for genuine labour intermediation.7 Thus, this network (which has offices in all larger cities) will need to be given a different mandate and will also require assistance to assume the task of promoting labour mobility and providing intermediation between employers and job seekers in a market environment. Ideally, they should also be redesigned to play an additional role as collection points of labour market information; such as changes in the supply and demand for specific skills, wage levels and the development of shortages of critical skills. Major revisions of die educational and training systems are likely to be required. The inherited Soviet educational system needs to be reviewed to determine to what extent it is still appropriate and what changes are needed. The qualitative aspects deserve particular attention in view of the widespread 101 criticism, particularly with regard to rural education. The system for vocational and skills training need to be revamped. It would appear that it never functioned very well in the first place8 and the change of economic system will render it partly obsolete. An overhaul of the training system should be undertaken against the backdrop of the changes in the economic structure and would inter alia result in a much stronger emphasis on training in entrepreneurship and rudimentary business administration as a complement to skills training. Channels of communication need also be developed between the central agency responsible for employment and manpower planning and the training institutes. In addition to traditional training, it may be expected that there will be a considerable need for short term retraining of skilled labour, and of upgrading of skill levels among adults. The existing labour and wage legislation is both inadequate and largely inappropriate to meet the needs of a pluralistic market economy. As already noted the old system of administrative wage determination needs to be replaced by a modern system of wage bargaining. A careful balance needs to be struck between the need for a flexible and market based wage system, which is essential for the establishment of an efficient labour market, and equity aspects. Thus, the guiding principle should be to foster direct links between the supply and demand for labour and wage levels, at the same time as certain safeguards are established for the weaker segments of the labour force and outright exploitatory practices are prevented. As all the Central Asian republics face the same need to revise the legislative framework and the system of wage determination, and as there is considerable prior experience from other countries, this is an obvious area for technical assistance and regional cooperation. Indeed, these are all traditional areas for ILO technical assistance and advisory services, but they are essentially uncharted territories for the new to the governments in the Central Asian republics. Much can be learnt by the experiences of others in these fields and by pooling and drawing on the experiences of other transition economies large synergy effects can be gained and the quality of the assistance provided enhanced. Lastly, as a third component, the social security net needs to be adjusted to fill the void left behind by the defunct centrally planned economic system. Poverty levels in most of the Central Asian republics were alarmingly high 102 already prior to independence and the situation has worsened over the past few years. Budgetary constraints impose severe limitations on the comprehensiveness and level of ambition of social security schemes. The main task must therefore be to devise cost-efficient schemes that are welltargeted on those in greatest need of assistance and to ensure that the schemes are financially sustainable. Not least the trial and error approach adopted by several of the formerly socialist countries in East Central Europe highlight the gains that can be made from learning from the experiences of others in this field. Limited Room for Manoeuvre As the Central Asian republics embark on the fundamental economic and societal restructuring that inevitably follows from the transition towards a market economy and the breakup of the Soviet Union they face four major constraints which must have a strong imprint on policy formulation and on the design of overall development strategies. First and foremost, the Central Asian republics are all confronted with a rapid growth of their labour forces. Even under the previous economic regime, they were characterized as labour surplus regions. In contrast to the situation elsewhere in the former Soviet Union, there was open unemployment in urban areas and widespread underemployment in the agricultural sector. The young population structure implies that the labour force will continue to grow at a rapid rate over the next decades even if birth rates decline and overall population growth is brought under control. Productive employment generation will inevitably be a key development issue, as the strong supply side pressure on the labour market will not abate for a long time. The crucial importance of the employment issues is further underscored by the second constraints facing all the Central Asian republics, with the possible exception of Kazakhstan, namely the high population pressure on land. The scarce and environmentally damaged land resources imply inter 103 alia that agriculture cannot, even temporarily, be relied upon to serve as an employment buffer. Although there undoubtedly is scope for increased efficiency in the utilization of the available land resources, incremental employment generation must inevitably be concentrated to the non-farm sectors of the economies. This will be a major challenge in the years ahead and will require die full attention of policy-makers and planners and needs to be in the focus of technical assistance. A third major constraint is the unbalanced trade structure and the large deficits in foreign trade. Except for Turkmenistan (and possibly, within a reasonable time horizon, Kazakhstan), none of the countries are even close to balancing dieir trade widi me rest of me world, at the same time as they are extremely trade dependent. Although a shift to world market prices in trade with the rest of the former Soviet Union and a gradual shift towards increased trade wim non-CIS countries is likely to improve die overall terms of trade for most, if not all, of die Central Asian republics, diis alone is unlikely to solve me problem of die trade deficit, at least not in me short and medium term perspective. The Central Asian republics urgently need to focus Uieir attention on developing their export base and to develop new markets for meir exports. In many instances this is likely to be an uphill struggle. Economic diversification and increased self-sufficiency is no substitute for trade, in particular as, except for Kazakhstan, all the countries register large deficits in food production. Thus circumstances would seem to leave no option but strong emphasis on export-oriented, employment-based development strategies. Qualitative development and enhanced and more efficient utilization of me countries' human resources need therefore become key development objectives. A fourth constraint is the precarious budgetary situation of most of die governments concerned and, more broadly, the generally weak capacity to formulate and implement policies. Loss of revenue following from a discontinuation of the previous financial net flow from the central government to die republican administrations within die former Soviet Union and revenue losses following from die transition process imply not only mat new sources of revenue need to be developed, but also diat, at least in die near term future, policy implementation in die Central Asian republics will be subject to severe financial constraints and will need to meet very high 104 requirements of cost-efficiency. In some of the countries (e.g., Turkmenistan, Kazakhstan) there would seem to exist good prospects for enhanced generation of government revenues, primarily from exploitation of natural resources, while in others (viz. Uzbekistan and Tajikistan) no easy solutions are in sight. Notes 1 Ecotass, 1993:6 (25 January 1993). 2 Bess Brown, 'Central Asia: The first year of unexpected statehood', RFE/RL Research Report, Vol. 2, no.l (1 January 1993), pp. 25-36; Cassandra Cavanaugh, 'Uzbekistan's long road to the market', RFE/RL Research Report, Vol. 1, no. 29 (17 July 1992), pp. 33-38. 3 Cavanaugh, 'Uzbekistan's long road', as compared to 600,000 officially registered unemployed. 4 In particular Kazakhstan has already attracted considerable attention among foreign investors; see Ahmed Rashid, "The next frontier: Kazakhstan is a magnet for energy firms', Far Eastern Economic Review, 4 February 1993, pp. 48-50. 5 The 'Dutch disease' refers to the effects of windfall gains (e.g., from rapidly increasing exports from a booming sector or from development assistance) on (i) the exchange rate - the national currency being appreciated - and (ii) costs of production, which tend to rise also in non-booming sectors, thereby effectively reducing the competitiveness of the latter. See William L. Corden and Peter Neary, 'Booming sector and de-industrialization in a small open economy', Economic Journal, Vol. 92, no. 368 (1982), pp. 825-848. 6 In the whole Soviet Union the percentage of hirings done directly by the enterprises fell from 79 per cent in 1971 to 62 per cent in 1981 (Malle, Employment Planning, p. 62). By 1991, an estimated 4.3 million individuals, or 22 per cent out of a total of 19.5 million jobs allocated, found work with the help of employment bureaus, according to Aleksandr Shokhin, 'Labour market regulation in the USSR', Communist Economies and Economic Transformation, Vol. 3, no. 4 (1991), pp. 499509, at p. 500. 7 Silvana Malle, Employment Planning in the Soviet Union (Basingstoke: Macmillan, 1990) p. 68. 8 See for example Gleason, 'Educating for underemployment', and Yevgeni Antosenkov, 'A new employment concept in Soviet labour legislation', in Guy Standing (ed.), In Search of Flexibility: The new Soviet labour market (Geneva: ILO, 1991), pp. 63-79, especially pp. 73-78. 8 The Road Ahead: A Remark William Clatanoff The Central Asian republics are all in a period of threefold transformation: - - from a centrally planned to a market economy; from an overly specialized economic region, subsumed within a larger economy, to self-interested membership in the international trading community, and; from membership in the one-party Soviet Union to an independent and democratically pluralistic nation state. All of this may happen, but none are at this point guaranteed, and because of the complex inter-relationships between the three transformations it is to early too predict the outcomes. My remarks focus primarily on the first of these transformations, what is generally called the economic transition from central planning to markets, and within that framework most specifically on the transformation of the labour market. The primary labour market problem during uiis transition is no doubt unemployment. The disruption of economic linkages between enterprises and regions, the disappearance of markets which used to be taken for granted and the imposition of hard budget constraints on enterprises exerts a yery strong pressure on most enterprises to trim their work force. As an economy enters the transformation from central planning to a market orientation, there are two theoretically possible ~ and highly contradictory — policy alternative with regard to aggregate labour market behaviour, as indicated by the absolute level and rate of open unemployment. 106 Under the first alternative, a relatively high level of unemployment (presumably of a relatively short duration) is seen as not only unavoidable, but somewhat desirable, as state owned enterprises shed their excess (hoarded) labour. The 'good' aspects of unemployment are seen to be: - job losses and unemployment put downward pressure on wages, leading to moderate wage increases and reduced inflation; higher unemployment 'pushes' workers into new (private sector) jobs; cuts in public budget deficits are realized by cuts in state enterprise wage bills; state enterprise productivity and profitability are directly enhanced (via a smaller work force), enabling more rapid privatization; state enterprise productivity is indirectly enhanced through improved labour 'discipline' as workers fear job loss. The alternative economic argument does not doubt the inefficient allocation and utilization of labour by state enterprises, but would never-the-less avoid or delay labour shedding by state enterprises during the crucial early period of economic transformation. In this scenario: - - - - high unemployment does not affect wages, since money wages are administratively determined and real wages are much more a function of inflation and exchange rates; the growth of private sector employment is primarily dependent upon non-labour market policies (i.e. capital markets, property ownership guarantees, trade policy), and in any event the loss of jobs and income by state enterprise workers depresses domestic demand and hence employment creation; the payment of unemployment compensation benefits will increase public sector budget deficits; state enterprise performance, productivity and profitability will be improved only by the imposition of 'hard' budget constraints, 'marketization' measures including the exposure to competition, and management training; high levels of unemployment will lead to social unrest and an inevitable 107 political back-lash against the very process of economic reform. Proponents of the first policy scenario outlined above can be said to include the World Bank, the IMF, and most western academic economists. Its advocates can now point to the bottoming out of Poland's recession as an indicator of the success of such a policy, and to the stagnation of Romania and Slovakia as examples of what will happen if you do not move to economic restructuring via unemployment. Proponents of the alternative policy strategy will point to China as an example of a successfully reforming economy without open unemployment. Unfortunately, die low unemployment ('China option') scenario, however much it may be desired, is almost certainly not available to any of the Central Asian republics. Each of the Central Asian republics starts the economic transformation from a distorted and disadvantaged labour market position, so that maintaining the existing structure of employment will impede odier economic adjustments. They must begin to lay die foundation for employment-led economic growth and development. All of the countries of Central and Eastern Europe, and most of the exUSSR, began their economic transformation from a position of at least nominal 'labour shortage'. Since economic growth was generally induced by applying more and more inputs, rather than improving the productivity of existing inputs, labour was viewed (by both die enterprise at the micro level and die planner at the macro level) as the ultimate scarce resource — to be hoarded by the enterprise and selectivity allocated to priority sectors by die planner. However, in the Central Asian republics open unemployment — 'socially underutilized labour' ~ was acknowledged to exist even before glasnost, much less the breakup of the Soviet Union. The demographic profile and the rapid rate of population growth make sustained employment growth necessary if you are to avoid rising unemployment. Maintaining the employment in state enterprises is not sufficient, particularly because of what can best be described as a 'lopsided' economy, which is not geared to meeting domestic needs fbr consumption or investment goods (much less trade, transport, personal or financial services), but radier designed to feed certain identified raw materials or semi-processed goods into the Soviet economic system. Trade widi other Soviet republics 108 made up well over 80 per cent of the total 'external' trade of the Central Asian republics prior to independence. Furthermore, the Central Asian republics were in effect trapped by the Council for Mutual Economic Assistance (CMEA) trading system; CMEA trade in 1989 ranged from over 30 per cent of the total net material product in Kazahkstan to as much as 58 percent in Azerbaijan. Furthermore, the trade balances were negative for most of the Central Asian republics, both with regard to the intra-Soviet trade and the trade with the rest of the world. It is fair to conclude that exports to countries outside the socialist bloc were insignificant for all the Central Asian republics. The employment patterns of the Central Asian republics clearly reflect these trade distortions. For instance Uzbekistan processed only 15 to 20 per cent of its own cotton, since employment in spinning and weaving was planned for other republics. The Central Asian republics must face the facts of their external trade situation. While it may be that in the long run the terms of trade will move in their favour, if they can successfully find international markets at world prices for their major commodities, at present and for the foreseeable future all the Central Asian republics, with the exception of Turkmenistan, face a critical balance of trade deficit. Perhaps more importantly, they face an absolute dependency on certain critical imports, made more difficult by the Russian Federation's decision to change the prices of its exports. Therefore, even if 'bottom up' privatization, self-employment, and trade and service enterprise growth were sufficient to absorb labour force increases, they would still need to create employment in the production of tradable goods in order to offset the loss of inter-republic subsidies and finance critical imports. Finally the high ratio of population to arable land as well as the environmental fragility of that land implies that they cannot rely upon agricultural employment as much of a 'buffer' to absorb labour force increases during the economic transition. The question thus arises, what can be done to help create employment. Based on the lessons of Central and Eastern Europe, one can clearly identify some economic reform priorities; including privatization, the guarantee of individual property rights, liberalizing foreign trade relationships, capital 109 market creation, banking and finance reform, and price reforms - usually called price liberalization. - All of these types of reforms will directly impact upon the demand for labour, causing significant shifts in the demand for labour among sectors of the economy, enterprises, occupations, and geographic locations. - It is the responsibility of the Ministry of Labour, to take a look at every single 'economic reform' proposal and ask these questions: Will this increase the demand for labour? Will this make it more likely that private sector firms will want to have more workers? If it doesn't get the right answers, then perhaps it should have a friendly talk with the Ministry of Finance or Ministry of Economics. Similarly, the Central Asian republics need to immediately begin a range of social sector and human resource development reform activities, including educational reforms which expand access to all regardless of ethnic group or sex, more market-oriented occupational training, improved health care, and social security (pension) reform. - All of these will directly, some in the short term and others in the longer run, impact upon the supply of labour, causing alterations in the quantity and/or quality of labour available in various local labour markets. - The question to be ask about any of these reforms is: Will this increase the quality and quantity of available human resources? If not, perhaps the Ministry of Labour should have a friendly talk with the Ministry of Education or the Ministry of Health or Human Services. I would now like to turn to those policies which impact upon how the demand for labour and the supply of labour interact — in the labour market - to create jobs and income. Macro-economic reforms and human resource development are the necessary basis for long-run economic and social development, but functioning labour markets are necessary to assure me most effective utilization of human resources. 110 Creating an efficiently functioning and equitable labour market must be seen as an indispensable element of the economic transformation of the Central Asian republics. There are two important aspects of equitable labour markets. First is equity - equal treatment — in access to employment and the preparation for employment. This means that education and training should be open to all citizens, regardless of gender or national or ethnic group. There must also be equality of treatment in employment, most notably equal pay for equal work, again regardless of ethnic group or gender. What is also crucial at this point is an improved allocative efficiency for me human resources — to assure that the skills and abilities of the labour force are distributed among sectors, enterprises and occupations so as to maximize output. To refer back to the comment made earlier, fewer of the workers should produce materials and products intended for CMEA markets and more of the workers should start to produce goods and services intended for domestic consumption and the world market. It is important to note that, in an efficient labour market, when output is maximized income received by the workers is also maximized. At the present, the primary objective for labour market policy in the Central Asian republics — and the standard by which one should judge if the labour market policy is succeeding - should be to assure that an ever smaller proportion of national income is distributed via government transfers, and that a larger share of the total national income is generated as a reward for, and incentive to, private sector production and employment. This can only be accomplished in an efficient and equitable labour market. But creating efficient labour markets in the Central Asian republics will not be automatic. The most cursory look at the current labour markets reveals the following deficiencies which must be overcome: - a lack of market-based systems of wage determination, including free collective bargaining; the almost complete absence of labour market information of the type needed by employers and/or job-seekers in a market economy; distinct barriers to labour mobility; geographically by the system of 'residence permits' and housing availability, and occupationally by overly Ill - narrow job preparation and training systems; and perhaps most importantly, an under-developed system of labour market institutions, systems and regulations, including an effective public employment (labour exchange) system, an employment law suitable for private sector workers and employers and which incorporates international labour standards, and an adequate and equitable social safety net for those who are unable to find employment. Some of these deficiencies can be overcome by the countries themselves, for others they will need both material and technical assistance. The International Labour Office is ready to cooperate with the donor community in helping to overcome these deficiencies and help create efficient labour markets. Let me conclude my remarks by giving a few practical suggestions which would help improve labour market efficiency in the Central Asian republics. None of them require a 'project' or long-term adviser to implement, although most of them will require a fight with Parliament or other ministries before can they be implemented. 1. Changes in retrenchment policy. In virtuality all the Central Asian republics the law requires that the enterprise give a worker two months advance notice of an eventual lay-off, followed by three months of severance pay (termination allowance) - usually on the condition that die worker register with the state employment service. This implies that die enterprise, the very day that a worker first starts to work, has a liability to pay at least five montfis wages. Such retrenchment policies may be suitable for state enterprises. However, they are a distinct barrier to employment in the newer, smaller, private sector enterprises — or else such employers will ignore advance notice and severance pay altogether, creating a class of 'gray market' workers wim virtually no social benefits or protections. Is it not possible to devise more flexible policies with respect to the hiring and firing of workers that are more appropriate to private sector enterprises? For example, could not the three month's severance pay be included in unemployment insurance? 112 2. Maternity benefits. Current laws forbid the termination of the employment of women while they are pregnant, and require the payment of wages while on maternity leave for periods which vary from six months to two years. Such a requirement will greatly reduce the hiring of women by private sector enterprises. There is also evidence that some state enterprises have begun laying off women of child-bearing age, to avoid the potential of paying these maternity benefits. This sounds paradoxical, but to maximize employment in a market economy, such maternity benefits should be socialized, i.e. made a liability of the government, and not die individual employer. 3. Wage controls. Most of die Central Asian republics still have direct wage controls, some as a result of never having 'reformed' the wage system, some because wage controls were imposed as a result of IMF-inspired anti-inflationary policies. As noted above, in a market economy wages serve as both rewards and incentives to workers. Wages also serve as important market signals to employers, about how to more efficiently utilize and allocate workers, and whether or not to hire or fire them when their wage is greater or lesser than their value to the enterprise. Such rational, output and income maximizing behaviour cannot take place under conditions of direct wage controls. Drop them. If the IMF or the Finance Minister insists, replace direct wage controls in the government's anti-inflation package with a 'tax-based incomes policy'. But this should only be applied to state enterprises. The private sector should be set free from any sort of wage controls as soon as possible. This will draw workers into the private sector, and give the highest labour market rewards to those who produce the most. 4. Wage taxes. The tax systems in all the Central Asian republics have a Marxist-Leninist heritage, and so all of them have a tendency to impose taxes on enterprise wage bills, usually as some percentage of that wage bill. This means that when an enterprise 'hires' capital or other material resources, it pays the price of diose inputs; but when an enterprise hires labour, it pays the price (wages) of human resources plus the tax rate. Since the effective tax rate on enterprise wage bills can be over fifty per 113 cent, this is a very high built-in economic bias against employment, against hiring labour. Again, the Ministry of Finance will probably not go along with suggestions to simply abolish wage bill taxes, unless alternative sources of public finance are identified. I personally would advocate income taxes, progressively graduated for die equity's sake, but taxes imposed across-the-board on all enterprise income or expenditures would still be better than the taxes just on wage bills. 5. Income support measures. An adequate system of income support, generally called social security, including unemployment compensation and pensions is clearly required in any society, regardless of how 'market' oriented it is. I am not going to go into a long and complicated debate about the incentives and disincentives, and impacts on labour supply and job search behaviour, of alternative social security systems. But I do wish to point out that the Central Asian republics have tended to equate minimum wages with minimum incomes, and I believe that this is causing distortions in your labour markets. Pensions and unemployment benefits are usually set at, or just above, the subsistence minimum income, if they are to serve their equity and social justice functions at all. But if this level is also the minimum wage, then it implies that some, not to say many, workers receive the same incomes as those not working. The disincentive this gives the unemployed to search for work is a problem, but one that does not bother me as much as the demoralizing effect it has on those who are working and know they would get the same income if they were not working. The minimum monthly wage should therefore exceed die subsistence-defined minimum monthly income which is used for pensions and unemployment compensation. 6. With regard to labour market information, diere is a need to take a good hard look at the systems for collecting, analyzing and disseminating labour market information. By labour market information, I do not mean the statistics on how many people have registered with the employment service, the number of vacancies or the number of people who are receiving unemployment compensation. Rather, I would support that one should look at labour market information in the following way: If I were 114 an unemployed worker, what kind of information would help me find and get another job? This implies collecting information on issues such as: What types of skills and experiences are demanded by employers in this town? What are the wages in occupation X compared to occupation (or enterprise) Y? What types of training and re-training programs are available? Is such information available? I do not think so. Could one start to make it available? I think one could. Appendix One Final Communique of the Conference The Ministers of Labour and Social Security of Azerbaijan, Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan, Turkmenistan and Turkey The Conference of the Ministers of Labour and Social Security of Azerbaijan, Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan, Turkmenistan and Turkey;1 Having been convened at Ankara on 29-31 May, 1993, upon the invitation of the Minister of Labour and Social Security of the Republic of Turkey, with the technical assistance of the International Labour Organisation, and; having departed from the notion that in the process of transition to a democratic system and market economy, the establishment of a state governed by the rule of law based on fundamental human rights and liberties is a major objective, and; considering that it is necessary that any labour legislation to be prepared within this framework should be developed in conformity with the international labour standards, and; having joined in the idea that for the protection and development of democracy and in the establishment and maintenance of a market economy, the roles of workers' and employers' organisations having attained institutionalised structures cannot be denied, and that in the process of social and economic development, the sharing of the responsibilities between the social partners is a must, and; considering the fact that poverty and unemployment constitute a great danger for democracy, the preservation and development of democracy and market economy can only be achieved by means of diminishing poverty, preventing unemployment and extending social security and social services; having shared the opinion that it should not be forgotten that the 116 development of industrial relations system, within the framework of the ILO standards and appropriate with the national social and economic conditions, is the fundamental element in the establishment of industrial peace and a just income distribution. declare that they agree on the necessity of cooperation and mutual assistance in the following fields: - improvements of legislation governing labour life in accordance with the ILO standards, - carrying out the legal arrangement studies with a view to enable workers' and employers' organisations to attain institutionalised structures, - by taking into account the national requirements, for training to meet the need for qualified labour force, - establishment/development of a system with the objective of placing workers in appropriate jobs according to their qualifications and filling up the vacancies with skillful labour. Remembering the guiding role played by the ILO by means of the universal standards it has set so far in the preparation of national legislation of many countries, the Ministers participating in the Conference invite the International Labour Organisation to: - support effectively, with means and methods appropriate to regional and national realities, the wishes for and the efforts made towards integration with the world, of those countries undergoing a transition process into democracy and market economy. 117 The Ministers participating in the Conference declare that they expect - from the International Labour Organisation (ILO) provision of consultancy services, in accordance with these objectives, and support in the form of technical assistance; - both from the ILO contributing to this Conference and from Turkey, the host country submitting her own experiences and models with various examples, again through the ILO, transference of their experiences and accumulated knowledge to all the participating countries in this Conference that have not as yet started to benefit directly from these services; - that the Ministers participating in the Conference state that immigration between the former Soviet Republics takes the priority within the economic problems faced by the Republics, who recently gained independence, and that they are expecting from ILO and other organisations concerned to taken an interest in this matter within the framework of their specialized fields. The Ministers participating in the Conference would like to express their gratitude to Turkey, the host country, for organizing this Conference. Notes 1 The European Communities (EC), the United Nations Development Programme (UNDP), the Turkish Cooperation and Development Agency (TICA) and the World Bank participated in the Conference as observers. Appendix Two List of Participants Labour Ministers Conference Ankara, 30-31 May 1993 Delegations of the Participant Countries Azerbaijan Akif Kerimov Minister of Labour Tarlan Caffrof Adviser to the Minister of Labour Firengiz Mamedova Main Specialist, International Cooperation Department, Ministry of Labour and Social Protection Mehmet Ali Nevruzoglu Ambassador of Azerbaijan to Turkey Kazakhstan Sayat Beysenov Minister of Labour Azamat Ahmetsayev Director General of Labour and Employment of Cambul Region, Ministry of Labour 120 Acenseyit Tumbayev Central Asian Department, Ministry of Foreign Affairs Marat Tajibayev Head of Foreign Relations Department, Ministry of Labour Kanat Saudabaev Ambassador of the Republic of Kazakhstan to Turkey Kyrghyzstan Kanyshal A. Saiakbaeva First Deputy Minister of Labour and Social Protection Zhanyl A. Kozhomuratova Deputy Chief, Main Employment Department Sadyk B. Bakashev Chief of Employment Department of Tchuya Region Shukubek Esenaliev Chief of Employment Department of Issyk-Kul Region Dilde Sarbagisheva Minister-Counsellor, Embassy of the Kyrghyz Republic in Turkey Tajikistan Sukurcan Zuhurovi Suhurov Minister of Labour and Employment Jura Latipovic Latifov Head of Department of Refugees Akbar Pacliyatovic Davliyatov Head of Department of Education Abdumanof Usmanovic Abdudalamuv Deputy Director of the Employment Centre 121 Turkmenistan Nedirmamed Alovov Minister of Social Security Khan Ahmedovic Ahmedov Ambassador of Turkmenistan to Turkey Uzbekistan Akil Abidov Minister of Labour a.i. Murad Umarov Chef du Cabinet Aman Ergasev Ministry of Labour Israel Isaev Ministry of Labour Rustam Raimov First Secretary, Embassy of the Republic of Uzbekistan in Turkey Turkey Erdal Inonii Deputy Prime Minister Ministry of Foreign Affairs Yasar Yakis Deputy Undersecretary Sembir Tumay KGSI 122 Sule Ozkaya International Economic Organizations Department Nilgun Tas TICA, Coordinator for Projects and Programmes Ministry of Labour and Social Security Mehmet Mogultay Minister of Labour and Social Security Kutlut Turker Undersecretary Tugrul Agar Deputy Undersecretary Osman Terzi Deputy Undersecretary Ismail Bayer Director General of Labour Gulay Aslantepe Director General of Services for Turkish Workers Abroad Emel Danisoglu Director General of the Social Security Institute Kemal Kilicdaroglu Director General, SSK Mete Toriiner Director General, Employment Organization Ridvan Selcuk Director General, BAG-KUR Mehmet Ali Inal Head of Research, Planning and Coordination Board Mehmet Keles Head of Labour Inspection Board, a.i. Tuncer Donmez Head of Inspection Board Nurhan Tengirsenk Legal Adviser Sengul Berksu Head of EC Department Ibrahim Cikrik Head of Personnel Department Fahrettin Karadeniz Head of Occupational Safety Department Mehmet Ozdemir Head of Administrative and Financial Department Bulent Piyal Ministry Adviser Perinan San Deputy Director General of Labour Ismail Ascioglu Press Adviser Metin Gomceli Director General, YODCEM Handan Sabir Director ISGUM TISK (Confederation of Turkish Employers' Association) Refik Baydur President Kubilay Atasayar Secretary General TURK-IS (Confederation of Turkish Workers' Union) Bayram Meral President 124 Semsi Denizer Secretary General Academia Professor Tuncer Bulutay National Consultant for UNDP/ILO LMIS Project Professor Murat Demircioglu Consultant and Lecturer Professor Oner Egrenci Consultant and Lecturer Professor Cahit Talas Consultant and Lecturer Professor Savas Taskent Consultant and Lecturer Professor Devrim Ulucan Consultant and Lecturer International Organizations United Nations Development Programme E. J. Cain UNDP Resident Representative, Ankara The World Bank Luis de Azcarate Chief of Mission, Ankara European Union M. J. Lake Head of the Representation of the Commission of the EU, Ankara International Labour Office O. de Vries Reilingh Director, Europe Regional Office, ILO, Geneva W. R. Simpson Director, Industrial Relations and Labour Administration, ILO, Geneva W. Clatanoff Chief, Active Labour Market Policies Branch, ILO, Geneva A. T. Samorodov Active Labour Market Policies Branch, ILO, Geneva R. Isik Director, ILO Ankara Office Course Participants Maksut Imasev Kazakhstan Marat Baysan Kazakhstan Hamit Safarov Uzbekistan Devra Sukurcanov Uzbekistan Nurmuhammetov Erkenbek Kyrghyzstan Cumabayev Cumabek Busurmankulovic Kyrghyzstan Appendix Three Statistical Tables TABLE 1: Share of inter-republican trade in total trade, 1988. TABLE 2: Total population and rural/urban distribution, 1959 1989. TABLE 3: Average annual rates of total population growth. Per cent. TABLE 4: Relative shares of working age and below/above working age population in 1990. Per cent. TABLE 5: Projected net average annual increase in working age population, 1979-1999. Per cent. TABLE 6: Per cent annual change in national income 1986-92. TABLE 7: Structure of labour force by industry and type of employer. Per cent. TABLE 8: Proportion of titular ethnic group in the labour force by economic sectors in 1987. Per cent. TABLE 9: Per cent of total population over the age of 10 with more than primary education by ethnic groups. TABLE 10: Labour Supply and Demand in Kazakhstan, January through September 1992 (1,000). 128 TABLE 1: Share of inter-republican trade in total trade, 1988. Total mil. Kyrgyz- stan atan Tajiki- Turkmenistan stan Uzbekistan 9, 100 export, rubles % within USSR % outside Total mil. Kazakh- USSR 2, 560 2,330 2, 600 10,490 91.2 97.7 85.8 92 .3 85.4 8.8 2.3 14.2 7.7 14.6 16,400 3, 770 3,490 2, 900 12,320 83.5 79.6 86.5 86.2 86.2 16.5 20.4 13 .5 13 .8 13 .8 55 68 67 90 85 61 83 66 96 84 30 8 70 50 90 import, rubles % within USSR % outside USSR E x p o r t s as % o f imports, within outside total USSR USSR Source: Murat Albegov, 'Problems of regional development in the USSR under perestroika', in Tibor Vasko (ed.), Problems of Economic Transition (Aldershot: Avebury, 1992), p. 149. 129 TABLE 2: Total population and rural/urban distribution, 1959 1989. Kazakh- Kyrgyz- stan atan Tajiki- Turkmenistan stan Uzbekistan Total population (1,000) 1959 9,295 2,066 1,981 1,516 8,119 1970 13,009 2,934 2,900 2,159 11,799 1979 14,684 3,529 3,801 2,759 15,391 1989 16,538 4,291 5,112 3,534 19,906 1959 43.8 33.7 32.6 46.2 33.6 1970 50.3 37.4 37.1 47.9 36.6 1979 53.9 38.7 34.9 48.0 41.2 1989 57.2 38.2 32.6 45.4 40.7 1959 56.2 66.3 67.4 53.8 66.4 1970 49.7 62.6 62.9 52.1 63.4 1979 46.1 61.3 65.1 52.0 58.8 1989 42.5 61.8 67.4 54.6 59.3 Urban population Rural population (%) (%) Sources: Naselenie SSSR 1988. Statisticheskiy ezhegodnik (Moscow: Finansy i statistika, 1989), pp. 24-26; Demograficheskiy ezhegodnik SSSR 1990 (Moscow: Finansy i statistika, 1990), pp. 11-12. 130 TABLE 3: Average annual rates of total population growth. Per cent. Kazakh- Kyrgyz- Tajiki- Turkmeni- stan stan stan 1959-69 3.1 3.3 1970-78 1.4 2.1 1979-88 1.2 1989 1990 Uzbeki- stan stan 3.5 3.3 3.5 3.1 2.8 3.0 2.0 3.0 2.5 2.6 1.0 1.9 2.9 2.6 2.2 0.6 1.3 2.1 2.5 1.9 Source: Vestnik Statistiki, 1991:7 (Moscow: Finansy i statistika), p. 71. TABLE 4: Relative shares of working age and below/above working age population in 1990. Per cent. Kazakh- Kyrgyz- stan stan Tajiki- Turkmenistan stan Uzbekistan Below working age 33.5 39.5 45.2 42.7 42.9 Working age 55.2 50.4 47.2 49.8 49.2 Above working age 11.3 10.1 7.6 7.5 7.9 Source: Vestnik Statistiki, 1991:7 (Moscow: Finansy i statistika), p. 73. 131 TABLE 5: Projected net average annual increase in working age population, 1979-1999. Per cent. Taj iki- Turkmeni- Uzbeki- stan stan stan 2.1 3.6 3.2 3 .2 2.6 3.3 3.1 3.0 2.7 3.S 3.1 3.2 Kazakh- Kyrgy z - stan stan 1979-89 1.3 1990-94 1.8 1995-99 1.7 Source: Calculations based on Demograficheskiy ezhegodnik SSSR 1990 (Moscow: Finansy i statistika, 1990), pp. 27-74. Remark: The figures for 1979-89 are based on the working age population at the beginning and at the end of the period as given by census returns. The calculations behind the forcasts for 1990-99 are based on the the assumptions of no migration and of proportional mortality over the age groups upon which the calculations are based, i.e. 6 to 54/59 years. 132 TABLE 6: Per cent annual change in national income 1986-92. Kazakhstan Kyrgyzstan 0.8 0.0 0.1 2.0 5.8 12. 6 0.5 3.7 Tajiki- Turkmenistan Stan 3.1 - 1.0 1.7 3.2 - 0.2 12.2 2.6 - Uzbekistan 10.2 10.0 - 1.0 1.4 2.2 0.5 1.7 - 0.9 - 8.9 13.0 - 5.0 - 9.0 - 4.7 - 0.9 n. a. - 5.3 - 9.5 14.0 - 26.0 3.4 Sources: Roland Gotz and Uwe Halbach, 'Die Nachfolgestaaten der UdSSR - kurz vorgestellt (III)', Osteuropa, Vol. 42, no. 8 (1992), pp. 680-693; Idem, 'Die Nachfolgestaaten der UdSSR - kurz vorgestellt (IV)', Osteuropa, Vol. 42, no. 10 (1992), pp. 887907; World Development Outlook, October 1993 (Washington D.C.: IMF, 1993), p. 140. Remark: Figures for 1986-1990 from Roland Gotz and Uwe Halbach and for 1991 and 1992 from World Development Outlook. In some instances it would appear tiiat the figures are based on net material product. 133 TABLE 7: Structure of labour force by industry and type of employer. Per cent. Kazakh- Kyrgyz- stan stan stan stan stan 34 42 41 38 27 21 21 24 18 17 18 17 21 20 20 21 66.0 57.6 55.7 62.4 1.6 1.2 0.2 1.2 2.8 4.7 0.7 3.0 15.1 16.3 26.2 17.3 14.5 20.2 17.2 16.0 Industry (1987) Agriculture Industry & construction Trade & transport Services 23 31 24 22 Tajiki- Turkmeni- Uzbeki- Type of employer (1991) State sector 75.5 Stock companies et. al. 2 . 6 Leasing, tenant 9.0 Kolchoz & cooperatives 8.8 Private (farming) 4.0 Sources: Roland Gotz and Uwe Halbach, 'Die Nachfolgestaaten der UdSSR - kurz vorgestellt (III)', Osteuropa, Vol. 42, no. 8 (1992), pp. 680-693; Idem, 'Die Nachfolgestaaten der UdSSR - kurz vorgestellt (IV)', Osteuropa, Vol. 42, no. 10 (1992), pp. 887907; Trud v SSSR, Statisticheskiy sbornik (Moscow: Finansy i Statistika, 1988), pp. 16-17. 134 TABLE 8: Proportion of titular ethnic group in the labour force by economic sectors in 1987. Per cent. Kazakh- Kyrgyz- stan stan Tajiki- Turkmenistan stan Uzbeki- Agriculture 52 69 63 81 76 Industry- 21 25 48 53 S3 Construction stan All branches 21 26 48 54 50 Transport & communications 28 35 57 48 55 Trade 29 34 61 65 'Municipal economy' 23 30 56 S3 . 55 Health 38 46 50 62 64 Education 43 43 58 67 69 Science 25 27 31 48 33 Administration 40 42 51 51 57 66 Source: Trud v SSSR, Statisticheskiy sbornik (Moscow: Finansy i statistika, 1988), pp. 20, 22-23. 135 TABLE 9: Per cent of total population over the age of 10 with more than primary education by ethnic groups. Kazakhs Kyrgyz Taj iks Turkmens Uzbeks 1959 26.8 29.9 29.9 36.3 31.1 1970 39.0 40.0 39.0 43.0 41.2 1979 59.2 59.0 56.5 59.7 61.5 198S 67.8 66.6 64.3 67.7 68.3 Sources: I. P. Zinchenko, 'Natsionalnyy sostav naseleniya SSSR', in A. A. Isupova and N. A. Shvartsera (eds.), Vseoyuznaya perepis naseleniya 1979 goda. Sbornik statey (Moscow: Finansy i statistika, 1984), p. 160; 'Statisticheskie materialy', Vestnik statistiki 1986:7, p. 67. it 136 TABLE 10: Labour Supply and Demand in Kazakhstan, January through September 1992 (1,000). January March June Sept. Total unemployed - urban areas 4.0 2.3 9.2 4.7 15.8 8.7 25.1 14.9 - rural areas 1.7 4.5 7.1 10.2 Total vacancies 74.8 45.3 55.0 50.4 - urban areas - rural areas 52.8 22.0 32.4 12.9 32.7 22.3 41.3 9.1 Source: Data supplied by the Ministry of Labour.