World Bank Policy Note

Bulgaria: Raising employment and human capital for growth and

convergence

November 2008

Abstract

Bulgaria’s living standards convergence with the leading economies in the European
Union requires strong economic growth over the next two decades which, in turn, will
rely on high employment levels and strong productivity growth. Bulgaria has seen
impressive improvements in the labor market in recent years, and unemployment has
fallen to record low levels. However, increased tensions on the global financial markets,
sharp adjustments to global commodity prices, and expected recession in most advanced
economies in the world, are likely to slow Bulgaria’s economic growth which would lead
to rise in unemployment in the short- and medium-term. While labor force participation
remains low relative to many other EU Member States, in particular for youth, this note
finds that further labor market activation of the working age population will not be
sufficient to generate the high economic growth necessary for Bulgaria’s longer-term
convergence. Rather, convergence will require substantial increases in skills and
productivity of the current and future labor force and delays in addressing the skills issue
would have negative long-term implications on growth. As education outcomes and
labor productivity in Bulgaria remain low in a European comparison, sustained
interventions from early childhood to adult education are necessary over the coming
years to raise human capital, in particular given the added challenge of a demographic
decline.

This policy note was prepared at the request of and in close cooperation with the
Bulgarian Ministry of Labor and Social Policy (MLSP) and the Confederation of
Employers and Industrialists of Bulgaria (CEIBG).
 World Bank Policy Note
Bulgaria: Raising employment and human capital for growth and
convergence

Executive Summary
The Bulgarian labor market has seen remarkable improvements in recent years,
with record low unemployment and big gains in employment, edging closer towards the
Lisbon target of an employment rate of 70 percent. More than 400,000 new jobs have
been created between 2003 and 2007, and businesses have been reporting shortages of
skilled workers. This benign environment for job creation is likely to change as ongoing
global financial turmoil with ensuing negative effects on the real economy will impact on
labor market demand in Bulgaria. Growth in sectors that have been the engine of job
creation until now—construction, industry, real estate, and trade—is likely to slow and
even decline. This would result in an increase unemployment, although the demand for
highly skilled workers is likely to remain largely unchanged.

Compared to the EU27 averages, activity and employment rates remain low, and
Bulgaria has significant untapped domestic labor reserves. This note finds substantial
untapped labor supply reserves that could be activated to boost Bulgaria’s employment
rate and contribute to sustaining the high rates of economic growth required for
convergence. Bulgaria performs poorly in youth labor market participation compared to
its European partners, with a substantial share of the youth who are neither in education
nor in employment. Moreover, there are groups such as adult women who are out of the
labor force for family reasons, and Bulgaria’s older workers participate less in the labor
force than their European peers. Many of the unemployed and inactive have low skills,
including young people, but there is also a large share of secondary education graduates.
In satisfying the growing demand for skilled labor and boosting employment, Bulgaria
needs to urgently look at promoting the transition of young people from education to the
labor market, including through keeping them longer in school and ensuring they earn the
skills that are in demand in the labor market as well as promoting part-time employment
and internship programs for young people.

In light of Bulgaria’s demographic decline over the coming years long-term growth
and convergence require sustained increases in labor productivity and investments
in human capital.. While employment was an important contributor to economic growth
in recent years, further labor market activation of the working age population will not be
sufficient in the future to generate the high economic growth necessary for Bulgaria’s
convergence with the leading economies in Europe and around the world. Indeed, if GDP
growth continues at around 5 percent per year, Bulgaria is likely to meet the Lisbon
employment target in the next few years but growth prospects have worsened lately with
the global financial crisis. Bulgaria’s level of GDP per capita will remain well below EU
averages for many years to come, and its convergence will require sustained increases in
skills and productivity. As Bulgaria’s labor productivity remains low in a European
comparison, sustained interventions from early childhood to adult education are
necessary over the coming years to raise human capital and ensure the increases in labor
productivity that Bulgaria needs to accelerate growth and convergence. These
interventions should not be put on hold because of other emerging priorities like dealing

2
with the impacts of the global crisis. The importance of enhanced labor skills for future
productivity growth and the time it takes to raise skills of the labor force and use them in
the labor market requires constant attention to this issue despite shifts in short- and
medium-term demand for labor.

This notes reviews the latest labor market trends in Bulgaria and examines untapped
domestic labor supply reserves. It also reviews the interaction of the labor force and skills
in the context of demographic decline and provides policy recommendations on
employment activation and measures to address skills shortages in the short term and
raise human capital in the medium term.

Overview of Policy Recommendations

Employment Activation
Challenge 1: Many youth are inactive in the labor market
- Promote flexible and part-time work arrangements
Introduce legislation on temporary work agencies
Introduce simpler contracting for part-time and temporary employment
Reduce barriers to part-time contracting in the social security system
- Pilot and test apprenticeship, internship and wage subsidy programs
- Develop youth-centered employment activation
Challenge 2: Certain adult groups are inactive in the labor market
- Enhance provision of child care
- Promote second chance education programs
Challenge 3: Older workers leave labor market too early
- Strengthen incentives in the pension system to work longer
Skills and human capital
Challenge 4: Too many youth drop out of school early and become individuals neither in
employment, education nor training (NEET)
- Promote early childhood development programs to promote school readiness
- Intensify efforts to prevent early school leaving and boost retention in education and training
Introduce incentive measures to prevent early school leaving
Promote early outreach through school counseling and professional orientation
Introduce more varied, alternative and flexible pathways to education and training
Challenge 5: Youth leave education insufficiently prepared for the knowledge economy
- Complete ongoing school education reform to improve quality and relevance
Place a greater focus on developing good monitoring systems
Adopt active measures to attract, train, retain and reward effective teachers
Move to a competency-based approach in curriculum and learning
- Promote tertiary participation
Introduce student loans and scholarship programs
Develop curricula for VET secondary schools balancing vocational and general skills
Delay early selection into profile and non-profile secondary schools
Expand occupationally oriented short-cycle colleges
- Enhance labor market relevance of university degree programs
Reform financing of higher education to enhance competition among tertiary institutions
Reform governance of higher education institutions
Challenge 6: Few adults participate in life-long learning
- Pilot-test adult learning approaches
- Ease alternative entry routes into higher education for adults

3
 World Bank Policy Note1
Bulgaria: Raising employment and human capital for growth and convergence

1. Bulgaria’s agenda of accelerating convergence in living standards with the

most advanced economies in the European Union and worldwide requires continued
high rates of economic growth, driven by employment creation and strong
productivity growth. As argued in a recent World Bank study “Accelerating Bulgaria's
Convergence – The Challenge of Raising Productivity”, Bulgaria will need to continue
efforts to activate its working age population, and, more importantly, adopt measures to
ensure high rates of productivity growth, in order to sustain high rates of economic
growth and converge within the EU over the coming decades.2 Despite strong recent
employment growth, Bulgaria’s employment and activity rates remain low in a European
comparison, suggesting there is further room for employment creation. It is becoming
increasingly important, therefore, to better understand where Bulgaria’s untapped labor
reserves are and what are ways to address skills shortages and raise human capital for
productivity increases in the short and long-term.

A. RECENT LABOR MARKET PERFORMANCE: LOW UNEMPLOYMENT BUT LOW

LABOR UTILIZATION

2. Bulgaria has seen remarkable improvements in the labor market over the
last five years, with falling unemployment and rising employment but recent
worsening of external environment may put on hold further improvements or even
reverse them. Unemployment rates have fallen from above 15 percent in 2000 to below
7 percent in 2007. As Figure 1 shows, Bulgaria’s employment growth has been
substantial between 2000 and 2006. Over the last five years, Bulgarian businesses have
created more than 400,000 jobs. Marking an end to the period of “jobless growth”3 in the
late 1990s and early 2000, the improvements in the labor market in recent years have
been driven by strong economic growth: Bulgaria’s employment elasticity of growth –
capturing the extent to which economic growth has been accompanied by increases in
employment – has been positive since 2000, with coefficients of 0.2 between 2001 and
2003 and 0.5 between 2004 and 20064. That means that one percent growth in output was
associated with half a percent growth in employment. However, an expected economic
slowdown in Bulgaria in response to global financial turmoil and expected recession in
1.
1
This policy note was prepared by a World Bank team comprising Christian Bodewig (main author),
George Clarke and Lire Ersado. It was prepared at the request of and in close cooperation with the
Bulgarian Ministry of Labor and Social Policy (MLSP) and the Confederation of Employers and
Industrialists of Bulgaria (CEIBG). The World Bank team would like to thank Todor Krastev (MLSP) and
Lena Roussenova, Evgeni Ivanov and Ivan Zahariev (CEIBG) for the close cooperation. The note also
draws on prior research for World Bank (2007), Labor Markets in EU8+2: From the Shortage of Jobs to the
Shortage of Skills, World Bank: Washington DC.
2
World Bank (2007). "Accelerating Bulgaria's Convergence: The Challenge of Raising Productivity",
World Bank: Washington DC.
3
The period of jobless growth was marked by substantial job losses in State-owned enterprises largely
offset by job creation in newly established companies.
4
World Bank (2007), Labor Markets in EU8+2: From the Shortage of Jobs to the Shortage of Skills, World
Bank: Washington DC.

4
most advanced economies is likely to change labor demand patterns in Bulgaria and
increase unemployment.

Figure 1: Bulgaria’s recent labor market trends have been remarkable

Average annual employment growth
4.0 3.7 3.2
2.8 2.6
3.0 2.1
1.7 1.7 1.9
2.0 1.3 1.3 1.5 1.4 1.7
0.9 0.91.1
1.0 0.5 0.4 0.5 0.8
0.1 0.2 0.4 0.0 0.2 0.3
0.0
-1.0 -0.2 -0.3
-0.7
-2.0 -1.2 -1.6
-1.3 -1.5
-2.0 -2.0
-3.0
-4.0
-4.2
-5.0
1997-2000
2001-2004
2005-2006
1997-2000
2001-2004
2005-2006
1997-2000
2001-2004
2005-2006
1997-2000
2001-2004
2005-2006
1997-2000
2001-2004
2005-2006
1997-2000
2001-2004
2005-2006
1997-2000
2001-2004
2005-2006
1997-2000
2001-2004
2005-2006
1997-2000
2001-2004
2005-2006
1997-2000
2001-2004
2005-2006
1997-2000
2001-2004
2005-2006
1997-2000
2001-2004
2005-2006
CZ EE HU LV LT PL SK SI BG RO HR EU15

Change in unemployment rates 2000-2006 (15-64) Change in employment rates 2000-2006 (15-64)
25 75
2000 2006
2000 2006 Lisbon Goal

20 70

15 65

10 60

5 55

0 50
CZ EE HU LV LT PL SK SI BG RO HR EU15 CZ EE HU LV LT PL SK SI BG RO HR EU15

Source: Eurostat; Bank staff calculations. Notes: Croatia data from 2002

3. A significant share of employment creation has been in relatively low-skilled

sectors, yet this trend is unlikely to continue in light of the worsening external
environment and expected adjustments to growth. Between 2003 and 2007, total
employment increased by about 418,000 jobs (see Table 1). The largest increases were in
the construction sector (141,000), wholesale and retail trade and repairs of motor vehicles
and household goods (96,000) and manufacturing (90,000). Financial intermediation and
real estate, renting, and business activities grew very quickly in relative terms (35 percent
and 34 percent over this period) but started from much smaller bases. Most job creation
has been in sectors where relatively few workers have higher degrees (e.g., doctorate,
masters, bachelors or specialist) and where wages are low (see Table 1). However, low-
skill sectors are likely to become much less of an engine of job creation in the years to
come. In particular, the construction boom in Bulgaria is largely over, while employment
in retail trade will likely taper off with the emergence of larger establishments and
closure of smaller shops and expected slowdown in economy as a consequence of
ongoing global financial turmoil. This implies that Bulgaria cannot expect low skilled
sectors in the labor market to absorb low skilled workers as in recent years, and policy

5
should center on raising their skills – more important now, in a period of economic slow-
down, than ever.

4. At the same time, the labor market has become very tight for highly skilled
workers: Labor market opportunities for tertiary graduates are excellent, and
unemployment among this group is virtually non-existent. The unemployment rate for
tertiary education graduates in 2007 was below 3 percent, suggesting that university
graduates are increasingly in short supply. The picture is almost as good for upper
secondary graduates, at around 5 percent (see Figure 3 below).

Table 1: A lot of employment creation has taken place in low skill sectors
Changes in employment by sector 2003-2007
Change Growth
% of Average
Employ. Employ. in in
workers Wage in
in 2003 in 2007 Employ. employ
with higher sector (as %
(000s) (000s) 2003- 2003-
degree of average)
2007 2007
Total (in thousands) 2835 3253 418 14% 25 100
Agriculture 286 245 -40 -15% 5 71
Mining and quarrying 41 36 -6 -15% 12 171
Manufacturing 677 767 89 12% 13 90
Electricity, gas and water 60 60 0 1% 20 171
Construction 152 292 141 66% 10 84
Wholesale and retail trade 423 519 96 20% 20 81
Hotels and restaurants 129 163 34 23% 11 68
Transp., storage and comm. 215 220 5 2% 23 128
Financial intermediation 31 44 13 35% 67 232
Real estate and business 116 163 48
activities 34% 52 99
Public administration 230 239 9 4% 43 148
Education 210 218 7 3% 70 100
Health and social work 156 162 6 4% 60 106
Other services 107 125 18 15% 28 80
Source: National Statistical Institute (NSI). Household labor force survey (HLFS).

5. Yet despite the surge in employment, labor remains underutilized in

Bulgaria, driven primarily by low participation among youth and older workers.
While unemployment rates have fallen and job creation has been strong, employment
rates remain low in Bulgaria – relative to the EU 15 and to the Lisbon target of 70 percent
by 2010 (see Figure 1, lower right panel). The same is true for activity rates. While the
employment and activity rates for the adult population in Bulgaria are on par with EU
averages – a remarkable achievement for Bulgaria – there are big deficits for young
people and to a lesser extent for older workers (Figure 2). This suggests that Bulgaria has
large underutilized pools of labor among the youth as well as, to some extent, among
older workers, and the challenge is to find ways to activate them. In particular, Bulgaria’s
ability to meet the Lisbon targets over the coming years will depend on the extent to
which it can activate its youth population.

6. An expected slow-down in economic growth in the wake of the global

financial crisis may lead to an increase in unemployment, though likely
concentrated among less skilled workers. Relative demand will shift ever more
towards skilled workers and highly educated professionals. As shown, the labor

6
market improvements have been driven to a significant extent by the boom in
construction and strong growth in industry and some services. An expected slow down in
construction and industry will drive up unemployment among workers in these sectors;
lower external and domestic demand would affect also employment in services which has
been very strong over the last several years..

Figure 2: Bulgaria’s labor market outcomes are on par with the EU 15 for workers
aged 25-54, but there are major lags for young workers
Employment Rates, 2007 Activity rates, 2007
100 100

80 80
Lisbon target
percent

percent
60 60

40 40

20 20

0 0
15-64 15-24 25-54 55-64 15-64 15-24 25-54 55-64

EU27 EU15 BG EU27 EU15 BG

Source: Eurostat

7. Bulgaria’s convergence agenda critically depends on consistently mobilizing

the inactive to become employed and on addressing skills shortages and mismatches,
particularly in light of its worsening demographic profile. The improvement in the
skills of available workforce is a prerequisite to enhanced productivity and to the increase
in the labor force participation rate. Addressing the emerging labor market challenges
requires increasing the effective labor supply, i.e. the supply of workers that have
incentives to actively seek employment, and skills that enable them to take the newly
created jobs. As noted, Bulgaria has substantial untapped labor supply reserves that need
to be activated to boost Bulgaria’s employment rate. However, more importantly,
Bulgaria’s economy is increasingly hitting skills shortages and mismatches, suggesting
that efforts to raise human capital – crucial for Bulgaria’s long-term convergence agenda
– have become a short term challenge. This policy note is organized as follows. Section B
provides a snapshot of the profile of the inactive as well as reasons for inactivity5, while
section C examines inactivity among the youth and older workers in more detail. Section
D discusses the drivers and elements of the emerging skills shortages in the context of
Bulgaria’s declining demographics, and section E sets out the policy reform agenda
focusing on employment activation and measures to raise human capital.

B. WHO ARE THE INACTIVE? UNDERSTANDING BARRIERS TO LABOR MARKET

PARTICIPATION

8. Despite the recent high labor demand in low-skill sectors, workers with low
levels of education have particular difficulties to find jobs and are often
economically inactive. Figure 3 presents data from the two recent Multi-Topic
Household Surveys (MTHS) conducted in 2003 and 2007 which allow for an analysis of
dynamics between the two years. The data reveal that the recent buoyancy in the labor
1.
5
Inactivity in this policy note is defined as being outside the labor force.

7
market has largely bypassed the very low skilled. Unemployment rates among workers
with initial education (4th grade) and below remain highest. And, as Figure 3 shows, the
least skilled faced a much higher unemployment risk in 2007 than in 2003, while
unemployment rates for workers with basic education and above have fallen
substantially. At the same time, inactivity is highest among the least skilled, with almost
half of those with 4th grade and less and 40 percent of those with basic education (7th
grade) not economically active. This suggests that the workers with initial education (4th
grade) and below may be considered insufficiently qualified even by employers in
predominantly low skill sectors. However, overall they make up only a small share of the
inactive population in Bulgaria, while those with basic education and secondary
education accounting each for about 40 percent for both 15-64 and 25-54 year olds.

Figure 3 Unemployment and inactivity have a strong skill dimension, in particular

for youth, and unemployment is largely long-term
Unemployment and mean inactivity rates by level of completed education Inactive by level of completed education, 2007
50
100%
90%
40 80%
70%
60%
30

pecent
percent

50%
40%
20 30%
20%
10
10%
0%
inactive all inactive
0
initial and below basic secondary higher overall 15-64 25-54
initial and below basic secondary higher
Unemployment 2003 Unemployment 2007 Inactivity 2007

Long-term unemployment in % of unemployment, 2007

Labor market outcomes for low education youth (15-24), 2006 80

70
50
60

40 50
percent

40
percent

30 30

20
20
10

10 0
EU15

EU27

GR

BG
ES

FR
SE

AT

IE
LT
NL

MT

IT
EE

BE

CZ
DE
DK
CY

UK
LV

LU

HU

RO

SK
FI

SI

PT

PL
0
Employment Rate Labor Force Unemployment Rate
Participation Rate
EU-27 BG

Source: Top panel: Staff calculations, based on Multi-Topic Household Surveys 2003 and 2007; lower
panel: Eurostat; Long-term unemployment = unemployment of 12 months’ duration or more. “Low
education” means lower secondary education and less.

9. At the same time, unemployment is largely of a long-term nature, suggesting

that the unemployed are unable to find employment even in times of strong labor
demand. Long-term unemployment, i.e. unemployment lasting for 12 months or more, is
a sign of specific barriers to employment that remain binding even when there is a
shortage of labor. Lacking skills are typically the most important explanation for long-
term unemployment, but they can also include health reasons, family and child care
obligations and other reasons that prevent individuals from actively seeking work.
Bulgaria’s share of long-term unemployed, at close to 60 percent, is now the second
largest in the European Union (see Figure 3, lower right panel).

10. Low-skilled youth in particular face a hard time to find employment - much
more than elsewhere in the EU. Bulgarian youth do worse than adults in Bulgaria (see

8
Figure 2) which is a typical feature in most labor markets and true for the EU 27 as a
whole. However, Bulgarian youth have significantly more trouble finding jobs than youth
in the EU 27 on average. This is particularly true for youth with lower secondary
education and less who are dramatically marginalized in the labor market (lower left
panel in Figure 3). Only about 10 percent of low education youth in Bulgaria participate
in the labor market and those that do, face an unemployment rate of almost 40 percent.

Figure 4: Roma face much higher unemployment than other ethnic groups
Unemployment rates by ethnicity Mean inactivity rates by ethnicity
25 50

20 40

15 30

percent
percent

10 20

5 10

0 0
Bulgarian Turkish Roma Overall Bulgarian Turkish Roma All

2003 2007 2003 2007

Source: Staff calculations, based on Multi-Topic Household Surveys 2003 and 2007

11. Unemployment and inactivity also have a strong ethnic dimension, with
Roma facing major barriers to employment. This finding is consistent with the data on
the skill-related barriers to employment, since in Bulgaria Roma on average have
substantially lower education attainment than other ethnic groups. As Figure 4 shows,
Roma did not benefit from the fall in unemployment overall in Bulgaria between 2003
and 2004 – their unemployment rate in 2007 remained at 20 percent, compared to a rate
of about 6 percent for Bulgaria as a whole. Roma are also more likely to not participate in
the labor market than ethnic Bulgarians and ethnic Turks.

Figure 5: The poor and ethnic minority groups have substantially lower educational
attainment: Years of education completed (20-28 year olds)
100 100

90 90

80 80

70
70

60
60
%

50
%

50

40
40

30
30

20
20
10
10
0
0 1 3 5 7 9 11 13 15 17 19 21 23 25
Years of Schooling
1 3 5 7 9 11 13 15 17 19 21 23 25
Years of Schooling
Bulgaria Turks
Poor Non-poor Roma
Source: 2007 Bulgaria MTHS Data

12. Poor education outcomes are a key link in the intergenerational reproduction
of poverty and exclusion. They are driven by poverty and, by limiting access to
employment, drive poverty. Figure 5 presents educational attainment rates by poor/non-
poor status and ethnic groups for those individuals older than 20 years of age. It shows
that drop-out after 8th grade has been a serious problem, particularly for the poor and

9
minority ethnic groups, resulting substantially lower educational attainment levels. The
implications are that poor children and youth in Bulgaria have been achieving lower
education levels, reducing their chances in the labor market and locking them into
continued poverty.

13. Employment varies heavily by regions, with some regions closing in on the
Lisbon target. There is little variation overall in unemployment and activity rates
between rural and urban areas. However, there are vast differences in employment rates
across different parts of the country (Figure 6).

Figure 6: Bulgaria’s labor market conditions vary by regions

Employment Rates by Regions, 2007
80.0
70.0 Lisbon target
60.0
50.0
percent

40.0
30.0
20.0
10.0
0.0
Veliko Tarnovo

Bulgaria total

Kyustendil

Blagoevgrad
Kardzhali

Targovishte

Smolyan
Plovdiv
Pazardzhik

Gabrovo
Yambol
Vidin

Shumen
Sliven

Dobrich

Haskovo

Sofia cap.
Silistra
Montana
Razgrad

Lovech
Burgas

Stara Zagora

Sofia
Pleven

Pernik

Ruse

Varna
Vratsa

Source: Staff calculations, based on Labor Force Survey 2007 data

14. Reasons for labor market inactivity vary – depending on the sub group.
Figure 7 presents data from the MTHS 2007 on the stated reason for inactivity given by
interviewed individuals. Not surprisingly, the main reason for youth inactivity is
enrollment in education, while for older workers it is retirement or illness. Childcare
dominates the reasons for inactivity among the 25-45 year olds. For example, according
to MTHS data, more than half of Bulgarian women aged 25-45 with secondary education,
and hence with good labor market opportunities, are inactive for reasons of childcare.
Individuals with completed basic and secondary education include many youth
continuing in education and citing this as a reason for inactivity. Interestingly, the main
reason for workers with initial education and below is retirement – hardly any are
inactive for reasons of participation in training or education. Among the two richest
quintile groups, the main reason for inactivity is participation in education, while
childcare is an equally relevant reason for inactivity across all quintile groups – whether
rich or poor. Child care is also a major explanation for members of the Roma minority,
implying that there are major barriers to their employment activation that lie outside the
labor market. This limits the scope of the recent tightening of eligibility for social
assistance (two thirds of social assistance beneficiaries are Roma) to provide incentives
for labor market participation in the absence of kindergarten and child care places close

10
to Roma settlements6. Among the poorer and the low educated an important set of
reasons revolve around what was labeled “I do not want to work” in the MTHS
questionnaire which typically covers a lack of motivation or confidence to seek work,
often driven by uncertainty about individual skills and related opportunities in the labor
market.

Figure 7: Reasons for labor market inactivity, 15-64 year olds

Reasons for inactivity by level of completed education, Reasons for inactivity by age group, 2007
2007
100% 100%
80% 80%
percent

60%

percent
60%
40%
40%
20%
20%
0%
initial and basic secondary higher 0%
below 15-18 19-24 25-45 46-64
student housewife/childcare retirement student housewife/childcare retirement
illness/disability don't want to work other illness/disability don't want to work other

Reasons for inactivity by consumption quintiles, 2007 Reasons for inactivity by ethnicity, 2007
100%
100%
80% 80%
percent

60% 60%
percent

40%
40%
20%
20%
0%
1 3 5 0%
(poorest) (richest) Bulgarian T urkish Roma
student housewife/childcare retirement student housewife/childcare retirement
illness/disability don't want to work other illness/disability don't want to work other

Source: Staff calculations, based on Multi-Topic Household Surveys 2003 and 2007

C. YOUTH AND OLDER WORKERS – BULGARIA’S UNTAPPED LABOR SUPPLY

RESERVE

Youth and school to work transition

15. Most Bulgarian youth are inactive in the labor market because they are in
education, and very few are working part-time. Figure 8 (left panel) shows that
enrollment in education is the main reason for inactivity. Bulgarian youth who are
enrolled do not work at the same time. This finding is mirrored by comparative data on
the extent of part-time employment among youth (right panel). Bulgarian youth are far
less likely to work part-time and combine education with some form of employment than
their peers elsewhere in the EU. The difference is stark: less than 5 percent do so in
Bulgaria, compared to almost 70 percent in the Netherlands or, to take another new EU
1.
6
As of January 2008, eligibility for Guaranteed Minimum Income (GMI) is limited to a maximum duration
of 18 months for able-bodied working age individuals so as to provide work incentives. Recently, the
Government has decided to shorten this to 12 months.

11
Member State, 30 percent in Slovenia. The picture for youth is in line with that of the
population as a whole: part-time employment is very rare in the Bulgarian labor market.
This is all the more surprising since much of the labor shortages often reported by
Bulgarian employers are in sectors where work is seasonal and part-time, for example the
tourism and construction industries. While Bulgaria has recently made part-time and
temporary work arrangements more flexible, employers remain concerned that part-time
contracting requires the same procedures as full-time contracting, hence making it not
sufficiently attractive to companies.

Figure 8: Enrollment in education is the main reason for inactivity among Bulgarian
youth, while part-time employment is very scarce in Bulgaria for youth and adults
Share of 15-24 in part-time employment, 2006
Inactive youth (15-24) by whether or not in education, 2007 70
100% 60 EU 25 Average

80% 50
percent

40
60%
30
40%
20
20% 10

0% 0

Denmark
United Kingdom
Romania

Germany
Czech Republic

Portugal
Slovakia

Luxembourg

Estonia
Greece
Malta

Poland
Belgium

France

Finland
Hungary

Cyprus

Italy

Netherlands
Bulgaria

Latvia

Lithuania

Spain

Slovenia
Austria

Sweden
all male female

in education not in education

Part time and temporary employment, 2007

25
20
percent

15
10
5
0
Part-time workers in % of total Percentage of employees with
employment temporary contracts

EU27 EU15 BG

Source: Staff calculations based on MTHS 2007 (left panel), Eurostat (right and bottom panels)

16. More worryingly, too many Bulgarian youth leave school prematurely – but
not to enter the labor market. In 2005, close to 25 percent of Bulgarian 15-24 year olds
were neither in employment, education nor training (the so called “NEETs” – Neither in
Employment Education nor Training) (see Figure 9). Contrast that with the Netherlands
where 35 percent of the youth population was both in the labor market and education at
the same time. Not surprisingly, the Netherlands also have the highest share of youth in
part-time employment (see Figure 8, top right panel). As Figure 9 shows, Bulgaria is not
the only new EU Member State with a NEETs problem – it appears to be widespread
across the region. However, there are also exceptions: Slovenia in particular is a case
which merits examination. The message is that lacking part-time employment
opportunities and low youth participation in the labor market in Bulgaria appears to go
hand in hand.

12
Figure 9: Too many Bulgarian youth leave education early, but not to join the work
force
education and employment status of 15-24 year olds, 2005

40

30

20

10
percent

United Kingdom
Czech Republic
Luxembourg

Slovakia

Lithuania

Belgium

Slovenia

Finland

Netherlands
Bulgaria
Romania

Hungary

Germany
Portugal
Cyprus

Estonia

Spain

Poland
EU 27 av

Ireland

Denmark
Latvia

Austria
Italy

Sweden
Greece
Malta

France
-10

-20

-30

neither in education nor employment both in education and employment

Source: Eurostat

17. Who are the youth that are neither in education nor employment? Answer:
the majority have basic education and less, but there are also many with secondary
education. Figure 10 presents the education profile of inactive youth aged 15-24. There
are a number of observations: First, while more than 60 percent of the NEETs have
completed only basic education and less, there are also many with completed secondary
or tertiary education who are not active. Indeed, the NEETs with basic education and less
are primarily an education challenge – they should go back to education and training to
obtain the skills necessary to compete in the knowledge economy. The NEETs with
secondary education and above are primarily a challenge of the labor market. The large
share of youth who are inactive but in education and who have only completed basic
education is entirely logical, since they remain in education, studying towards the next
degree. Second, none of the inactive youth with initial education and less (4th grade)
remain in any form of education, for example second chance education or vocational
training. Third, as indicated in Figure 8, inactive female youth are less likely to be in
education than their male peers – for example because they are looking after children.

Figure 10: The majority of inactive youth have only basic education, although many
youth not in education nor employment have secondary education
Education profile of inactive youth (15-24), 2007
100%
80%
percent

60%
40%
20%
0%
all male female all

not in education in education

initial and below basic secondary higher

Source: Staff calculations, based on Multitopic Household Survey 2007

13
18. Possibly partly in response to perceived poor job opportunities in the
country, many younger people consider emigrating from Bulgaria either to work or
to further their education. In a recent survey, people in Bulgaria were asked about
possible plans and attitudes towards emigration7. People under 30 had strong positive
attitudes towards emigration and were the most likely to say that they had plans to
emigrate. About 50 percent of all potential long-term emigrants and about 60 percent of
labor emigrants were between 15 and 29 years old in 2006.

1.
7
The source of that data is a Survey on Emigration (nationally representative) organized by Gallup Int., in
the summer of 2006. www.mlsp.government.bg/bg/docs/BBSS_Main%20Report_Emigration%20
attitudes_Sept%202006_bg.ppt

14
 Box 1: Why are Bulgarian enterprises not hiring more young workers?

Bulgarian employers are expressing concerns about lacking skilled workers, and the labor market is tight.
At the same time, this report shows that many young people, including secondary education graduates,
are unemployed or inactive. How does this go together? Bulgarian enterprises – members of the
Confederation of Bulgarian Employers and Industrialists (CEIBG) – which were surveyed for the
purposes of this report, stated that they are not hiring young workers primarily because they need
experienced workers (see Figure 11). They also cited unreasonable wage demands and quality of
education as moderate to major obstacles. At the same time, in comparison, they did not rate regulation
on part-time or temporary hiring as much more than minor obstacles.

Figure 11: Firms are most concerned about the lack of experienced workers, which is an obstacle to
hiring youth
Obstacles to hiring young people
5
high values = more problemat

temporary hiring
primary/secondary

part-time hiring
Poor quality of

Poor quality of
Need experienced

wage demands

Restrictions on
Unreasonable

Restrictions on
Poor quality of
vocational
university
education

education

education
workers

Source: Staff calculations based on a survey of 100 enterprises that are members of the Confederation of
Bulgarian Employers and Industrialists (CEIBG). Note: 1= no obstacle, 2 = minor obstacle, 3 = moderate
obstacle, 4 = major obstacle, 5 = very severe obstacle.

How to interpret these findings? Bulgaria’s labor market is very tight, and firms, in particular expanding
firms, are looking for additional skilled and experienced workers. Young people just out of school do not
bring the experience that employers seek. At the same time hiring young workers may be (perceived to
be) too costly, given their lack of experience. Moreover, the skills they obtain in formal education (which
are more recent than those of more experienced workers) may not be sufficient to make up for what they
lack in terms of experience.
What are the implications of these findings? The simple answer: There is not one solution in the short-
term, but several measures which would need to be adopted at the same time. First, skilled experienced
workers appear to be in increasingly short supply. This situation will not change in the short-term.
Employers may therefore consider hiring young workers and investing in their training to make up for
the gap in experience. Second, the education system and employers need to interact more to ensure that
young people get exposure to the labor market (and labor market needs) even while in education, for
example through internships. This is something where employers will need to become more active.
Third, the government may wish to experiment with wage subsidies to reduce the cost of hiring untested
and inexperienced young workers. Fourth, while not one of the biggest obstacles, ensuring easy hiring
through temporary and part-time employment may be one way of reducing the “risk” for companies of
hiring young untested workers.

19. The key message from this analysis is that Bulgarian youth are underutilized
in the labor market, although they could be a tremendous asset to the Bulgarian
economy. Many Bulgarian youth are neither in education nor employment – as opposed

15
to combining work and study like many of their peers elsewhere in Europe. Moreover,
many drop out early from education without being employable and enter a vicious circle
of labor market exclusion: It is not only that many youth leave too early but also that they
leave without any marketable, if basic, qualification, without any written "password"
which would leave some door open in terms of returning to schooling, going to training
or having a chance of being hired in the labor market. Once out of the formal education
system, a lack of second chance alternatives which actively attract these drop-outs and
the lack of flexibility in the qualifications framework to recognize qualifications earned
outside the formal education system in effect leave the doors firmly closed. At the same
time, there is little support available in terms of counseling and professional orientation
services which could prevent early drop out.

Figure 12: Bulgaria’s 15 year olds are behind in reading literacy

Percentage of students with reading literacy proficiency level 1 and below on the PISA reading literacy scale
60

50

40
percent

30

20

10

0
United Kingdom

Czech Republic
Luxembourg
Slovenia

Belgium

Lithuania

Slovakia
Finland

Netherlands

Bulgaria
Romania
Germany
Hungary

Portugal
Estonia
Ireland

Denmark
Poland

Spain

Turkey
Latvia
Austria

Croatia
Sweden

Italy

Norway
France

Greece
EU

2000 2006

Source: OECD PISA database, presented in European Commission (2008), Progress towards the Lisbon
objectives in education and training, Indicators and Benchmarks, Commission Staff Working Document.
Note: Reading literacy is defined as “understanding, using and reflecting on written texts, in order to
achieve one’s goal, to develop one’s goal, to develop one’s knowledge and potential to participate in
society”. The scale is level 1 and below (worst) to level 5 (best). Netherlands, Luxemburg and UK are not
representative in 2000. The EU figure is a weighted average based on the number of students enrolled and
data for 18 countries.

20. At the same time, Bulgarian youth are not exploiting their educational
potential to contribute to advancing Bulgaria’s future competitiveness. While too
few are staying on in education, especially at higher levels, many who do stay in
education do not acquire the necessary skills and competencies to compete in a high
innovation economy and meet skill needs from employers – marketable, often vocational,
qualifications which would guarantee a job in Bulgaria’s tight labor market (see Box 1).
But this also holds for generic, transferable skills increasingly needed in an era of fast
technological change: For example, as shown in Figure 12, more than 50 percent of
Bulgarian 15 year olds scored low on the PISA 2006 reading literacy tests – a
significantly higher share than their peers elsewhere in the EU – new and old Member
States alike – and other developed economies. Moreover, the situation has worsened
since 2000. This suggests that Bulgarian youth may be graduating from school
unprepared for the needs of the knowledge economy.

16
Older workers8

21. Older workers in Bulgaria, women and men, are less active in the labor
market than their peers in the EU 15, yet the difference is not large. As Figure 13
(left panel) shows, there are differentials between older men and women, but the same is
true, and with similar magnitudes, for the EU15. Low employment rates among older
workers in Bulgaria, as elsewhere among new EU Member States is explained by early
retirement. Figure 13 (right panel) presents average exit rates and employment rates for
older workers (aged 55-64) in Europe. Unsurprisingly, there is a clear relationship
between average exit rate and employment rates, with those countries where workers
leave the labor market earlier, such as Bulgaria, having lower employment rates among
older workers. In Bulgaria, as in the EU15, this is particularly true for older women who,
due to their earlier formal retirement age, are more likely to be inactive than older men.

Figure 13: Older Bulgarians are less active than their EU15 peers, but only just,
while early retirement explains low employment among older workers, particularly
for older women
Average exit rate and employment rate for 55-64 year olds (2005)
Activity rates and gender, 2006
65
70
IE
SE
60 PT NO
63 RO
ES UK CH
50 Average exit age LV
GR NL FI EE
61 EU15
percent

40 BE EAEU25 DK
CZ
AT BG LT
PL ITHU
30 SK LU
59 MT FR
20 SI

10 57

0
55
55-64
20 30 40 50 60 70 80
Employment rate (55-64)
Bulgaria Male Bulgaria Female EU15 Male EU27 Female

Source: World Bank (2007) and Eurostat

22. The statutory retirement age for men in Bulgaria is 63 which is below the 65-
67 range which is becoming increasingly common across the EU15, and actual
retirement is even earlier. While the statutory retirement age for men in Bulgaria is 63,
the average median actual retirement age of men was 61 in 2005 (see Figure 14, left
panel). For comparison, in countries such as Denmark, Ireland, the Sweden and UK the
median male workers retire at the age of 62 to 64. The difference for women in Bulgaria
is negligible (see Figure 14, right panel), especially compared to some of the other new
EU Member States. However, the Bulgarian statutory retirement age for women, at 59.5
years in 2008 (and 60 from 2009), remains below that of women in other countries in the
region.

1.
8
This section draws heavily on World Bank (2007), Labor Markets in EU8+2: From the Shortage of Jobs
to the Shortage of Skills, World Bank: Washington, DC

17
Figure 14: Bulgarian men retire before the statutory retirement age, while Estonian
men retire after, Official and Actual (Median) Retirement Age in New Member States,
2005
Men Women
EE EE

LT LV

LV LT

RO RO

CZ Official BG
Median Official
BG HU Median

SK CZ

HR HR

HU SK

SI SI

PL PL

52 54 56 58 60 62 64 66 50 52 54 56 58 60 62 64

Source: Romans (2007) on median retirement age; MiSSOC Database, National Strategy Report on
Adequate and Sustainable Pensions (2006) on official retirement age; Bank staff calculations.

23. While Bulgaria’s differential in older workers’ labor market activity with
EU15 is minor, its demographic challenges suggest it will have to do look at
deferring actual retirement ages for men and women. There are interesting
experiences among other new EU Member States. For example, while the official
retirement age in Estonia for men is the same as in Bulgaria, Estonian (and Lithuanian)
men retire after reaching the official retirement age. They are thus dealing with labor
shortages by mobilizing the labor supply of older workers. The Baltic States discourage
early retirement by reducing pension benefit, and encourage deferred retirement through
higher accrual factors. For example, in Estonia pension benefit is increased by 0.9 percent
for every month after the statutory retirement age and in Lithuania by 8 percent for each
year. At the same time, in both countries pension benefit is reduced by 0.4 percent for
every month of retirement before the official age. This suggests that the way toward
raising the labor force participation by older workers is not only through raising the
official retirement age but also — and perhaps more importantly — through creating
economic incentives for postponing the retirement decisions and encouraging economic
activity. Already Bulgarians can continue to work while receiving a pension, but the
challenge is to defer actual retirement age.

D. DEMOGRAPHICS, SKILLS AND HUMAN CAPITAL

24. Bulgaria faces a dramatic demographic decline and is projected to lose about
1.5m people between 2000 and 2025. According to a recent World Bank study on aging
in Eastern Europe (“From Red to Gray”), this is the largest decline among the new EU
Member States in percentage terms, at 18 percent9. Outward migration in recent years has
been a major contributor to this decline. Obviously this dramatic development has major
implications for the labor market: The size of the working age population is projected to
1.
9
From Red to Gray: The “Third Transition” of Aging Populations in Eastern Europe and the Former Soviet
Union, World Bank: Washington, DC

18
decline by about 750,000 workers by 2020. However, World Bank simulations presented
in “From Red to Gray” indicate that this decline in the working age population could be
limited to about 100,000, if Bulgaria were to raise its labor force participation from
current levels to the EU 25 average.

25. Employment activation is essential given the demographic decline, yet

measures to raise skills and human capital, and thereby productivity, are even more
important. Even with increases in labor market participation to EU average levels
Bulgaria will not be able to stem the lowering effect of the demographic decline on long-
term growth prospects. Figure 15 presents population charts for Bulgaria for 2005 (left
panel) and 2035 (right panel), broken down by labor force status for each age bracket. It
clearly denotes the shares of the inactive (dark red), and 2035 projections are based on
the assumptions of constant activity and employment shares compared to 2005. The
figure clearly shows that the population decline is so substantial that even an increase in
activity rates cannot make up for the overall decline in the population. Continued high
rates of economic growth and living standard convergence will above all require efforts
to raise the human capital of every worker.

Figure 15: Stemming Bulgaria’s demographic decline requires activating the

working age population and raising human capital
Age distribution in year 2005 Age distribution in year 2035
100 100
Pre-school Pre-school
Primary Primary
90 Male Female Secondary 90 Male Female Secondary
Tertiary Tertiary
Not enrolled Not enrolled
80 80
Unemployed Unemployed
Employed Employed
Not in labor force Not in labor force
70 70

60 60
Age

Age

50 50

40 40

30 30

20 20

10 10

0 0
-4 -3 -2 -1 0 1 2 3 4 -4 -3 -2 -1 0 1 2 3 4
Population in each age group (x 105) x 10
5
Population in each age group (x 105) x 10
5

Source: Bank staff calculations

26. Averting the demographic decline will also rely on a rapid improvement in
living standards triggered by growth and convergence. The challenge, therefore, is to
create a virtuous cycle: to invest in skills and human capital to promote growth and
convergence which translate in rising living standards which help reduce the population
decline.

27. Already Bulgarian firms are listing lacking worker skills and experience as
one of their major concerns. The World Bank Enterprise Survey conducted in 2007
asked Bulgarian employers about their biggest concerns. Worker skills came out as one
of the areas of most concern to employers (see Figure 16). The picture is even more
obvious for Bulgaria’s innovative firms who called lacking worker skills the main
concern in 200710.

1.
10
World Bank (2008), Bulgaria: Investment Climate Assessment, World Bank: Washington, DC

19
Figure 16: Worker skills are a major concern among Bulgarian employers

percent of firms reporting issue as major problem

50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%

Administration
instability

Regulations
Corruption

Transportation

Regulation
Competitors

education

Licensing
Electricity

Finance
Courts
Crime

Land

Business
Tax Rates
Worker
Informal
Policy

Trade
Labor
Tax
Source: World Bank Enterprise Survey 2007

28. Consistent with that, the unemployed often lack the skills and qualifications
required by the employers and cannot fill available job vacancies. Figure 17 shows
that the number of workers with basic skills (lower secondary education and below) in
Bulgaria, as in many other countries in the region, is higher than the number of jobs
requiring only basic skills.11 This implies that unemployed with low skills will not be
able to find employment even if there are more job vacancies because they lack the skills
that are required in the newly created jobs. There is thus an excess supply of low-skilled
labor in Bulgaria, pointing to a strong structural component of unemployment and
explaining the high rate of long-term unemployment noted earlier.

Figure 17: Low skilled workers are in excess supply: the unemployed tend to have
lower education than that required by employers, limiting their employment
prospects
“Excess Supply” of Labor by Educational Attainment, 2006 Notes: “Excess supply” is measured as the
30 Primary and low er secondary difference between the percentage share of
25
Upper secondary and post-secondary workers with given educational attainment in
Tertiary
20
unemployment and in employment. A positive
(negative) value means that that the
15
unemployed more (less) frequently have given
10
educational attainment than the employed. The
5 educational structure of employment proxies
0 that of labor demand. The educational structure
-5 of unemployment proxies that of excess labor
-10 supply. Thus the difference between those two
-15
structures shows the magnitude of the
educational mismatch.
-20
CZ EE HU LV LT PL SK SI BG RO EU15

Source: Eurostat

29. Despite their concern with regard to worker skills, few firms actually provide
training. Figure 18 presents data from Eurostat’s Continuing Vocational Training Survey
1.
11
Under the assumption that the total number of jobs equals the labor force.

20
(CVTS) which captures patterns of adult training organized by the employer. Bulgaria’s
performance is unimpressive compared to its EU partners, including other new EU
Member States. The share of workers participating in training is low, as is the share of
companies offering such training (left panel of Figure 18). Moreover, the duration of
training is short. The likelihood of organizing worker training varies substantially with
company size, with smaller companies substantially less likely to provide training.
However, even the larger Bulgarian companies are lagging behind their European peers
(see right panel). The data from the CVTS is confirmed by data from the World Bank
2007 enterprise survey.

Figure 18: Few Bulgarian workers participate in continuing vocation training,

because few companies train
Percentage of employees (all enterprises) participating in CVT courses, 2005
70

60

50

40
percent

30

20

10

0
sk Slovakia
fi Finland
si Slovenia

lt Lithuania
uk United Kingdom

pl Poland

bg Bulgaria

lv Latvia
cz Czech Republic

be Belgium

nl Netherlands
dk Denmark

it Italy

pt Portugal
se Sweden

es Spain

at Austria

mt Malta

ro Romania
ee Estonia
no Norway
lu Luxembourg

fr France

gr Greece
cy Cyprus

hu Hungary
EU27

de Germany

Training enterprises as % of all enterprises by size, 2005

100
90
80
70
60
percent

50
40
30
20
10
0
EU 27 bg Bulgaria cz Czech Republic uk United Kingdom

Total 10 to 49 50 to 249 250 or more

Source: Eurostat Continuing Vocational Training Survey (CVTS) 2005

30. While this data documents the facts on the limited provision of adult
training, they do not shed any light on the underlying reasons. More diagnostic
work is needed to establish the barriers that prevent Bulgarian employers from
providing and investing in more training – whether these relate to insufficient
financing12, lacking information about the returns to investing in adult training, concern
about losing well trained workers to competitors or other. It is also not clear whether
employers consider their existing workers insufficiently skilled – a problem they could

1.
12
The World Bank’s recent Investment Climate Assessment finds that access to financing has improved
significantly in recent years, suggesting that insufficient financing is likely not an important reason (World
Bank (2008), Bulgaria: Investment Climate Assessment, World Bank: Washington, DC)

21
fix themselves – or whether they are concerned about the skills of new hires and the
difficulty of finding sufficiently skilled new staff.

Table 2: Tertiary Education Participation Rates in Bulgaria, EU8 and EU15

2000 2005
Czech Republic 30.2 35.6
Estonia 60.8 67.4
Hungary 40.1 54.6
Latvia 64.1 74.1
Lithuania 59.9 68.9
Poland 54.1 61.8
Slovakia 29.8 34.2
Slovenia 60.8 69.9
Average EU 8 50.0 58.3
Average EU 15 52.6 58.0
Bulgaria 24.3 26.9
Source: UNESCO Institute of Statistics

31. Bulgaria faces dramatically low tertiary education participation rates,

although this may now be changing. Table 2 presents UNESCO data which shows that
Bulgaria compares unfavorably with its peers among new and old Member States in
terms of participation in tertiary education. This is surprising given the low
unemployment and good labor market opportunities for university graduates. In addition,
it is worth noting that there has been a strong recent trend in outmigration for education
purposes (see Figure 19). The reasons for the low tertiary participation remain
understudied. One explanation is that upper secondary enrollment had remained low for
many years in the early 2000s. This has improved markedly in recent years, with the
share of 20-24 year olds having completed at least upper secondary education jumping
from 75 to 83 percent between 2000 and 2007, taking Bulgaria well above the EU 27
average and close to the EU’s 2010 target of 85 percent.

32. However, there are a number of potential remaining barriers to greater

higher education participation. An important one is likely to lie in the fact that the
Bulgarian education system relies on early selection into profile and non-profile schools
after 7th grade. Students in non-profile schools appear to face fewer incentives to aim for
university studies, less opportunity to learn compared to their peers on profile schools and
less expectations on their achievement on the part of teachers and principals. Other
reason may include the cumbersome university admission process before the introduction
of the Matura in 2008, with students having to sit for as many exams as universities they
were applying for and the absence, so far, of student loans or needs-based scholarships to
finance university studies. It is therefore, welcome that the Bulgarian Government is in
the process of introducing a student loan system.

22
Figure 19: A growing number of young Bulgarians study elsewhere in the EU
Percentage of students enrolled in other EU or candidate countryed
14

12

10
percent

0
United Kingdom

Czech Republic

Lithuania
Belgium
Slovenia

Slovakia
Finland
Netherlands

Romania

Bulgaria
Hungary

Germany

Portugal
Estonia
Spain

Poland

Denmark

Ireland
Latvia

Austria
Italy

EU-27

Sweden
France

Greece
Malta
2000 2005

Source: Eurostat

E. CONCLUSIONS AND POLICY RECOMMENDATIONS

33. Over the last several years Bulgaria has achieved remarkable improvements
in the labor market, and unemployment is at record low levels. Sustained high rates
of economic growth have been associated with strong job creation, and there are
increasing signs skills mismatches and shortages, evident in a growing share of long-term
unemployed and extremely low unemployment rates for upper secondary and tertiary
graduates. However, increased tensions on the global financial markets, sharp
adjustments to global commodity prices and expectations of recession in most advanced
countries are likely to have implications on Bulgaria’s growth which would lead to a rise
in unemployment in the short- and medium-term.

34. Bulgaria’s convergence agenda critically depends on mobilizing the inactive

and helping the unemployed to become employed and to enhance the skills of
current and future workers – both for the short and the longer term. The
improvement in the skills of the available workforce is a prerequisite to improved
productivity, a further reduction in unemployment, and will help those losing their job
find new employment in sectors and activities generating higher value added. Addressing
labor market challenges requires increasing the effective labor supply, i.e. the supply of
workers that have incentives to actively seek employment, and skills that enable them to
take the newly created jobs.

i. First, this note finds substantial untapped labor supply reserves that need to be
activated to boost Bulgaria’s employment rate. Bulgaria’s performance in youth
labor market participation is unimpressive compared to its European partners
further north. Moreover, there are groups such as adult women who are out of the
labor force for family reasons. Lastly, Bulgaria’s older workers participate less in
the labor force than their European peers.

23
 ii. Second, Bulgaria’s economy has been hitting skills shortages, suggesting that
efforts to raise human capital – crucial for Bulgaria’s long-term convergence
agenda – have become a short term challenge.

Mobilizing untapped domestic labor supply reserves

35. Challenge 1: Many youth are inactive in the labor market: In light of the
substantial labor supply reserves among the Bulgarian youth, policies to raise the
employment rate in Bulgaria need to adopt a “youth lens” – i.e. what are crucial policies
that can promote youth employment while also boosting participation in education and
training?

• Pilot and test apprenticeship, internships and wage subsidy programs for young
workers. Facilitating the school to work transition and preventing the NEETs
phenomenon will require testing proactive measures like apprenticeships,
internships, placement and job subsidies programs for young people to help them
not only get into the labor force, but build some relevant skills. This is an agenda
that requires active contributions and partnerships between the Government and
employers and trade unions. For example, internships are often a cost-effective
way for companies to attract and test talented students and young people, and this
is one area where employers should take the lead. In addition, experience from
across the OECD shows that wage subsidy programs can have positive
employment effects for young workers13.

• Promote greater use of part-time and flexible work arrangements: Non-standard

forms of employment and part-time and temporary jobs are a key entry point into
the labor market for young workers in many OECD countries, in particular for
low-skilled youth, and allow combining study and work. Experience from across
West European countries shows that an initially high share of school leavers in
temporary jobs typically declines substantially after several years of work
experience, suggesting that they serve as stepping stones into more permanent
employment14. Bulgaria has recently made part-time and temporary work
arrangements more flexible but barriers remain, in particular with respect to the
ease of contracting.

(i) Introduce simpler forms of contracting for part-time and temporary

employment. Several EU countries have introduced simple short-term and
limited employment contracts with reduced tax and social insurance
obligations, for example Germany’s “Mini-Jobs” and “Midi Jobs”.

(ii) Introduce legislation for temporary work agencies. One way to

promote more part-time and flexible contracting is through temporary work
agencies, and many EU Member States have promoted the establishment of
such agencies. The European Union recently approved its Temporary Agency
1.
13
Kluve, J (2006), The Effectiveness of European Active Labor Market Policy, IZA Discussion Paper No.
2018, Bonn
14
OECD (2008) Employment Outlook 2008, Chapter 1, “Off to a Good Start? Youth Labor Market
Transitions in OECD Countries, OECD: Paris

24
 Workers Directive, clarifying the status of temporary agency workers, which
may facilitate the adoption of relevant legislation in Bulgaria.

(iii) Reduce barriers to part-time contracting in the social security system,

i.e. through the minimum contribution thresholds and recognition of service
record.

• Develop a mandatory and intensive youth-centered activation approach focused

on NEETs. Experience from across the OECD shows that youth employment
interventions have to be early and sustained, with a focus on preventing long-term
unemployment of youth, retaining them in formal education and training and
focusing on career counseling and job search assistance15. It has also been found
that programs that explicitly target disadvantaged youth are more likely to be
effective than non-targeted programs16. The United Kingdom, like several other
EU neighbors has introduced a youth activation regime called “New Deal for
Young People” (see Box 2). Based on this model, Bulgaria’s Employment
Services could offer a menu of services centered on intensive counseling, with job
placement services, training and remedial or second chance education for older
youth and back-to-school programs for the younger. It could also entail
outsourcing of the full range of activation services to qualified agencies, for
example with experience in working with disadvantaged youth such as socially
excluded Roma. Bulgaria can learn from the experience in other EU countries and
elsewhere, but needs to carefully test and evaluate what works in the Bulgarian
context.

1.
15
Quintini and Martin (2006), Starting Well and losing Their Way? The Position of Youth in the Labor
Market in OECD Countries, OECD Social, Employment and Migration Working Papers No. 39, OECD:
Paris
16
Betcherman et al (2007), A Review of Interventions to Support Young Workers: Findings of the Youth
Employment Inventory, World Bank Social Protection Discussion Paper No. 715, World Bank:
Washington, DC

25
 Box 2: Youth-focused employment activation: The New Deal for Young People in the United
Kingdom

The United Kingdom, through its “New Deal for Young People”, emphasizes early, continuous
activation and contact as well as more specific help after 6 months of unemployment. Participation in the
New Deal for Young People (NDYP) is mandatory for young people between the age of 18 and 24 who
have been unemployed for 6 months and who receive Job Seeker Allowance (JSA). The program has
multiple stages, with an initial four months period of intensified job search and job referral through job
counselors (“gateway”) to place the job seeker in the primary, unsubsidized labor market. If
unsuccessful, the “gateway” is followed by a period of up to eight months of targeted programs and a
shorter period of “follow-through”, again devoted to intense job search (see Figure 20). As for programs,
job seekers can choose from a menu of subsidized employment, voluntary sector employment, full time
training and education and work on environmental task forces. In an innovative feature, the NDYP
promotes partnerships with employers to encourage the training and employment of young people,
facilitated by training grants (up to £750) and employment subsidies (up to £60 for six months). An
individual training plan is agreed by the Jobcentre Plus adviser with the young person. In addition the
employer signs an agreement that he/she will be expected to pay the going rate for the job and that states
the employer will (i) keep the employee on as long as they show the aptitude and commitment needed
and provide or arrange for their training as appropriate and (ii) monitor and record their progress and
identify areas of action, in the same way that the employer would for any other employee to help them
settle in and make progress. A range of initial evaluations have found that the program has been returning
young unemployed to the labor market faster than without, with the intensified job search during the
gateway period being particularly effective. Meanwhile, several long-term studies have found evidence
of churning between NDYP participation and unemployment spells and some worsening of performance.
As a result, the UK Government is in the process of reforming the program to strengthen its ability to
place clients into sustainable jobs with more focus on employment retention and progression through
more personalized and flexible service provision, in particular for disadvantaged job seekers and NEETs,
and through greater partnerships in service provision with private and third sector providers17.

Figure 20 : The New Deal for Young People in the United Kingdom

subsidized employment
follow-through
6 months voluntary sector
Gateway,
unemployment,
4 months
aged 18-24 full-time training and education

environmental task force

6 7 8 9 10 11 12 13 14 15 16 17 18

months

36. Challenge 2: Certain adult groups are inactive in the labor market. As shown
in the note, certain adult groups face specific barriers to labor market activities, most
notably adult women (of all levels of educational attainment) for reasons of child care
and low skilled workers more generally.

1.
17
OECD (2008), Jobs for Youth: United Kingdom, OECD: Paris

26
 • Enhance the provision of child care through crèches and nurseries as well as
kindergartens. This not only addresses early childhood education needs, and
helps prepare young children for school, in particular those from socially
disadvantaged backgrounds (see below), but also frees up parents to participate in
the labor market. The analysis in this report shows that the most important reason
for inactivity of adults aged 25-45 is their need to care for children. Many
countries in Europe have recently re-focused on the need to provide child care,
with Germany, for example, launching a nationwide initiative to boost supply.
Clearly, this is a medium term agenda and likely a costly one, due to the need to
create new physical infrastructure for kindergartens and nurseries. With
responsibility for kindergartens and nursery resting with the municipalities, the
key question is the financial space available for such investments. However, in
Bulgaria the availability of financing from European Structural Funds through the
Operational Program Regional Development, through the social infrastructure
window, is one attractive way to address kindergarten supply constraints.

• Promote second chance education programs. Around 50 percent of the inactive

in Bulgaria has low levels of education (7th grade and below). Second chance
education, starting from basic literacy and opening a path back into the formal
vocational training system with recognition of competencies, will help getting
unskilled inactive back into the labor force. The Government has undertaken
initial steps to re-open the formal training system to early school leavers through
literacy courses managed by the Employment Agency. Successful completion of
literacy courses now result in the recognition of attainment of 4th grade
equivalent. Moreover, minimum entry requirements for vocational training has
been lowered from 6th grade to 4th grade, thereby enabling graduates from literacy
courses to get back into formal education and training. The key is now to take
measures to promote this program among the low-skilled long-term unemployed,
for example socially excluded Roma to ensure strong take-up.

37. Challenge 3: Older workers leave the labor market too early. Bulgaria’s
demographic decline suggests the need to prolong working lives of the adult population,
following the direction other EU Member States, old and new, have moved:

• Strengthen incentives to remain active in the labor market even beyond the
statutory retirement age and consider raising the statutory retirement ages for men
and women. With its statutory retirement age below that of many European
neighbors, Bulgaria may wish to bring its provisions in line. Moreover, some
European countries, for example Germany, have introduced measures to raise the
retirement age above 65. Moreover, Bulgaria may wish to explore policies
adopted in the Baltic States to discourage early retirement by reducing pension
benefit and encourage deferred retirement through higher accrual factors.

Efforts to address skills shortages and raise human capital

38. The long-term agenda of raising Bulgaria’s human capital requires an all-out
effort to enhance access to quality education and training at every level from early
childhood education and development programs through to adult training. While the

27
skills and human capital agenda are of a medium-term nature, the time for action on
laying the ground for future human capital increases is now.

39. Challenge 4: Too many youth drop out of school early and become NEET:

• Promote early childhood education and development (ECED) interventions to

promote school readiness, particularly for children from marginalized
backgrounds such as Roma. There is strong international evidence that
investments in ECED interventions, including health and educational programs,
have a substantial impact on subsequent education outcomes in primary and
secondary schooling and yield greater returns than later investments18. ECED
interventions typically aim at developing cognitive, motor and behavioral as well
as language skills through educational components. Likewise, their nutrition and
health components affect individual growth and brain development well ahead of
school age. While such programs play an important role in raising human capital
across the population, they are particularly important for children from
marginalized backgrounds. Recognizing the importance of ECED, Bulgaria has
already introduced one year of free and mandatory pre-school and raised its pre-
primary enrollment rate from 66 to 77 percent between 2000 and 2005. However,
while the mandatory year remains not fully implemented, in particular among the
more marginalized children such as Roma, preschool enrollment in the advanced
EU countries is above 90 percent. Further promoting the ECED agenda will
involve developing new child welfare services aimed at children aged 0-3 focused
on community outreach and parental training as well as expansion of the supply
of crèches/nursery as well as kindergarten places for the 3-6 year olds.

• Intensify efforts to prevent early school leaving and boost retention in education
and training. More than 60 percent of Bulgarian youth neither in education nor
employment have basic education and less. They should be in education.

(i) Introduce incentive measures to keep youth in school for longer.

Several OECD countries have introduced incentive measures to promote
retention in school beyond compulsory school age, and there are examples for
positive and negative incentives: (i) cash incentives for youth from low
income families to stay in school post compulsory age, such as the Education
Maintenance Allowance (EMA) Program in the UK (see Box 3), or (ii) the
extension of mandatory schooling until the completion of upper secondary
education or until the age of 18, as recently introduced in the Netherlands.
Cash incentives could be provided through raising the individual eligibility
threshold for Guaranteed Minimum Income (GMI) for those youth between 15
and 18 who remain in school beyond compulsory schooling19.

1.
18
Cunha, F., Heckman, J., Lochner, L. & Masterov, D. (2005), Interpreting the evidence on life cycle skill
formation (North Holland, Amsterdam).
19
However, given the large variance in schooling outcomes between schools (as opposed to within schools),
as documented in the OECD PISA 2006 assessment, Bulgaria needs to also focus on improving school
quality, in particular for children from marginalized backgrounds. If schools are bad, efforts to keeping
young people in school for longer will not result in improvements in education outcomes and skills.

28
 (ii) Promote early outreach through school counseling and professional
orientation to identify and counsel those youth at risk of drop out. Prevention
of early school leaving, and retention in formal education and training requires
early outreach to and advisory services for those at risk of drop-out. The
experience of the United Kingdom’s “Connexions” services tasked with
providing guidance to 13-19 year olds, in particular disadvantaged youth,
suggests that the Bulgarian child protection services at the local level could
more proactively, and in a more formalized manner, support schools in
engaging youth at risk and counseling them about their options to remain in
school or training beyond compulsory schooling.
(iii) Introduce more varied, alternative and flexible pathways to education
and training and more choice for youth beyond the compulsory school age.
Many OECD countries have introduced apprenticeship and training programs
and other programs that combine work and training for young people who do
not wish to remain in formal schooling beyond the compulsory school age.
The United Kingdom is moving towards a policy mix of (i) guaranteed place
in education or training program after age 16 (“September Guarantee”), (ii) a
broadening of learning options (“14-19 Strategy”) ranging from formal
schooling through diploma programs linking academic and vocational
learning, apprenticeships to work-based learning programs, and choice with
respect to providers, including schools, colleges, private training providers or
accredited employer-provided training. The aim is to ensure that all youth
participate in education and training until they are 18 or achieve a formal
qualification (whichever is earlier)20. In addition, it will be important to
introduce and develop mechanisms to recognize the qualifications of
individuals obtained through informal and non-formal education., for example
through the development of a National Qualification Framework.

Box 3: The Education Maintenance Allowance (EMA) in the United Kingdom: A Conditional Cash
Transfer to reduce the number of youth NEET

In 1999 the United Kingdom Government introduced a pilot program in ten Local Education Authorities
to address the low participation of youth in post-compulsory upper secondary education as well as the
high share of youth not in education, employment or training (NEET). The Education Maintenance
Allowance (EMA) is a means-tested conditional cash transfer (CCT) available to 16-18 year olds from
low income families who remain in full-time education, academic or vocational, after the 11th year of
schooling, typically after 16 years of age, when schooling is no longer compulsory. Available for a
maximum of two years, EMA consists of (i) a weekly allowance available during term time, (ii) an
annual retention bonus and (iii) a one-time achievement bonus paid at the end of the course the person
has enrolled on, provided he/she meets the outcomes of a learning agreement signed at the time of entry
into EMA. EMA is available to youth whose parents’ incomes were below a certain threshold. The level
of the allowance depends on family income and at the maximum level the allowance is the equivalent of
about a third of average net earnings for the target age group.
The pilot was associated with a series of rigorous multi-year evaluations of the impact of EMA on
participation in education programs as well as retention and completion. All studies show unanimously
that EMA has had a significant impact on the participation in post-compulsory upper secondary
education. EMA was found to have raised participation rates by between 4.5 and close to 6 percentage
points for the first year of participation and by even more for the second and subsequent year, suggesting

1.
20
OECD (2008) Jobs for Youth: United Kingdom, OECD: Paris

29
 that the program was effective in retaining those young people that had enrolled under EMA and even
after the end of the allowance eligibility. EMA was found to be particularly effective for youth coming
from the poorest socio-economic backgrounds as well as for young people at year 11 who had previously
been low achievers. Moreover, the program drew as many young people from inactivity (NEET) as from
work or training, suggesting it was a very effective tool to reduce youth inactivity, particularly among the
most disadvantaged. Recent studies have also found a substantial increase in attainment of participants
relative to a control group21. Given the demonstrated success of the pilot program, the UK Government
rolled out the program nationwide in 2004.

40. Challenge 5: Youth leave education insufficiently prepared for the

knowledge economy.

• Complete the ongoing process of modernizing the primary and secondary

school system, also including vocational education and training. Bulgaria has
initiated a substantial reform of the primary and secondary school system building
on international experience, with delegated budgets, school-based management,
per-student financing, external assessment and enhanced teacher training. This
reform, currently under implementation, will decentralize decision-making to the
school level and provide more autonomy to the school to improve learning
environments and enhance the accountability of the school to the local
community. It is also achieving financial savings which can be reinvested in
measures to promote education quality.

(i) Place a greater focus on developing good monitoring systems to track

performance of the system at the school level. Bulgaria has been building up
systems of data collection, including on external student assessments. The
challenge now is to ensure that the systems are used to provide timely
feedback on the education system overall, but also on how individual schools
are doing and guide school improvement plans. Recent OECD PISA results
suggest a large variance in student achievement between schools, as opposed
to within schools, suggesting that there are many high quality but also many
failing schools. This is consistent with anecdotal knowledge of vast
underperformance of schools in socially excluded Roma localities – likely to
be confirmed by external assessments at 4th and 7th grade. The new,
decentralized Bulgarian education system with school-by-school student
assessments allows more easy identify poorly performing schools and tackle
their problems in a targeted manner.

(ii) Adopt active measures to attract, train, retain and reward effective
teachers. International experience suggests that the quality and performance
of teachers is a key predictor of student performance. This suggests the need,
over the coming years, to focus on the development of the teaching
profession, in particular through in-service teacher training to attract and
retain highly qualified teaching staff.
1.
21
For more details, see Chowdry et al (2008), Education Maintenance Allowance: Evaluation with
Administrative Data, Learning and Skills Council Report, Coventry; Dearden et al (2005), Education
Subsidies and School Drop-Out Rates, Institute for Fiscal Studies, Briefing Note No 45, London;
Middleton et al (2004), The Evaluation of Education Maintenance Allowance Pilots: Three Years Evidence,
A Quantitative Evaluation, Department for Education and Skills, Research Report No. 499, London;

30
 (iii) Move to a competency-based approach in curriculum and learning.
Because of rapid technological change and the need for continuous adaptation,
the knowledge economy requires education systems to increasingly focus on
equipping the future work force with generic and transferable skills and
competencies. Curriculum reforms across the world are introducing elements
of a competency-based curriculum with emphasis for example on problem
solving and teamwork, creative use of knowledge and information, and
building the basis for continuous life-long learning. This requires a
redefinition of curriculum content, tasks and standards, more geared towards
“situated” learning and less focused on disciplinary knowledge and absorbing
“raw” information.

• Promote tertiary education participation by increasing the pipeline of qualified

upper secondary graduates and offering more pathways to tertiary education.

(i) Enhance options for financial support for university students. Boosting
tertiary participation will also require the provision of financial support,
through student loans (to be introduced shortly) and scholarship programs for
financially constrained students.

(ii) Improve the quality of secondary education in non-profiled schools,

delay early selection of students and open multiple pathways into tertiary
education. International experience suggests that delaying streaming of
students out of general education into vocational education contributes to
raising performance. Delaying the currently early selection into profile and
non-profile schools (after 7th grade) and delaying the streaming of students
into vocational education until after the completion of compulsory general
education may contribute to raising the effective cohorts qualified to enroll in
tertiary education. This would also involve developing curricula for vocational
secondary schools that balance vocational and general skills (in particular
mathematics, science and language skills) and introducing pathways from
vocational secondary schools to universities.

(iii) Expand the number of occupationally-oriented tertiary colleges. A

part of Bulgaria’s low tertiary participation overall can be explained by the
fact that it has a much smaller share of occupationally oriented short-cycle
tertiary colleges compared to many EU neighbors. These colleges offer degree
programs in more applied and vocational subjects22.

• Enhance labor market relevance of university degree programs by promoting

competition among tertiary institutions. Bulgarian universities already face
increasingly stiff competition from universities abroad, evident in the large and
growing share of Bulgarian university students moving to study abroad. However,
greater labor market relevance of university studies need more domestic
competition to expand, diversify and modernize degree programs. Bulgaria may

1.
22
For more, see World Bank (2007). "Accelerating Bulgaria's Convergence: The Challenge of Raising
Productivity", World Bank: Washington DC.

31
 wish to move to a system of empowered demand, i.e. a system where students
have greater choice, and universities compete for students. This would require, in
particular, a move to a financing system based on actual rather than historic
enrollments as well as changes to university governance23.

41. Challenge 6: Few adults participate in life-long learning.

• Pilot and test various approaches to promoting adult training. The Bulgarian
Employment Agency has just launched a program to provide matching grants to
employers for training their workforce, with financing from the European Social
Fund (ESF) under the Operational Program Human Resources Development (OP
HRD). While this is a step in the right direction, little is known whether the
barriers to training are predominantly financial or whether there are others. For
example, with access to finance having much improved over the last few years,
the constraints will not be purely financial. Another important constrain may be
the concern of companies that better trained workers will move to other
companies (“poaching”). This is why programs that provide financial incentives
to employers should be subject to rigorous evaluation to establish their impact and
ensure that public funds are well spent (see also Box 4). Additional approaches to
be piloted and tested are the widening of the offer of distance education programs
at all levels

• Ease alternative entry routes into higher education for adults and to continuing
education programs provided by universities. Linked to the point on the
recognition of qualifications obtained through informal and non-formal education,
efforts to introduce and ease alternative entry into higher education for adults is
an important avenue to boost adult education. Such special entry routes would
build on qualifications obtained through prior formal education, but also
qualifications obtained through work.

Box 4: The policy laboratory: Program pilots and impact evaluation

It is important to recognize that there is no single or certain solution to employment and skills shortage
challenges discussed in this note. Countries across the OECD and EU have been dealing with the
challenges of youth unemployment, early school leaving and long-term unemployment for years and
continuously introduced and tested new approaches. In recent years many countries have placed a greater
focus on piloting promising new programs and then rigorously evaluating their impact before scaling
them up or rolling them out nationally.

Like follow new EU Member States, Bulgaria has the opportunity to adopt a similar “reform laboratory”
approach, taking advantage of the availability of funding from the Operational Program “Human
Resources Development” (OP HRD). This would involve carefully reviewing international experience,
adapting it to the Bulgarian context and designing promising pilot interventions with in-built impact
evaluation, all financed by OP HRD. Impact evaluations establish the causal effect of a particular policy
or program on outcomes, comparing a “treatment” group—those who receive an intervention—and a
“control” group—those who do not receive the intervention for the duration of the evaluation. It can
therefore, directly attribute the contribution of the new policy to change in outcomes. Conducting
program pilots and evaluating their impact prior to a national roll-out can save money and help tailor
programs most effectively to meet their objectives.

1.
23
Ibid.

32
42. The proposed policy measures are of both a short and medium term nature
and differ in terms of cost implications. Tackling the activation and human capital
agenda is a matter of careful prioritization. However, this note argues that the time for
strategic planning is now. It goes beyond the scope of this policy note to assess detailed
cost implications of each measure proposed as well as a detailed prioritization. However,
Table 3 provides an overview of the proposed policy actions, with a simple
characterization of short-term versus medium-term and likely size of cost implications.

33
Table 3: Bulgaria’s employment activation and human capital agenda - reform recommendation matrix
Impact Complexity Cost
low medium high
Employment Activation
Challenge 1: Many youth are inactive in the labor market
Promote flexible and part-time work arrangements
Introduce legislation on temporary work agencies MT T P €
Introduce of simpler contracting for part-time and temporary employment ST T P €
Reduce barriers to part-time contracting in the social security system ST T P ?
Pilot and test apprenticeship, internship and wage subsidy programs ST T/P €
Develop youth-centered employment activation ST P T €
Challenge 2: Certain adult groups are inactive in the labor market
Enhance provision of child care MT P T €€€
Promote second chance education programs ST T/P €€
Challenge 3: Older worker leave labor market too early
Strengthen incentives in the pension system to work longer MT T P ?
Skills and human capital
Challenge 4: Too many youth drop out of school early and become NEET
Promote ECD programs to promote school readiness MT P T €€€
Intensify efforts to prevent early school leaving and boost retention in education and training
Introduce incentive measures to prevent early school leaving ST P T €
Promote early outreach through school counseling and professional orientation MT T/P €€
Introduce more varied, alternative and flexible pathways to education and training MT P T €€
Challenge 5: Youth leave education insufficiently prepared for the knowledge economy
Complete ongoing school education reform to improve quality and relevance
Place a greater focus on developing good monitoring systems MT P T €
Adopt active measures to attract, train, retain and reward effective teachers MT P T €€
Move to a competency-based approach in curriculum and learning MT P T €€
Promote tertiary participation
Introduce student loans and scholarship programs ST P T €€
Delay early selection into profile and non-profile secondary schools MT P/T €
Develop curricula for VET secondary schools balancing vocational and general skills MT P T €
Expand occupationally oriented short-cycle colleges MT P T €€
Enhance labor market relevance of university degree programs
Reform financing of higher education to enhance competition among tertiary institutions MT T P €
Reform governance of higher education institutions MT T P €
Challenge 6: Few adults participate in life-long learning
Pilot test adult learning approaches ST T/P €€
Ease alternative entry routes into higher education for adults MT T/P €€
Note: The complexity and cost indicators are meant to give some broad guidance as to how difficult it will be to introduce the various reform recommendations
and to help identify the easier solutions. “ST denotes short-term impact; “MT” denotes medium-term impact. “T” denotes technical complexity; “P” denotes
political economy complexity. €, €€ and €€€ denote magnitude of fiscal costs.

35