Epoka University Department of Banking and Finance

Graduation Thesis Measuring Joblessness: Unemployment Trends in Albania

Student: Ervn Sulika Advisor: Prof.Dr.mer Erolu

June 3rd, 2011

ABSTRACT
This paper deals with one important problem that is very common in too many countries including Albania. This paper shows a general knowledge about unemployment and discussed some points about unemployment in Albania like: unemployment trends over years, unemployment by gender, unemployment by education and age (focusing on the youth unemployment in developing countries), unemployment rate by region. It will be shown the unemployment rate of Albania relative to some other countries. Also it will be seen the relationship that has the unemployment rate with inflation rate and real GDP growth rate and are explained with concrete examples in Albania.

Key Words: Unemployment, Albania, Job, Worker

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OUTLINE 1) INTRODUCTION 2) LITERATURE RIVEW 3) DATA AND RESEARCH METHODOLOGY Unemployment rate Unemployment by sex Unemployment by education and age Unemployment by region 1) APPLICATION AND RESULT Relationship between unemployment rate and inflation rate Relationship between unemployment rate and real GDP growth rate 1) CONCLUSION 2) REFERENCES

INTRODUCTION

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 A man willing to work, and unable to find a work, is perhaps the saddest sight that fortunes inequality exhibits under this sun.- Thomas Carlyle This paper, as we can understand from the title, is about joblessness and the unemployment. In the center of this paper will be Albania. The aim of this paper is to understand the unemployment rate in Albania, is it normal, or Albania is a problematic country and how it has changed over time. Now lets have a look to the general meaning of unemployment, its impact and the types of unemployment. The unemployment rate measures the fraction of the labor force that is looking for a job but cannot find a job. Unemployed are called peoples that are not employed but are looking for a job or waiting to return to work. Unemployment has both economic and social impact. It has an impact on economy because if unemployment increases this means that economy is throwing away goods and services that the unemployed workers could have produced. It has an impact in society because the unemployed workers will have many problems as a cause of reduced incomes. There are three types of unemployment: Frictional unemployment, that arises from continuous movement of people between regions and jobs or through different phases of the life cycle. Frictionally unemployed often are called voluntarily unemployed. Voluntarily unemployed means that peoples chose by them self to be unemployed. Peoples chose to be unemployed for many reasons. Maybe they are looking for a better job or they prefer leisure or other activities rather than work. Structural unemployment is a mismatch between the supply and demand for work. Those mismatches can occur because the demand for one kind of labor increases while the demand for another kind decreases and labor supplies dont adjust quickly. Cyclical unemployment exists when the overall demand for labor is low. When total output and savings decreases the unemployment increases. Involuntarily unemployment means that workers are qualified and they want to work at the prevailing wage but cannot find job. The ways that a worker can end unemployed are: some workers lose their jobs because of layoffs they are also called job losers; some other workers decide by their owns to leave the job they are called also job leavers; some others decide to enter in the labor market after spending some times in the nonmarket sector they are called reentrants; and some others are new in the labor market for example students that have just been graduated and are looking for a job.
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Unemployment is measured by: Population-out of labor force= Labor force Labor force-Employed= Unemployed people Unemployment rate is: Labor force/unemployed people The purposes of this paper are: To see the relationship between unemployment rate and Inflation rate, does they have a negative or a positive correlation. Also to see the relationship between unemployment rate and real GDP growth rate.
To see the unemployment trend in Albania. How it has changed over time. How is the

unemployment rate now-days relative to that before the democracy. Was it grater in the communism period or post communism area. Also we will see the unemployment rate according to gender and age. To see how is the unemployment rate in different regions of Albania. And two compare the unemployment rate of Albania with some other countries in the world.

LITERATURE REVIEW
There are done to many studies about joblessness and Unemployment. Paul A. Samuelson and William D. Nodhaus have written about the Economics in general and they have treated the unemployment in a chapter, they have pointed out the definition of
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unemployment, how are called unemployed, the impact of unemployment, factors that affect the unemployment level. The John Maynard Keynes in his book The General Theory of Employment, Interest, and Money had written about unemployment explaining the Prof. Pigous Theory of Unemployment; this theory makes the volume of employment to depend on two fundamental factors, 1) the real rates of wages for which work people stipulate and 2) the shape of the Real Demand Function for labor. In the book of Labor Economic it is explained the Philips Curve (that shows a negative relationship between unemployment rate and inflation rate.) Margareta Nikolovska in her paper has studied the unemployment distribution in different region in Albania. She compared the unemployment level in different regions with the average unemployment in Albania. In this paper is talked about the Labor Market development that is influenced by transition process going on in all economic and social spheres. Another point that is touched in this paper is Labor force participation and Employment, it states that: Employment rate based on the LSMS since 2000 is relatively stable and remains at around 60% of the working-age population, labor force participation and employment have lagged well behind population growth in Albania and both the labor force and employment (including formal and informal) have been rising at a slower pace than the working-age population. The employment structure by sector indicates that in 2006 about 16% of employment was in the public sector, 33% in the private sector and 51% in the agricultural sector. Mjaft Foundation has done a study for the Albanian Youth on the Road towards Employment. In this paper is explained the unemployment by education and age in Albania. The general points that are covered in this paper are: Firstly it is done a general overview of the Albanian macroeconomic and social climate, complement by a synopsis of fiscal policies and private sector development in the recent years; another point that is covered here is the Albanian market developments, and are presented the main employment trends with an emphasis placed on youth employment; and thirdly are concrete policy recommendations and potential interventions regarding the key aspect of youth employment in Albania are offered. In this paper is stated that in order to achieve high youth employment rates all of societys key players must surmount the challenges of successful collaboration. Universities, businesses, governmental institutions, investors and especially the government itself must cooperate in order to create circumstances conducive to markedly reducing youth unemployment.
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Besard Hobdari also has done a study about the unemployment distribution in different regions of Albania during the years 1994, 1995. In this paper is stated that, different regional patterns of unemployment are not casual, especially if regions are defined by their sectors structure. The difference in unemployment is assumed to play an important role in the years to come. The transition hid harder industry, especially heavy industry, and that is why heavy industrial regions show high and persistent rates of unemployment. The perspective of further restructuring of this branch shows that other job losses could occur. A little bit surprising is the fact that large cities show high rates of unemployment, which is quite different from their counterparts in other transition countries. As elsewhere large cities have diversity of economic structure, having the possibility of mitigating unemployment problem by faster restructuring than other areas which rely on single enterprises. A possible response to this answer may be the lack of absorption from large cities of internal migration from other areas, especially rural ones.

DATA AND RESEARCH METODOLOGY

For this paper I have taken data from IMF(International Monetary Fund) and INSTAT(Statistical Institute of Albania). INSTAT's mission is to provide transparent, neutral and timely statistics that help the user to judge on the developments of the transformation processes within the country. As only used statistics are useful statistics, INSTAT strives to
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become the major source of statistical information providing decisions makers, research and education in Albania as well as in the international community with relevant, reliable and comparable statistical information. The International Monetary Fund (IMF) is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. Unemployment rate
Years 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 Unemployment rate 4.2 2.8 3.3 4.4 5.9 5.4 5.2 6 6.7 8.5 8.9 26.5 22.3 18.4 12.9 Years 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Unemployment rate 12.3 14.9 17.7 18.4 16.8 14.5 16 15.5 15 15.5 13.8 13.5 12.5 13.1 12.5

Source: IMF

As

it

is on

shown can with that

the graph we notice a the

general view

unemployment rate in Albania before 90s is lower than that after 90s. This may be because before 90s there were cooperatives and too many people where employed there, so it means in agricultural sector. The highest level of unemployment was in 1992 when the system is changed from a dictatorial system in democratic system. It has dropped again at 1996 was 12.3% and rose again at 1998 was 18.4% after the civil war in Albania in 1997. From year 2006-2010 the unemployment rate hasnt changed to much it varies from 12-14%.
Unemployment rate by gender
Description Male Female 2000 14.9 19.3 2001 14.2 19.9 2002 13.6 19.1 2003 12.9 18.2 2004 12.4 17.5 2005 12.1 17.2 2006 11.8 16.8 2007 14.4 12.2 2008 12.5 13.5 2009 12.2 15.9

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Source: INSTAT

As it is shown on the graph the unemployment rate of females is higher than that of males. Only in year 2007 the unemployment rate of males is higher than that of females. This phenomena is known in Albania because too many of females are housewife in Albania. Another reason why the unemployment rate of females is greater than males is because females have fewer opportunities to obtain work, rather than males. Even though females and males have equal access to schooling, this does not ensure women the same opportunities in labor market. The high unemployment rate among women prevents them from being economically independent. The high unemployment rates are typically encountered in urban areas in Albania. The population in rural areas are managed to find employment in agricultural and animal husbandry, allowing them to ensure their means of living and providing some earnings. In contrast, in urban areas, the opportunities to obtain work are rather limited. High unemployment and lower salaries restricts womens real possibilities to enhance the level of their wellbeing. 1

Unemployment by education and age. Education lowers unemployment rates for two reasons: 1) educated workers invest more in on-the-job training. Because specific training marries firms and workers. Firms are less likely to lay off educated workers than they face adverse economic conditions. 2) When educated workers switch jobs, they typically make the switch without suffering an intervening spell of unemployment. A fraction of the educated workforce migrates to developed countries. Since educated workers are one of the scarcest resources in developing countries, it has been argued that the migration of educated workers is a brain drain for the developing countries. In a number of developing countries, a large fraction of the educated workforce is unemployed.

11 Social Research Center. Women and Children in Albania, Double Dividend of gender equality, 2007, pp. 11-12 9| Page

Younger workers are more likely to by unemployed than older workers. The general trend that can be observed in the countries studied is a decrease of the labor force participation of young people and an increase of the youth unemployment rate. The number of young people globally is about to become the largest in history relative to the adult population. At present, more than 50 percent of the population is under the age of 25, or just over three billion individuals are youth or children. In terms of youth alone (age 15 24), there are over 1.3 billion youth in the world today. This means that approximately 17 percent of the worlds population is young. As the majority of these youth live in conditions of poverty, they have limited health care facilities and schools. Some of the barriers and inhibiting factors to a vibrant and dynamic youth force are: More than 153 million young men and women are illiterate; of this, 96 million women are illiterate. A high percentage of youth never complete school; two out of 3 dropouts are young girls; In most developing countries less than 25 percent of girls attend secondary school; Up to 60 percent of all new sexually transmitted infections (STIs), including HIV/AIDS, are with youth; Between one-third and two-thirds of rape victims worldwide are age 15 or younger; Youth have access to poor natural resources, with limited use and quality (including water and air); and
The majority of youth in developing countries is involved in the informal sector and have

limited chances of earning a decent living and breaking out of the poverty cycle.

2 Youth Employment Summit Secretariat. Youth Unemployment: The Current Scenario , May 2002, pp. 1-2

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Source: LSMS 2005 During the years 2002-2005 young people in Albania have been at a disadvantage on the job market. The age group of people over 32 years old has a slight increase in employment rates whereas the young age group 15-32 old has decline. The challenge of securing employment has specifically been more difficult to overcome for the younger age group 17-22 old. The data presented should sound the bell of alarm for an impending crisis that, apart from the job market, will exert ubiquitous effects upon Albanian society as a whole. It will fuel a phenomenon that continues to plague Albania even after 17 years of transition emigration. The employment rates are lower for young people who possess lower levels of education. In 2004 the employment rate for 15-24 year-olds reached 37.1%. This is significantly lower than the national average of 60.1%. According to the World Banks study, Job Market Evaluations 2006 there are two distinct causes for this effect. Firstly, many young people abstain from working while they are still completing their studies, which is why 68.8% of Albanian youth were not included in 2004s national workforce. The fact that many young people are still currently partaking in the education process signifies that a more qualified workforce is being cultivated for the future. The second reason for low young employment rates is the considerable number of daunting obstacles that young people must overcome to successfully cross the job market threshold. This fact particularly rings true for young people who possess a low level of education. This contingent is often unemployed,

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sometimes even refusing to seek out employment, thereby creating a very disturbing number of dejected young people.3

Unemployment by region Unemployment varies by region. The territory of Albania can be divided into four main areas, which differ by size, population density and the nature of the problems they face. These areas are: the north, the central area, the south, and Tirana, the capital city. The northern area of the country covers the region of Diber, Kuks, Shkodr and Lezh. Some 23% of the total population live in this area and the average unemployment rate is 24%, which is higher than in any other region of the country. The southern part of the country covers the region of Gjirokastr, Vlor and Fier, where 25% of the total population of the country lives. Its average unemployment level is 12%, which is lower than the country average. The central part of Albania covers the regions of Durrs, Kor, Berat and Elbasan, where 35% of the total population of Albania lives. The average unemployment rate here is currently 12%.4

3 Mjaft foundation. Challenges Facing Albanian Youth on the Road Towards Employment, Policy brief
Nr.6, pp. 13-14

4Margareta Nikolovska. Human Resource Development Country Analysis Albania, ETF working paper,
May 2008, p. 5

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 Unemployment rate of different countries

As we can see from the graph, generally the country with highest level of unemployment rate is Albania. Only in year 1996 Latvia has the highest level of unemployment. Also we can see that the country with lowest level of unemployment is Republic of Korea. We can see that the level of unemployment in Albania is higher in 1998 as the cause of the Civil war in Albania in 1997.

APPLICATION AND RESULTS

Relationship between Unemployment and Inflation rate. In 1958. A.W.H Philips published a famous study documenting a negative relationship between the rate of Inflation and the rate of unemployment. This negative relationship is called as Philips Curve. The Philips Curve describes the negative correlation between the inflation rate and the unemployment rate. The curve implies that an economy faces a trade-off between inflation and unemployment.

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Rate of inflation

Unemployment rate

Now let us see if the Philips Curve is true for the Albanian case.

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Years 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Une rate 8.9 26.5 22.3 18.4 12.9 12.3 14.9 17.7 18.4 16.8 14.5 16 15.5 15 15.5 13.8 13.5 12.5 13.1 12.5

Inf rate 35.7 226 85 22.6 7.8 12.7 33.2 20.6 0.4 0 3.1 5.2 2.3 2.9 2.4 2.4 2.9 3.4 2.2 3.6

Source: IMF As it is seen from the data and the graph there doesnt exist that negative relationship between Inflation rate and Unemployment rate in Albania. We can see that in year 1992 the inflation has increased also the unemployment rate has increased so they had a positive relationship. The inflation and the unemployment rate is to high in this year because of the change of the system from a dictatorial system into a democratic system. From year 1997-1999 we can see a negative relationship between the unemployment and Inflation rate. The inflation rate has decreased and unemployment increased. From 1997-2010 there is no a certain relationship between this two variables. Sometimes we can see a negative relationship sometimes a positive relationship, this may happen also because the rate of inflation and unemployment rate hasnt changed too much. As a conclusion we can say that the Philips Curve in not

suitable for the Albanian Case. Here we cant see an exact relationship between unemployment and inflation rate. This may be because of the different policies that the government had taken and different factors.

Relationship between Real GDP growth rate and Unemployment rate.

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Years 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Un.rat e 4.2 2.8 3.3 4.4 5.9 5.4 5.2 6 6.7 8.5 8.9 26.5 22.3 18.4 12.9 12.3 14.9 17.7 18.4 16.8 14.5 16 15.5 15 15.5 13.8 13.5 12.5 13.1 12.5

R.GDP g.rate 5.7 2.9 1.1 2 -1.5 5.6 -0.8 -1.4 9.8 -10 -28 -7.2 9.6 9.4 8.9 9.1 -10 12.7 10.1 7.30 7.9 4.2 5.8 5.7 5.8 5.4 5.9 7.7 3.3 3.5

If we refer to the graph and data which are taken from IMF in general we can say that there exist a negative relationship between the unemployment rate and the real GDP growth rate. This may be also by the fact that if unemployment rate increases the real GDP will decrease because as I mentioned before one of the impact of the unemployment was the impact on the economy, if unemployment rate increases this means that the economy is throwing away the goods and services that an unemployed worker may produce. But we can see also a positive relationship between this two variables during years. For example in 1998 both unemployment rate and real GDP growth rate increased. This may be because as I have sad before the Albania had passed a civil war in 2007 and the unemployment rate in 1998 had increased.

CONCLUSION

In this paper we have seen the meaning of unemployment, its impact, who are called unemployed, the impact of unemployment in economy and society, the types of unemployment, factors that cause the unemployment and how to measure it. We have seen the unemployment rates trend in Albania and we have seen that the unemployment rate in communist system was lower than in democratic system. We have seen the unemployment by gender, and that the number of females unemployed were higher than that of males, this was because of the difficulties that women have in entering in labor market. We
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have seen also that the higher the education the lower the unemployment rate, and that young people has a tendency to have a higher unemployment rate than adult. Another point that was covered in this paper was the unemployment by region in Albania and it was seen that the unemployment rate in the north region of Albania was higher than in other regions. It was compared also the unemployment rate Albania with some other countries, and it was seen that Albania had a relative high unemployment rate relative to the other countries. Only one year the unemployment rate of Latvia were higher than that of Albania. There was discussed also about the relationship between unemployment rate and inflation rate, and unemployment rate and real GDP growth rate. It was shown that the relationship between unemployment rate and inflation rate changed year by year and in general the relationship between unemployment and real GDP growth rate was negative.

REFERENCES

Paul A. Samuelson, William D. Nordhaus. Economics, Mc Graw Hill Publishing, New York, 2005, pp. 650-663 George J. Borjas. Labor Economics, Mc Graw Hill Publishing, 2000, pp. 465-505 John Maynard Keynes. The General Theory of Employment, Interest, and Money, Prometheus Books publishing, New York, 1997, pp. 257-279 International Labour Office and the Council of Europe, Employment Policy Review, Albania , 2003-2004, pp. 16-24 Bersant Hobdari. Labor Market and Regional Difference in Unemployment in Albania., Reihe Osteuropa/East European Series, No.53, pp. 8-13 Mjaft foundation. Challenges Facing Albanian Youth on the Road Towards Employment, Policy brief Nr.6, pp. 13-14 Margareta Nikolovska. Human Resource Development Country Analysis Albania, ETF working paper, May 2008, p. 5 Social Research Center. Women and Children in Albania, Double Dividend of gender equality, 2007, pp. 11-12 Youth Employment Summit Secretariat. Youth Unemployment: The Current Scenario , May 2002, pp. 1-2

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