Labour Market and Unemployment Problems in Armenia

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Labour Market and Unemployment

Problems in Armenia

Tereza Khechoyan
A declining demand for labour force is characteristic to the Armenian labour market being in the phase of transition to market economy. The reasons for that are: reduction of production, changes in structure, bankruptcy of enterprises, and their liquidation. At present the economy of Armenia is in the stage of recession, which is also characterized by employment crisis or increase in unemployment. The gap between the population's incomes and goods' prices becomes deeper, the work tension, brains

the geo-political situation in Armenia;

fuel-energy crisis;


the unforeseen accelerating privatization, etc.

According to official data the number of those involved in the economy of Armenia lessened from 1630.1 thsnd in 1990 to 1360.0 thsnd in 1998. The number of officially registered unemployed in 1993 made 102.6 thsnd, in 1996 ă 159.2 thsnd, and in 1997 ă 174.1 thsnd people. Meanwhile, the number of unemployed getting unemployment benefit in 1996 made 35 thsnd, in 1997 ă 24.3 thsnd, and in November 1998 ă 18.7 thsnd people. The percentage of unemployed beneficiaries in the total number of unemployed

Table 1.

Unemployed beneficiaries and average unemployment benefit in RA

DATA 1996 1997 November 1998

1 2 3 4

Number of unemployed beneficiaries (thsnd people) 35.0 24.3 18.7

Percentage of beneficiaries in total number of the unemployed (%) 22.1 14.0 14.3

Average unemployment benefit (dram;1$=520-540 dram) 2337 2359 2415
The employment service basically records those people seeking jobs, provides a part of them a status of unemployed and assigns benefit. It shows that in the sphere of population's employment is conducted a passive policy.

According to the Law of the Republic of Armenia "On Employment" a person having no job, seeking it and being ready to work, with at least 1-year experience, and registered in the employment service, is deemed unemployed.

In the transition period the living standard of population (over 30% of population is under the line of poverty) the population's purchasing power has sharply gone down. Average real incomes per capita have reduced nearly 5 times. The rich comprising 5% of the population rise one third of all incomes. The ratio of average incomes of 10% of the rich and 10% of the poor in Armenia in 1980-s equaled to 3, in 1998 it made 17. This gives evidence that there are serious deficiencies in the social poli

The realistic estimate of the unemployment problem in the Republic of Armenia is that it is not only friction, but also cyclic unemployment of disastrous structure, and it is urgent to undertake measures for the purpose of its regulation and minimization.

We have at our disposal only the data on the officially registered unemployed. According to the results of surveys in the employment centres one fourth of the total number of the unemployed, having met the requirements of the International Labour Organization, are registered as that. In fact, only one of the four unemployed has applied with a hope to find a job. According to official data in 1996 the unemployment made 10.1%, in 1997 ă 10.8%, and in November 1998 ă 8.7% (see Table 2). in the disas

Table 2.


Name 1994 1995 1996 1997 November 1998

Number of the employed (thsnd people) 1474.6 1468.6 1413.4 1356.3 1360.0

Number of the unemployed (thsnd) 91.7 131.7 159.3 174.1 131.3

Number of labour force (thsnd) 1566.3 1600.3 1572.6 1530.4 1491.3

Unemployment at the end of the year (%) 5.8 8.2 10.1 10.8 8.7

Average duration of unemployment (months) - - 26.2 17.5 14.5
Employment has been reduced in state sector and increased in private one. In 1997 the number of employees in private sector made 60% of the total number of employees. Essential changes have taken place in the branch structure of employment: in industrial sector it has reduced, in services ă increased. Although it is impossible to exhibit the entire picture, since the growth of services (especially of trade) took place in the shadow economy, i.e. owing to illegal employment.

Only in manufacturing sector in 1990-1996 the number of the employed reduced by 250 thsnd. If in 1990 the number of the employed in manufacturing industry made up 30.3% of the total number of the employed, in 1996 it was only 17.8%.

Armenia is characterized by the surplus of labour resources reproduction and cheap labour force. In the near future the number of population in the active work age will increase. The situation in the labour market will deteriorate, since some 25-30 thsnd pensioners will leave the labour market, and up to 70 thsnd young men will enter it.

The surplus growth of jobs in the conditions of forecasted economic development (6-7%) will make 20-25 thsnd against the present 5-7 thsnd. The creation of so many jobs will require annual investments as much as 250-300 mln dollars.

One of the characteristics of the Armenian labour market is the high level of long unemployment. When analyzing the unemployment its duration is of great importance. Considering its duration one can judge on the nature of unemployment. Most part of the unemployed finds job within several months, whereas a part of them cannot find it during a year and more. The average duration of job seeking in 1996 made 26.2 months, in 1997 - 17.5 months, in 1998 ă 14.5 months. Those unemployed seeking jobs over

The average salary, pensions and benefits doesn't satisfy the minimal needs of people. But in consequence of aid from other countries to the relatives and friends, as well as human aid there have not registered any social shocks in the republic.

Among the population living in the country the situation is rather favorable. The land privatization is accomplished in Armenia and the farmers have an opportunity to use their labour force. Currently there are 540 thsnd farmers in the country. Employment in agriculture is seasonal. The survey of 3400 farms has shown that in average 36% of the total number of the employees in this sector of economy are engaged in agri works all the year round. Most of the employees (63%) are employed 9 months. Up

65% of the unemployed has a profession, 55% of them has higher or secondary professional education.

In Table 3 are given the structure of the unemployed (including women) according to education, age groups and reasons of not having job. The average duration of unemployment among young men is 17.5 months.

The majority of those seeking jobs prefers the unofficial way: 51.8% seeks job through personal channels, 39% - through job offices and vacancy announcements. 7.2% of job seeking young men finds jobs through the Employment Centre.

As a result of economic hardships, started 1991 the migration from Armenia became more intensive (nearly 400 thsnd people), being spontaneous, beyond the state regulation. It is extremely important to regulate job migration with CIS countries on the basis of signing agreements between governments.

After the bankruptcy and liquidation of numerous manufacturing enterprises and research institutes a rather primitive work started to be spread. The share of the qualified work at banks, in the programme ensuring sphere, in re-organized enterprises, etc., is rather insignificant.

The survey carried out in trade and services shows that 80 % of employees have not signed written job contracts. Therefore their social and pension related problems remain without solution, their daily work hours and working conditions - non regulated.

One of the important characteristics of the crisis of the Armenian labour market is the so-called "hidden" unemployment. These are the employees who became unnecessary due to a decline in the production or structural changes in the economy, although formally are deemed employed and under certain conditions (in case of changes in financial or legal situation of an enterprise, or of the employee's own free will) may be dismissed and can supplement the labour market or be transferred to the categor

The reason of dissimilar trend of GDP and employment is the maintenance of a large number of employees in enterprises, and, in fact, the availability great volumes of "hidden" unemployment. The selective survey of 1500 enterprises has shown that 20.0% of workers were having unpaid holiday.

The hidden unemployment is very spread linked to the widening of shadow economy. The analysis carried out by the Ministry of Statistics of RA shows that the hidden unemployment makes nearly 18% of the total labour force.

Self-employment is also largely spread and is assessed as much as 18-20% of total number of labour force. Self-employment is also largely spread and is assessed as much as 18-20% of total number of labour force.

What is the reason of maintaining a number of unnecessary employees in enterprises? It is cheaper for the enterprise to provide unpaid holidays to its employees, hoping that in the future a part of them of their own will would leave the enterprise. The behavior of maintaining the "free will" jobs has been formed under the influence of economic compulsion, although from the first view, the retiring has a free will nature, and the legal compulsion does not take place. The employer prefers to main

Table 3.


Data 1994 1995 1996

thsnd % including women thsnd % including women thsnd % including women

thsnd % thsnd % thsnd %

Total number of unemployed 91,7 100 60,1 100 131,7 100 91,8 100 159,2 100 115,8 100

Number of unemployed according to education

- higher 15,2 16,6 9,8 16,3 14,8 11,2 10,5 11,4 18,8 11,8 13,6 11,7

- secondary professional 22,8 24,9 14,5 24,1 31,3 23,8 21,4 23,3 36,2 22,7 26,0 22,5

-secondary 47,0 51,2 31,7 52,8 74,2 56,3 52,3 57,0 89,1 56,0 66,2 57,2

-incomplete secondary 6,7 7,3 4,1 6,8 11,4 8,7 7,6 8,3 15,1 9,5 10,0 8,6

Number of unemployed according to age groups:

- up to 30 47,0 51,2 31,2 51,9 59,6 45,3 41,3 45,0 70,6 44,3 50,0 43,2

- 30-50 36,1 39,4 23,6 39,3 61,0 46,3 44,1 48,0 75,0 47,2 56,4 48,7

- above 50 8,6 9,4 5,3 8,8 11,1 8,4 6,4 7,7 13,6 8,5 9,4 8,1

Number of unemployed according to the structure:

-retired of their own free will 15,6 17,0 9,8 16,3 24,9 18,9 17,6 19,2 18,3 11,5 12,8 11,1

- dismissed 21,8 23,7 13,0 21,6 17,9 13,6 12,6 13,7 12,1 7,6 8,8 7,6

-new graduates 8,5 9,2 5,4 9,0 14,3 10,9 9,5 10,3 17,5 11,0 12,5 10,7

Table 4.

Trend of GDP and number of the employed in 1990-1996.

Years Gross Domestic Product Number of employed

1990 100 100

1991 88.7 102.5

1992 51.4 96.8

1993 46.9 94.7

1994 49.4 91.3

1995 52.8 90.6

1996 56.0 88.1
Besides, if a person within a week after being dismissed, applies to the employment service for the status of the unemployed, the enterprise should pay him/her an amount of one month salary more.

There are nearly 80 thsnd capable for work young men in Armenia aged 16-25, being unemployed or having casual jobs, thereby taking part in work seasonal migration. According to the data resulted from the survey 20.5 % of the young men aged 18-25 belong to the category of the unemployed. 32.4% of young men are engaged in trade and services, 25.7% - in state service, 19.8% - in science and culture, 9.2% - in manufacturing industry, 5.9% - in agriculture, 7% - in other spheres.

2/3 of young men work in private sector, the majority - 56.6% of them are paid workers, whereas 31.3% are engaged in individual activities.

The survey has shown that the most profitable occupation, from the point of view of employment, is agriculture (30.2% of incomes), that ensures 100-110 dollars of income per month for those employed in this sphere. Households generate 13.2% of their incomes from self-employment, 13.1% - employment. Statistic data show that the income of the self-employed is not regular and during the observed period 13% of those with this status gain income from their occupation. The paid workers had the lowest,

First of all, it is necessary to undertake efforts to ensure the employment of those who has been seeking job for a longer period.

The survey of the labour market has shown that the employment problems have no solution yet. To picture it, the demand for labour force submitted by employers to the employment service in 1997 made 525 people, mainly for those with workers trade.

In total 4418 people have found jobs through the employment service, of which 4233 had the status of the unemployed.

Strategic tasks of labour force employment are as follows:

regulation of labour force employment;

legal regulation of work relations.

To start a new active policy in the employment sphere it is necessary to work in the following directions:

creation of new jobs;

labour force training and re-training;

assisting and consulting young men in choosing their profession;

ensuring regulated outflow of labour force after working out a legal field for it.

The working out of regional and state programmes and their implementation is of great importance. In this sphere, in our viewpoint, should be carried out the following steps:

working out a mechanism of inducing the development of small and middle business and its state regulation;

financial assistance to the unemployed - to start their own business and ensure self-employment;

working out employment programmes aiming to involve young men in the labour market;

establishment of training centres for the purpose of re-training and training the unemployed, etc.

In the state employment programmes the issues of attracting foreign loans and investments to the sphere, creation of favourable legal field, development of special programmes for the disaster zone aiming at creation of new jobs are of great significance. The wheels of creation of new jobs, and lessening the unemployment are investments. In this regard the economic policy of the government faces the problem of creation of favourable conditions for investments.

We certainly are not suggesting that it will be easy to generate a large number of new jobs. Nor will it be easy to retrain large number of people. Many new jobs will still be needed for unskilled or low-skilled people for a long time to come. Maintenance to full employment is a difficult but by no means impossible task.It requires combination of public and private investment.

The problem of refugees in Armenia still causes trouble. Some 350 thsnd refugees from Azerbaijan, as well as Chechen and Abkhazia have migrated to Armenia. Some 240 thsnd people have finally established in Armenia, which is a result of economic hardships of the country. Some 15thsnd refugee families still live in temporary dwellings. The surveys have shown that 45% of labour force of refugees are unemployed. The majority of them (90%) are former town residents, basically specialists in oil-refine

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