Anti-hysteresis or hysteria?

Nikola Popovski

On March 8th this year, on the pages of this newspaper I published an article entitled “Rigid unemployment”, and on March 20, also in this newspaper, a certain A.D. also published her own article called “Macedonian anti-hysteresis”, which is actually a polemic against my article. Given that this text represents a real expert hysteria about anti-hysteresis (A.D.’s term), I will give a few remarks that I think the entire piece is only an attempt to get some political points based on completely unskillful analyzes.

First of all, for the following – as early as the introduction of her text A.D. writes, I quote: “Let me remind you that in the third quarter of 2006, the unemployment rate was 35.9 percent, and it was higher than the employment rate of 35.6 percent, which means that, at that time, more people in Macedonia were unemployed than employed “. Such nonsense is a sufficient argument to raise the question of whether any further controversy with an author, who has a thorough ignorance of the terms “unemployment rate” and “employment rate”, is useful? However, the so-called argumentation of A.D. is publicly stated, so I probably should respond to the wider readership. Namely, every economist who has completed first year of economics and passed the Basic Economics exam, should know that the unemployment rate is calculated as a ratio between the number of unemployed persons and the number of workforce (active population – synonymous), and the employment rate as a ratio the number of employees and the working-age population, and not the workforce. As is noticeable, these are two different economic categories of the population: labor force or active population and able-bodied population, and their equalization is a striking example of mixing completely different things. In fact, in Macedonia, the difference between the working population (currently 1.680.394 people) and active population or workforce (currently 953,692) is a total of 726,702 people (about 35 percent of the total population). In the case of A.D. these 726,702 people in Macedonia obviously do not exist. If you do not know this, and try to rate the unemployment and employment rate from the same denominator, that is, from the workforce, ie. active population, then you are in a real misconception that brings you to hysterical and certainly incorrect conclusions. Hence, the statement “then more people in Macedonia were unemployed than there were employed”, is not only completely incorrect, but also completely meaningless. It’s not worth it to be debated.

Furthermore, in the article, she claimed that in 2006 “there was almost no investment in order to create new jobs …” This is also an ordinary hysterical pamphlet conclusion as the statistical data indicate that in that year in Macedonia the investments were at the level of 21.5% of GDP, of which only fixed assets were 17.6% of GDP. If the level of investment of 21.5% of GDP is in the category “almost no …” then something with the perception of the economy by the author is wrong. In addition, the fact that the real GDP growth rate in such a downgraded 2006 was 5.1 percent, which from that period to the present, more than a decade, is practically an unreachable dream for the country.

In her article, in which author A.D. apparently glorifies the economic policy of all Gruevski’s  governments in the past almost 12 years, citing their alleged successes by reducing the rates of contributions for the health and pension insurance funds in the country that have contributed to reducing unemployment. She concluded: “At the end of 2008, compulsory social security contributions rates decreased from 32 percent to 27.9 percent in 2009 (followed by an additional reduction in subsequent years, reaching a level of 27 percent).” These terrible 4.1 percentage points lower contributions made by the then government caused such deficits in public health and the pension fund that they still cannot recover from it. The result is seriously problematic – firstly, as a consequence of other misleading policies, the pension fund created a deficit of about 40 percent of its needs that must be compensated each month and year of the union budget’s tax revenues, which reduces the possibility of financing the needs for public goods in the future; and secondly, the reduction in the contribution rate of pension insurers in the country has reduced the level of money that employers, for about half a million employees, have ever since been paid into the fund, so employees in the future will have lower pensions due to reduced contribution payments. Such a sort of systematic “genocide” of the size of future pensions of current employees is not remembered in recent decades. Each future retiree will have a lower pension due to the smaller payments due to the reduced rates of the pension contribution.

There is no difference in the situation with the health fund, which for the same reasons constantly has high deficits or inaccessible services for the insured. Consequence – more and more health insured people need to pay money from their own pocket for private health care services, although they are insured in the public fund. Such a situation led to the fact that today about 40% of the total health costs incurred by the population are paid from private sources, and not from the public health fund.

Finally, the author herself admits what is one of the reasons for the alleged reduction in unemployment at the time of her favorite government when she says: “A measure was implemented according to which persons who applied to the Employment Agency as unemployed only to use free health insurance (which created an unrealistic image of the number of people who are really actively looking for work) have been transferred to the Health Insurance Fund.” Namely, the persons who were part of the labor force or the active population, and were unemployed, simply switched to the category of inactive people who are already actively not looking for work and as such they are no longer qualified as unemployed, but become part of the economically inactive persons which are not part of the formula for calculating the unemployment rate. In this way, the numerator in the formula is relatively reduced by decreasing the denominator, which automatically reduces the quotient given by the unemployment rate. But, unfortunately, nothing really changes in reality. Real unemployment remains, de facto, the same. The less illustrated statistical unemployment only means that of all capable, but unemployed persons, now fewer actively seek work, but they remain, de facto, unemployed. The usual “cheerful political mathematics” does not make the economy a de facto reduced unemployment problem. Proof of this is the fact that if you try to offer these people (who have already been disappointed that they cannot find a job and therefore actively no longer require them) a suitable job, they will immediately accept it because they are considered unemployed, even though they are not actively looking for work, and it is known that for a person to have a status of unemployed, he/she must “actively” look for work.

P.S. In her ‘P.S.’, author A.D. “in December 2017, the net salary is 23,850 denars, and the gross salary is 35,017 denars, which means that the tax burden is 31,89 percent.” It would be wise if she reexamined her mathematical-statistical skills, and find out why the load is 46.8, not 31.89 percent.