Rigid unemployment

Nikola Popovski

It is known that in times of economic expansion, welfare is growing, and the most important economic indicators are moving in a positive direction – GDP growth, employment and investment also, foreign trade is rising, and unemployment is declining. In times of recession, however, it is the other way round. If economies operate at least roughly in some general economic laws, this will be visible and clear not only to economists, but also to the wider public. However, there are exceptions.

When many national economies and the world economy in 2008/2009 were affected by one of the major recessions in recent decades, most of the economies, especially market-oriented, reacted almost by the textbook rules – GDP and investment declined, foreign trade experienced a sharp decline, and unemployment has increased. An excellent example is the countries of the European Union. Their already low unemployment has suddenly started to rise and from below 7 percent in the first half of 2008 first increased to around 9.5 percent during 2011, and then rose to, for the EU, the fantastic 11 percent in the beginning of 2013 year, giving them the characteristics of typical cyclical unemployment. After 2009, although with very anemic GDP growth, economies emerged from recession in the next year, but the growth of unemployment continued in the next 5 years, until 2013. This prolonged growth of unemployment was so long and relatively high that many thought that the phenomenon of the so-called “Hysteresis” in the economy – a phenomenon when cyclical unemployment retains itself at the same higher level and in the long run, even after the recession, and threatens to turn into a natural unemployment rate that will persist. It can remain more persistent and determined by the high rate of unemployment during the recession.

But in the case of the EU economy, this did not happen. Their market economy, though with a delay, interpreted as a result of the anemic growth in the post-harvest period, functions exactly as it was expected. Unemployment began to decline for the first time in the second quarter of 2013, and since then, for the next 5 years, it has been steadily and steadily decreasing. In January this year, it reached 7.3 percent with a tendency to continue to decline. This is very important for at least three reasons: first, the EU economy shows typical market behavior, which is a good trend at a time when many important economies in the world have less confidence in free markets and free trade; second, EU institutions and member-states have shown that, although slowly and with delayed action, they can deal with some of the basic economic policy challenges in the medium and long term, that is to maintain a low unemployment rate; and thirdly, it is now obvious that the phenomenon of “hysteresis” in the EU economy has not been retained for a reason similar to the former – namely, as well as the overall economy, the labor markets have proven to be not rigid, yet flexible. This is very important.

But what happened in the same period with the Macedonian economy? She showed atypical and unusual behavior, probably very well for economies in which market mechanisms are not decently released and therefore look very uncertain, so they may even be chained. Observed from a longer perspective, the Macedonian economy has gone through several stages of transformation, followed by several recessions. The first phase of the transition started in 1990 lasted somewhere until 1996, when the economy, for many, primarily non-economic reasons, sunk helplessly. The second phase can be marked by the one from 1997, and by 2002 when the economic movements stabilized, and the third phase is the one from 2003 to 2008, when the economy dynamically grew and developed. The fourth phase corresponds to the global crisis and took place in the period 2009-2012, when the years of recession and low economic growth occurred intermittently. The fifth phase began in 2013 and is still ongoing and it is characterized by prolonged and relatively low growth caused by threats of stagnation, as it was in the last 2017. Contrary to this dynamics of the total economic activity, measured by the movement of GDP, on the other side something completely unexpected happened with the movement of unemployment. In Macedonia, it seems to be completely independent of the economic movements, and whether the economy is in a moderate or dynamic growth phase, in a phase of stagnation or recession. If we lean on official data, it shows completely autonomous behavior, which can be interpreted in many ways. But first let’s see its dynamics. Its growth during the transitional 90s was expected and logical. Its stabilization during the stabilization phase of the economy in 1997-2002 is also expected and logical. But expectations end here. In the period of the most dynamic growth of the economy in the period 2003-2008, when, according to all parameters, unemployment should have been expected, triggered by the dynamic growth with rates of 4.7 to 6.5 percent annually, it began to decrease, it continued to grow, or is maintained at a high level and at some point it exceeds 37 percent.

The non-standard movement of unemployment continued to this day. In the years of anemic economic growth, accompanied by two recessionary years (2009 and 2012), unemployment continued to decline. It continued in the coming years, including 2017 in which our growth is likely to gravitate around zero percent, that is, we will have a stagnating year. The latest unemployment measure in the third quarter of 2017 showed an unemployment rate of 22.1 percent. Such movements, quite contrary to the theoretical and logical expectations, may have some explanation and even some marginal economic explanation, but for some other occasion. The important thing is that they show something quite the opposite of what is happening in market economies, for example, that of the EU. First of all, probably the market mechanism in our economy is still under serious pressure and the economy does not show signs of market behavior in all its parts where it is necessary, and probably in Macedonia the labor market is especially rigid. Secondly, it can be erroneous to conclude that our institutions are overly ill or too well coped with serious economic challenges, as in conditions of dynamic growth they cannot reduce unemployment, that is, in conditions of recession and anemic growth it is successfully and sustainably reduced. Third, should we doubt that in our country there is some phenomenon of anti-hysteresis, according to which, under conditions of recession our unemployment is decreasing, then the decline continues in conditions of weak economic growth, and it is again reduced in conditions of a new recession etc. to this day, which gives us a situation in which unemployment decreases in the long run regardless of the economic trends. At least this is shown by official statistics in the country.

Still, from 2005 to the present, over a period of 14 years, in a strange way, the unemployment rate is constantly decreasing by about 1 percentage point per year, no matter what happens. Thus, from the unemployment rate of 37 percent we reached 22 percent. Rigidly reducing unemployment. We are moving on.