What to Do About Unemployment in the Caucasus and Central Asia

IMF Blog, October 31, 2011

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Canonical URL: What to Do About Unemployment in the Caucasus and Central Asia

Author: Masood Ahmed
Date: October 31, 2011
Regional recovery: economies of the Caucasus and Central Asia recovering from the global financial crisis.
External drivers:
- Oil and gas exporters benefiting from the high price of oil.
- Oil and gas importers benefiting from rising export demand and a steady increase in workers’ remittances linked to the recovery in Russia.
Growth projection (as reported): projecting growth in both groups of countries in the range of about 5½ and 6½ percent in 2011 and 2012.

Data limitations: labor data are sparse, making it difficult to determine the full extent of unemployment.
Official unemployment figures are generally low, especially in Central Asia, but mask widespread underemployment, particularly in rural areas.
South Caucasus unofficial estimates:
- unemployment rates ranging from 10 percent to as much as 30 percent.
- youth unemployment rates:
- close to 15 percent in Azerbaijan,
- in the range of 35–40 percent in Georgia and Armenia.
Migration and vulnerability:
- In several countries, especially Tajikistan and Kyrgyz Republic, lack of jobs has led many to seek work abroad—especially Russia.
- This creates vulnerability: a slowdown in Russia would lead returning workers, increasing poverty and social problems.

Nature of unemployment:
- In the south Caucasus, unemployment appears largely structural and not easily resolved by short-term increases in activity.
- The precrisis boom did not significantly reduce officially recorded unemployment; the crisis did not measurably raise it in most cases.
- By contrast, countries like Tajikistan saw increases in unemployment associated with the slowdown in Russia and returning migrants.
Labor-intensity and sectoral composition:
- Weak association between growth and unemployment partly reflects low labor-intensity of growth.
- Precrisis job creation favored financial services over relatively labor-intensive sectors, such as agriculture.
Skills mismatch:
- Unemployment rates tend to be highest among the educated.
- Firm-reported constraints:
- more than 20 percent of firms in Armenia report “lack of worker skills” as a major constraint.
- 25 percent of firms in Georgia report “lack of worker skills” as a major constraint.

Immediate priority: develop better labor statistics to assess the scale and scope of unemployment and to inform policy design.
Private-sector development:
- Nurture private-sector development, particularly outside mining, oil, and gas.
- Continue improving the business environment; existing progress noted but gaps remain.
- Trade facilitation weaknesses highlighted: ease of trading across borders—number of documents, procedures, and days needed to export and import—remains problematic.
- Governance challenges: low scores on several governance indicators point to the need to eliminate corruption.
Education and skills:
- Improve education systems to better equip young people with skills demanded by the marketplace to address the skills mismatch.
- Policy trade-off highlighted:
- Higher education and skill-upgrading can raise productivity, but it is unclear whether it will lower unemployment if sufficient high-end jobs are absent.
- Alternative or complementary strategy: boost investment in labor-intensive sectors, such as agriculture, to create more jobs.
Strategic view: these policies should be part of a longer-term strategy for attracting investment and creating jobs; growth alone is not enough.

Masood Ahmed, October 31, 2011.