CENTER FOR STRATEGIC STUDIES UNDER THE PRESIDENT OF THE REPUBLIC OF AZERBAIJAN SAM COMMENTS. Volume XX, October 2017

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1 CENTER FOR STRATEGIC STUDIES UNDER THE PRESIDENT OF THE REPUBLIC OF AZERBAIJAN SAM Volume XX, October 2017 LABOR MARKET DEVELOPMENTS IN AZERBAIJAN Shahmar Hajiyev Baku

2 SAM LABOR MARKET DEVELOPMENTS IN AZERBAIJAN 2017 SAM Center for Strategic Studies. All rights reserved The views represented here are the authors own and do not necessarily reflect the views of SAM, its staff, or its trustees. Disclaimer: The contents of this publication are the authors sole responsibility. They do not necessarily represent the view of the Center for Strategic Studies or of the organisation for which the authors work. The Center for Strategic Studies (SAM) does not take institutional positions on public policy issues. No part of this publication may be reproduced or transmitted in whole or in part in any form for educational or non-profit purposes without special permission in writing from the copyright holders, as long as provided acknowledgement of the source is made. No use of this publication may be made for resale or for any other commercial purpose whatsoever without permission in writing form from Center for Strategic Studies. Please direct inquiries to: SAM - Center for Strategic Studies under the President of the Republic of Azerbaijan Mirza Ibrahimov 8, Baku, Azerbaijan, AZ1005 Tel: (+99412) Fax: (+99412) info@sam.gov.az This publication can be downloaded at no cost at: First Edition: October 2017 Cover and Page design: Intigam Mahammadli ISSN: About Center for Strategic Studies under the President of the Republic of Azerbaijan The Center for Strategic Studies ( is Azerbaijan s first government- funded, non-profit and academically independent think tank, known as Strateji Araşdırmalar Mərkəzi (SAM) in Azerbaijani. The mission of SAM is to promote collaborative research and enhance the strategic debate as well as providing decision-makers with high quality analysis and innovative proposals for action. Through publications, brainstorming meetings, conferences as well as policy recommendations, SAM conducts rigorous research guided by a forward-looking policy orientation, thus bringing new perspectives to academic research in international level. 2

3 LABOR MARKET DEVELOPMENTS IN AZERBAIJAN CONTENTS SAM About the author... 2 Illustrations Introduction Labor market indicators Employment Unemployment & Informal Sector Structural economic transformation Gender and Employment Labor Migration & Remittances...25 Conclusion and recommendations...28 Bibliography

4 SAM LABOR MARKET DEVELOPMENTS IN AZERBAIJAN ABOUT THE AUTHOR Shahmar HAJIYEV is a Senior Research Fellow in the Economic Analysis and Global Affairs Department at the Center for Strategic Studies (SAM) under the President of the Republic of Azerbaijan. Before joining SAM, he worked at the State Oil Company of Azerbaijan Republic (SOCAR). Mr. Hajiyev worked also at Asian Development Bank (one year) as an individual consultant. He participated in the Analyst Development Program of the Texas-based Strategic Forecasting, Inc. (STRATFOR), where he worked with STRATFOR analysts and staff to research a variety of issues and gather information on global developments. Additionally, he has participated in the Green Economy Program run by, inter alia, the Israeli Agency for International Development and Cooperation, Ministry of Foreign Affairs (MASHAV) and the Renewables Academy (RENAC) in Germany. Mr. Hajiyev received his BA in European Studies from Azerbaijan University of Languages and MA in International Economic and Political Studies from the Charles University in Prague, Czech Republic. His research interests include energy security issues in the EU and the Caspian basin, energy economics, renewable energy sources, energy efficiency, green economy, green technology, innovative economics and the labor market. He has published several articles on these subjects. 2

5 LABOR MARKET DEVELOPMENTS IN AZERBAIJAN SAM ILLUSTRATIONS FIGURES Figure 1: Labor force participation rate, total (% of total population ages 15+) (modeled on ILO estimate) Figure 2: Ratio of female to male labor force participation rate (%) Figure 3: Vulnerable Employment Level in Azerbaijan Figure 4: Departures from Azerbaijan for permanent residence (2016, %) Figure 5: Arrivals to Azerbaijan for permanent residence (2016, %) TABLES Table 1: Table 2: Table 3: Table 4: Table 5: Table 6: Table 7: Table 8: Table 9: Employment (thousand persons) Distribution of employed population by economic activities (thousand persons) Number of employees by economic activity in 2016 (in per cent to total and sex) Distribution of workers working in harmful labor conditions by factors influential to manufacture in 2016 Unemployment Rate, percent Distribution of economically active population (2016, de facto unemployed) Main economic sectors by their value added to GDP and their employment share in 2016 (% in total) Average monthly nominal wages of employees by economic activity in 2016 Number of women employees by economic activities in 2016 (person) Table 10: Personal remittances, received (current US$), and share of GDP (%) in

6 SAM LABOR MARKET DEVELOPMENTS IN AZERBAIJAN 1. INTRODUCTION The main idea behind this research is to evaluate employment and labor market policies in Azerbaijan. In particular, how the socio-economic transformation following independence has affected the labor market situation. Analyzing the labor force structure of the country, in 2016 the size of the economically active population was equal to thousand persons, of whom thousand persons were engaged in economic activity in various fields, while thousand persons were unemployed. 1 The labor market in the country has demonstrated a continuous increase in participation rate. In fact, the increasing participation rate in the country linked to high spillover effects from the energy sector on other sectors of the economy, such as the construction and service industries, as well as an increase in self-employment activities of small landowners and small to medium-sized businesses. FIGURE 1: Labor force participation rate, total (% of total population ages 15+) (modeled on ILO estimate) Source: The World Bank. 1 The State Statistical Committee of the Republic of Azerbaijan 4

7 LABOR MARKET DEVELOPMENTS IN AZERBAIJAN SAM Figure 1 shows that the labor force participation rate in the country has been increasing over recent years. As one can see from Figure 1, the highest value of total labor force participation (as a percentage of total population aged 15+) in the country was in In Azerbaijan, one can also emphasize the relatively high rate of female labor force participation, which has been increasing since Women have the same rights and equal access to labor markets as men, and the male female ratio in this context has been decreasing year-by-year. FIGURE 2: Ratio of female to male labor force participation rate (%) Source: The World Bank. Figure 2 illustrates the ratio of female to male labor force participation in percentage terms. 2 As one can see, female labor force participation is quite high in the country. Female labor force participation growth has occurred predominantly in rural areas, where women are mainly self-employed and work in the agricultural sector. Another feature of the labor market in the country is the low labor participation rate among young people (age group 15 24). A possible reason for this is higher enrolment rates in tertiary education for this age group. In this age group, the male labor force participation rate was 35 percent in 2016, while the female labor 2 Modeled on ILO estimate 5

8 SAM LABOR MARKET DEVELOPMENTS IN AZERBAIJAN force participation rate was around 34 percent. Overall labor force participation for this age group was equal to percent. 3 In general, it is difficult for this age group to find jobs, which, in turn, results in a lower employment rate than for other age groups in the country. In general, the country has a high proportion of young-rather than mature-working-age people. Talking about labor force participation, it is very important to emphasize that the educational attainment of the population is one of the most important conditions for an effective labor market. Generally, people seek jobs that closely match their education background and experience. However, in a market economy, a degree is not necessarily any guarantee of employment. Additionally, jobs in a market economy are much more diverse than in a command economy. Furthermore, in general, both wages differ between the private and public sectors, and working conditions are not the same in the capital city as in small provincial towns. In a globalized world, one of the main factors determining quality component of the total labor force of each country is the intellectual potential of its society and its rate of enhancement. Regarding the unemployment and educational levels, it should be noted that majority of unemployed young people have secondary general education. In terms of both the unemployed and the labor force, the proportion of people with primary only or no education is very low, and the majority of the labor force has attained or completed secondary education. There are also non-participation and inactivity factors that can have a variety of reasons, such as continuation of education for youth, housekeeping and childcare responsibilities for women, disabilities or low wages. In fact, education plays a very important role in entering the labor market in the country, and higher education is highly significant in increasing the chance of obtaining a job with good wages. On the other hand, the majority of discouraged workers enter the informal sector. Non-participation is predominant among women, who may be discouraged because of family traditions and the mentality that women should perform housekeeping and childcare responsibilities, while men are the main wage earners in their family. Last but not least, it should be noted that inactivity among youngsters is mainly connected with education, while for elderly people it is connected with retirement. For instance, 31.1 percent of inactive men were aged between 15 and 19 years old and 18.2 percent were aged between 20 and 24 years. Meanwhile, 25.7 percent of inactive women were aged between 15 and 19 years. 4 3 The World Bank 4 The State Statistical Committee of the Republic of Azerbaijan 6

9 LABOR MARKET DEVELOPMENTS IN AZERBAIJAN SAM 2. Labor market indicators 2.1 Employment Employment and unemployment represent the most relevant measures not only of the way the labor market functions, but also of the overall economic, institutional and legal policy framework. When the labor market is subject to imbalances and disequilibria, it generates voluntary and involuntary unemployment. TABLE 1: Employment (thousand persons) Economically active population Employed persons in economy State Non-state Source: The State Statistical Committee of the Republic of Azerbaijan. Table 1 shows employment in the country, and one can see that the size of the economically active population and number of employed persons has been growing year-by-year. The number of unemployed persons is not so critical, and it is high among women in general. In this context, it should be noted that the majority of jobless people are not registered at labor offices of the country, and if the discouraged unemployed persons were included then the total unemployment rate could be higher. In fact, inactivity and unemployment rates are higher in urban areas than in rural, and the main reason for this is internal migration from rural areas to big cities (mainly the capital city, Baku) to find high-paying jobs, as well as involvement of rural people in subsistence farming. However, the majority of such people usually engage in informal employment. 7

10 SAM LABOR MARKET DEVELOPMENTS IN AZERBAIJAN TABLE 2: Distribution of employed population by economic activities (thousand persons) Economic activity On economy, total Agriculture, forestry and fishing Mining Manufacturing Electricity, gas and steam production, distribution and supply Water supply; waste treatment and disposal Construction Trade; repair of transport means Transportation and storage Accommodation and food service activities Information and communication Financial and insurance activities Real estate activities Professional, scientific and technical activities Administrative and support service activities Public administration and defense; social security Education Human health and social work activities Art, entertainment and recreation Other service activities Source: State Statistical Committee of Republic of Azerbaijan. The employed population of the country was thousand persons, and the employment level around 95 percent. From Table 2 above, one can see that around 36 percent of the employed population were engaged in agriculture, forestry and fishing. Compared to 2010, we can see noticeable increase in the number of employed people. In cities, percent of employed people were men and the rest, percent, were women. However, in rural areas, 51.4% 8

11 LABOR MARKET DEVELOPMENTS IN AZERBAIJAN SAM percent of the employed population were men and 48.6 percent were women. 5 From a comparison with the numbers for the early 2000s with 2016, it is clear that the proportion of men in cities increased but the proportion of women decreased, while the reverse of this change happened in rural areas. This is a result of the internal migration of men from rural areas to cities. Most of those people lived and worked in rural areas but they moved to work in cities because of high salaries. A review of the distribution of the employed population by economic activities and sex shows that there is remarkable dominance of male employees in sectors such as mining, manufacturing, electricity, gas and steam production, distribution and supply, water supply, waste treatment and disposal, construction, transportation and storage, public administration, and defense and security. However, the dominance of women employees is observed in sectors such as information and communication, education, human health and social work activities, administrative and support service activities, and art, entertainment and recreation. Men take most of the civil service positions. TABLE 3: Number of employees by economic activity in 2016 (in per cent to total and sex) Economic activity Women person % Men person % Sex distribution, in % Women Men Agriculture, forestry and fishing , ,2 20,7 79,3 Mining , ,3 13,3 86,7 Manufacturing , ,7 23,6 76,4 Electricity, gas and steam production, distribution and supply , ,7 11,8 88,2 Water supply; waste treatment and disposal , ,3 32,1 67,9 Construction , ,4 7,2 92,8 Trade; repair of transport means , ,8 24,6 75,4 Transportation and storage , ,6 16,9 83,1 Accommodation and food service activities , ,8 30,5 69,5 Information and communication , ,9 31,1 68,9 Financial and insurance activities , ,9 33,2 66,8 Real estate activities , ,2 42,1 57,9 Professional, scientific and technical activities , ,4 45,8 54,2 Administrative and support service activities , ,0 29,0 71,0 Public administration and defence; social security , ,6 28,7 71,3 5 The State Statistical Committee of the Republic of Azerbaijan 9

12 SAM LABOR MARKET DEVELOPMENTS IN AZERBAIJAN Education , ,1 73,3 26,7 Human health and social work activities , ,4 77,0 23,0 Art, entertainment and recreation , ,4 62,5 37,5 Other service activities , ,3 32,5 67,5 Total , ,0 41,3 58,7 Source: State Statistical Committee of Republic of Azerbaijan. Talking about self-employment, it should be underlined that the proportion of self-employed among the working population increased noticeably starting from From 2000 to 2014, the self-employment level increased by thousand persons, or 57 percent. During the years 2011, 2012 and 2013 growth in the number of self-employed people was slow; however, in previous years from 2000 to 2010 there was significant growth. At the same time, the percentage of the self-employed in total employment made adequate progress, increasing from 16.7 percent in 2000 to 22.1 percent in 2014, 6 and after the economic recession the number of self-employed people started to rise again. Vulnerable employment is defined as the sum of the employment status groups of own-account workers and contributing family workers. They are less likely to have formal work arrangements, and are therefore more likely to lack decent working conditions, adequate social security and voice through effective representation by trade unions and similar organizations. Vulnerable employment is often characterized by inadequate earnings, low productivity and difficult conditions of work that undermine workers fundamental rights. 7 FIGURE 3: Vulnerable Employment Level in Azerbaijan Source: World Bank and own construction. 6 The State Statistical Committee of the Republic of Azerbaijan

13 LABOR MARKET DEVELOPMENTS IN AZERBAIJAN SAM The vulnerable employment level for Azerbaijan has been very high in recent years. According to World Bank data, in 2003, the vulnerable employment level in Azerbaijan was 62.4 percent of total employment, affecting men and women almost equally. Until, 2005, there was no noticeable change in the vulnerable employment data. After 2005, the vulnerable employment level began to decrease due to a fall in the number of men affected; however, the number of women in vulnerable employment has continued to increase year-on-year. In 2006, the vulnerable employment level decreased by 5.9 percent compared to 2003 and stood at 56.5 percent. The same trend was observed in 2007 with the vulnerable employment level decreasing to 53.2 percent affecting 40 percent of men and 65 percent of women. The vulnerable employment level went up to 54.7 percent in 2008 and 56.4 percent in The possible reason for vulnerable employment growth is connected with the high share of employment in the informal sector. Vulnerable workers are less likely to have formal work arrangements and therefore more likely to lack decent working conditions, adequate access to social security and access to effective representation by trade unions or workers collectives. TABLE 4: Distribution of workers working in harmful labor condition by factors influential to manufacture in 2016 Working in conditions not meeting sanitary-hygiene norms In condition of noise Workers in unhealthy labor conditions In condition of vibration In air pollution zone Industry / Including: Mining Manufacturing Including: Manufacturing of oil products Chemical industry Industry of metallurgy Combine and repair of machinery and equipment Electricity, gas and water supply and distribution Water supply; waste treatment and disposal Transport Communication Construction Source: State Statistical Committee of the Republic of Azerbaijan. 11

14 SAM LABOR MARKET DEVELOPMENTS IN AZERBAIJAN In Azerbaijan, the number of workers working in harmful labor conditions is small relative to total employment, but still exists. From Table 4 it is clear that the greater part of those workers are working in the industrial sector. The majority of those workers are working in condition that does not meet sanitary/hygiene norms. Compared to 2013, the total number of employees working in harmful conditions has decreased due to increasing standards and conditions in workplaces. In particular, there was a noticeable decrease in the transportation sector. Most of the workers who work in harmful conditions are male workers. 2.2 Unemployment and the informal sector Touching upon the unemployment issue in the country, it should be noted that the reasons for unemployment could be varied, such as professional qualification, age, education and location. It also differs between men and women, as men and women work in different manufacturing sectors and professions, thus unemployment impacts them in different ways. Unemployed people mainly try to find salaried work instead of starting their own businesses. In this context, one can also underline that unemployed people in the country lack adequate unemployment benefits as well as diverse assistance in terms of training, extensive counseling and professional reorientation. During their period of unemployment, unemployed people usually work in the informal sector to earn a living, and for jobless people the main criterion for accepting job when entering the labor market is the wage factor. Comparison of the unemployment rate in the country in 2003 with that in 2015 illustrates that the unemployment rate dropped from 9.2 percent in 2003 to 4.96 percent in However, with the recent global financial crisis and declining crude oil prices negatively affecting the economy and labor market of the country, unemployment increased to percent in TABLE 5: Unemployment Rate, percent Country 2016 Azerbaijan Total Female Male Youth Source: World Bank and own construction % 5.916% 4.27% % 8 The State Statistical Committee of the Republic of Azerbaijan 9 The World Bank 12

15 LABOR MARKET DEVELOPMENTS IN AZERBAIJAN SAM As Table 5 shows, the unemployment rate is relatively high among age groups and There is a link between unemployment and poverty in the country, and the important point is that the labor force engaged in the agricultural sector in rural areas is poorer than people working in the service sector or industry. In order to increase the employment rate and create new jobs, from 2004 the government began to implement the State program on social-economic development of the regions of the Azerbaijan Republic. In 2014, the government approved continuation of this program for the years years. 10 As a result of implementation of this state program, new job opportunities have opened up in the economy. Noticeable results of the program can be observed in the social sector. In fact, the unemployment rate is also connected with age groups. The country has a young population, with a median age of 29 years. Youth constitutes 2.7 million or 28.1 percent of the population of the country, of whom 52 percent live in urban areas, 48 percent in rural locations, and 49 percent are female. 11 Youth unemployment rates (covering the age groups 15 29) are generally much higher than, sometimes more than double, unemployment rates for all age groups. As for the overall unemployment rate, the youth unemployment rate in Azerbaijan was a serious problem after independence, but it started to decline from the 2000s. High youth unemployment rates reflect, to some degree, the difficulties faced by young people in finding jobs. However, this does not necessarily mean that the group of unemployed persons aged between 15 and 29 is large, as many young people are studying full-time and are therefore neither working nor looking for a job (so they are not part of the labor force, which is used as the denominator for calculating the unemployment rate). Youth unemployment can be characterized as one of the most pressing economic and social problem for the labor market of the country. According to statistics, the youth unemployment rate (15 24) fell from 27 percent in 2000 down to 14 percent in Youth unemployment in Azerbaijan is significantly lower than in Europe. One of the main reasons for the declining youth unemployment rate can be characterized as increased participation in tertiary education. The high unemployment rate among youth compared to general unemployment in 10 Decree of the President of the Republic of Azerbaijan on approving State Program on socio-economic development of regions of the Republic of Azerbaijan for years [Online] Available at: html/2280/attachments/state%20program%20on%20socio-economic%20development%20of%20regions%20of%20 the%20republic%20of%20azerbaijan%20for% %20years.pdf [Accessed 22 June 2017] 11 The State Statistical Committee of the Republic of Azerbaijan 12 The World Bank 13

16 SAM LABOR MARKET DEVELOPMENTS IN AZERBAIJAN the country can be explained by a lack of work experience and relatively high reservation wages. Youth unemployment problem is most challenging for youths who have finished school recently and are trying to find work. Youth unemployment is higher among females than males in general. Youths who cannot obtain places at university after secondary education, mainly male, start to look for jobs, while females who fail to enter to university do not look for work and may get married because of traditional attitudes and mentality. The majority of females who enter the labor market work in the service sector. Male youths without higher education degrees mainly work in the construction sector (informal sector), and it is important to underline that work in this sector is not permanent. After closing or finishing the work, the majority of them become unemployed and looks for new jobs. Unemployment among youth with a university degree is another challenge. There are many university graduates who cannot find work appropriate to their educational background. As a result, those students work in different occupations or change their education background. That is why it is important to coordinate education and labor market requirements in order to achieve positive results. In fact, compared to EU countries, Azerbaijan has a low youth unemployment rate. The unemployment rate in the country is around 14 percent for the young people aged 15 24, compared to 20 percent in the European Union in Because of all the positive developments regarding youth employment, Azerbaijan was included in the UN s list of 10 countries leading on youth employment in the world. Statistics show that unemployment rates among women and men are different in Azerbaijan. Compared to 2010, there has been a decreasing trend in female unemployment and increasing trend in male unemployment. In general, female unemployment is higher than male unemployment because women are more likely to be poor and affected by vulnerable and marginal work than men. In addition, women usually form the majority in jobs with low status and low wages. The shortage of jobs for women can be characterized as insufficient flexible jobs (part-time, flexible working days and week, flexible schedule, work at home, etc.). Touching upon the informal sector, it should be noted that this has specific features: according to the national definition, all persons outside the formal 14

17 LABOR MARKET DEVELOPMENTS IN AZERBAIJAN SAM system of state regulation are considered to belong to the informal system. Informality exists in labor relations and workforce participation. According to the latest ILO employment data, as of October 2009, 407,000 persons held informal jobs in the country, accounting for 26.5 percent of non-agricultural employment. Thus, informal activities have created more jobs over the transitional period than the formal sector, particularly in agriculture, where 97 percent of activity is informal. 13 Other statistics show that shadow economy in the country was more than 50 percent of GDP in Informality is also different between men and women in the country. Specifically, the share of women in the informal sector is higher than that of men. For instance, the majority of women in this sector are mainly own-account traders and producers or casual and subcontract workers. It is also worth noting that the average incomes of both men and women in this sector are lower than those of people who are engaged in the formal sector. 14 Moreover, employment in the informal sector is different according to age group and educational level. In this context, it should be noted that the age group has the highest indicators for informal employment. Lack of education and experience is the determining factor in accepting undeclared work. Informality is also high in rural areas. In general, most of the regions of Azerbaijan have high rate of informality, but especially the regions with a large proportion of agricultural activities. Another important point in the informal sector is the structure of non-agricultural employment. It is worth noting that the main share of workers in this sector is in the low-skilled labor force --those people engaged in different sectors such as small business, drivers, shop-keepers, etc. Informal employment is also high in such sectors as transportation, manufacturing, trade, and construction. The informal sector will be subject to spill-over effects from the formal sector, and the most negative impact of the informal sector can be characterized on state revenues. Recently the government has taken important measures to legalize unreported employment by adopting a new system where employers are required to have an enhanced electronic signature for the registration of labor contracts. Based on new system, the labor contract and its termination are electronic documents of the employer that should be included in the electronic database of the Ministry of Labor and Social Protection of Population. This 13 European Training Foundation, 2011, Labour markets and employability [pdf], Available at: eu/webatt.nsf/0/ ad527498c125797d0052ad32/$file/labour%20markets%20&%20employability.pdf [Accessed March 5, 2017] 14 Ministry of Labour and Social Protection of Population of the Republic of Azerbaijan 15

18 SAM LABOR MARKET DEVELOPMENTS IN AZERBAIJAN measure would allow better formalization of the labor market as well as ensure labor rights. Employers can include and register the notifications mentioned the enhanced electronic signature system via the Electronic government portal ( and via a hotline 142 number. Thus, labor relations do not start with the conclusion of the labor contract, but on the date of registration of notification of the labor contract on the electronic system. As of 1st April 2016, 1,840,486 labor contracts had been registered on the electronic information system (1,256,713 in force, 634,915 modified and 583,773 terminated contracts) Structural economic transformation Employment generation has been a key priority of the government during the period of structural adjustment, which has destabilized traditional employment patterns in Azerbaijan. While around one million and five hundred thousand new jobs have been created since 2003, 16 the proportion of people engaged in the informal sector has increased significantly. The unemployment rate in Azerbaijan was relatively low, at percent in However, it started to increase during the economic recession. The reforms implemented in the country over the last decade have allowed for social and economic stability, and strengthening the socio-economic development trends in the country. In order to improve the labor market of the country, the Republic of Azerbaijan adopted the Employment Strategy of the Republic of Azerbaijan for the years in The main objective of the employment strategy was to ensure the efficient employment of the population by a fuller use of labor resources. As the result of recent market-oriented reforms and structural changes in economy of the country, the share of people employed in the private sector has noticeably increased. Thus, the level of people employed in the non-state sector reached almost 75 percent in The levels of economic activity and employment population observed among the populations of the various economic regions of the Republic of Azerbaijan are diverse. For instance, the level of employment in Daglig Shirvan, Sheki- Zagatalah, Yukhari (Upper) Garabagh and Aran economic zones is higher than the country average. In Nakhchivan and Lenkoran economic zones, however, 15 Ministry of Labour and Social Protection of Population of the Republic of Azerbaijan The State Statistical Committee of the Republic of Azerbaijan 16

19 LABOR MARKET DEVELOPMENTS IN AZERBAIJAN SAM this indicator is lower than the country average. Analysis of economically active, employed and unemployed population by economic zone shows that Aran economic zone is one of the biggest economic zones in the country, excluding Baku city, and 23.2 percent of economically active, 23.6 percent of employed and 19.9 percent of unemployed people have become concentrated in this zone. 18 As of September 2016, around 34,400 unemployed people were registered with state employment authorities. Nevertheless, this is still a very small proportion of total unemployed people. 19 One of the reasons for this is the cases where labor relations between employees and employers are not put into legal frameworks. This, in its turn, jeopardizes the current and future social protection of citizens involved in informal relations. TABLE 6: Distribution of economically active population (2016, de facto unemployed) Sex Economically Including Employment active Unemployment rate, in per population, Employed Unemployed rate, in % cent persons persons Men Women Total Source: The State Statistical Committee of the Republic of Azerbaijan. TABLE 7: Main economic sectors by their value added to GDP and their employment share in 2016 (% in total) Employment share GDP share Service Agriculture Industry Source: The State Statistical Committee of the Republic of Azerbaijan and World Bank 18 Employment Strategy of the Republic of Azerbaijan [pdf], Available at: [Accessed 15 January 2017]

20 SAM LABOR MARKET DEVELOPMENTS IN AZERBAIJAN Generally, the structure of employment by economic sectors is actually fragile in the country. As we can see, services and agriculture sectors are in fact the main sources for employment in the country, and these sectors can be characterized by labor-intensive activities. However, their share of employment is significantly higher than their proportion of value added and GDP. In fact, industry is the only sector in which GDP growth is higher than employment growth, given its technology-intensive nature. The share of agricultural employment is still high, and takes the second position in the occupational structure. Agriculture can be considered as one of the main economic activities of the population. In fact, during the last decade employment in agricultural sector was the main part of the labor force. However, people started to look for other options in labor market such as construction, services or becoming migrant workers for better living conditions. Services represent a large proportion of employment in the country, reaching 49 percent of total employment. Despite the fact that this sector represents the highest share of total employment, the share of GDP of this sector nevertheless comes after that of the industrial sector. In general, the share of services and industry in total employment and their share in GDP are quite high in the country s economy. Employment across the major sectors such as services, agriculture and industry was also affected by the regional disparities across the country. For instance, regional disparity exists between large and small cities, where employment opportunities are mainly in the big cities of the country. The capital city Baku is much more highly developed than other parts of the country, and the main employment opportunities concentrate here, leading to differences in employment rates. The realization of economic reforms, especially privatization of enterprises and organizations in state ownership, resulted in significant changes in the distribution of employment by state and non-state sectors. In 2016, the distribution was around 25 percent state employees and 75 percent nonstate employees. This change occurred because government policies towards stimulating the development of the private sector and small businesses have strengthened during recent years. The majority of non-state employees work in the private sector and around 24 percent are self-employed persons. Other small proportions of non-state employees were religious persons, employees who work in enterprises with foreign investment and joint ventures, and municipal workers. One of the main elements influencing the wage level is labor productivity, which is low in the country, and in addition there are serious salary differences 18

21 LABOR MARKET DEVELOPMENTS IN AZERBAIJAN SAM between the oil and non-oil sectors. Labor productivity and contribution of the labor factor to the economy should be one of the main indicators of economic development of the country. For example, according to International Labor Organization, the country mainly suffers from low productivity in the agricultural sector. Despite high growth in the energy and service sectors, unit labor cost is higher than overall productivity. For instance, according to World Bank data, value added in agriculture (constant LCU) in 2015 was billion USD while this indicator in industry was billion USD. 20 Research shows that, especially in the agricultural and industrial sectors, real wages grow faster than labor productivity. This makes these sectors less competitive, and prevents dynamic development. In recent years rapid growth of GDP in Azerbaijan has had a significant positive impact on labor productivity. As a result, labor productivity increased from 2.7 to 5.6 US dollars between the years 2006 and 2015 (employer/per hour). This level of labor productivity is one quarter that of the countries of the European Union and half that of Turkey and Russia. The average growth level of labor productivity between 2006 and 2015 was 12 percent. There is great divergence in the labor productivity of different economic sectors. In 2015, labor productivity level in the mining industry was 185 US dollars, in agriculture 1 US dollar, in manufacturing industry 6.3 US dollars, and in the construction sector 9.9 US dollars. The reasons behind the low productivity level in agriculture are the seasonal character of this sector and the inability to provide full employment. 21 If we talk about future trends, it should be underlined that the analysis of the labor market indicates that the structure of the labor market of the country has both positive and negative aspects. The positive ones could be characterized as high labor force participation rate, a low unemployment rate, flexibility, etc. The negative ones are a large share of self-employment, a shift towards low-skilled occupations as well as slow labor productivity growth. In the future the key priority is to open new production spheres and create new jobs in the non-oil sectors. The government should transit the economy from energy-based to an innovation-based economic model, where the service and ICT sectors will intensify the creation of new jobs, especially in skill-intensive occupations. It is worth noting higher wage growth relative to slow labor productivity growth in the industrial and agricultural sectors. This makes these sectors less Ministry of Labor and Social Protection of the Population 19

22 SAM LABOR MARKET DEVELOPMENTS IN AZERBAIJAN competitive and unattractive for investment. Therefore, a key aim is to develop these sectors, introducing innovative practices and attracting investment over the coming years. Furthermore, development of tourism sector is very high on the agenda. This sector will boost the non-oil economy and increase demand in the labor market. The planned new strategy for tourism may turn the country into a favorite destination for business, leisure and health tourism. It should be mentioned that over one million tourists visited the country in the first half of 2017, and the revenues from this sector grew to over one billion USD in Gender and Employment When Azerbaijan declared its independence in 1918 as the Azerbaijan Democratic Republic, the country became the first democratic parliamentary republic in the Muslim world, and ADR s parliament granted suffrage to women, making the country the first Muslim nation to grant women equal political rights with men. After restoration of its independence in 1991, Azerbaijan began to realize its sovereign rights and conduct independent policy in all spheres. According to the State Statistic Committee, of the total population, 4,891.2 thousand (49.9 percent) were men and 4,918.8 thousand (50.1 percent) were women. One of the most important indicators of economic development is the gender situation in the labor market, characterized by the gender gap in economic activity. Official statistics for 2016 show that total economically active population of the country was equal to 5,012.7 thousand persons, of whom about percent or 2,439.5 thousand were women. 22 In Azerbaijani society, men are mainly expected to be employed and take care of the family. However, as the economic situation changes, the market economy is enhancing female labor force participation. Women are mainly engaged in the service, agricultural and educational sectors, with the main jobs for the female labor force being teachers and doctors. In contrast, men mainly work in construction, heavy industry, in the army, police, etc. Put simply, there are two types of jobs in Azerbaijani society, characterized as light and heavy jobs. These jobs can be typified as male and female jobs, and the female labor force of the country is mainly engaged in light jobs in the educational, service and health sectors. 22 The State Statistical Committee of the Republic of Azerbaijan 20

23 LABOR MARKET DEVELOPMENTS IN AZERBAIJAN SAM TABLE 8: Average monthly nominal wages of employees by economic activity in 2016 Economic activity Average monthly wages, manat Women Average monthly wages of women as percent to average monthly wage of men Share of women in total employees, in % Total 316,8 629,6 50,3 41,3 Agriculture, forestry and fishing 269,9 249,5 108,2 20,7 Mining 1528,2 3002,3 50,9 13,3 Manufacturing 405,3 585,8 69,2 23,6 Electricity, gas and steam production, distribution and supply Water supply; waste treatment and disposal Men 394,0 519,2 75,9 11,8 228,9 365,2 62,7 32,1 Construction 480,9 838,9 57,3 7,2 Trade; repair of transport means 321,7 402,7 79,9 24,6 Transportation and storage 427,8 695,5 61,5 16,9 Accommodation and food service activities 417,3 503,6 82,9 30,5 Information and communication 627,8 849,1 73,9 31,1 Financial and insurance activities 914,3 1385,4 66,0 33,2 Real estate activities 253,3 397,8 63,7 42,1 Professional, scientific and technical activities Administrative and support service activities Public administration and defence; social security 427,3 1270,6 33,6 45,8 360,9 616,4 58,5 29,0 408,4 550,2 74,2 28,7 Education 289,1 354,6 81,5 73,3 Human health and social work activities 196,7 277,2 71,0 77,0 Art, entertainment and recreation 212,9 336,9 63,2 62,5 Other service activities 353,4 527,4 67,0 32,5 Source: The State Statistical Committee of the Republic of Azerbaijan The gender gap in income is a global phenomenon. According to government official women s incomes in Azerbaijan were around 52 percent lower than 21

24 SAM LABOR MARKET DEVELOPMENTS IN AZERBAIJAN men s incomes. It is worth noting that the gender gap in salaries is not significantly related to the professional level of women. It is more closely related to inter-sectoral salary differences. Still, almost all female employment sectors have a lower average wage. Disproportionate concentration of women in the so-called female sectors, such as education and healthcare, breeds a vicious cycle of low pay and unattractiveness for men, resulting in still higher feminization. 23 According to World Economic Forum Global Gender Gap Index 2016, Azerbaijan was ranked 86 out of 144 countries. In Azerbaijan, differences between male and female participation rates have narrowed, but still remain significant, especially in rural areas. There is also gap in the sphere of business opportunities for men and women. Because of mentality as well as lack of knowledge and experience, women are not engaged actively in business and private sector, and they may face difficulties in obtaining credits. The number of male entrepreneurs is higher than female entrepreneurs. Women entrepreneurs are mainly engaged in trade and tourism. In recent years the country has achieved a significant improvement in its ranking due to a narrowing gender gap in earned income; wage equality; legislators, senior officials and managers; and women parliamentarians. However, it remains among the lowest-ranked countries in the world on the Health and Survival subindex (138). 24 In order to improve the situation the government has ratified several important international conventions such as the UN Convention on Political Rights of Women (1992), UN Convention on Elimination of All Forms of Discrimination against Women (1995), ILO Convention on Equal Opportunities and Equal Treatment for Men and Women (2011), etc. Additionally, it introduced relevant laws and plans to strengthen and promote gender equality and empowerment of women. Important national legislation in this sphere includes the following; Implementation of Women Policy (2000). National Plan of Action on Women s Issues of the Republic of Azerbaijan for (2000). The National Plan of Action was elaborated on the basis of the Beijing Strategy, taking into consideration national priorities. Gender Equality Act (2006). Combating Domestic Violence Amendments to the Family Code to increase age of consent for marriage to 18 for both men and women (2011)

25 LABOR MARKET DEVELOPMENTS IN AZERBAIJAN SAM A Decree of the President, On state women policy of the Republic of Azerbaijan, envisages ensuring equality between women and men in all state bodies, providing employment of internally displaced persons and refugee women in accordance with relevant state programs, including revision of legislation from a gender point of view. The important parts of the National Plan of Action cover issues such as: women and economics; women and education; women and health; women and violence; women and armed conflicts; refugee and internally displaced persons; women and mass media; the girl child; participation of women in state structures and in decision-making; and development of contacts with international women s organizations. TABLE 9: Number of women employees by economic activities in 2016 (persons) Economic activity 2016 On economy, total Agriculture, forestry and fishing 9800 Mining 4518 Manufacturing Electricity, gas and steam production, distribution and supply 3222 Water supply; waste treatment and disposal 9812 Construction 6456 Trade; repair of transport means Transportation and storage Accommodation and food service activities 6972 Information and communication 7757 Financial and insurance activities 8278 Real estate activities 7904 Professional, scientific and technical activities Administrative and support service activities 7170 Public administration and defense; social security Education Human health and social work activities Art, entertainment and recreation Other service activities 5494 Source: The State Statistical Committee of the Republic of Azerbaijan. 23

26 SAM LABOR MARKET DEVELOPMENTS IN AZERBAIJAN As the table above shows, different proportions of women are engaged in different sectors of the economy. As mentioned above, women are mainly engaged in the educational, health and entertainment sectors. For instance, in 2016 the sex distribution in the educational sector was 73 percent women and 27 percent men. Briefly, when we look at labor market outcomes of the country, then we can see some gender disparities, especially in the sphere of business opportunities for men and women. Because of mentality as well as lack of knowledge and experience, women are not actively engaged in business and the private sector, and they may face difficulties in obtaining credit. Additionally, female unemployment is higher than male unemployment, and there is a clear differentiation between male and female labor market engagement. In the end, it is very important to emphasize that education plays a crucial role both for men and women, as the better educated are men or women, the greater the chance of being employed. Improving the gender structure of employment is very important for the country s labor market. In the last two decades Azerbaijan has achieved significant progress in the promotion of gender equality by establishing the key elements of a legal and institutional framework. In 2000 the country signed the Millennium Declaration, accepting a political obligation to achieve the Millennium Development Goals, and gender equality is among these goals. It is generally known that achieving parity between women and men offers very significant economic and social benefits. As we know, women contribute substantially to economic welfare, doing large amounts of unpaid work such as housekeeping, child-rearing etc., which often remain unseen and unaccounted for in GDP. To improve equality among men and women will improve the effectiveness of the mechanism for the redistribution of male and female workers across all sectors of the economy. In fact, this will also increase competitiveness across all economic sectors as well as raise the effectiveness of sectors which are traditionally seen as men s work in the country. In the end, education plays an important role in women s labor market participation. Lack of education limits the prospects of women in the labor market and also decreases family income. Therefore, improvements in women s education will contribute to more active labor market participation and provide better employment opportunities. In the end, to improve the gender structure of employment, one can advise the followings; To reform of pension system, child support and other social benefits that could improve the situation. Flexible working hours for women with small children. Improvement in education and information exchanges among female entrepreneurs; and 24

27 LABOR MARKET DEVELOPMENTS IN AZERBAIJAN SAM More engagement of female labor force in the works that considered traditionally as men s work. All these measures to improve equality among men and women will improve effectiveness of mechanism of the redistribution of male and female workers across sectors of economy. In fact, this will also increase competitiveness across all economic sectors as well as raise the effectiveness of sectors which traditionally are seen as men s work in the country. In the end, education plays an important role in women s labor market participation. Lack of education limits prospects of women in labor market as well as decreases family income. Therefore, improvements in women s education will contribute to more active labor market participation and provide better employment opportunity. 5. Labor Migration & Remittances Touching upon the migration issue, it should be noted that migration in the country is connected with the problems of both conflict and labor migration. The collapse of the Soviet Union caused a conflict between Armenia and Azerbaijan over Nagorno-Karabakh. As a result of the conflict more than one million Azerbaijani people had to leave their homeland, which was occupied by Armenian forces, and consequently became refugees and internally displaced persons. The main part of these people were rural workers, and as a result of such internal migration, around 250,000 job positions were lost in the occupied territories of the Republic of Azerbaijan. One million refugees and internally displaced persons caused a serious problem for the labor market. Poverty and unemployment motivated people to leave the country in search of jobs in neighboring countries, mainly in the Russian Federation and Turkey. A law dated October 17, 2014, On the amendments to Migration Code of the Republic of Azerbaijan, states that foreigners and stateless persons temporarily staying in the Republic of Azerbaijan more than ten days should become registered at their place of stay. According to amendments to the Migration Code, foreigners and stateless persons arriving in the country are given relevant notification leaflets related to registration at their place of stay in Azerbaijani, Russian and English at state border checkpoints. Also, according to a Law dated December 16, 2014, several addendums and amendments have been made to the Migration Code. A new chapter, Rule on placement and keeping foreigners and stateless persons in Detention Centers for Illegal Migrants, was added to the Migration Code with this law Efficiency of implementing migration policy is increased [Online] Available at: d=5007&lang=en& [Accessed 1 March 2017] 25

28 SAM LABOR MARKET DEVELOPMENTS IN AZERBAIJAN FIGURE 4: Departures from Azerbaijan for permanent residence (2016, %) Source: The State Statistical Committee of the Republic of Azerbaijan. Figure 4 above illustrates that people from the country went mainly to Russia, Kazakhstan and Turkey. According to the State Statistics Committee, more than 440,000 people had left the country since 1990 but outflows have stabilized since 2001 with higher levels of economic growth. The majority of Azerbaijani migrants are in Russia. Most of these people had to leave the country because of the socioeconomic difficulties of the early independence years. However, as a result of the recent economic crisis, the process again became a reality. FIGURE 5: Arrivals to Azerbaijan for permanent residence (2016, %) Source: The State Statistical Committee of the Republic of Azerbaijan 26