Macroeconomics analysis of unemployment and its causes in selected economy - Bosnia and Herzegovina; Including and real-life example.

1. Unemployment And Its Causes In
Selected Economy – Bosnia And
Mirna Babović
Herzegovina

2. Unemployment
• Unemployment represents one of three major
indicatiors of economic growth
• Types of Unemployment: Cyclical, Demand
deficient unemployment, Structural, Regional,
Classical, Seasonal, Frictional, Voluntary

3. Bosnia and Herzegovina
• independent from the former Yugoslavia
on March, 3 1992

4. Bosnia and Herzegovina
• Current entity structure is:
• Federation of Bosnia and Herzegovina is divided
to ten cantons. Cantons are divided to
municipalities. FB&H has 79 municipalities.
• Republic of Srpska has 62 municipalities.
• City of Brčko is a separate administrative unit –
District.
• Entity structure – high administration costs

5. Macroeconomic Instruments
in Bosnia and Herzegovina
 Fiscal Policy - 2004 state level of fiscal
authority
 Monetary Policy and Foreign Exchange
Policy - CB prevented from actively
influencing the money supply, except by
setting mandatory reserves
-KM exchange rate is fixed and
unchangingno room for using exchange
rate policy

6. Unemployment in Bosnia and
Herzegovina
• Average net wage = 826 KM
(approximately 412 Euros)
• January 2013  550 000 unemployed
persons
• newest unemployment rate = 45.99 %.

7. 550 000 unemployed persons

8. Comparison

9. Labor Force Participation
• Female participation in labor force was
35,2 % in 2012, while male participation
was 58,6%.

10. Youth Unemployment
57,5

11. Causes Of Unemployment In
Bosnia And Herzegovina
Gray Economy (Informal Economy)
•post-war period
•generating income, savings on income
taxes and social security contributions
•real estate, construction, commerce,
tourism, tobacco and agriculture
•2009 unemploymnt rate including informal
economy was 18%-22%

12. Causes Of Unemployment In
Bosnia And Herzegovina
Recent War (1992-1995)
•process of recovering
•export performances failed to meet market
needs
•gray economy
•major institutions and factories destroyed
•conflicts

13. Causes Of Unemployment In
Bosnia And Herzegovina
Poor Education System
•former Yugoslavian socialism system
•ranked 98th country in the world by HDI
•not fully adjusted to meet market needs

14. Example:
Statistical data from 2011 are familiar. Natural rate of
unemployment is 42,5%. Potential output ia 1100 mil.
•
•
•
•
•
Calculate the IS curve and actual rate of unemployment.
C=400 mil i=7.48%
c=0.6
I=300 mil
A=725 mil
t=0.17
G=5 mil
b=30
IS: Y=α(A-bi)
α=?
α =1/1-c(1-t)= 1.96
•
•
•
•
Y= 1.96 * (725 – 30*7.48)
Y= 938 mil
i=0  Y=1421
Y=0  i=24.16

15. • μ= μ* - φ * (Y/Y* * 100 – 100)
•
•
•
•
μ= 42.5 – 0.17 * (938/1100 * 100 – 100)
μ= 42.5 – 0.17 * (85.27 – 100)
μ= 42.5 – 0.17 * (-14.73)
μ= 42.5 + 2.5041
• μ= 45.0041
Today, actual unemployment is 45.0041%.

16. Later in 2011, in order to reduce
unemployment, investments increased by 30
mil.
ΔI = 30 mil
•A2= 725 + 30 = 755 mil
•Y= 1.96 * (755 – 30*7.48)
•Y= 1040 mil
•μ= 42.5 – 0.17 * (1040/1100 * 100 – 100)
•μ= 42.5 – 0.17 * (-5.45)
•μ= 42.5 + 0.927
•μ= 43.43 %

17. Graphical presentation