Photo: Rudolf Baranovič - photo pictures of life around us (2020)

Introduction

Unemployment has been with us throughout and it is highly likely that we will continue to encounter it. It is in essence a natural part of the economy of every country. In this contribution, we will focus on defining what unemployment actually is, what place it has in the labor market, how we fight it, and in the end, on what impact the current crisis situation caused by the Covid-19 pandemic had on unemployment. In this contribution, we focus on the analysis and summary of current theoretical knowledge on unemployment with a view to the near future.

Unemployment

Unemployment is a phenomenon that was present in our past and will likely be present in the future in different forms. Unemployment as such occurs at the moment when a person actively seeking employment cannot find a place for themselves on the labor market. In its essence, it forms one of the key indicators signaling the current inability of workers to quickly obtain productive paid work that contributes to the productive output of the economy. From a practical perspective, one could say that a higher number of unemployed means reduced economic production. Unlike utilized capital, unemployed people simply need to maintain at least subsistence during unemployment. This subsequently means that the economy, with high unemployment, has lower production without a proportionate decline in the demand for basic consumption coverage. Persisting high unemployment represents threatening problems in the economy that can even lead to social and even political shocks. On the other hand, low unemployment can mean that the economy is producing to full capacity, based on which production can be maximized. On this basis, living standards may subsequently rise. In practical terms, however, extremely low unemployment can, in certain circumstances, be a warning signal of an overheating economy, inflationary pressures, and strict conditions for firms that need additional workers. (1)

Unemployment as such can have very diverse causes. From a theoretical point of view, one could say that unemployment usually arises in an imbalanced state of the labor market, when demand for positions exceeds the supply of jobs in a particular region or country. (2)

Likewise, among the classic causes of unemployment we also include the following causes:

  • Low labor mobility and regional differences in unemployment.
  • Demotivating, uninteresting, and low-paid work offered.
  • Relatively high tax and social contribution burdens.
  • Illegal employment, which is currently only minimally controlled. (3)

Work can realistically be considered the most important production factor. In practice, without work even the richest natural resources and the most ingenious capital assets would remain dead things with no value. (4) Equally important is the labor market, which primarily concerns the supply and demand for labor. In this case, employees represent supply and employers demand. The labor market is a core part of every economy and is closely linked with the markets for capital, goods, and services. (5)

We can view the labor market from a macroeconomic and microeconomic perspective. On the basis of macroeconomic theory, wage growth lags productivity growth, which suggests that the labor supply has outpaced demand. If that happens, wages will fall because employees compete for a relatively limited number of jobs, while employers can choose from many applicants for their companies. Conversely, if supply exceeds demand, pressure on wages rises, since bargaining power in this case lies with employees. In this case, it is more likely that they will have a chance to move to a job with higher pay, while employers compete for labor. Microeconomic theory then analyzes the supply and demand for labor at the level of individual firms and workers. This perspective covers the number of hours during which an employee is willing to work for a certain wage. From a practical point of view, one could say that no worker will work for free. (5)

Labor market policy is a system through which, in practice, unemployed people should be helped to enter available jobs on the labor market. In reality, not all people who are capable of being employed enter the labor market. Some individuals stay out of the labor market voluntarily, because state and private support is sufficient to fully maintain their standard of living. We speak of persons who are not economically active, such as chronic patients or pensioners. These people receive, through various benefits and allowances, the financial means necessary for their survival. This part of the population touches the labor market only in an extremely limited way. (6)

If we look at a specific example of the Slovak Republic, one could say that over the course of 2019 the unemployment rate fell to its historical minimum. In November of that year, the registered unemployment rate in the national economy was at 4.92 percent. Compared to the same month in 2018, it fell by 0.34 percentage points. The labor market was therefore relatively tight, and the Slovak economy was reaching the level of natural unemployment. A significant share of the unemployed in this period consisted of long-term unemployed people and structural unemployment, which is a longer-lasting and persistent problem mainly in certain selected segments of the labor market. This state, in which unemployment is low at the country level, actively contributed to the rise in wage costs during the year. In this period, employers had to literally compete for employees, also through offering higher wages. (7)

Compared with this positive situation, it is necessary to point out that not only the Slovak economy was hit by a hard blow in the form of the Covid-19 pandemic. The pandemic negatively affected Slovak economic performance. The very downturn of the economy and employment places the Slovak Republic among the most affected countries in the European Union. Due to forced restrictions on business activity and a decline in consumer demand from customers, many employers were forced to cut costs, which often also manifested itself through layoffs. According to data from the Labor, Social Affairs, and Family Office, in April 2020 the registered unemployment rate was increasing at the fastest historical pace, and this trend continued in the following months. In June 2020, the unemployment rate reached as high as 8.2 percent, representing almost double the number of unemployed compared to the end of 2019. (8)

If we focus our attention on combating unemployment even in this difficult period, it is appropriate to point to the options available at the international level. The European Union countries have set a set of common goals and employment policy objectives to fight unemployment and create more jobs across the European Union. This policy is generally known as the European Employment Strategy. This strategy began to be applied actively during 1997 and also forms part of the Europe 2020 strategy, which gives us an overall overview of what the European Union should achieve by 2020 in various areas, including education and the fight against climate change. In this case, a reference framework is used for activities at the EU level, national level, and also regional level. Through this strategy it was set to achieve by 2020 an employment rate of people aged 20 to 64 at 75 percent. Without the outbreak of the pandemic, the Slovak Republic would have had a realistic chance of approaching this target. (9)

We are currently at the beginning of a new programming period of EU funds, which gives us a valuable opportunity to use the funds provided by the European Union to improve the currently negative situation regarding employment in the Slovak population. In this current programming period, seven funds are defined, each of which to a greater or lesser extent also addresses the issue of reducing unemployment. Most beneficial in this regard should be the European Social Fund Plus, which is primarily designed to improve the social situation of residents of individual member states of the European Union. We are at the beginning of this period set for the years 2021 to 2027. It is in our hands how we use the multibillion-euro package provided by the European Union to deal with the social problems that are still persisting. This is a unique opportunity to contribute to Slovakia’s recovery from the current pandemic and to again shift toward low unemployment across the entire country. (10)

Conclusion

Currently we are facing the sharpest increase in unemployment that we have ever encountered. The continued pandemic situation is dealing Slovakia’s economy a hard blow, which we will have to deal with. In this paper, we described the basic premises of unemployment, while briefly summarizing the pandemic’s impact on the labor market and unemployment development in the Slovak Republic. At the same time, we also described one of several options currently available to us in the fight against unemployment. The new EU programming period for 2021–2027 gives us a practical chance to use opportunities to recover from the current declines in employment, also through support from the European Union. How we approach this opportunity is up to us and the steps we decide to take in the coming months and years. We should not neglect this opportunity, but rather make the most of it and use it to our advantage to the maximum possible extent.

Author: PhDr. Tímea Csikósová, DiS The author is a doctoral student at the University of Health and Social Work of St. Elisabeth in Bratislava.

References:

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