Could private job services help address the unemployment challenge in Bosnia and Herzegovina?

Despite recent stability in economic growth in Bosnia and Herzegovina, with 3.2% growth projected for 2018, the country continues to experience an elevated level of unemployment, especially among young people.

The country’s unemployment rate is 18.4% overall, and 38.8% among youth aged 15 to 24 years. Furthermore, unemployment among young women, at 45.5%, is far more severe than among young men, at 35.4%.

To help address these alarming statistics, the governments in Bosnia and Herzegovina are investing substantial resources in promoting employment opportunities. The Federal Employment Institute in the Federation of Bosnia and Herzegovina (FBH) and the employment bureaus in Republika Srpska (RS) offer a wide arrange of direct services to employers and jobseekers, and spent a total of which 28 million BAM ($16.6 million) in FBH and 8.7 million BAM ($5.2 million) in RS in 2018.

These services comprise mostly job intermediation, such as counseling or job matching, and financial incentives to employers when they hire registered unemployed people. In FBH, financial incentives have supported about 18,000 jobseekers and at least 4,000 employers per year. But given the magnitude and persistence of the unemployment problem, there must be other, more effective approaches that could be deployed to complement ongoing practices.

One such approach is outsourcing selected employment services to private job brokers.

Many high-income countries such as the UK, USA, Denmark, Sweden, Germany, and Australia now rely on private employment agencies to provide services to jobseekers. This policy option has not yet been used in Bosnia and Herzegovina—or indeed in any other Western Balkan country.

Private provision of employment services was introduced in the UK in late 1970s and throughout the 1980s as a response to overburdened public employment services that couldn’t reduce long-term unemployment by offering traditional employment services.

Public employment services (PES) can outsource specific labor market policies to private agencies. PES can contract out technical training (from vocational training schools), technical training in combination with on-the-job training (requesting the partnership of education institutions and employers), or simply job intermediation. Such services are usually provided to specific groups such as youth, long-term unemployed, or women, for example. Hence, private service providers are required to offer solutions that are tailored to the needs of a specific group, as well as the needs of employers.

There are several reasons why outsourcing certain services to private employer service agencies could help tackle the unemployment challenge in Bosnia and Herzegovina.

First of all, public provision of services is seriously constrained. Employment bureaus in both entities are overwhelmed – the ratio of jobseekers to counselors is 1,200 to one, while for private job broker firms varies between 80 and 120 cases. The country should therefore shrink the public sector and reallocate staff to positions where they could be more productive and effective.

Secondly, Bosnia and Herzegovina has an incipient market of job intermediation. There are at least four active firms that provide job intermediation, and which serve the high-end of the labor market – for example, foreign firms seeking to establish new production plants, large firms which outsource (some of) their HR services, and specialized hiring of high-skilled workers.

However, these firms are not yet serving the low-end of the labor market: low-skilled and long-term unemployed who struggle to enter or come back into labor market. The main reason is that it is not considered profitable and firms have not been offered the right incentives to take on this challenge.

Thirdly, public employment services need to cover a wider range of issues and provide support more quickly. Out-migration of youth is of increasing concern, as well as the increasing number of refugees. As technology advances and automation continues to spread worldwide, many workers in Bosnia and Herzegovina will need to retrain. In this context, PES that can quickly react to changing needs and partner with private providers can be critical to success.

The World Bank Group and the Swedish International Development Cooperation Agency (Sida) have partnered together with the objective of promoting cooperation between public and private employment agencies – the goal is to maximize the impact of existing resources to create more effective and sustainable solutions to the challenge of unemployment.

Over the coming months, the Bank and SIDA will work closely with public and private employment providers to provide employment services to youth aged 18 to 30. Young men and women who have completed secondary education will be invited to receive counseling and job matching services by private employment services providers. Through this pilot activity, the organizations will learn if contracting out is an effective policy option in Bosnia and Herzegovina. Stay tuned to find out more, as we share the progress of this pilot activity.

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