Georgian Labor Market Setup

After the collapse of the Soviet Union, Georgia experienced a rapid decline in national economy, the appearance of an import oriented a trade policy, limited potential to increase exports and a flourishing shadow economy. Underemployment, hidden and disguised unemployment, and salaries below the minimum subsistence level were the problems that Georgian labor market faced. At the first stage of transition great hopes were pinned on the privatization process. It was believed that it would facilitate appearance of new enterprises, as well as restructuring of the existing ones. As a result this would create new employment opportunities and reduce large scales of unemployment. However it turned out that all those hopes were unfounded. Contrary to expectations, a significant number of existing enterprises were closed down and liquidated, because either these firms were unable to meet modified demand and participate in the supply-side adjustment for the economy, or simply the new owners found it more profitable to sell out assets of the company than to continue operating on the market.

During the study period a large number of the working wage individuals were underemployed, or unemployed; however the registered unemployment rate was generally similar to that of other transitional economies. Figure 1 shows the registered unemployment rates of Georgian regions across years. The graph shows that the unemployment rate recorded in Tbilisi (where roughly one-third of the country’s population resided) is twice [or even more in some cases] as large as the same figure from the other regions. Since Tbilisi holds large weight in the calculation of total unemployment level, it strongly influences the countrywide rate. The logical explanation of such a large concentration of labor force in one particular area lies behind the enormous internal migration of economically active part of population to Tbilisi in the mid-nineties with the hope of escaping widespread unemployment in the regions. Since the labor force was heavily concentrated in Tbilisi, the unemployment level grew in this city, while other regions experienced much lower unemployment rates due to large number of self-employed and economically inactive people in the local population. In addition, the rural population could register as unemployed only at the nearest regional center/town that was often quite far from the actual place of residence and this created certain inconvenience for the people. Since the unemployment benefits were low and number of vacancies few, lower regional unemployment levels in Figure 1 may simply reflect the fact that under these circumstances it was hardly worth registering as unemployed.