Location: Georgia
Removing Obstacles to Gender Equality and Women’s Economic Empowerment – What Can Policy Makers Learn from Global Research on Gender Economics?
On November 15-16, 2019, the FREE Network and the ISET Policy Institute organized and conducted an international gender economics conference in Tbilisi, Georgia. The conference was organized as part of the FROGEE initiative – the Forum for Research on Gender Economics – supported by the Swedish International Development Agency (SIDA) and coordinated by the Stockholm Institute of Transition Economics (SITE). The conference brought together researchers, policymakers, and the broader development community to discuss obstacles to gender equality and women’s economic empowerment, as well as policies to remove existing constraints, with a particular focus on Eastern Europe and Emerging Economies. This policy brief provides an overview of the main takeaways from the presentations, with a special focus on policy-relevant lessons.
Introduction
In November 2019, Tbilisi welcomed its first international academic conference on gender economics, “Removing Obstacles to Gender Equality and Women’s Economic Empowerment”. The conference focused on the state of economic policy and gender issues around the world and more specifically in the ECA (Europe and Central Asia) region. The opening remarks were offered by two prominent keynote speakers – Dr. Caren Grown, Senior Director for Gender at the World Bank Group, Washington D.C, and Dr. Shahra Razavi, Chief of Research and Data at UN Women HQ in New York. The key addresses offered a global perspective on the current state of gender equality and progress made during the last 20 years. The global overview was followed by a policy panel discussion featuring prominent members of the policy-making community in Georgia. The panel participants reflected on how various policies have impacted gender (in)equality in the South Caucasus and in Georgia in particular. Later in the day, plenary presentations offered a preview of the South Caucasus Gender Equality Index, which is being developed by the ISET Policy Institute, and new research in gender economics done by academics in Georgia, Armenia, Belarus and Sweden.
The second day of the conference showcased research conducted by academics from over 15 countries covering 4 continents. It presented a range of diverse topics in gender economics, including, most prominently the links between childcare policies and labor supply decisions of women, female labor force participation (LFP) and happiness, evolving family structure and gender-selection preferences, the impact of economic, financial and public policies on women’s empowerment, the male-female earnings gap and gender aspects of international trade.
Below, we summarize the results and policy lessons that emerge from the body of work presented at the conference.
Gender Equality Progress in the ECA Region and Worldwide: Key Takeaways
First, as recent global data shows, the progress in women’s access to resources, in particular their access to the labor market, has on average stalled worldwide in the last 20 years. The labor market participation rate of women in 2018 stood at 63% globally, which is largely the same as in 1998, with some notable progress observed only in Latin America and the Caribbean (increase from 57% to 67% between 1998 and 2018), Australia and New Zealand (70 to 79%), as well as Northern Africa and West Asia (29 to 33%). The labor force participation gap between men and women is most pronounced for women who are married or in unions (44% gap, as opposed to 20% for single/never married or 17.9% for divorced/separated women).
Second, the ratio of time spent on unpaid care work by females was about 3-4 times that of males in most countries in the world, with some notable outliers: 11 times in Pakistan, 10 times in Cambodia and 9 times in Egypt. Only in Australia and New Zealand, the ratio of female to male time spent on unpaid work was slightly below 2. Thus, around the world, family responsibilities and unpaid work at home have clearly disproportionately burdened women, potentially preventing them from having an independent source of labor income, and generally weakening their financial position and bargaining power within the family unit. The recent UN Women report on Families in the Changing World (2019) argues for implementing a comprehensive package of family and women-friendly policy measures, which would include, among others, universal childhood education and care, universal healthcare coverage, long-term care for the elderly, etc. Such a comprehensive package would cost between 2-4% of GDP for most countries covered by the study. At the same time, the report argues that it would generate jobs, new investments and be a sizeable source of new tax revenue to the economies. Hence, the costs of such a program would be partially offset by the economic and tax benefits of formalizing the informal care economy. The study also details the ways in which countries could mobilize resources to pay for such packages, including improving tax collection, eliminating illicit financial flows, and leveraging aid and transfers.
For the South Caucasus in particular, the state of gender equality has not systematically been tracked until now. While there exists a number of thematic studies, surveys and narratives, as well as a more general Gender Inequality Index (GII) compiled by UNDP for all countries, a deeper systematic approach has recently been pioneered by the ISET Policy Institute, which started the ambitious project of developing a Gender Equality Index for the South Caucasus and, going forward, for the broader region of transition economies. The methodology behind the index is similar to the one adopted by the European Institute for Gender Equality, which tracks the Gender Equality Index for 28 European countries across a number of dimensions. Obviously, issues of data availability make it more challenging to build such an index in the context of transition economies. Thus, ISET-PI is working to construct some of the measures for the transition economies, using country-level data and household-level databases.
Childcare Policies and Labor Supply
One of the key messages emerging from the academic research in the area of childcare policies and labor supply was that gender-focused social policies need to be crafted carefully, with a focus on the binding constraints of the specific country context. A paper by Vardan Baghdasaryan and Gayane Barseghyan looked at how child-care service availability (affordability) affected the female labor force participation on the intensive and extensive margins in Armenia. The stage for a natural experiment in economic policy was set at the time when the Municipality of Yerevan unexpectedly decided to abolish childcare services fees (roughly 15% of average wage). The researchers hypothesized that such an intervention would have resulted in increased female LFP, as was the case in other (mostly developed) regions and countries around the world (e.g. Quebec in Canada). In the context of Armenia, however, the authors observe that there was no significant effect on female LFP rate on the extensive margin, meaning there was no evidence of inactive women entering the labor force. One possible explanation is that in the context of a developing country such as Armenia, the limiting factor to female participation in the labor force is the lack of market demand for the skills profile of non-active mothers. In such an environment, as the authors conclude, the monetary incentives do not suffice to lift the binding constraint on female LFP.
Yolanda Pena-Boquete presented a study on the case of Australia which analyzed how the labor hours and LFP of both women and men in the family are affected when either the mother’s or the father’s wages increase or when the price of childcare changes. The study finds that the mothers’ working hours respond positively and much stronger to a change in hourly wage than the fathers’. The policy implication is that an increase in mothers’ hourly wage would potentially result in a significant increase in their working hours and labor force participation. The wage effect on women’s working hours and LFP is much more pronounced even compared to the scenario when childcare prices decline.
Overall, the studies in this area demonstrated the need for a careful, multi-faceted approach in designing effective and cost-efficient labor market policies aimed at increasing labor force participation by married women with children.
Labor Force Participation and Happiness: Evidence from the South Caucasus
The paper by Norberto Pignatti and Karine Torosyan looked at the differences in the reported happiness levels between women of different labor market status in the three South Caucasus countries. The intriguing finding of the study is that while in Georgia, there is no difference in the reported happiness level between working women and housewives, in Armenia and Azerbaijan, working women with similar characteristics are much less likely to report being “very happy” than housewives. The interesting finding is that the overall results for Georgia also apply to the Armenian and Azerbaijani minority women in the country, implying that “cultural factors” may play a minor role in the reported differences between countries.
Family Structure and Gender-Selection Preferences
Gender-biased sex selection (GBSS) has been on the forefront of gender policy issues in the South Caucasus, as Armenia, Azerbaijan and, until recently, Georgia struggled with skewed sex ratios at birth (SRB). Understanding the driving forces behind GBSS, and in particular son-preference as a socio-economic phenomenon, is especially important. One of the recent studies on the issue was presented by Davit Keshelava of the ISET Policy Institute. The study “Social Economic Policy Analysis with Regard to Son Preference and Gender-biased Sex Selection” looked at the factors underlying GBSS rise and fall in Georgia over the last 15 years. The study also gleaned facts about the changing attitudes towards GBSS and son-preferences in different regions of Georgia. One of the study’s main findings is that the fall in the sex ratio at birth has been statistically significantly correlated with real income growth in the regions, reduction in poverty, and female employment. Among other factors significantly affecting the reduction in sex ratio at birth, was, surprisingly, the level of male education, while female education was statistically insignificant. The study documented a persisting son preference in Georgia, but also high awareness and strong negative attitudes towards gender biased sex selection in those regions that showed the sharpest improvement in sex ratio at birth over time.
Looking at the issue of gender preferences in the context of transition economies in Europe, Izabela Wowczko presented joint work with Michał Myck and Monika Oczkowska which investigated how preferences for the gender composition of children in the family might have changed in Central and Eastern European (CEE) countries after the fall of communism. The results showed that gender-neutrality was observed in almost all CEE countries before the transition. After the transition of the 1990s, many of the same forces which operated in the South Caucasus have affected the countries of Central and Eastern Europe – namely, decline in incomes, decimated traditional social safety nets and better access to ultrasound and family planning technologies. However, in the post-transition CEE countries, the authors observe a clear preference for a mix (boy/girl) or possibly boys at parity three (i.e. having two boys or a boy and a girl in the family reduced the likelihood of having a third child significantly, as opposed to having two girls). It was also observed that in most CEE countries (except Romania), there was an increased likelihood of having a second child if the first child is a boy – thus demonstrating a girl preference at parity two.
Policy Impact on Women’s Empowerment
A study from India by Mridula Goel and Nidhi Ravishankar looked at the impact of policy interventions on the long-term indicators of women empowerment. It shows that public policies were responsible for improving the so-called “power enablers”, such as literacy rates, financial access, property rights, political voice, etc. However, there is some evidence that not all traditional power enablers, e.g. having a bank account or working for money, are correlated with higher indicators of empowerment, measured by a woman’s autonomy in decision-making within the family. For example, working for money (receiving cash compensation) or having a bank account was found to be negatively correlated with a woman’s ability to decide how her own money is spent – possibly pointing to the existence of prejudice or negative attitudes within the household in such cases.
Another interesting study on this topic by Maria Perrotta Berlin, Evelina Bonnier and Anders Olofsgård looked at whether foreign aid projects foster female empowerment in the surrounding community using data from Malawi. It finds support for a small positive impact of aid on men’s and women’s attitudes related to domestic violence and sexual rights. There is, however, little systematic difference in the impact of gender-targeted aid versus general aid – with exceptions being the impacts on women’s experience of violence and women’s participation in decision-making.
Male-Female Earnings Gap and Gender Aspects of International Trade
The male-female earnings gap is a recurring topic in gender economics. Whether the gap is driven by differences in education and skills of men and women, labor market discrimination, choices of working hours, the “glass ceiling” or “sticky floor” phenomena, the gap is evident and persistent in both developed and developing countries. One of the papers presented by Dagmara Nikulin looked at the impact of trade liberalization on the gender wage gap in Europe. Generally, the economic literature does not provide conclusive evidence in this regard, and the link remains ambiguous. The paper, examining evidence from Europe, finds in particular that participation in global value chains (GVC), which the authors measure by foreign value added in exports, is correlated with reduced wages overall, but the negative effect on wage is lower for men than for women.
Echoing the results of the previous study, the paper by Marie-France Paquet and Georgina Wainwright-Kemdirim, “Since the effects of trade liberalization are not gender neutral, how can we improve its gender outcome? – Crafting Canada’s Gender Responsive Trade Policy” focuses on the problem of identifying and addressing potentially negative impacts of trade on female jobs. The study details a diagnostic modelling approach, which is to use CGE modeling combined with sectoral employment data (a labour module within CGE). The proposed model uses an overlapping generation framework and includes an occupational matrix to allow movements between occupations. This approach allows for specific potential impacts of generic FTAs by gender, age group and occupation.
Conclusion
To sum up, the first international academic conference on gender economics issues in Tbilisi highlighted the diversity and complexity of gender issues around the world and in the South Caucasus region in particular. It also became a powerful catalyst for new research and collaboration ideas among participating institutions and individual researchers. Finally, it demonstrated how policy-oriented research can help inform the policy-making community about the areas where intervention is most needed, design the most effective policies, and calculate the associated costs and benefits of interventions.
References to Selected Presentations
- Shahra Razavi “Policies for Gender Equality in an Unequal World: Challenges and Opportunities”, keynote presentation.
- Vardan Baghdasaryan and Gayane Barseghyan “Child Care Policy, Maternal Labor Supply and Household Welfare: Evidence From a Natural Experiment”.
- Michal Myck and Kajetan Trzcinski “From Partial to Full Universality: the Family 500+ Programme in Poland and its Labour Supply Implications”.
- Karen Mumford, Antonia Parera-Nicolau, Yolanda Pena-Boquete “Labour Supply and Childcare: Allowing Both Parents to Choose”.
- Norberto Pignatti, Karine Torosyan “Employment vs. Homestay and Happiness of Women in the South Caucasus”.
- Davit Keshelava et al. ISET Policy Institute Report “Social Economic Policy Analysis with Regard to Son Preference and Gender-biased Sex Selection”.
- Izabela Wowczko, Michał Myck and Monika Oczkowska “Gender Preferences in Central and Eastern Europe as Reflected in Family Structure”.
- Mridula Goel, Nidhi Ravishankar “Has Public Policy Succeeded in Enhancing Women Autonomy and Empowerment in India Over the Last Decade?”.
- Maria Perrotta Berlin, Evelina Bonnier and Anders Olofsgård “The Donor Footprint and Female Empowerment”.
- Dagmara Nikulin & Joanna Wolszczak-Derlacz “Gender Wage Gap and the International Trade Involvement. Evidence for European workers”.
- Marie-France Paquet, Georgina Wainwright-Kemdirim, “Since the Effects of Trade Liberalization are not Gender Neutral, How can we Improve its Gender Outcome? – Crafting Canada’s Gender Responsive Trade Policy”.
The Long Shadow of Transition: The State of Democracy in Eastern Europe
In many parts of Eastern Europe, the transition towards stronger political institutions and democratic deepening has been slow and uneven. Weak political checks and balances, corruption and authoritarianism have threatened democracy, economic and social development and adversely impacted peace and stability in Europe at large. This policy brief summarizes the insights from Development Day 2019, a full-day conference organized by SITE at the Stockholm School of Economics on November 12th. The presentations were centred around the current political and business climate in the Eastern European region, throwing light on new developments in the past few years, strides towards and away from democracy, and the challenges as well as possible policy solutions emanating from those.
The State of Democracy in the Region
From a regional perspective, Eastern Europe has seen mixed democratic success over the years with hybrid systems that combine some elements of democracy and autocracy. Based on the V-Dem liberal democracy index, ten transition countries that have joined the EU saw rapid early progress after transition. In comparison, the democratic development in twelve nations of the FSU still outside of the EU has been largely stagnant.
In recent years, however, democracy in some of those EU countries, such as Bulgaria, the Czech Republic, Hungary, Poland and Romania have been in decline. Poland, one of the region’s top performers in terms of GDP growth and life expectancy, has experienced a sharp decline in democracy since 2015. Backlashes have often occurred after elections in which corruption and economic mismanagement have led to the downfall of incumbent governments and a general distrust of the political system. Together with low voter turnout, this created fertile ground for more autocratic forces to gain power helped by demand for strong leadership.
An example from Ukraine illustrated the role of media, both traditional and social, for policy-making. In some countries of the region, traditional media is strictly state-controlled with obvious concerns for democracy. This is less the case in Ukraine, where also social media plays an important role in forming political opinions. The concern is that, as elsewhere, opinions that gain traction on social media may not be impartial or well informed, affecting public perception about policy-making. A recent case showing the popular reaction to an attack on the former governor of the Central Bank suggests that those implementing important reforms may not get due credit when biased and partial information dominates the political discourse on social media.
Another case is the South Caucasian region: Armenia, Georgia and Azerbaijan. The political situation there has been characterized as a “government by day, government by night” dichotomy, implying that the real political power largely lies outside the official political institutions. In Georgia, the situation can be described as a competition between autocracy and democracy, with a feudalistic system in which powerful groups replace one another across time. As a result, trust in political institutions is low, as well as citizens’ political participation.
In the case of Azerbaijan, there is an elected presidency, but in reality, power has been passed on hereditarily, becoming a de facto patrimonial system. Lastly, in Armenia, the new government possesses democratic credentials, but the tensions with neighbouring Azerbaijan and Turkey have given increasing power to the military and important economic powers. Overall, democratisation in these countries has been hindered by a trend for powerful politicians to form parties around themselves and to retain power after the end of their mandates. Also, the historical focus on nation-building in these countries has led to a marked exclusion of minorities and a conflict of national identities.
The last country case in this part of the conference focused on the current political situation in Russia and on the likely outcomes after 2024. The social framework in Russia appears constellated by fears – a fear of a world war, of regime tightening and mass repressions, and of lawlessness – all of them on the rise. Similarly, the economy is suffering, in particular from low business activity, somewhat offset by a boost in social payments. Nonetheless, it was argued that it is not economic concerns, but rather political frustration, that has recently led citizens to take to the street. Despite this, survey data shows that trust in Putin is still over 60%, and that most people would vote for him again. However, survey data also points out that the most likely determinant of this trust is the lack of another reference figure, and that citizens are not averse to the idea of political change in itself. Lastly, Putin will most likely retain some political power after 2024, transiting “from father to grandfather of the nation”.
Voices from the civil society in the region also emphasized the importance of a free media and an active civil society to prevent the backsliding of democracy. With examples from Georgia and Ukraine, it was argued that maintaining the independence of the judiciary, as well as the public prosecutor’s office, can go a long way in building credibility both among citizens and the international community. The European Union can leverage the high trust and hopeful attitudes it benefits from in the region to push crucial reforms more strongly. For example, more than 70% of Georgians would vote for joining the EU if a referendum was held on the topic and the European Union is widely regarded as Georgia’s most important foreign supporter.
Weak Institutions and Business Development
The quality of political and legal institutions strongly affects the business environment, in particular with regards to the protection of property rights, rule of law, regulation and corruption. Research from the European Bank for Reconstruction and Development (EBRD) highlights that the governance gap between Eastern Europe and Central Asia and most advanced economies is still large, even though progress in this area has actually been faster than for other emerging economies since the mid-‘90s. This is measured through enterprise surveys as well as individual surveys. In Albania, for instance, a perception of lower corruption was linked to a decrease in the intention to emigrate equivalent to earning 400$ more per month. Another point concerned the complexity of measuring the business environment and the benefits of firm-level surveys asking firms directly about their own actual experience of regular enforcement. For example, in countries such as Poland, Latvia and Romania the actual experience of business regulation measured via the EBRD’s Business Environment Enterprise Performance Survey, is far worse than one would expect from the World Bank’s well known Doing Business rating.
From the perspective of Swedish firms, trade between Sweden and the region has remained rather flat in the past years, as the complexity and risks of these markets especially discourage SMEs. Business Sweden explained that Swedish firms considering an expansion in these markets are concerned with issues of exchange rate stability, and the institutional-driven presence of unfair competition and of excessive bureaucracy. Moreover, inadequate infrastructure and the presence of bribery and corruption make everyday business operations risky and costly. It was generally emphasized that countries have to create a safe investment environment by reducing corruption, establishing a clear and well enacted regulatory environment, having dependable courts and strengthening domestic resource mobilization. Swedish aid can play a part, but there is a need to develop new ways of delivering aid to make it more effective.
An interesting example is Belarus, that has seen more economic and political stability than most neighbours, but at the same time a lack of both economic and political reforms towards market economy and democracy. Gradually the preference towards private ownership, as opposed to public, has increased in recent years and the country has seen a rising share of the private sector, even without specific privatization reforms. Nonetheless, international businesses are still reluctant to invest due to high taxes, a lack of access to finance as well as to a qualified workforce, but most importantly due to the weak legal system. An exception has been China, and Belarus has looked at the One Belt One Road Initiative as a promising bridge to the EU. Scandals connected with the two main Chinese-invested projects have damped the enthusiasm recently, though.
The economic and political risks of extensively relying on badly diversified energy sources, as is the case with natural gas imports from Russia in many transition states were also discussed. It was shown how some countries such as Ukraine, Poland and Lithuania have improved their energy security by either benefitting from reverse-flow technology and the EU’s bargaining power or building their own LNG terminals to diversify supply sources. However, either of these, as well as other energy security improving solutions are likely to come with an economic cost, though, that not all countries in the region can afford.
A Government Perspective
The main focus of this section was the Swedish government’s new inspiring foreign policy initiative, “Drive for Democracy”. Drawing from a definition of democracy by Kerstin Hesselgren, an early Swedish female parliamentarian, democracy enables countries to realize and utilize the forces of the individual and draw them into a life-giving, value-creating society. It was emphasized that the values of democracy are objectives by themselves (e.g. freedom of expression, respect for human rights) but also that democracy has important positive effects in other areas of human welfare. The Swedish government views democracy as the best foundation for a sustainable society, equality of opportunity and absence of gender or racial bias.
The “Drive for Democracy” specifically identifies Eastern Europe as one of the main frontiers between democracy and autocracy, and the Swedish government promotes human rights and stability through various bilateral programmes through the Swedish International Development Cooperation Agency, Sida, and multilateral initiatives within the EU, such as the Eastern Partnership. It was also emphasized that democracy is a continuous process that can always be improved, as indeed experienced by Sweden. Political rights were granted to women only in 1919 followed by convicts and prisoners in 1933 and to the Roma people only in 1950. Political and democratic rights are thus never once and for all given, and it is crucial that the dividends from democracy are carried forward to the younger generation.
Conclusion
In sum, the day illustrated clearly how democracy engages all segments of society, from the business sector to civil society, and the potential for but also challenges involved for democratic deepening in Eastern Europe. To get more information about the presentations during the day, please visit our website.
Participants at the Conference
- PER OLSSON FRIDH, State Secretary, Ministry for Foreign Affairs.
- ALEXANDER PLEKHANOV, Director for Transition Impact and Global Economics at EBRD.
- TORBJÖRN BECKER, Director, SITE.
- CHLOÉ LE COQ, Associate Professor, SITE and Professor of Economics, University of Paris II Panthéon-Assas.
- THOMAS DE WAAL, Senior Fellow at Carnegie Endowment for International Peace.
- NATALIIA SHAPOVAL, Vice President for Policy Research at Kyiv School of Economics.
- ILONA SOLOGUB, Scientific Editor at VoxUkraine and Director for Policy Research at Kyiv School of Economics.
- KETEVAN VASHAKIDZE, President at Europe Foundation, Georgia.
- MARIA BISTER, Senior Policy Specialist, Sida.
- HENRIK NORBERG, Deputy Director, Ministry for Foreign Affairs.
- YLVA BERG, CEO and President, Business Sweden.
- LARS ANELL, Ambassador and formerly Volvo’s Senior Vice President.
- ERIK BERGLÖF, Professor in Practice and Director of the Institute of Global Affairs, London School of Economics and Political Science.
- KATERYNA BORNUKOVA, Academic Director, BEROC, Minsk.
- ANDREI KOLESNIKOV, Senior Fellow, Carnegie Moscow Center.
The Georgian Tax Lottery of 2012 – A Quantitative and Qualitative Evaluation
This policy brief is based on preliminary findings of research that assesses the 2012 Georgian Tax Lottery by Larsen et al. (2019). Tax lotteries are seen as a way to relatively easily augment public revenue while also increasing compliance. Tax lotteries are constructed so that consumers are nudged to ask for a receipt when making a purchase. This receipt contains information which can also be used as a lottery ticket with the possibility of winning prizes. Such tickets also leave traces of transaction records that allow revenue authorities to audit vendors. Given this background, the aim of this paper is to provide a broad, multi-methodological and socio-economic assessment of Georgia’s tax lottery experience in 2012.
Introduction
A well-designed tax system improves economic efficiency, facilitates economic growth and social welfare, (Besley & Persson, 2013). Yet, curbing tax evasion remains one of the key challenges for policy makers, and institutions in charge of revenue administration are experimenting with diverse set of instruments to increase tax compliance and thus revenue.
In addition to the traditional audit-sanctioning mechanism, the taxation literature emphasizes the role of consumers in facilitating tax compliance of businesses. The government can create direct monetary incentives for consumers to request receipts. Turning a receipt into a lottery ticket with a chance of winning a pre-determined prize is an example of such an incentive. The tax lottery motivates and rewards those consumers who become part in the efforts to fight tax evasion by requesting receipts while making purchases. Given that audit-sanctioning mechanisms are very costly for the government, clever usage of a “zero cost policy”, such as tax lotteries, might be advisable (Fabbri & Hemels, 2013).
The aim of this paper is to provide an assessment of the Georgian tax lottery experience in 2012 using both quantitative and qualitative methodologies. The two methodological approaches complement each other and help to investigate the tax lottery from different angles.
The Georgian Tax Lottery
The Georgian Revenue Service (GRS) introduced a tax lottery starting in spring 2012, which was planned to run until January 1, 2013. The aim of the lottery was to popularize the already introduced General Packet Radio Services (GPRS) -based cash registers and make sure that they were used by vendors. Such registers would allow the GRS to gather information about business activities online daily. This, in turn, was due to an effort to fight the shadow economy and be able to audit business revenue, when payments were made by cash. The lottery would thus motivate consumers to ask for receipts. As a communicative resource, the lottery aimed to increase awareness of asking for receipts, as well as to develop a positive attitude in Georgian society towards GRS in the background of harsh fiscal reforms.
In order to participate, customers had to buy goods or services from a vendor who had a GPRS-based cash register. The receipt could be checked for win immediately by mobile phone. The Georgian Tax Lottery was a chance to win money for every customer purchasing anything from groceries, to shoes and hair care. The winning prizes were 10, 20, 50, 100, 10,000 and 50,000 GEL[1]. The 10,000 GEL prizes were awarded once a month while 50,000 GEL prizes were given quarterly.
The lottery ended prematurely on grounds of inefficiency on November 12, 2012 when a new government was elected.
Multi-Method Approach
For the assessment of the tax lottery in Georgia, we employed a multi-method approach combining a qualitative assessment built on an ethnographic approach with quantitative regression-based methods; following the ethnographic approach, we collected opinions, experiences, and views on the tax lottery from the perspective of participating and non-participating businesses, consumers as well as other stakeholders.
The quantitative assessment of the paper investigates whether the existence of the lottery affected businesses’ total revealed turnovers through the facilitation of a receipt-requesting norm. The data for the quantitative analysis conducted in this paper was provided by the GRS. The latter was collected from the daily reports of the GRS system, for two years, 2012 and 2013. The data includes variables, such as the unique cash register identifier, the year and the week of a purchase and address (city and municipality) and the total turnover of the cash register reported through GPRS. GRS also provided the dataset with detailed information on winning tickets. The latter includes daily information on the number of winning tickets and the aggregate daily monetary amount of the prizes.
Three different specifications of linear regression models were run separately on the aggregate country level data. The model-specifications differ in a way that each uses different dependent variables – aggregate weekly sales, average weekly sales per register and number of registers reporting any sales.
Preliminary Results
Table 1: Regression Results of the aggregated analysis on a country level
As may be inferred from the country level regression results reported in Table 1, for all the econometric specifications the ‘lottery’ variable is significant at 1% level. The regression results show that during the weeks of the lottery (weeks 16-46) the aggregate weekly sales are on average 33,363 GEL higher than in the non-lottery weeks (11% more than in non-lottery weeks, based on the log linear model). When looking at the year effect of 2012 in non-lottery weeks, the effects are positive, significant, and, on average, amount to 38,813 GEL. This means that aggregate weekly sales in the non-lottery weeks of 2012, exceed aggregate weekly sales in 2013, on average, by 38,813 GEL. While in this simple model we do not explicitly control for the macroeconomic environment, GDP in 2013 grew by 3.4% while inflation stood close to 0%. These macroeconomic outcomes strengthen predictions of the econometric analysis.
When looking at the average sales per register as the dependent variable instead of aggregate weekly sales, the results are compatible with the results of the first model. There is on average a 282 GEL (7.7%) increase in average turnover during the lottery weeks compared to the non-lottery weeks; and average weekly sales in non-lottery weeks of 2012 exceed average weekly sales in 2013 by 458 GEL, on average. In addition, the positive effect and significance of the year 2012 variable shows that controlling for the non-lottery weeks, something was still driving sales up. This could be the long-term effect of the lottery weeks that continued even after the termination of the lottery; hence some evidence of habit formation.
A similar regression is done with the weekly number of cash registers reporting their income as a dependent variable. The outcome illustrates that during the lottery weeks of 2012, the average number of reported cash registers is 3,199 units (4%) more than those in non-lottery weeks, which is quite compatible with the results reported by the first and second regressions.
Conclusion
Despite seemingly positive results, the lottery was prematurely terminated after parliamentary elections in November 2012. Interviews with stakeholders revealed that the public budget that was allocated for the lottery was deemed insufficient to keep the chances of winning high enough and therefore interest and participation from public had decreased significantly from around 2 mln out of 2.5-2.8 mln receipts checked daily in the first months of the lottery to only 300,000 by the end of the lottery. However, there was a lack of financial resources or interest from the new government to invest additional resources to increase the budget and effectiveness of the lottery.
Regardless of its premature termination lottery itself was thought to have influenced social norms and also started a discussion about tax compliance. The tax lottery also aimed to improve citizens’ attitude towards the GRS. A qualitative analysis, based on multi-ethnographic approach through which we have collected media articles, reports, and other materials expressing views on the Georgian tax lottery, however, showed that strategies of “love and fear” are difficult to make work in combination, and we find it hard to say that citizens’ views of the GRS improved due to the lottery itself. Perhaps even the contrary could be proposed. In terms of an increased trust to the GRS, we conclude with our methodological point that a tax lottery cannot be assessed as an isolated event. Previous and other activities that the revenue services engage in that have an impact on taxpayers and on societal tax, compliance have to be taken into consideration. Fear and unjust treatment especially linger in people’s perceptions.
References
- Besley, T., & Persson, T. (2013). Taxation and development. In Handbook of public economics (Vol. 5, pp. 51-110). Elsevier.
- Fabbri, M., & Hemels, S. (2013). ‘Do you want a receipt?’ Combating VAT and RST evasion with lottery tickets. Intertax, 41(8), 430-443.
- Larsen, L., Arakelyan, R., Gogsadze, T., Katsadze, M., Skhirtladze, S., & Muench, N. (2019). The Georgian Tax Lottery of 2012. A Multi-Methodological Assessment. International School of Economics at TSU, Tbilisi, Republic of Georgia.
- Marcus, G. E. (1995). Ethnography in/of the world system: The emergence of multi-sited ethnography. Annual review of anthropology, 24(1), 95-117.
[1] The exchange rate for a Georgian Lari, GEL, is about 3.0 GEL to 1 EUR.
Liberal Democracy in Transition – The First 30 Years
This year marks 30 years since the first post-communist election in Poland and the fall of the Berlin Wall. Key events that started a dramatic transition process from totalitarian regimes towards liberal democracy in many countries. This brief presents stylized facts from this process together with some thoughts on how to get this process back on a positive track. In general, the transition countries that joined the EU are still far ahead of the other transition countries in terms of democratic development.
The recent decline in democratic indicators in some EU countries should be taken seriously as they involve reducing freedom of expression and removing constraints on the executive, but should also be discussed in light of the significant progress transition countries entering the EU have shown during the first 30 years of transition. The brief shows that changes in a democracy can happen fast and most often happen around elections, so getting voters engaged in the democratic process is crucially important. This requires politicians that engage the electorate and have an interest in preserving democratic institutions. An important question in the region is what the EU can do to promote this, given its overloaded political agenda. Perhaps it is time for a Greta for democracy to wake up the young and shake up the old.
This brief provides an overview of political developments in transition countries since the first post-communist elections in Poland and the fall of the Berlin Wall 30 years ago. It focuses on establishing stylized facts based on quantitative indices of democracy for a large set of transition countries rather than providing in-depth studies of a small number of countries. The aim of the brief is thus to find common patterns across countries that can inform today’s policy discussion on democracy in the region and inspire future studies of the forces driving democracy in individual transition countries.
The first issue to address is what data to use to establish stylized facts of democratic development in the region. By now, there are several interesting indicators that describe various aspects of democratic development, which are produced by different organizations, academic institutions and private data providers. In this brief, three commonly used and well-respected data providers will be compared in the initial section before we zoom in on more specific factors that make up one of these indices.
The big picture
The three indicators that we look at first are: political rights produced by Freedom House; polity 2 produced by the Polity IV project; and the liberal democracy index produced by the V-Dem project. Figures 1-3 show the unweighted average of these indicators for two groups of countries. The EU10 are the transition countries that became EU members in 2004 and 2007 and include Bulgaria, the Czech Republic, Estonia, Hungary, Lithuania, Latvia, Poland, Romania, Slovakia, and Slovenia. The second group, FSU12, are the 12 countries that came out of the Soviet Union minus the three Baltic countries in the EU10 group, so the FSU12 group consists of Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan.
Figure 1. Freedom House
Source: Freedom House and author’s calculations
Note: Scale inverted, 1 is best and 7 worst score
Figure 2. Polity IV project
Source: Polity IV project and author’s calculations
Note: Scale from -10 (fully autocratic) to 10 (fully democratic)
Figure 3. V-Dem
Source: V-Dem project and author’s calculations
Note: Scale from 0 to 1 where higher is more democratic
All three indicators convey the message that the democratic transformation in the EU10 group was very rapid in the early years of transition and the indicators have remained at high levels since the mid-90s only to show some decline in the most recent years for two of the three indicators. The FSU12 set of countries have made much less progress in terms of democratic development and remain far behind the EU10 countries in this regard. Overall, there is little evidence at the aggregate level that the democratic gap between the EU10 and FSU12 groups is closing. While the average EU10 country is more or less a full-fledged democracy, the average FSU12 country is at the lower end of the spectrum for all three democracy measures.
The average indicators in Figures 1-3 obviously hide some interesting developments in individual countries and in the following analysis, we will take a closer look at the liberal democracy index at the country level. We will then investigate what sub-indices contribute to changes in the aggregate index in the countries that have experienced significant declines in their liberal democracy scores.
For the first part of the analysis, it is useful to break down the democratic development in two phases. The first phase is from the onset of transition (1989, 1991 or 1993 depending on the specific country) to the time of the global financial crisis in 2009 and the second phase is from 2009 to 2018 (the last data point).
Figure 4. Liberal democracy, the first phase
Source: V-Dem project and author’s calculations
Figures 4 and 5 compare how the liberal democracy indicator changes from the first year of the period (measured on the horizontal axis) to the last year of the period (on the vertical axis). The smaller blue dots are the individual countries that make up the EU10 group while the red dots are the FSU12 countries. The 45-degree line indicates when there is no change between start and end years, while observations that lie below (above) the line indicate a deterioration (improvement) of the liberal democracy index in a specific country.
In the first phase of transition (Figure 4), all of the EU10 countries increased their liberal democracy scores and the average increase for the group was almost 0.5, going from 0.26 to 0.74. This was a result of many of the countries in the group making significant improvements without any countries deteriorating. The FSU12 group had a very different development with the average not changing at all since the few countries that improved (Georgia and Ukraine) were counterbalanced by a significant decline in Belarus and a more modest decline in Armenia.
Figure 5. Liberal democracy, the second phase
Source: V-Dem project and author’s calculations
The very rapid improvement in the liberal democracy index in the EU10 countries in the first phase of transition came to a halt and also reversed in several countries in the second phase of transition. Of course, as they had improved so much in the first period, there was less room for further positive developments, but the rapid decline in some of the countries was still negative news. However, it does point towards that reform momentum was very strong in the EU accession process, but once a country had entered the union, the pressure for liberal democratic reforms has faded.
Overall, the EU10 average fell by 0.1 from 2009 to 2018. This was a result of declining scores in several countries. The particularly large declines in this period have been seen in Hungary (-0.28), Poland (-0.27), Bulgaria (-0.14), the Czech Republic (-0.14), and Romania (-0.12). Again, the average FSU12 score did not change much, although Ukraine (-0.2) put its early success in reverse and lost as much in this period as it had gained earlier.
Country developments
Since much of the current discussion centers on how democracy is being under attack, the figures name the countries that have seen significant declines in the liberal democracy score in the first or second phase of transition. Figures 6 and 7 show the time-series of the liberal democracy index in the countries with significant drops at some stage of the transition process.
Figure 6. FSU12 decliners
Source: V-Dem project and author’s calculations
In many countries, the drop comes suddenly and sharply, with the first and most prominent example being Belarus. There, it only took three years to go from one of the highest ranked FSU12 countries to fall to one of the lowest liberal democracy scores. In Poland, Romania, Bulgaria and Armenia, the process was also very rapid and significant changes happened in 2-3 years.
Figure 7. EU10 decliners
Source: V-Dem project and author’s calculations
In the Czech Republic and Hungary, the period of decline was much longer and in the case of Hungary, the drop was the most significant in the EU10 group. Ukraine stands out as more of an exception with a roller-coaster development in its liberal democracy score that first took it up the list and then back down to where it started. For those familiar with politics in these countries, it is easy to identify the elections and change in government that have occurred at the times the index has started to fall in all of these countries. In other words, the democratic declines have not started with coups but followed election outcomes where in most cases the incumbent leaders have been replaced by a new person or party.
How democracy came under attack
We will now take a closer look at what has been behind the instances of decline in the aggregate index by investigating how the sub-indices have developed in these countries. The sub-indices that build up the liberal democracy index are: freedom of expression and alternative sources of information; freedom of association; share of population with suffrage; clean elections; elected officials; equality before the law and individual liberty; judicial constraints on the executive; and legislative constraints on the executive (the structure is a bit more complex with mid-level indices, see V-Dem 2019a).
Table 1 shows how these indicators have changed in the time period the liberal democracy indicator has fallen significantly (with shorter versions of the longer names listed above but in the same order). The heat map of decline indicated by the different colours is constructed such that positive changes are marked with green, smaller declines are without colour, declines greater that 0.1 but smaller than 0.2 are in yellow and larger declines in red. Note that the liberal democracy index is not an average of the sub-indices but based on a more sophisticated aggregation technique (see V-Dem 2019b). Therefore, the Czech Republic and Bulgaria can have a greater fall in top-level liberal democracy index that what is indicated by the sub-indices.
Table 1. Changes in liberal democracy indicators at times of democratic decline
Source: V-Dem project and author’s calculations
For the countries with the largest changes in the liberal democracy index, it is clear that both freedom of expression and alternative sources of information have come under attack together with reduced judicial and legislative constraints on the executive. Among the EU10 countries, Hungary and Poland stand out in terms of reducing freedom of expression, while Romania has seen most of the decline coming from reducing constraints on the executive. Not surprisingly, Belarus stands out in terms of the overall decline in liberal democracy coming from reducing both freedom of expression and constraints on the executive in the most significant way.
On a more general level, the attack on democracy does differ between the countries, but in the cases where serious declines can be seen, the attack has been particularly focused on information aspects and constraints on the executive. At the same time, all countries let all people vote (suffrage always at 1) and let the one with the most votes get the job (elected officials).
Policy conclusions
This brief has provided some stylized facts on the first 30 years of liberal democracy in transition and some details on how democracy has come under attack in individual countries. It leaves open many questions that require further studies and some of these are indeed ongoing in this project and will be presented in future briefs and policy papers here.
Some observations have already been made here that can inform policy discussions on liberal democratic developments in the region. The first is that changes can happen very rapidly, both in terms of improvements but also in terms of dismantling important democratic institutions, including those that provide constraints on the executive or media that provides unbiased coverage before and after elections. What is also noteworthy is that these changes have almost always happened after an election where a new person or party has come to power, so the democratic system is used to introduce less democracy in this sense.
It is also interesting that in all of the countries, the most easily observed indicators of democracy such as suffrage and having the chief executive or legislature being appointed by elections are given the highest possible scores. In other words, even the most autocratic regime wants to look like a democracy; but as the old saying goes, “it is not who votes that is important, it is who counts”.
The regime changes at election times that have led to declining liberal democracy scores have also in many cases come as a result of the incumbents not doing a great job or voters not turning up to vote. It was enough for Lukashenko in Belarus to promise to deal with corruption and rampant inflation that was a result of the old guard’s mismanagement to turn Belarus into an autocracy. In Hungary, the change of regime came after the Socialist leader was caught on tape saying he had been lying to voters. While in Romania, only 39% voted in the 2016 election. And in Bulgaria, around half of the voters stayed at home in the presidential election the same year.
In sum, both incompetent and corrupt past leaders and disengaged or disillusioned voters are part of the decline in a liberal democracy that we have seen in recent years. It is clearly time for policy makers that are interested in preserving liberal democracy in the region and elsewhere to think hard about how democracy can be saved from illiberal democrats. Part of the answer clearly will have to do with how voters can be engaged in the democratic process and take part in elections. It also involves defending free independent media and the thinkers and doers that contribute to the liberal democracy that we cherish. The question is if the young generation will find a Greta for democracy that can kick-start a new transition to liberal democracy in the region and around the world.
For those readers that want to participate more actively in this discussion and have a chance to be in Stockholm on November 12, SITE is organizing a conference on this theme which is open to the public. For more information on the conference, please visit SITE’s website (see here).
References
- Freedom house data downloaded on Oct 4, 2019, from https://freedomhouse.org/content/freedom-world-data-and-resources
- Freedom house methodological note available at https://freedomhouse.org/report/methodology-freedom-world-2018
- Polity IV project data downloaded on Oct 4, 2019, from http://www.systemicpeace.org/inscrdata.html
- Polity IV project manual available at http://www.systemicpeace.org/inscr/p4manualv2018.pdf
- V-Dem project data downloaded on Sept 24, 2019, from https://www.v-dem.net/en/data/data-version-9/
- Coppedge, Michael, John Gerring, Carl Henrik Knutsen, Staffan I. Lindberg, Jan Teorell, David Altman, Michael Bernhard, M. Steven Fish, Adam Glynn, Allen Hicken, Anna Lührmann, Kyle L. Marquardt, Kelly McMann, Pamela Paxton, Daniel Pemstein, Brigitte Seim, Rachel Sigman, Svend-Erik Skaaning, Jeffrey Staton, Steven Wilson, Agnes Cornell, Lisa Gastaldi, Haakon Gjerløw, Nina Ilchenko, Joshua Krusell, Laura Maxwell, Valeriya Mechkova, Juraj Medzihorsky, Josefine Pernes, Johannes von Römer, Natalia Stepanova, Aksel Sundström, Eitan Tzelgov, Yi-ting Wang, Tore Wig, and Daniel Ziblatt. 2019a. “V-Dem [Country-Year/Country-Date] Dataset v9”, Varieties of Democracy (V-Dem)
- Pemstein, Daniel, Kyle L. Marquardt, Eitan Tzelgov, Yi-ting Wang, Juraj Medzihorsky, Joshua Krusell, Farhad Miri, and Johannes von Römer. 2019b. “The V-Dem Measurement Model: Latent Variable Analysis for Cross-National and Cross-Temporal Expert-Coded Data”, V-Dem Working Paper No. 21. 4th edition. University of Gothenburg: Varieties of Democracy Institute.
International Conference on Gender Economics: Removing Obstacles to Gender Equality and Women’s Economic Empowerment
The FREE Network and the International School of Economics at TSU (ISET) and its Policy Institute, are delighted to extend a warm invitation to participate in an international conference on gender economics entitled: “Removing Obstacles to Gender Equality and Women’s Economic Empowerment”.
The conference will be held in Tbilisi, Georgia, on 15-16th November 2019. The conference is organized as part of the FROGEE initiative – the Forum for Research on Gender Economics – supported by the Swedish International Development Agency (Sida) and coordinated by the Stockholm Institute of Transition Economics (SITE).
The objective of the conference is bringing together researchers, policy-makers, and the broader development community to discuss the obstacles to gender equality and women’s economic empowerment, and policies to remove existing constraints, with a focus on Eastern Europe and Emerging Economies.
Our aim is to contribute to the development of national and regional agendas pursuing the achievement of the Sustainable Development Goals (see UN’s portal here), with a particular focus on Gender Equality (SDG 5), critical to achieving 2030 Agenda for Sustainable Development.
We are currently accepting abstracts (max 500 words) presenting research on, but not limited to, the following topics:
- Gender discrimination in the labour market
- Gender gap in labour force participation
- Gender gap in the allocation of time to unpaid care and domestic work
- Gender gap in leadership positions at all levels of decision-making in political, economic and public life
- Gender gap in the access to ownership and control over land and other forms of property, financial services, inheritance and natural resources.
For all topics, we welcome papers analyzing the causes of the gender gaps and/or potential policy solutions (including the evaluation of the impacts of projects and policies that have already been implemented inside or outside the region).
Important Dates:
Conference dates: 15-16 November 2019. Deadline for abstract submissions: July/10/2019. Notification of acceptance: Jul/31/2019. Full-paper submission deadline, for accepted abstracts: Oct/15/2019.
For more information, please visit the conference website
Agricultural Exports and the DCFTA: A Perspective from Georgia
On June 27, 2014, Georgia and the EU signed an Association Agreement (AA) and its integral part – the Deep and Comprehensive Free Trade Area (DCFTA). In this policy brief, we discuss the changes and analyze the agricultural exports statistics of Georgia since 2014. Furthermore, we will provide the recommendations to capitalize on the opportunities that the DCFTA offers to Georgia.
Georgia is a traditional agrarian country, where agriculture constitutes an important part of the economy. 36.6% of the country’s territory are agricultural lands and 48.2% of the Georgian population live in villages. Although 55% of population are employed in agriculture, Georgia’s agriculture accounts for only 15.8% of its GDP (Geostat, 2019). Agricultural exports constitute an important part of Georgia’s economy, accounting for about 25-30% of total exports.
On June 27, 2014, Georgia and the EU signed an Association Agreement (AA) and its integral part, the Deep and Comprehensive Free Trade Area (DCFTA). On July 1st, 2016, the DCFTA fully entered into force. The DCFTA aims to create a stable and growth-oriented policy framework that will enhance competitiveness and facilitate new opportunities for trade. The DCFTA widens the list of products covered by the Generalized System of Preferences+ (GSP+) and sets zero tariffs on all food categories (only garlic is under quota), including potentially interesting products for Georgian exports – wine, cheese, berries, hazelnuts, etc. (Economic Policy Research Center, 2014).
As July 2018 marked only two years since the implementation of the DCFTA between Georgia and EU, valuable conclusions on its impact cannot be formulated yet. In this policy brief, we will give an overview of Georgia’s agricultural trade statistics, particularly, we will focus on agricultural exports and provide recommendations for capitalizing on opportunities offered by the DCFTA.
Georgia’s agricultural trade
Despite its potential and natural resources, Georgia is a net importer of agricultural products. In 2018, Georgia’s agricultural exports increased by 23.2% (181 million USD), while the respective imports grew by only 15.5% (179 million USD) compared to 2017. Therefore, the trade balance (the difference between exports and imports) remained almost unchanged at (-394) million USD (Figure 1).
Figure 1: Georgia’s Agricultural Trade (2014-2018)
Source: Geostat, 2019
Out of the sharp increase in agricultural exports, 100 million USD are attributed to tobacco and cigars. Since Georgia cultivates very little tobacco, the growth was instigated mostly from the import, slight processing and re-export of tobacco products. Consequently, the export of tobacco and cigars increased by 240% in 2018, and it currently holds second place (after wine) in Georgia’s total food and agricultural exports. It should be mentioned that wine exports contributed to 26 million USD in export growth.
Over the last five-year period, the top export countries for Georgia were mainly neighboring counties (Azerbaijan, Russia, Armenia, Turkey); for imports, we see the same neighboring countries as well as China and Ukraine. Observing the trade statistics over the years, 45% of Georgia’s agricultural exports were destined for markets in countries of the former Soviet Union, so-called Commonwealth of Independent States (CIS), while the EU’s share in Georgia’s total agricultural exports was 24%.
Trade relationships between Georgia and the EU
The EU is one of Georgia’s largest trade partners. The EU’s share of total Georgian imports was 28% in 2018, and for exports, 24%. Total exports have been more or less stable since 2014, except for 2016, when an 11% decrease was observed (Figure 2). Specifically, for agriculture, in 2017, the EU’s share of Georgian imports was 22%, and its share of exports was 19%. During the same period, the top export products were hazelnuts (shelled), spirits obtained by distilling grape wine or grape marc, wine, mineral and aerated waters and jams, jellies, marmalades, purées or pastes of fruit.
Figure 2: Total and Agricultural Exports to the EU (2014-2018)
Source: Geostat, MoF, 2019
In 2015 (before the full enforcement of the DCFTA), Georgia’s agricultural exports to EU countries (including the United Kingdom) increased by 20% compared to the previous year. This positive trend remained in 2016, when the same indicator increased by 5%. In 2017, which was quite a bad year in terms of harvest in Georgia, we observed a 38% decrease in the country’s agricultural export to the EU (Figure 2). This decrease was mainly caused by a significant decrease (64%) in hazelnut exports during the same period. The reason for such a large decrease is that hazelnut production suffered from various fungal diseases due to unfavorable weather conditions in 2017. The Asian Stink Bug invasion worsened the situation, and in the end, hazelnut exports dropped dramatically in both value and quantity. In 2018, Georgia’s agricultural export in EU slightly increased by 6% compared to 2017.
Trade relationships between Georgia and CIS countries
It is interesting to observe agricultural trade within the same time period with CIS countries. In 2018, the CIS’ share of Georgian imports was 51%, and its share of exports was 60%. The top export products to CIS countries were wine, mineral and aerated waters, spirits obtained by distilling grape wine or grape marc, hazelnuts (shelled), and waters, including mineral and aerated, with added sugar, sweetener or flavor, for direct consumption as a beverage. As we can see in both EU and CIS countries, the top export products are more or less the same. However, the main export destination market for Georgian hazelnuts are EU countries, but wine is mostly exported to the CIS countries.
Figure 3: Agricultural Exports to CIS Countries (2014-2018)
Source: Geostat, MoF, 2019
Due to the worsened economic situation in CIS countries, Georgia’s agricultural exports to these countries decreased by 37% in 2015. Such a sharp decrease was mainly driven by a significant decrease in the export of alcoholic and non-alcoholic beverages, hazelnut, and live cattle. However, since 2015, Georgia’s agricultural exports to CIS countries have been increasing; we observed a slight 2% increase in the value of agricultural exports in 2016, while the same indicator was 37% in 2017 (Figure 3). That was mainly caused by the increased exports of alcoholic and non-alcoholic beverages (wine by 61%, spirits by 28%, mineral and aerated waters by 22%). In 2018, Georgia’s agricultural export in CIS countries increased by 12% compared to 2017.
Conclusion
Despite its potential and comparative advantage in agriculture, Georgia is still a net importer of agricultural products and has negative trade balance (-394 mn USD). Two years after the DCFTA came into force, it is challenging to know its impact on Georgia’s agricultural trade due to the insufficient passage of time since. Notwithstanding, we can formulate some conclusions from trade statistics. The diversity of the destinations for Georgia’s agricultural exports has not changed through the years. Georgia’s agricultural exports has increased to the EU, but at a quicker pace to CIS too. Furthermore, Georgia’s share of agricultural exports to CIS countries is still significant (60%).
While it is obvious that Georgia needs to diversify its agricultural export destination markets, there are several challenges facing small and medium size farmers and agricultural cooperatives in Georgia that are not specific to implementation of the DCFTA. As the previous regime (GSP+) with the EU already covered most products, the DCFTA did not represent a significant breakthrough. On the path to European integration, the biggest challenge for Georgia is to comply to non-tariff requirements such as food safety standards and SPS measures. The attention should be paid on providing consultations to farmers regarding certification processes and standards and better information sharing (e.g. developing online platforms).
In Georgia, agri-food value chains are not well-developed and lack coordination among different actors. In order to capitalize on opportunities offered by the DCFTA, government and private sector should work together to improve logistics infrastructure. There is a need for upgrading at every stage of export logistics: warehousing, processing, labeling, regional consolidation, final customer services. In this regard, there are high approximation costs for business that should be considered as long-term investment to modernize agriculture and improve food the safety system in the country. This would boost the export potential not only to the EU, but to other countries with similar requirements as well.
References
- ISET Policy Institute, 2016. “DCFTA Risks and Opportunities for Georgia”
- Economic Policy Research Center, 2014. “Agreement on the Deep and Comprehensive Free Trade Area and Georgia”. Available only in Georgian
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Georgian Experience of Gender Biased Sex Selection
This policy brief presents the evidence on gender biased sex selection (GBSS) in Georgia, giving an overview of the so-called “sex ratio transition” process, and discussing the determinants of GBSS using a demand and supply-side approach. After its independence from the Soviet Union, Georgia started experiencing a significant rise of the sex ratio at birth (SRB) and in 2004 the country had reached one of the highest SRB rates in the world. A traditionally pronounced son preference was further strengthened by deteriorated economic conditions, decrease in fertility and relatively easy and cheap access to technologies for early sex determination and abortion. However, Georgia has managed to reverse and stabilize a skewed SRB rate. Among the factors that might have contributed are the strengthening of the social security system, improved economic conditions, a rise in fertility rates, economic empowerment of women, and the increased cultural influence of Western values. This trend reversal places Georgia in a unique position and may provide valuable insights for other countries who struggle with the same problem.
It is widely recognized that the Caucasus has traditionally been a “male-dominated region,” with a particularly strong son preference. However, before the dissolution of the Soviet Union in the early 1990s, sex ratios at birth in the Caucasus countries were very close to normal levels.
After independence from the Soviet Union, the SRB started rising immediately in Georgia, reaching 114.1 male births per 100 female births by 1999 (while the biologically normal SRB level is 105 male births per 100 female births). In the early 2000s, SRB peaked and stabilized between 112 and 115 male births per 100 female births for several years. As Figure 1 shows, after reaching historically high levels in 2004, SRB started to decline and finally returned to a normal level by 2016.
Figure 1. Estimated sex ratio at birth in 1990-2016
Source: UNFPA, 2017.
The sex selection here is not discussed as “an archaic practice” in Georgia, but rather a modern reproductive behavior, a rational strategy responding to the surrounding environment – demand and supply factors. Demand-side factors include socio-economic and cultural factors that make having a boy more beneficial for a family and lower the value of girls – leading to son preference. The fertility rate is also accounted as a demand-side factor since low or decreasing fertility can increase incentives to perform selective abortions. As for the supply-side factors, they cover the ease of access to technologies for early sex determination and selective abortion and its cost, as well as the content of the legislation regulating abortion.
Demand side factors
Factors increasing demand
Son preference and a patrilineal system. The traditional Georgian family is patrilineal. Patrilineality, also known as the male line, is a common kinship system in which an individual’s family membership derives from and is recorded through his or her father’s lineage. It generally involves the inheritance of property, rights, names, or titles by persons related through male kin. In such systems, women join their husbands’ families after marriage and are expected to care for their in-laws rather than their parents. Sons are expected to stay with their parents and take care of them. Thus, patrilineal systems make daughters less beneficial and desirable to their parents compared to sons. UNFPA (2017) concludes that the practice of post-marital co-residence with parents is still quite widespread in Georgian society, and this pattern is biased towards the male kin line, downplaying the role of women and their kin. The patrilocal residence (the situation in which a married couple resides with or near the husband’s parents) is more common in villages (more than 90%) than in urban areas (75%). The incidence of patrilocal residence is the lowest in Tbilisi (69%). In general, patrilocal residence decreases with improving economic conditions.
Demographic change – changes in fertility rates. Low or decreased fertility rates (when other factors favorable for GBSS are in place) mean that families are no longer able to ensure the birth of a son through repeated pregnancies. In societies characterized by strong son preference, and with increasing availability of sex detection technologies, couples start to opt for sex selection because they want to avoid additional births of girls, something that contraception cannot alone ensure. Therefore, low fertility acts as a “squeeze factor,” forcing parents to make choices ensuring the desired gender composition of their family.
An inverse relationship between fertility and SRB is observed in Georgia. The first decade of transition to market economy was severe for the country. Reducing household size was one strategy chosen by Georgian families to cope with increased rates of unemployment, deterioration of the social security system and deprivation of basic needs such as water and electricity. The decline of fertility during the years 1990-2003 coincided with increased SRB levels. When fertility started to rebound in 2003, the “squeeze factor” began to vanish, removing pressure on the SRB. At the same time, the SRB started to decline.
The low value of women. In Georgia, women are stereotypically perceived as natural caretakers, whose core responsibilities involve child care and household duties. They are also expected be obedient to their husbands and let them have leading positions in various activities (UNDP 2013). The majority of the population in the country thinks that men should be the ones who are the family’s decision-makers and that they should also be the main breadwinners. According to a 2010 study, 83% of respondents think that men should be the main breadwinners in the family, and 63% believe that they should also be the family’s decision-makers (CRRC, 2010). It is evident that such attitudes and values contribute to decrease the perceived value of girls in society, compared to boys, and add additional stimulus to GBSS.
Factors decreasing demand
The strengthening of state institutions and the social security system. Georgia has experienced a deep transformation of its social, economic and political systems in the last fifteen years. Reforms were carried out in all sectors. Most importantly, the country totally restructured its social security system, which was practically non-existent in Georgia at the beginning of the 1990’s. Currently, Georgian citizens are offered: a) universal pension system, above the subsistence minimum, which provides a flat rate benefit to all elderly; b) social assistance, which represents a monthly subsidy to poor families, is well targeted, and has contributed to reducing poverty (Kits et al. 2015), and (c) a universal health insurance system which covers all people who are uninsured by private companies and softens the burden of health care expenditures for households.
These changes, together with the improved general economic situation in the country, have decreased the role of the family as a buffer institution offering protection and stability (notably through sons), and provided more formal alternatives for social security, bank loans, contractual employment, etc. Due to this, the (large) intergenerational family is no longer perceived as the only strategy for coping with social and financial uncertainty.
New cultural influence of Western values. From the early 2000s, Georgia has been increasingly exposed to Western norms and culture through media, migration, increased tourism, and the process of economic integration with the European Union. According to experts, this process was accompanied by “media support and an enthusiastic, quasi-propagandistic hail. The general spirit was to promote an image of Georgia as a country open to the world with West-European views and lifestyles” (UNFPA 2017).
Supply side factors
While the availability of technologies for the early determination of sex and for abortion is not the root cause of GBSS, it constitutes a facilitating supply factor. Without prenatal diagnostics and accessibility of abortion, parents would not be able to resort to selective abortions even if they had a pronounced preference for boys.
Currently, Georgia is among the countries offering high-tech reproductive services. Private clinics, hospitals, and special reproductive medicine centers compete to supply reproductive services, and one can easily see the most recent ultrasound technologies in the great majority of the urban facilities. In addition, the cost of an ultrasound test is extremely low, depending on the service provider. This represents only 1.9%-4.8% of the average monthly incomes per Georgian household. In this context, the GBSS-related demand for prenatal diagnostics can easily be accommodated, when it arises.
Conclusion
Georgia has had a unique experience of “sex ratio transition” in the region, which was an integral part of its overall transformation process. The deteriorated social and economic conditions of households following the beginning of the transition process, coupled with easier and cheaper access to prenatal diagnostics were reflected in a skewed SRB and manifested son preference. Only when socio-economic conditions improved, and the country accelerated its institutional strengthening and modernization process, did the SRB returned to its normal level.
It is too early to conclusively state that Georgia is back to normal SRB levels for good. Birth masculinity still remains at a high level i) for third-order births, as the most of the couples are reluctant to have more than three children, and giving birth to a third child is the last chance for families to have a boy; ii) there is a significant urban-rural divide in the context of birth order. For three or higher order births, SRB is significantly distant from normal levels for almost all regions, reaching beyond 145, while in Tbilisi the bias remains moderate; iii) gender-biased sex selection remains high among poor people and ethnic minorities.
If Georgia is to minimize the incidence of GBSS in the future, it needs to act on several fronts: enhance gender equality through qualitative research and civic activism; increase the perceived value of girls and women in the society through policies and initiatives addressing cultural stereotypes, as well as by publicizing illuminated stories of success of girls and women that provide positive role models; monitor SRB trends; support advocacy actions and awareness-raising campaigns on GBSS and encourage the ethical use of sex detection technologies.
References
- CRRC, 2010. “Caucasus Barometer”. CRRC, Tbilisi
- Kits, Barbara Viony; Santos, Indhira Vanessa; Isik-Dikmelik, Aylin; Smith, Owen K.. 2015. “The impact of targeted social assistance on labor market in Georgia: a regression discontinuity approach”. Washington, D.C. World Bank Group.
- UNDP, 2013. ”Public Perceptions on Gender Equality in Politics and Business”. UNDP, Tbilisi.
- UNFPA, 2017. “Trends in the Sex Ratio at Birth in Georgia – An Overview Based on the 2014 General Population Census Data”. Tbilisi, Georgia: Geostat; UNFPA.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Conflict, Minorities and Well-Being
We assess the effect of the Russo-Georgian conflict of 2008 and the Ukrainian-Russian conflict of 2014 on the well-being of minorities in Russia. Using the Russian Longitudinal Monitoring Survey (RLMS), we find that the well-being of Georgians in Russia suffered negatively from the 2008 Russo-Georgian conflict. In comparison, we find no general effect of the Ukrainian-Russian conflict of 2014 on the Ukrainian nationals’ happiness. However, the life satisfaction of Ukrainians who reside in the southern regions of Russia in close proximity to Ukraine is negatively affected. We also show that the negative effect of conflict is short-lived with no long-term legacy. Additionally, we analyze the spillover effect of conflict on other minorities in Russia. We find that while the well-being of non-Slavic and migrant minorities who have recently moved to Russia is negatively affected, there is no effect on local minorities who have been living in Russia for at least ten years.
Militarized conflict affects a myriad of socioeconomic outcomes, such as the level of GDP (Bove et al. 2016), household welfare (Justino 2011), generalized trust and trust in central institutions (Grosjean 2014), social capital (Guriev and Melnikov 2016), and election turnout (Coupe and Obrizan 2016). Importantly, conflict has also been found to directly affect individual well-being (Frey 2012, Welsch 2008).
However, previous research studying individual well-being in transition countries largely abstracts from heightened political instability and conflict proneness, while this has been particularly pertinent in transition countries. Examples of transition countries facing various types of conflicts are abound, such as Yugoslavia, Ukraine, Tajikistan, Russia, Armenia, Azerbaijan, Moldova, and so on. Therefore, it is imperative to explore how conflict shapes well-being in transition countries.
In a new paper (Gokmen and Yakovlev, forthcoming), we add to our understanding of well-being in transition in relation to conflict. We focus on the effect of Russo-Georgian conflict of 2008 and the Ukrainian-Russian conflict of 2014 on the well-being of minorities in Russia. The results suggest that the well-being of Georgians in Russia suffered negatively from the 2008 Russo-Georgian conflict. However, we find no general effect of the Ukrainian-Russian conflict of 2014 on the Ukrainian nationals’ happiness, while the life satisfaction of Ukrainians who reside in the southern regions of Russia in close proximity to Ukraine is negatively affected. Additionally, we analyze the spillover effect of conflict on other minorities in Russia. We find that while the well-being of non-slavic and migrant minorities who have recently moved to Russia is negatively affected, there is no effect on local minorities who have been living in Russia for at least ten years.
Data and Results
We employ the Russian Longitudinal Monitoring Survey (RLMS) which contains data on small neighborhoods where respondents live. Starting from 1992, the RLMS provides nationally-representative annual surveys that cover more than 4000 households with 10000 to 22000 individual respondents. The RLMS surveys comprise a broad set of questions, including a variety of individual demographic characteristics, health status, and well-being. Our study utilizes rounds 9 through 24 of the RLMS from 2000 to 2015.
In this survey, we identify minorities with the question of “What nationality do you consider yourself?” Accordingly, anybody who answers this question with a non-Russian nationality is assigned to that minority group.
We employ three measures of well-being. Our main outcome variable is “life satisfaction.” The life satisfaction question is as follows: “To what extent are you satisfied with your life in general at the present time?”, and evaluated on a 1-5 scale from not at all satisfied to fully satisfied. Additionally, we use “job satisfaction” and “health evaluation” as outcomes of well-being.
Our results suggest that our primary indicator of well-being, life satisfaction, for Georgian nationals has gone down in the Russo-Georgian conflict year of 2008 compared to the Russian majority (see Figure 1). The magnitude of the drop in life satisfaction is about 39 percent of the mean life satisfaction. Our estimates for the other two well-being indicators, job satisfaction and health evaluation, also indicate a dip in the conflict year of 2008. Lastly, our estimates show that the negative impact of the conflict does not last long. Although there is a reduction in the well-being of Georgians both on impact in 2008 and in the immediate aftermath in 2009, the rest of the period until 2015 is no different from the pre-2008 period.
Figure 1. Life Satisfaction of Georgian Nationals in Russia
Source: Authors’ own construction based on RLMS data and diff-in-diff estimates.
Furthermore, when we investigate the effect of the Ukrainian-Russian conflict of 2014, we find no negative effect on the life satisfaction of Ukrainians. One explanation for why the happiness of Ukrainians in Russia does not seem to be negatively affected in 2014 is that the degree of integration of Ukrainians into the Russian society is much stronger than the degree of integration of Georgians. On the other hand, our heterogeneity analysis reveals that in the southern parts of Russia closer to the Ukrainian border, where there are more Ukrainians who have ties to Ukraine, Ukrainian nationals are differentially more negatively affected by the 2014 conflict. The differential reduction in the happiness of Ukrainians is about 19 percent of the mean life satisfaction.
Moreover, we also look into whether there is any spillover effects of the Russo-Georgian and the Ukrainian-Russian conflicts on the well-being of other minorities. We first carry out a simple exercise on non-Slavic minorities of Russia. We pick the sample of non-Slavic ex-USSR nationals that are similar to Georgians in their somatic characteristics, such as hair color and complexion. This group of people include the nationals of Azerbaijan, Kazakhstan, Uzbekistan, Kyrgyzstan, Turkmenistan and Tajikistan. We treat this group as “the countries with predominantly non-Slavic population” as their predominant populations are somatically different from the majority Russians, and thus, might either have been subject to discrimination or might have feared a minority backlash to themselves during the times of conflict. This conjecture finds some support below in Figure 2 in terms of violence against minorities. We observe in Figure 2 that hate crimes and murders based on nationality and race peak in 2008.
Our estimates also support the above hypothesis and propose that there is some negative effect of the 2008 conflict on non-slavic minorities’ happiness as well as their job satisfaction, whereas 2014 conflict has no effect.
Figure 2. Hate Murders in Russia over Time
Source: Sova Center
Next, we investigate the spillover effects of conflict on Migrant Minorities. Migrant minorities are minorities who have been living in their residents in Russia for less than 10 years. We conjecture that these minorities, as opposed to the minorities who have been in place for a long time, could be more susceptible to any internal or external conflict between Russia and some other minority group for fear that they themselves could also be affected. Whereas other types of longer-term resident minorities, which we call Local Minorities, are probably less vulnerable since they have had more time to establish their networks, job security, and most likely also have Russian citizenship. Our estimates back up the above conjecture and demonstrate that migrant minorities suffer negatively from the spillover effects of the 2008 conflict onto their well-being captured by any of the three measures, and not from the 2014 conflict, whereas there is no negative impact on local minorities.
Conclusion
In this paper, instead of focusing on the direct impact of conflict on happiness in war-torn areas, we contribute to the discussion on conflict and well-being by scrutinizing the well-being of people whose country of origin experiences conflict, but they themselves are not in the war zone. Additionally, we show that some other minority groups also suffer from such negative spillovers of conflict. Being aware of such negative indirect effects of conflict on well-being is essential for policy makers, politicians and researchers. Most policy analyses ignore such indirect costs of conflict, and this study highlights the bleak fact that the cost of conflict on well-being is probably larger than it has been previously estimated.
References
- Bove, V.; L. Elia; and R. P. Smith, 2016. “On the heterogeneous consequences of civil war,” Oxford Economic Papers.
- Coupe, T.; and M. Obrizan, 2016. “Violence and political outcomes in Ukraine: Evidence from Sloviansk and Kramatorsk”, Journal of Comparative Economics, 44, 201-212.
- Frey, B. S., 2012. “Well-being and war”, International Review of Economics, 59, 363-375.
- Gokmen, Gunes; and Evgeny Yakovlev, forthcoming. “War and Well-Being in Transition: Evidence from Two Natural Experiments”, Journal of Comparative Economics.
- Grosjean, P., 2014. “Conflict and social and political preferences: Evidence from World War II and civil conflict in 35 European countries” Comparative Economic Studies, 56, 424-451.
- Guriev, S.; and N. Melnikov, 2016. “War, inflation, and social capital,” American Economic Review: Papers & Proceedings, 106, 230-35.
- Justino, P., 2011. “The impact of armed civil conflict on household welfare and policy,” IDS Working Papers.
- Welsch, H., 2008. “The social costs of civil conflict: Evidence from surveys of happiness” Kyklos, 61, 320-340.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Education for the Poor
Authors: Lasha Lanchava and Zurab Abramishvili, ISET and CERGE-EI.
This brief summarizes the results of a study by Lanchava and Abramishvili (2015), which investigates the impact on university enrollment of an unconditional cash transfer in Georgia, designed to help households living below the subsistence level. The program, introduced in 2005, selects recipients based on a quantitative poverty threshold, which gives us the opportunity to measure the influence on university enrollment with an econometric regression discontinuity design. We use data on program recipients from the Social Service Agency of Georgia (SSA) and university admissions from the National Examination Center (NAEC) to create a single dataset and compare the enrollment rates of applicants who are just above and below the threshold. We find that being a program recipient significantly increases a student’s likelihood of university enrollment by as much as 1.4 percentage points (while the sample mean of university enrollment is 12.7%). We also find that the impact is stronger for males and the firstborn children in a family. Our analysis also shows that the effect is equally strong across different locations in the country. Our straightforward policy recommendation is that if a government is trying to increase enrollment in tertiary education, need-based university scholarships may prove to be an appropriate instrument.
Meeting Qualification Mismatch with Vocational Training
While in an ideal world the qualification preferences of job seekers and employers would coincide, in reality this is often not the case. Besides informational asymmetries (job seekers not knowing which qualifications are demanded by employers) the reason is that employers may be in need of qualifications that are not considered attractive by the job seekers. In the country of Georgia, we want to address this problem through a “recommendation system” which will suggest vocational training to job seekers. There are two main problems to be tackled in this project: (1) How can we decide what would be the most useful qualification for a given job seeker, and (2) how can we incentivize the job seekers to follow our recommendations? This policy brief discusses our approach to this problem.
Introduction
Qualification mismatches are common in many labor markets around the world (see for example, Ghignoni and Verashchagina (2014) for Europe, McGuinness and Sloane (2011) for the UK, and Béduwé and Giret (2011) for France). It is well known that qualification mismatch is a relevant problem also in the country of Georgia, as was shown in various studies (see ISET (2012) and The World Bank (2013)).
The ISET Policy Institute (ISET-PI) was commissioned by the World Bank to assist the Social Service Agency (SSA) of Georgia, an agency of the Ministry of Labor, Health, and Social Affairs, in developing a system which will recommend vocational training to job seekers with the aim to reduce the qualification mismatch in Georgia.
Job Seekers’ Preferences Matter
Vocational training addresses the needs of two different groups. It is demanded by job seekers, who want to improve their human capital in a way that matches their preferences and, in the optimal case, maximizes their chances to get back into employment. At the same time, vocational training also addresses the needs of employers, whose businesses may face shortages in qualified personnel.
It is not enough to only include employers in the analysis if one wants to effectively fight the qualification mismatch. If one does not consider job seeker’s preferences, it may happen that people prefer to not participate in the vocational training system at all. Even if one can effectively incentivize job seekers to attend training programs, as is the case in Germany for example, where the refusal to participate in training is sanctioned by a reduction of unemployment benefits (cf. Neubäumer (2012)), it is likely that involuntary training will be less effective. Therefore, it is problematic that most studies which analyze the demand for qualifications in the job market, for example for the European Union (Lettmayr and Nehls (2012)), New Zealand (Earle (2008)), and Australia (Shah (2010)), exclusively focus on employers and neglect the preferences of the people who are to be trained. In Georgia, we will do it differently.
Why Would Job Seekers Follow Our Recommendations?
The objective of the recommendation system we develop is to maximize the impact the training has on the employment chances of the job seeker. Arguably, this is also the primary goal for most job seekers, as they often state that they want to receive training in an “employable” profession. Therefore, if the purpose of the recommendation system is communicated properly, and if it is transparent and trustworthy, the job seekers may want to voluntarily follow its advice.
Recommendation System vs. Matching Algorithm
One can think of two different ways of advising job seekers in their training choices: recommendation systems and matching algorithms.
Recommendation systems make suggestions to job seekers separately. These kinds of systems are ubiquitous on the Internet. For example, Amazon.com proposes books to its customers based on their purchasing history. In a similar way, a recommendation system for vocational training would suggest vocational training programs to job seekers based on relevant data about their characteristics and the job market situation. Yet its major shortcoming is that a recommendation system will not take into account what other job seekers do and what recommendations were given to them.
For that reason, in a recommendation system, it can happen that the number of people recommended to choose a certain program is larger than that program’s capacity (because the advice comes as a ranking, this does not cause the system to be useless, as the job seeker may then choose the program which is highest in the ranking and which has free places).
Likewise, if many job seekers follow the advice of the recommendation system, oversupply and undersupply of certain qualifications in the job market is not ruled out. This is again due to the fact that recommendations are made separately. If there is a huge demand for, say, plumbers, and many people receive the advice to receive training in plumbing, this may subsequently cause an oversupply of plumbers.
In contrast, a matching algorithm aims at an overall optimum for the whole group of job seekers. Genuine matching algorithms do not make separate recommendations, but propose a globally optimal assignment. In Western countries they are used, for example, to match interns to hospitals, students to universities, and kidneys to dialysis patients. Matching theory is one of the most successfully applied subfields of game theory, acknowledged through the award of the Economics Nobel Prize of 2012 to matching theorist Alvin E. Roth. The standard survey of matching theory is Roth and Sotomayor (1990).
In a matching algorithm, the abovementioned problems of a recommendation system would not occur (up to statistical uncertainty), because the matching algorithm would take into account how the suggestions made by the system affect the demand for a program. It would aim to keep the number of people, likely to choose a program, to remain below its capacity.
While a matching algorithm is more ambitious, it also has disadvantages compared to a simple recommendation system. First of all, the data requirements are higher, as the capacities of programs have to be taken into account. More importantly, in a matching algorithm the recommendations will be generated in a way that is not transparent to the job seeker (though it is possible to give some general explanations). This may reduce acceptance and willingness to participate. The recommendation system, on the other hand, can work in a relatively transparent way. Finally, a recommendation system can be adjusted and changed on an ongoing basis by Social Service Agency personnel without the help of external experts. Given its complexity, this is hardly possible with a matching algorithm.
Therefore, it was decided that the simpler option of a recommendation system is to be pursued. Later, the system may be upgraded to a full-blown matching algorithm.
The Technical Aspects of How Recommendations are made
Consider the situation of a job seeker looking for vocational training. Through the envisioned system, they will receive a recommendation of which qualification to pick in the vocational training system of the SSA.
The pieces of information used for making this recommendation are personal characteristics of the job seeker (like age, gender, preferences, skills, and other information obtained through the website worknet.ge which is operated by the SSA) and the current and future economic situation in different sectors. To this end, we will use value added tax data that can be decomposed into 45 sectors and updated on a monthly basis. For forecasts, we will draw on the Business Confidence Index of ISET, which allows decomposition into 5 sectors.
Given the information about the job seeker and the economic environment in different sectors, we will answer the question: “How many months do we expect the job seeker to be unemployed in the year after the training if the training was in qualification X?” Here, X can be whatever is offered in the vocational training system at the location of the job seeker, for example welder, mechanic, accountant, or IT expert. Alternatively, we could answer the question: “What is the salary we expect the job seeker to have in the year after the training if the training was in qualification X?”
The recommendation made to the job seeker will be: “Choose the training in field X if somebody with your personal characteristics, given the economic situation and outlook, has the lowest expected number of unemployed months (or the highest salary) in X in the year after training in X was received.” This recommendation is likely to be accepted by the job seeker if also the job seeker wants to maximize their employment chances (or maximize salary).
The forecast can be made using econometric regression analysis. Let i be a job seeker and xi be the number of months unemployed in the year after training was received. Then we have for each qualification one estimation equation
where alpha is the intercept and the betas are the coefficients for different personal and economic characteristics. When the alpha and beta coefficients are known, then one can enter the specific data for a job seeker and forecast how long it would take him to find a job if training would be received in a particular field.
For estimating the coefficients, no recommendations will be made for some time (like 3 months) after the system is launched and only information will be collected. The SSA or a specialized survey agency will call the job seekers every month after they received training and ask whether they found employment. Job seekers who received training through the SSA will be obliged to answer this question truthfully. Information about the characteristics of the job seeker is known through their participation in the worknet.ge system, which is a requirement for anybody who wants to receive vocational training through the SSA.
When the recommendation phase starts, further data will be collected. Errors in the estimation of the coefficients will be corrected “automatically” through the feedback (in terms of job market performance of the trainees) that the system gets on an ongoing basis. To increase this effect, the database used for the estimation of the coefficients will be “rolling”, i.e. people who recently received training will be added while those who received training a longer time ago (e.g. one year or more) will be removed from the database.
Conclusion
In Georgia, ISET will design and implement a recommendation system for vocational training, addressing the qualification mismatch in the labor market. As in many other areas, Georgia is willing to go for innovative policy solutions making use of advanced economic methods, very much in line with the country’s reputation as one of the top reformers in the world.
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References
- Béduwé, Catherine and Giret, Jean-Francois (2011): “Mismatch of vocational graduates: What penalty on French labour market?”, Journal of Vocational Behavior 78, pp. 68-79
- Earle, David (2008): “Advanced trade, technical and professional qualifications: Matching supply to demand”, New Zealand Government Ministry of Education, Auckland.
- Ghignoni, Emanuela and Verashchagina, Alina (2014): “Educational qualifications mismatch in Europe. Is it demand or supply driven?”, Journal of Comparative Economics, in press
- ISET (2012): “National Competitiveness Report for Georgia”, Tbilisi.
- Lettmayr, Christian F. and Nehls, Hermann (2012): “Skills supply and demand in Europe: Methodological framework”, CEDEFOP Working Paper No. 25
- McGuinnes, Seamus and Sloane, Peter J. (2011): “Labour market mismatch among UK graduates: An analysis using REFLEX data”, Economics of Education Review 30, pp. 139-145
- Neubäumer, Renate (2012): “Bringing the unemployed back to work in Germany: training programs or wage subsidies?”, International Journal of Manpower 33, pp. 159 – 177
- Roth, Alvin E. and Sotomayor, Marilda (1990): “Two-Sided Matching: A Study in Game-Theoretic Modeling and Analysis”, Econometric Society
- Shah, Chandra (2010): “Demand for qualifications and the future labour market in Australia 2010 to 2025”, Center for the Economics of Education and Training Working Paper, Monash University
- The World Bank (2013): “Georgia: Skills Mismatch and Unemployment Labor Market Challenges”, World Bank Report No. 72824-GE