RTB BOR LABOR AND WELFARE IMPACT STUDY - World Banksiteresources.worldbank.org/...Bor_Labor_and_Welfare_Impact_Study.pdf · Bor. Dragan Randjelovic, Human Resources Director, RTB

SERBIA: Industrial Restructuring at RTB Bor

RTB BOR LABOR AND WELFARE IMPACT STUDY

Prepared by

Nils Junge, Consultant

in cooperation with Conzit and IEN

December 2005

RTB Bor Labor and Welfare Impact Study

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TABLE OF CONTENTS

Glossary iv

Acknowledgments v

Map of Serbia vii

PART I. CONTEXT 1

1. INTRODUCTION 1 1.2 Objectives 1 1.2 Proposed World Bank funded project 2 1.3 Policy dialogue 3 1.4 Report structure 3

2. METHODOLOGY 4 2.1 A counterfactual analysis 4 2.2 Sampling 4 2.3 Welfare 5

3. RTB BOR 6 3.1 History 6 3.2 Enterprise structure 7 3.3 Rationale for restructuring/ privatization 7 3.4 Employee redundancy 9

4. ECONOMY AND LABOR MARKET 11 4.1 Overview 11 4.2 Poverty 11 4.3 Labor market 12 4.4 Bor region 13

PART II. MAIN FINDINGS 15

5. LABOR AND WELFARE IMPACT 15 5.1 Employee profile 15 5.2 Welfare 16 5.3 Employment 23 5.4 Severance pay and willingness to leave the company 29 5.5 Employment support 33

6. LOCAL BUSINESS ENVIRONMENT 36 6.1 Background 36 6.2 Prospects for the employment of RTB workers in local companies 38 6.3 Expectation of opportunities for future development of the region 39

7. SUPPORT OPTIONS 41 7.1 Social Programs in Serbia 41 7.2 National Employment Strategy 42 7.3 Employment Promotion Project (EPP) 43 7.4 Employment and business support institutions in Bor 43 7.5 Standard mitigation measures 45 7.6 Lessons learned and best practice 45

A. Transition Centers 46 B. Severance pay 46 C. Vocational training 47 D. Entrepreneur potential 47 E. Labor mobility – relocation assistance 48 F. Microcredit 48


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G. Redeployment coordinator 49 H. Advocacy 49 I. Information campaign 50 J. Mono-industrial regions 51 K. Evaluation of support programs 51 L. Vouchers 51 M. Employer subsidies 51

PART III. STAKEHOLDER ANALYSIS AND CONCLUSIONS 53

8. STAKEHOLDER ANALYSIS 53 8.1 Objectives 53 8.2 Stakeholder roles 53

A. RTB Bor employees 53 B. RTB Bor management 54 C. Trade Unions 54 D. Ministry of Labor, Employment and Social Policy (MoLESP) 54 E. Ministry of Economy (MOE) / Privatization Agency 55 F. Ministry of Finance (MOF) 55 G. World Bank 55

8.3 Stakeholder positions 57 A. Investment/funding priority 57 B. Timing of social program 58 C. Severance pay 59 D. Potential stakeholder contributions to social program 60 E. Risk of failure 61 F. Ideal outcome 62

9. CONCLUDING REMARKS 63

Annex 1. RTB Bor Social Program (2002) 64

Annex 2. Benefits package framework and staff reduction procedures 69

Annex 3. Self-reported household expenditures 71

Annex 4. Selected indicators for Bor and Majdanpek municipalities 72

References 73


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Currency Exchange Rate Currency unit: Serbian dinar (CSD)

72.3 = $1 86.8 = €1

Glossary ALM Active Labor Market CAS Country Assistance Strategy CES Current Employee Survey CONZIT Center for Business Consulting, Economic and Marketing Resarching CSD Serbian dinar EPP Employment Promotion Project EAR European Agency for Reconstruction FDI Foreign Direct Investment FES Former Employee Survey FLZ Enamel wire factory FOD Spare parts factory (Fabrika opreme i delova) GoS Government of Serbia IEN Institute of Economic Sciences LBS Local Business Survey MOE Ministry of Economy MOF Ministry of Finance MoLESP Ministry of Labor, Employment and Social Policy MT metric tons NA not available NES National Employment Service PDPL Programmatic Development Policy Loan PIU Project Implementation Unit RBM Majdanpek mine operations (Rudnik bakra Majdanpek) RTB Bor Mining and Smelter Basin Bor (Rudarstvo-topionicarski basen Bor) SME Small and Medium Sized Enterprise SOE Socially Owned Enterprise SSPA Senior Social Policy Advisor TIR RTB Bor’s Smelter and Refinery (Topionica i rafinacija) TOR Terms of Reference WB World Bank WSI Worldwide Strategies Incorporated


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Acknowledgments This report was prepared for the Ministry of Labor, Employment and Social Policy (MoLESP) by a team led by Nils Junge (consultant), the author, in close cooperation with Conzit and IEN, a local research group. Members of Conzit and IEN conducted all the primary research, prepared secondary data on the local business environment, and analyzed the data. Their reliable, consistent support and full engagement was crucial to the timely realization of this project. The report benefited from the support and advice of numerous individuals and institutions. In particular the author would like to thank Alex Pankov (Project Manager of the Bor Regional Development Project, World Bank) and Ira Lieberman (privatization consultant to the Bor Regional Development Project) for their regular feedback and involvement in the preparation of the report., especially the section on recommendations. Many thanks also to Carolyn Jungr (Country Manager, World Bank, Belgrade), Arvo Kuddo (Human Resources department, World Bank), Csaba Feher (World Bank), and Paula Lytle (World Bank) for comments on the work during preparation. The enthusiastic support of Jasna Vukovic and Desanka Stanic and the rest of the team at the World Bank’s Belgrade office helped make regular trips to Serbia trouble-free and enjoyable. At MoLESP, Ljiljana Dzuver (EPP) and Jane Daly (Worldwide Strategies) were very helpful both in explaining the employment support programs and in launching the Transition Center at RTB Bor. Dragan Randjelovic, Human Resources Director, RTB Bor, was highly supportive and provided ready assistance and important data and background information during the survey and report preparation. Key national partners in the dialogue on social policy at RTB Bor are Radmila Katic, Assistant Minister, MoLESP; Zora Simovic, First Secretary, Ministry of Economy; Borivoje Stojadinovic, General Manager, RTB Bor Group; Dragan Velickovic, President of Bor Municipality, and national and local representatives of Nezavisnost and Samostojmost trade unions. The author has enjoyed working with each of them and hopes that their collaborative efforts will lead to positive outcomes for all parties. This report was funded by a PHRD grant provided by the Japanese Government.


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Map of Serbia

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PART I. CONTEXT

1. INTRODUCTION

1.2 Objectives This study was commissioned to address the social and welfare impact of labor downsizing at RTB Bor, one of a few large Serbian enterprises still receiving generous government subsidies. The company, a socially owned enterprise (SOE), is a large copper mining complex in eastern Serbia in urgent need of restructuring due to large loss-making operations, unsustainable subsidies from the budget, and severe and ongoing damage to the environment. Acting in close cooperation with the World Bank, the Government of Serbia prepared and adopted a time-bound Action Plan for restructuring and privatization of RTB Bor in June 2005, to prepare a transparent tender (as a market test) of saleable core assets, planned for mid-2006. The successful completion of the market test is a necessary pre-condition for a potential Bor Regional Development Project by the World Bank. According to a feasibility study carried out by the World Bank (January 2005), at present levels of copper production Bor is enormously overstaffed in all areas of its operations. The complex of companies of which RTB Bor is composed employed 8,356 workers as of June 2005. Potential investors are generally reluctant to bid on companies if they face the prospect of laying off large parts of the workforce in order to become profitable. Therefore, in order to improve the chances for a successful market test, it is crucial to reduce the current high levels of surplus labor at RTB Bor through the severance of a large number of the company’s present work force. RTB Bor management recognizes is committed to reducing the number of surplus employees. However, without a comprehensive social and economic support program for redundant mine employees, and the region as a whole, restructuring is expected to further increase the region's poverty and unemployment levels, while risking social unrest. As in other countries, mine employees in Serbia are a vocal group and have in the past been willing to take to the streets to protest, most recently blocking a highway to Greece during the Athens Summer Olympic of 2004. A well targeted and well designed support program requires planners to be well-informed. The present Labor and Welfare Impact Study was commissioned by the Ministry of Labor, Employment and Social Policies (MoLESP), using World Bank grant funding, in order to better understand the potential distributional impact of downsizing and enable both central and local authorities to address these issues in a socially acceptable and fiscally responsible manner. By addressing policy issues and legal and institutional design options, the study recommendations aim to identify the intersection of desirable, affordable and implementable policies. The study team was tasked with collecting and analyzing information on employee characteristics and the local business environment in order to: i) measure welfare and dependency levels of current employees; ii) assess the coping strategies, and utilization of support programs, among employees who left as part of the first round of the social program, carried out in 2002 (for a description, see Annex 1); better understand employee concerns and perceptions; and iv) evaluate potential for new jobs in the region, and the ability of employees to benefit from active labor market (ALM) programs. The study was conceived as an analytical input to inform employment policy and a social action plan design, as well as the scope of potential World Bank assistance.


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The primary audience for the report is composed of: i) the Ministry of Labor, Employment and Social Policy (the primary client) to assist in policy design; ii) RTB Bor management, to draft the RTB Bor social program proposal; iii) the Serbian Privatization Agency, to assist in the preparation of the restructuring and privatization plan for RTB Bor; and (iv) the World Bank, to assist with the design of the Bor Regional Development Project.

1.2 Proposed World Bank funded project The Government of Serbia is aware that addressing the complex problems of a depressed and isolated region like Bor is essential for progressing towards the country’s ultimate goal of European integration. The support of socially owned enterprises, in the form of indirect and direct subsidies which generally act as a disincentive for firms to restructure and privatize, places a significant fiscal burden on the GoS. Severance payments and other social support measures can be used to encourage firms to take appropriate actions in this area.1

• resolution of RTB Bor through the sale of viable assets and liquidation of unsaleable parts;

During CAS (Country Assistance Strategy) discussions in the fall of 2004, the authorities requested the World Bank’s assistance in improving the socio-economic situation in the region. However, the timing and scope of the Bank's potential project is conditional on the GoS’s progress in implementing a comprehensive restructuring program for RTB Bor, based on the results of the feasibility study. The World Bank is funding a financial advisor to assist the Privatization Agency (PA) with implementing the restructuring measures and completing the market test by mid-2006. Should the market test fail and no investors show interest, liquidation is being proposed as the only affordable alternative. However, it is considered probable that at least some of RTB Bor Group’s enterprises will be sold off. The issue of surplus labor remains, regardless of the outcomes. The project’s objective is to: (i) support the privatization/corporatization and/or closure of the RTB Bor copper mining and processing conglomerate, or parts thereof, in a socially, environmentally, and economically responsible manner, and (ii) foster new sources of diversified growth and job creation in the Bor region. The project’s expected outcomes are:

• resolution of the most pressing environmental problems; • new sources of employment for redundant workers and general population of the Bor

region; and • improved access of private small and medium enterprises to investment finance.

The proposed Bor Regional Development Project will contribute to the GoS’s structural reform agenda by helping to resolve one of the country’s largest loss-making enterprises that consistently undermines fiscal discipline. It will support all three of the overarching development goals identified in the recent CAS: (i) creating a smaller, more sustainable, more efficient public sector; (ii) creating a larger, more dynamic private sector; and (iii) reducing poverty levels, and improving social protection and access to social services.

1 Cvetkovic, Mirko and Ira W. Lieberman. “Serbia Briefing Note on Direct and indirect Subsidies and Redundancy Payments to Socially Owned Enterprises in the Process of Restructuring/Privatization.” 2005.


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1.3 Policy dialogue The study was conducted in a participatory manner. Stakeholders, including RTB Bor management, trade unions, Ministry officials, and World Bank experts, have been consulted throughout the research, design and preparation phases. Two roundtables were held in Bor, the large attendance testifying to the intense interest, as well as lack of information, surrounding the future of the enterprise and its employees. The roundtables, and other meetings between stakeholders, have helped to raise awareness about the Government’s approach to the critical issue of redeployment support for soon to be redundant workers. Progress has been made in moving the policy dialogue from the general to the specific regarding the purpose and type of support measures. There is a growing awareness among employees and trade unions that a social action plan involves much more than determining severance pay levels and redundancy criteria. It is generally recognized that all parties are interested in the same long term outcome – higher living standards, a transformed local economy, a rejuvenated mining sector, and new opportunities for mine employees. As of this writing negotiations on RTB Bor’s social program have not yet taken place. However, several recommendations made during the course of the analysis are being implemented (a transition center, a roundtable series) and discussions on specific next steps are in progress.

1.4 Report structure The report is in two volumes. Volume I is the main report, and is divided into three parts. Part I provides the reform context, with an overview of the company, the proposed World Bank project and redundancy issues, and the economic and labor market situation in Serbia and Bor region, and a closer look at RTB Bor. The main findings from the employee and local business surveys as well as support options for redundant labor are presented in Part II. Part III addresses political economy issues through a stakeholder analysis. Annexes cover the 2002 social program, and selected economic indicators for the Bor and Majdanpek regions. Volume II contains background material prepared by Conzit and IEN, and consists of a report on in-depth interviews, correlation tables, the questionnaires for current and former employees, and a summary of the local business survey.


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2. METHODOLOGY The study is based on empirical research and secondary data. Surveys undertaken for the study analyzed current and former employees and local business environment. The analysis uses mixed methodology, based on a series of different quantitative and qualitative surveys.

2.1 A counterfactual analysis The ability to compare employees that left under the first redundancy program three years ago with those who did not leave provided a unique opportunity for counterfactual analysis. Assessing former employee circumstances is like asking what would life be like if the current employee had left back in 2002. The underlying question of the entire analysis can be formulated as: “What has been the impact of leaving RTB Bor so far, and will this impact be similar for those who leave now?” It is also important to assess how conditions differ for employees who left in 2002 and those who will be leaving now and the study draws on a local business survey and secondary data to examine this question. Another value of the analysis comes from the fact that data can be used to temper the subjective opinions, often based on false assumptions, which hold sway. To give the most glaring example, according to the employee and trade union perceptions, “70 to 80% of former employees are social cases.” Given the poor economic environment, such a proportion might sound reasonable. As will be seen, however, the picture is very different. It is quite possible that such estimates are valid, but that the sample they draw upon for their estimates heavily biased: those without jobs are much more likely to be more vocal, and to express regret about leaving RTB Bor.

2.2 Sampling A stratified, random sampling method was employed. A representative sample of 903 current and 358 former employees stratified by age, gender, education levels and work location was used. The surveys undertaken were as follows: Table 1. Survey typology Target Type Sample

size 1 Current employees Focus groups 4 groups 2 Current Employee Survey (CES) Quantitative 903 3 Former Employee Survey (FES) Quantitative 358 4 Local Business Survey Quantitative/qualitative 20 5 Current employee in depth interviews – Bor region Qualitative 20 6 Former employee in depth interviews – Bor region Qualitative 20

7 Former employee in depth interviews – other regions Qualitative 10


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2.3 Welfare To measure welfare, a simplified consumption model was used. Household expenditures on 17 items over various recall periods. (A table of the consumption items and average expenditures is in Annex 3.) This sum was extrapolated on a per month and per capita adult equivalent basis. To project the potential welfare impact, household dependency on the respondent’s RTB Bor salary, and household debt were added to refine the analysis. Consumption, of food, clothing, transportation, education, and all other recurring items,

as the key element in measuring living standards; Debt levels indicate a household’s exposure but as a welfare indicator are ambiguous:

they may result from the financing of current consumption at the expense of future welfare or, conversely, represent creditworthiness and private investment; and

Dependency (as measured by RTB Bor salary over total household consumption) is an indicator of the potential vulnerability of employees and their families in the event of job loss.

Expenditures and consumption items, which include own-produced farm products, are used as a proxy for income and for this reason the terms ‘household consumption’ or ‘per capita consumption’ are used. It was assumed that household income/expenditures are distributed equitably within the household. The adult equivalent of 0.7 is used for children under 15.


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3. RTB BOR

3.1 History The mineral rich region in and around Bor2

In 2004 Bor was producing at a rate of just under 1,000 tons of copper cathode per month, or some 12,000 MT per year, representing just 10 percent of peak production levels. These figures increased in 2005 when the company began producing copper cathode from imported concentrate.

is located in the southern spur of the Carpathian Mountains in Eastern Serbia. Archeological finds indicate that some form of mining began taking place here some 5,500 years ago. Modern explorations for ore deposits began in the 19th century, leading to discoveries of copper, silver, iron and lead reserves. It was not until 1902, however, with the discovery of copper ore with a grade of 19.4% Cu, that significant excavations began. In 1903, shares were sold to a French company and profitable mine operations were launched. A mining colony was constructed and workers began flowing in from southeastern Europe and beyond. As a result Bor region became a melting pot of Serbs, Vlachs, Albanians, Macedonians, Roma, Hungarians and Bulgarians and others. Once a small village, Bor grew to a population of 10,000 by World War II. The population of Bor municipality and surrounding villages is now approximately 55,000. Between the wars Bor became one of the two largest copper producers in Europe (the Spanish company Rio Tinto was the other). In 1940, copper production reached 929,176 tons ore, of which 42,000 were cathode copper. Gold and silver were also mined, and it is estimated that 16 tons of gold and 32 tons of silver were exported in 1935 alone. German occupation lasted from 1941 to 1944, and the mineral resources at Bor were used to supply the German war effort. Following the war, Bor was nationalized by the new Yugoslav state under Tito. In 1961 a new copper smelter was constructed and that same year the Copper Mining and Smelting Complex Bor (RTB Bor) was set up. At the same time, a system of self-management, in the form of a socially owned enterprise structure, was introduced. RTB Bor was organized into self-management bodies in charge of defining the scope and area of investments. RTB Bor soon became one of the most powerful organizations in Yugoslavia, made up of a complex of enterprises which eventually grew to comprise 16 work organizations in 11 towns throughout the country and employed 23,500 people In 1977 Bor reached a peak production of 125,000 metric tons (MT) of copper cathode. During this period it was one of Yugoslavia’s largest and most admired enterprises, and the region’s high living standards continued to attract workers from all over Eastern Europe. By this time, RTB Bor operations had expanded to include a wide variety of activities and services related to copper and precious metals, including smelting and refining, production of copper concentrate, wire production, research and development, a trading unit, even the manufacture of jewelry, while acquiring assets such as hotels and seaside resorts. Bor’s decline began with the breakup of Yugoslavia. Most of RTB Bor’s enterprises located outside of Bor region were gradually spun-off during the 1990’s, although real estate assets remain. By 2001, 13,535 workers were employed by RTB Bor group in Bor District and even this shrunken workforce was far larger than needed as the company’s operations shrank.

2 Bor is both a city and one of Serbia’s 25 districts.


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Only one of three smelter lines is operational. The socialist legacy, the Yugoslav wars of the 1990’s, mismanagement, the failure to fund strategic exploration and the development of new reserves, all had their impact. Perhaps most importantly, the fall in production also reflects the inevitable decline in the ore grade as existing resources become exploited. RTB Bor’s current mining operations would hardly survive in a competitive environment. New explorations and strategic investment, however, have great potential for reviving Bor’s mining sector, if not the company itself.

3.2 Enterprise structure As of early 2006, RTB Bor was controlled by a holding company, RTB Bor Group d.o.o. that owns common stock in seven subsidiaries and affiliates. These are located in Bor District, one of Serbia’s 25 districts, which comprises the four sub-districts of Bor municipality, Majdanpek, Negotin and Kladovo. The holding company's primary assets are its common share ownership and its "receivables" due largely from the various subsidiaries and affiliates. The enterprises and their ownership structure are divided into core activities related to mining, and downstream operations, as follows: Core activities:

1. RTB BOR GROUP d.o.o. (acts as holding company, 80% owned by subsidiaries) 2. Smelter and Refinery d.o.o. - TIR (51% owned by GROUP) 3. Copper mines Majdanpek d.o.o. - RBM (51% owned by GROUP) 4. Copper mines Bor d.o.o. - RBB (51% owned by GROUP)

Downstream operations:

5. Equipment and Parts Factory d.o.o. - FOD (51% owned by GROUP) 6. Enameled Wire Factory v – FLZ (“Lak Žica”) (51% owned by GROUP) 7. Copper Institute d.o.o. - INSTITUTE (51% owned by GROUP)

The core activities plus the Enameled Wire Factory are sometimes referred to as the ‘copper line’.

3.3 Rationale for restructuring/ privatization The absence of hard budget constraints at RTB Bor has resulted in a dependency on direct and indirect subsidies. The record high price of copper on world markets only serves to mask the problem and does not imply profitable production. RTB Bor’s huge debt obligations are from a large variety of sources – most of which constitute debt owed to state-owned or state-controlled entities. The bulk of Paris Club and London Club debt is not owed by the holding, but rather by the Copper Mines Bor, and by the Copper Mine Majdanpek and by TIR, the smelting and refining company. The Feasibility Study identified the following circumstances as the basis for RTB Bor’s urgent restructuring:3

− Bor is losing some $45 million dollars a year;

3 The findings have been incorporated into the Government of Serbia’s ‘Action Plan for the Restructuring/ Privatization of RTB Bor GROUP d.o.o. and Subsidiaries.’


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− At the end of 2004 Bor had some $500 million in historical debts that it not only cannot service, but which increase each year, as Bor is subsidized by a variety of state entities. These were – the Development Fund ($862,000 per month), Social funds ($1.2 million per month), State owned utilities ($750-800,000 per month). There were also some four months of wage arrears as of December 2005.

− Bor's existing mines are essentially out of copper that can be mined economically. In total the

two open pit mines and the underground mine were producing at a rate of less than 1,000 tons of copper per month as of year end 2004. Although copper is selling at an all time high in world markets, Bor is losing money on every ton of copper concentrate and every ton of cathode it produces.

− Bor's smelting operation is old, uneconomical and highly polluting, with serious

consequences for the health of region’s population. Tailings ponds show possibility of spilling. After 102 years of mining, the environment in and around Bor has become severely degraded. Urgent environmental clean-up is required to prevent potentially large spillages of tailings from Bor into nearby rivers and, potentially into the Danube.

− Bor's mining equipment, its transport systems and trucks are largely obsolescent. RTB Bor management’s business strategy envisages significant organization, technological and economic changes within the whole system, and particularly in core operations, where only mining and metallurgy enterprises related directly to copper production will remain (copper cathodes, copper casting, copper alloy, and copper wire). The reorganized core operations will consist of the copper mines with mills in Bor and Majdanpek: the smelting plant, electrolysis, sulfur plant, transport, foundry, copper wire and copper processing products, and the power plant. However, according to the Feasibility Study, the management’s strategy is insufficient to adequately address the company’s problems. Based on the plan, the government would need to provide, in the absence of a more aggressive restructuring/privatization program, between US$109 - 114 million in 2005 and 2006, to cover Bor's operating losses and investment requirements.4 Based on the feasibility study estimates, present levels of labor are far higher than any competitively run mining operation can be expected to tolerate. Staffing levels are geared to Bor's historical production levels yet even at that level of production, Bor would be overstaffed by any international comparative measure Table 2. Comparative labor productivity Number Tons of Cu of employees Tons of mined Cu in conc. per employee RTB Current (mines) 3,276 12,000 3.7 RTB Bor Proposal (mines) 2,431 45,000 18.5 Highland Valley, CAN 951 170,400 179.2 Escondida, Chile 4,192 1,000,000 238.5 Mission, USA 700 136,000 194.3 Ernest Henry, AUS 455 110,000 241.8 Source: Feasibility Study

4 Felske and Lieberman.


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The restructuring and privatization process supported under the Action Plan will necessarily trigger major cuts in the workforce. A phased reduction, beginning with 2,500 employees in early 2006, before the start of the tender, is envisioned. This will almost certainly be followed by further redundancies, depending on the level of interest shown by investors in various parts of RTB Bor. Assuming that a share of employees will stay with the divested and privatized RTB Bor enterprises and taking into account natural reductions due to attrition and retirement, this process may amount to eventual redundancies in the order of all but 1,500 workers. Needless to say, without major, comprehensive support from GoS and the donor community this goal will be difficult to implement. The restructuring of Bor and rationalization of its workforce does not imply the end of the mining activity in the region. The eastern part of Serbia, including the area around RTB Bor, is enormously prospective for new mineral deposits, of both copper and gold. There is a known porphyry copper body under the existing old Jama mine operations, the Borska Reka underground deposit, which may be developed into a profitable operation by the use of capital-intensive block-caving technique. The nearby Black Summit (Crni Vhr, Serbian) area also has potentially significant deposits of copper, gold, and other rare metals. If explorations of recently awarded concessions lead to the discovery of economic ore reserves, the region could experience large infusions of FDI. The only way mining jobs can be restored to the region is for investors to explore and develop these prospective deposits. Coupled with the sale of RTB Bor’s core assets to outside investors there is the distinct possibility of the region’s revitalization as a prime mining area.

3.4 Employee redundancy Steps to deal with RTB Bor’s surplus labor began several years ago. In 2002, the first stage of employee redundancies (a process referred to as the social program) resulted in the redundancy of 3,457 employees, or 27 percent of RTB Bor’s 12,687 employees at the time. Severance payments from the Government budget were 428,245,000 CSD (around €2,000 per employee). Lay-offs were voluntary, although it is reported that significant pressure was exerted on employees to leave. It is unlikely that subsequent social programs can rely on voluntary redundancies to the same extent. The present study provides recommendations which will used to inform the design of the next social action plan, which RTB Bor management must draft and present to MoLESP. Among the challenges in designing and implementing RTB Bor’s next social program, the following appear to play the greatest role:

– what is considered to be a low severance package (of €100 per year worked), and little faith in the efficacy of proposed active labor market measures;

– the perception among current employees that those made redundant in 2002 are generally worse off than they were working at RTB Bor;

– the misperception, based on incomplete information, that the high price of world copper means RTB Bor is operating economically and can be competitive;

– a much higher unemployment rate in 2006 compared with 2002, implying greater competition for job openings; and

– the probability that few employees will leave voluntarily. In addition, retaining strategic human capital during the downsizing process is a key concern. According to the feasibility study, “the knowledge of RTB Bor geologists and the geological data


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collected by RTB Bor during the past one hundred years represent an enormous resource for the future development of the Serbian Mining Industry.”5

5 Felske and Lieberman.

This potential will be crucial to supporting new discoveries. Combined with resistance by some stakeholders (e.g. trade unions) to restructuring, these issues represent the various roots of the problem facing policy makers and advisors working on RTB Bor’s proposed privatization. All of these must be dealt with and the report seeks to offer guidance on how to address them in a practical, efficient and sensitive manner. The most important question relates to what prospects there are for the redeployment of redundant workers once they leave the company and enter the labor market. Before looking at the survey findings, a brief overview of the national and local economy is therefore presented.


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4. E C ONOM Y A ND L A B OR M A R K E T

4.1 Over view Following a turbulent period of regional conflict during the 1990’s, during which Serbia experienced economic isolation, hyperinflation, and dramatic increases in poverty and unemployment, macroeconomic stability was reestablished in 2001-2002. Milošević’s forced removal from power, along with the initiation of key structural reforms, represented a solid basis for medium-term growth, of crucial importance for poverty reduction. Macroeconomic policy was directed at removing imbalances and creating conditions for medium-term economic stability. Since 2001, the economy has experienced continuous GDP growth (reaching 8.6% in 2004), a rise in FDI, and a reduction in the foreign debt to GDP ratio. Nevertheless, the current account deficit and the speed of structural reforms have left challenges for the future, which are still being addressed by various measures that should improve the competitiveness of the Serbian economy. Inflation has been high, at over 15 percent in the past two years. Notwithstanding significant progress in many areas of transition, deep structural weaknesses remain. The key determinants of the potential for growth, such as exports, investments and national savings, are still at a very low level. Macroeconomic imbalances and the burden of debts continue to render the economy sensitive to shocks.6

4.2 Pover ty

Bearing in mind the inherent difficulties in arriving at precise poverty indicators, poverty analyses based on 2003 data indicate that about 10.5% in Serbia live below the national poverty line. These are derived from household budget survey (HBS) data of consumption (per equivalent adult) of less than €71 per month, or €2.4 per day, but other methods for estimating poverty show that the ranges between 11 and 20 percent for 2003 and 13 and 20 percent for 2004.7 There are also many non-poor living very close to the poverty line. Poverty rates are highest among vulnerable groups and in rural regions, while regional disparities are growing. In all other regions except for Eastern Serbia (where Bor District is located) and Southeast Serbia, over that same period.8

6 Republic of Serbia. “First Progress Report on the Implementation of the Poverty Reduction Strategy in Serbia.” 2005. 7 In Montenegro the threshold is higher, at €3.9 per day. 8 Republic of Serbia. “First Progress Report on the Implementation of the Poverty Reduction Strategy in Serbia.”

Eastern Serbia is somewhat better off than the Southeast, where economic development has traditionally lagged behind the rest of the country.


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Figure 1. Percentage of poor by region in Serbia, 2002-2003

10.68.8

10.2 10.1

16.6

10.5

4.2

9.711.4

7.8

13.5

7.9

13.2

23.5

0

5

10

15

20

25

National Belgrade APVojvodina

Western Sumadijaand

Pomoravlje

EasternSerbia

SoutheastSerbia

2002 2003

Source: Government of Serbia. “First Progress Report on the Implementation of the Poverty Reduction Strategy in Serbia.”

4.3 L abor mar ket Serbia is experiencing most of the problems typical of CIS and SEE transition economies, including: i) an increase in unemployment to levels higher than the EU and OECD, ii) high incidences of long-term unemployment and lengthening of joblessness periods, iii) high youth unemployment; and iv) high unemployment among the lower educated.9

Increasing labor market flexibility is one of the key issues for improving the employment situation in Serbia. Prior to 2000, labor force participation in Serbia remained steady as real wages declined. However, following the initiation of reforms in late 2000 which led to a somewhat more flexible labor market, official unemployment rates increased to 14.6 percent

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As noted in a 2004 World Bank report on Serbia’s economy and employment, the flexibility of Serbia’s labor market is in urgent need of improvement.

while net monthly wages increased threefold, in euro terms, from 60 to 180 by 2004, reflecting real wage growth as well as the appreciation of the Serbian dinar.

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Serbia is still dealing with the legacy of self-management at enterprises has led to labor rigidity and labor hoarding in most of the economies of former Yugoslavia. Formal rights to lay off workers, granted in 1989, have remained highly restrictive. Obligations to dismissed workers

Despite significant improvements in laws on labor and employment, the formal labor market remains rigid and functions poorly, with employment steadily leaking to the informal labor market. Youth, women and the less educated poor are at a particular disadvantage in this area. Wage discipline appears poor, with recorded real wage growth exceeding productivity growth.

9 World Bank. “Republic of Serbia – An Agenda for Economic Growth and Employment.” 2004. 10 Labor Force Survey – 2003. 11 World Bank. “Republic of Serbia – An Agenda for Economic Growth and Employment.”


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were held by firms instead of labor market agencies or social funds and further discouraged willingness to make cuts in the workforce to improve competitiveness. In this sense, state-owned companies in Serbia have acted as social assistance mechanisms, in addition to serving their primary purpose. The 2004 World Bank study underlines the importance of implementing sound labor and employment protection policies while facilitating the reallocation of labor to its most efficient uses, encouraging investment in human capital and increasing the economy’s competitiveness.12

4.4 B or r egion

These findings apply with particular urgency to Bor, which once epitomized the socially-owned model and now epitomizes to a similarly acute degree the restructuring challenges facing many large socially owned enterprises in Serbia. According to the World Bank, the share of self-employment in total (non-agricultural) employment in Serbia, at 5 percent, is among the lowest in the region, and at half the level found in CEE countries. Rising self-employment, essentially a weaning from state-provided jobs, has played an important role in most transition countries and will need to be supported in Serbia. Employment in small and medium-sized enterprises is also said to unsatisfactory. Nonetheless, the probability of finding a job in Serbia is high relative to other transition countries. This is attributed to a large and active informal sector, which appears to be mitigating the negative impact of the transition process. Informal employment was tolerated as a key survival strategy during the 1990s and continues to be an important coping strategy. At the same time, although participation in the grey economy remains one of the main means of survival for the poorest groups in Serbia, as always this is an avenue for increasing income at the expense of tax revenue, weakening the ability of the state to address social problems. To break out of the vicious cycle, it is important to continue moving informal jobs and businesses into the formal sector.

Bor region, consisting of the Bor and Majdenpek municipalities and a number of other villages where Bor's mines are located, is one of the poorest districts in Serbia. Along with low wages Bor also has the highest unemployment levels in Serbia.13 The unemployment rate is around 27% in Bor and 26% for Majdenpek.14

Other than copper mining, the area is largely agricultural, with cattle breeding seen as having the most potential. There may also be some potential for tourism, as Bor is situated in an area of low rolling hills and mountains and several rivers and lakes. But that potential has yet to be exploited, with the environmental impact of Bor's mining and metal processing operations acting as a real constraint.

Wages are low, with average wages equal to 42.8% of the national average in Bor and 32.8% in Majdenpek. A large proportion of employees work in firms with significant salary arrears.

15

12 World Bank. “Republic of Serbia – An Agenda for Economic Growth and Employment.” 2004. 13 As reported to Felske and Lieberman by the Director of the Labor Bureau. 14 Cvetkovic, Mirko and Ira W. Lieberman. “Serbia Briefing Note on Direct and indirect Subsidies and Redundancy Payments to Socially Owned Enterprises in the Process of Restructuring/Privatization.” 2005. 15 Felske and Lieberman.

In both Bor and Majdanpek, a high proportion of the working population is employed directly in mining operations. As of September 2005 there were 15,369 officially employed in Bor municipality. Of these, 7,070, or 46 percent, were employed by RTB Bor enterprises.


14

Over the years, this region has experienced a steady population decline, due primarily to the drop in production at the mine. According to the 2002 census, the population of Bor municipality stood at 55,817, a drop of 6 percent from 1991 when the population was 59,424. The city of Bor has a population of about 40,000, with the surrounding villages (included in Bor municipality) adding approximately 16,000 inhabitants. The neighboring municipality of Majdanpek has a population of 23,617, representing a drop of about 6,000 since 1991. . Often, those who have roots in other areas have returned to their place of origin. The deepening crisis at RTB Bor has had a number of negative impact on the region’s economy, among which the most prominent are: i) a drastic decline of the regional product/national income, with Bor and Majdanpek ranked 161 and 162 out of Serbian municipalities by level of national income per capita in 2003, ii) the low level of turnover in retail trade per capita (turnover in Bor amounted to 54.5%, and in Majdanpek 45.8% of national levels); iii) an almost 50 percent increase in unemployment levels since 2001, and iv) negative natural increase of population. Unemployment in Bor region has increased dramatically since the last social program. As of August 2005, the number of registered unemployed in Bor municipality was 6,917 and 2,962 in Majdanpek, based on NES data. Within Bor region, every sub-district except for Negotin has had fairly level unemployment levels over the past two to three years. In fact, there has been a marked decrease since the beginning of 2004. Of course, the main story is the steep rise in registered unemployed in May and June 2002, which coincides with the implementation of the first round of lay-offs at RTB Bor. The next round of lay-offs will presumably lead to a similar jump. Figure 2. Unemployment levels in Bor district, 2001 - 2005

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

may 01

aug 01

nov.0

1feb

.02maj.

02avg

.02no

v.02

feb.03

maj.03

avg.03

nov.0

3feb

.04maj.

04avg

.04no

v.04

feb.05

maj.05

avg.05

Bor mun.

Negot in

Majdanpek

Kladovo

Source: Bor municipality data


15

PART II. MAIN FINDINGS

5. LABOR AND WELFARE IMPACT

5.1 E mployee pr ofile The complex of companies which make up RTB Bor employed 8,356 workers as of June 2005. In Bor municipality, RTB Bor’s share of employment is approximately 7,024 at the mines and associated enterprises. This represents close to half of all those listed as employed in the municipality, but it is estimated that some 80 percent of the region's population is directly or indirectly dependent on RTB Bor's operations.16 About 15 percent (1,286) of RTB Bor’s workforce are currently employed at the Majdanpek mining complex, located 60 km away from Bor municipality.17 The breakdown of currently employed by enterprise, together with the reductions experienced after the 2002 social program can be seen in Table 3. Table 3. RTB Bor employee composition and reductions following the 2002 social program

Enterprise Currently employed Reduction in 2002, % Copper mines - Bor (RBB) 2,793 22.6 Copper mines - Majdanpek (RBM) 1,286 40.8 Smelter and Refinery (TIR) 2,743 20.1 Factory of Enameled Wire (FLZ) 114 18.6 Factory of Equipment and Parts (FOD) 933 28.3 Copper Institute (Institut) 441 17.8 Yugotehna (Belgrade) 46 0 Total 8,356 26.0

Source: RTB Bor company data as of June 30, 2005 The Majdanpek mine (RBM) experienced the largest share of voluntary redundancies in 2002. It can be seen that of all RTB Bor’s enterprises, Majdanpek copper mine experienced the largest reduction in percentage terms, of over 40 percent.

16 According to the Mayor of Bor Municipality, as reported in Felske, Brian and Ira Lieberman. 2005. “RTB Bor Feasibility Study.” 17 Company data, as of June 30, 2005.


16

Table 4. Demographic characteristics of employees Current Former Number of employees* 8,356 3,457 Female employees* 22% 20% Average age* 42.9 47.2 Average household size* 3.6 3.5 Education - High (VI,VII,VIII) ** 13% 8% Education -Middle(III, IV,V ) ** 66% 69% Education -Low (I,II) ** 21% 23% Average years worked** 20 na Average beneficiary years worked** 22 na Disabled workers* 788 na

Sources: *RTB Bor company data **author calculations based on survey data

In 2002 older workers were more likely to leave and better educated workers more likely to stay. The composition of current and former employees is not identical, but the differences are small enough to allow us to make general predictions about the next wave of redundant employees (Table 5). The largest differences can be observed with respect to age and education: older workers were more likely to leave, and better educated workers were more likely to stay, probably because of the difficulty in finding alternative employment that would use their specialized skills and knowledge. Table 5. Age levels of current and former employees

Current Former N % N %

≤ 35 204 22.6 45 12.6 36-55 642 71.1 239 66.8 ≥ 56 57 6.3 74 20.7 Total 903 100.0 358 100.0

Source: author calculations based on survey data Almost 14 percent of the workforce is within five years of retirement. Among current employees, there were 1,146 employees within five years of retirement, of which 520 were within two years of retirement as of June 30, 2005. 18

5.2 W elfar e

They present the most obvious candidates for redundancy. Approximately 2,170 (26 percent) of current employees are 51 years or older. At RTB Bor, because the requirement for retiring is 40 beneficiary years, the effective retirement age for many is below 60.

On average, households of former employees are no worse off than current employees. Contrary to expectations, the survey found that households of former employees are not worse on average in terms of consumption (€130 per capita), than the households of current employees (€124 per capita). The difference is large enough (supported by median figures of €111 per capita

18 RTB Bor company data.


17

consumption for current and €121 for former employees) to conclude that overall welfare levels have actually risen for the average former RTB Bor employee. Figure 3. Per capita monthly consumption levels by age

128 122134

124132 131 122 130

0

50

100

150

≤ 35 36-55 ≥ 56 Average

Current Former

Source: author calculations based on survey data Since Bor is a depressed region and RTB Bor is a struggling enterprise, the welfare levels and salaries of current employees are already low. For some, even finding a low-paid job is enough to maintain their consumption levels. It must, of course, also be borne in mind that very few employees actually resemble the statistical average. While many have done better, many are also struggling, as was testified during in-depth interviews. The following three typical responses to a question on whether living standards have increased or decreased illustrate the range of experience.

The situation is the same. Living standards have not changed, since when I was working the salary was very low. We do not feel any consequences. (S.I, high school, unemployed, female, disabled, former employee at RBM). Since at “Lak žica” we were on a minimal salary for two years in 2003 and 2004 and my wage was 1,500 dinars, my living standards are now much better. I work privately, I drive a pickup van, and the salary is much higher and more regular than it used to be when I worked at the factory. I was planning to leave the company even without the social program, because with that wage I could not care even for myself, not to mention my family. (Z.P, male, elementary school, employed, former employee at FLZ). The situation is much worse. I do not work because I cannot find a job, and I have no other income. I have two children, and I support them from the children’s allowance and my parents help me. (N.V, high school, unemployed, female, younger, former employee at RBM).

Self selection (through voluntary redundancy) may partially explain stable consumption patterns. The results may seem counterintuitive, since normally, losing a job means losing a salary, along with lower household income and consumption. However, while this may have been the case initially, many former employees have found jobs, and the households of those who didn’t have clearly found ways of adjusting and maintaining consumption levels. It must be remembered that these former employees left voluntarily - they were not laid off. Many of these who chose to leave left precisely because they were ready to leave. This is an important lesson: employees must be given time to develop ideas and plans for their post RTB Bor life.


18

Redundancy has not translated into increased poverty levels. In order to estimate poverty, respondents were divided into quartiles, with the bottom quartile considered ‘poor’ and the top quartile ‘well off’. Comparison between the bottom quartiles (25 percent) of current and former employee households reveals that even poor former employees are better off than they would have been had they remained: the mean consumption of former employees is slightly higher, at €69 per capita, compared with €63 per capita for current employees (Table 6). Table 6. Current and former employees by consumption quartiles Average per capita consumption , €

Current Former top quartile 239 232 third quartile 131 139 second quartile 97 104 bottom quartile 63 69 average 124 130

Source: author calculations based on survey data Only the top 10 percent of current employees are better off than those who left. As can be seen in Figure 4, there is a slight shift to the right among former employees, signifying higher consumption levels for at least the bottom 90 percent. There may be some welfare impact, with the top quartile of current employees somewhat better off than former employee households. However, this indicates a lower level of inequality within the pool of former workers compared with current workers. While many former employees have experienced major impact in terms of their employment status – the impact of giving up a job and no longer being the main income provider should not be underestimated – their households appear to have adjusted well, with an overall increase in per capita consumption. Figure 4. Cumulative distribution consumption levels of employee household members (monthly per capita)

0%

20%

40%

60%

80%

100%

<20 50 90 130 170 210 250 290 330 370 410 >450

Minimum consumption, €

Shar

e of

hou

seho

lds

Current employeesFormer employees

Source: author calculations based on survey data


19

On average 40 percent of household income is derived from RTB Bor salaries. In line with the region’s estimated economic dependence on mining operations, respondent households rely on salaries for between 35 and 45 percent of their consumption (Table 7). Per capita household consumption does not differ greatly by age cohort, falling between €122 and €134. Young workers have the lowest salaries, as expected, but their households’ are also the least dependent on their salaries for consumption needs. This lower dependency suggests that they may be better off than their older colleagues when they leave the company. The dependency of the local population on RTB Bor goes beyond individual salaries and household income because of the upstream and downstream companies and the local spending power of employees. However, the findings at the micro level, that 40.3 percent of salary covers household expenses, coincide almost perfectly with the assessment that 42.9 percent of total income in Bor municipality, and 40.5 percent of total income in Majdanpek, was derived from the mines and metallurgy processing industry in 2003.19 Table 7. Current employees: Household consumption and dependency on respondent’s salary, by age, €

Age group RTB Bor salary Per capita monthly

consumption

Ave monthly household

consumption

Household dependency on

respondent salary, % ≤ 35 158 128 441 35.8

36-55 172 122 416 41.3 ≥ 56 189 134 413 45.7

Average 170 124 421 40.3 Source: author calculations based on survey data Gender of RTB respondents was not a factor in household consumption levels. Women employees earn on average €148, which is €30 less than men, but this is at least partly because they are disproportionately represented in administration jobs. Just over 40 percent of interviewed female employees worked in administration, compared with just 4.7 percent of interviewed males. Households of women employees tend to depend less on RTB Bor (salaries cover 37.2 percent of consumption) than those of their male colleagues (41.3 percent). Age is correlated with salary but not with consumption levels. Highly educated workers, with average salaries of €234, also have the highest per capita consumption levels, at €169, while lowest educated workers, earning on average €148, have per capita consumption levels of €111. This would presumably be an additional factor in explaining reluctance to leave. Lowest educated workers saw greatest increase in consumption levels following redundancy. The difference between current and former employees education levels reveals that lower educated workers may be the best off leaving RTB Bor. Only the household members of the most educated employees experienced a decrease in consumption, while the other two groups, which together form 87 percent of RTB Bor’s workforce, both saw increases. It is no surprise that although 13 percent of the workforce has higher levels of education, only 8 percent of those that left in 2002 belong to this group.

19 Feasibility study.


20

Figure 5. Per capita consumption according to education levels 169

119 111124

163

126 126 130

0

50

100

150

High Middle Low Average

Current Former

Source: author calculations based on survey data Former Majdanpek employees have seen the greatest jump in consumption levels. Interestingly, at the Majdanpek mine, where more than 40 percent of employees left the enterprise, per capita income levels of former workers are 18.4 percent higher than those of current Majdenpek workers (€154 versus €130), compared to 2.4 percent for all others (€126 versus €123). Salaries at Majdanpek are lower (€158 versus €171) but dependency on RTB Bor salary at Majdanpek is not significantly different than for employees at other enterprises. Former employees with debt carry on average 37 percent more than their currently employed counterparts. In order to assess whether former employees were borrowing in order to maintain their consumption levels at the cost of increasing household debt, we assessed household debt levels. It was found that average debt for former employees is €796, compared to €579 for current employees. While it does appear that some former employees are using debt to maintain consumption levels, spread out over the 3.5 years since redundancy took place the difference amounts to €81 per year, or just €1.9 per capita per month over that period. This is considerably less than the average consumption difference of €6 per capita per month. Table 8. Debt burden - share of respondents according to household

Debt as a share of yearly household consumption

0% 0 - 10% 10 - 20% > 20%

Former 63 19 9 9 Current 51 32 8 9

Source: author calculations based on survey data ...but former employees are less likely than current employees to carry any debt at all. Whereas 51 percent of current employee households have no debts, 63 percent of former employee households have no debt. As a share of yearly household consumption, former households are clearly better off, with far fewer carrying 0-10 percent debts and comparable numbers for higher levels. Household debt is lower than arrears owed to employees. Looking at current employee households, the survey found that for each age group, household debts were less on average than the wage arrears owed to the employees by RTB Bor. A well considered financial plan might use


21

the proceeds from payment arrears to cover outstanding debts when employees leave the enterprise. Typically, severance pay is spent on consumption and debt. But this finding suggests that if wage arrears are paid out during the four months following redundancy (at which point former employees would be paid up), they would be sufficient to cover debts for the average employee. Severance pay could then be spent more productively. Figure 6. Household debts vs. payment arrears (only households where debts ≠ 0), €

0

200

400

600

800

≤ 35 36-55 ≥ 56 Average

Eur

os Household debtPayment arrears

Source: author calculations based on survey data Former employees borrow less from banks. Respondents borrow from a variety of sources, with former employees carrying proportionately much lower debt from every type of lender, especially banks. Current employees more likely, or able, to borrow from all sources than former employees, who borrow less in general.

It’s inconceivable to take a credit and buy clothes or home appliances, already carrying debts for utilities. Taking a bank credit doesn’t cross my mind, because I don’t know what my financial future will be, whether I’ll be able to repay credit. Taking out such a credit is irresponsible because RTB Bor’s future isn’t certain (M.B., higher qualifications, age 56, female, current employee at Lak žica-FLZ).

Table 9. Source of borrowing, current and former employees with debt

Current employee households Former employee households

Lender N* Share N* Share Family 70 7.8% 16 4.5% Friend/acquaintance 156 17.3% 47 13.1% Banks 254 28.1% 54 15.1% Private non-bank lender 12 1.3% 2 0.6% No answer about lender 2 0.2% 28 7.8%

Source: author calculations based on survey data *Note: N is larger than the share of actual borrowers because some households borrow from more than one source


22

Table 10. Size of debt and interest rates, current and former employees Current Former

Lender Average size

of debt, € Interest rate per month

Average size of debt, €

Interest rate per month

Family 354 0.0 911 0.0 Friend/acquaintance 474 0.01 391 0.06 Banks 557 0.87 668 0.77 Private non-bank lender 805 1.77 1,675 - No answer about lender 50 na 1,051 0.87

Over 76.6 percent of current employees are the main income provider compared with just over half of former employees. While the households may not face large adjustments in terms of consumption, the same cannot be said for the employees themselves. While 76.6 percent of current employees reported that they were the main income provider for their household (or provided equally with another household member) this was the case for only 51.1 percent of former employees. Figure 7. Respondent who are main income providers (or provides equally with another), %

67.679.3 78.9 76.6

48.9 48.1

62.251.1

0

20

40

60

80

100

≤ 35 36-55 ≥ 56 Average

Perc

enta

ge

Current Former

Source: author calculations based on survey data Households of former employees depend far more on pensions than salaries. Leaving RTB Bor appears to have a strong impact on a household’s main income source. Salary, whether from RTB Bor or elsewhere, is the main source for only 56.1 percent of former employees, compared with 95.8 percent of current employees. The difference is made up mostly by a reliance on pensions but pensions are not an ideal coping strategy for a household. The new pensions law in Serbia which has come into affect since the last RTB Bor redundancy program uses calculations which lower the monthly amount, and this reliance pensions would be correspondingly less after the next round of redundancies.


23

Table 11. Main household income source, % Main household income source Current Former

RTB Bor salary 86.4 7.8 Non-RTB Bor wages and salaries 9.4 48.3 Pensions 3.9 29.1 Agriculture (farming, hunting, fishing) 0.2 3.6 Day labor (per diem) 0.1 3.9 Remittances 0 1.7 Using savings 0 1.4 Social assistance (money transfers) 0 2.0 Other 0 1.7

Source: author calculations based on survey data Generally, most former employees who left the region perceive themselves to be better off than before. Based on in depth interviews, the majority of employees who left the region estimate that their welfare is better or approximately the same as in the period when they worked in RTB Bor. The improvement in welfare was mostly based on three elements: a higher salary of the employee, more employment for other household members and better environmental conditions.

Welfare is better. I have bigger salary than in RTB, as does my wife, who also worked at RTB, and is employed here at Delta holding. We are sub-tenants in Belgrade, but we rent out an apartment in Bor and so compensate the expenses. G.A. (male, age 40, secondary school education, FLZ)

5.3 E mployment One third of former employees report being unemployed. Among former employees, there are 38.8 percent employed, 33.8 percent (registered and unregistered) unemployed and 27.4 percent not active. Employment status by age breakdown reveals that younger workers are the most likely to be employed, far more than 36-55 year olds. However, because there are very few not active, their unemployment rates are also higher than the rest. More educated former workers are also more likely to be employed. It must be kept in mind that the survey was conducted three and a half years after the first social program, and many of those who are employed now went through periods of unemployment.

After leaving Bor, I was without job 13 for months. I registered in NES in Pljevlja, but I realized that it was just a formality. I was employed upon recommendation in the Ministry of Defense of Montenegro. M.S. (male, age 47, higher professional education, RBB)


24

Figure 8. Employment by age of former employees

6041.8 38.8

37.8

23

21.8

60.8

27.4

16.2

33.836.4

2.2

0

20

40

60

80

100

≤ 35 36-55 ≥ 56 AverageAge

Perc

enta

ge Not activeUnemployedEmployed

Source: author calculations based on survey data The share of full-time employed among former employee household members is 20 percent lower than among current employees. Based on the assumption that all household members experience the impact of redundancy and make adjustments, we found that aggregate share of household members employed drop from 51.2 percent to 31.1 percent for former employees. The number of registered unemployed rises from 9.7 percent to 16.4 percent, unregistered from 2.2 percent to 4.7 percent. There are more pensioners in the families of former employees, and slightly more part time and seasonal employees. Many older former employees reported that age prevented them from finding work. For older employees who are made redundant there are few prospects for finding work. Some are content with retirement, but many reported being frustrated with their situation.

I tried to work in Vrnjačka Banja, in the hotel, but because of my age, since I am 52, and because I lacked a place to live, no one wanted to hire me. I tried to find a job in Bor, through the Employment Bureau, and announcements, but nothing. All they are looking for younger people. (M.M, associate degree, unemployed, middle age, former employee at FOD).

The social costs of being made redundant are particularly high for older educated workers. The situation for older employees with high education is especially disheartening as they frequently cannot find other work in their profession.

I accept all jobs. I mostly work manual jobs. I am aware that in my age and depressed economy I can’t find employment in my profession. I feel utterly degraded and humiliated, because I had responsibility and a creative job in Institut za Bakar… It is difficult for me to find work due to my age and the depressed economy. V.D. (male, age 60, higher professional education, Institut)


25

Table 12. Employment status of respondent household members (including respondent) All household members

Current employees Former employees N % N %

1. Employed full time 1,425 51.2 336 31.1 2. Employed part time 11 0.4 23 2.1 3. Employed seasonal (including farming) 22 0.8 23 2.1 4. Unemployed (registered) 270 9.7 177 16.4 5. Unemployed (unregistered) 62 2.2 51 4.7 6. Pensioner 280 10.1 185 17.1 7. Student 435 15.6 168 15.6 8. Housekeeper (not working) 220 7.9 75 6.9 9. Disabled 9 0.3 8 0.7 10. Unpaid family worker 12 0.4 20 1.9 11. Sick leave 10 0.4 4 0.4 12. Other 29 1.0 10 0.9 Total: 2,785 100.0 1,080 100.0

Source: author calculations based on survey data Though worse off than former employees with jobs, even unemployed former employees have higher consumption levels than current employees. Household consumption levels of employed former RTB Bor workers are on average 6.9 percent above the mean (€130) in terms of per capita consumption (€139), compared with unemployed households, which are 3.8 percent below the mean (€125). Households of inactive members have somewhat lower consumption levels, and this may be related to the fact that retired persons tend to have fewer expenses. Households of employed respondents also have the lowest debts. Among unemployed former employees debts of are 6 percent higher than for the employed. ‘Non-active’ former employees have household debts that are 30 percent higher than among their employed counterparts. Table 13. Former employees: household consumption and debt by employment status, €

Ave monthly household

consumption

Per capita monthly consumption

Total Household Debt

Employed 465 139 728 Unemployed 413 125 773 Not active 379 122 943 Mean 424 130 796

Source: author calculations based on survey data Almost all non-active former employees over 55 are retired. Of the 60.8 percent of former employees over 55 who are not active, in 96 percent of the cases this is because they are retired. It is also worth noting that 15 percent of former employees 36-55 are already retired.


26

Figure 9. Former employees - employment status by education levels

52.638.3 32.2 38.8

21.134.9

37.333.8

26.3 26.8 30.5 27.4

0

20

40

60

80

100

High Middle Low Average

Education level

Perc

enta

ge Not activeUnemployedEmployed

Source: author calculations based on survey data There are an estimated 1,200 unemployed former Bor employees. A share of 25.1 percent registered unemployed implies that there should be almost 1,200 former Bor employees without work. It is interesting to note that in the May and June 2002, according to municipality data, unemployment jumped from just over 5,000 registered unemployed to over 7,000 unemployed. Many of those who initially registered as unemployed since found employment, and it can be assumed that a share of those with employment remain registered unemployed. The net change in employment status was positive among former employee households and negative among current employee households. In the past year, in 903 current employee households 44 lost a job and 17 found a job. Out of 358 current employee households 17 lost a job and 23 found a job. In line with expectations, unreported economic activity appears to have a cushioning effect. It can be assumed that unreported economic activities is having a cushioning effect on household welfare, softening the bleak picture painted by official statistics. This seems to be the most likely explanation for the increase in household incomes even as reported unemployment among former RTB Bor employees is relatively high. Former employees have an easier time when working for an employer. Based on in depth interviews, former employees who started their own businesses have lower welfare than the workers who are employed in government or private companies, because the conditions for operating a small business are unfavorable, due to low demand for products and services and the high tax burden. Former mine workers are the most likely to be employed. Looking at employment by type category held while at RTB Bor, the highest share of currently employed come from mining, while the lowest had administrative and management jobs (Table 14).


27

Table 14. Employment among former employees by their RTB Bor employment category Employed Unemployed Not active

Management- Administration 26.5 32.7 40.8 Mining 53.3 27.3 19.5 Production 38.8 26.5 34.7 Maintenance 35.9 37.7 26.4 Other 37.5 50.0 12.5 Total 38.8 33.8 27.4

Source: author calculations based on survey data Household members of former employees are more likely to be engaged in entrepreneurial, farming, and service sector jobs. Taking a holistic view of the adjustment process, a clear move into more independent employment can be seen. Whereas only 0.7 percent of current workers are entrepreneurs, 7.7 of former employee household members are. The greatest declines in employment type are seen in skilled (non-white collar), administrative support, and unskilled work (Table 15). Table 15. Employment type of respondent household members (including respondent)

Source: author calculations based on survey data When former employees have jobs, they are likely to be better paid, in most cases, than current employees in the same employment categories. This applies to all except former mine workers. Former mine workers are either under the most pressure, or are the most willing to find employment in order to support themselves and their families, and for this reason may be willing to work at lower paid jobs or because miners’ unique skills are difficult to put to use outside RTB Bor. It is quite possible that if former management-administration employees were desperate, they could also find such work, but they may be unwilling because to accept it of the loss of status and severe change in professional identity this would entail.

All employed household members Current employees Current employees

N % N %

1. Administrator/supervisor/ manager (highly skilled white collar) 44 2.9 16 4.0

2. Professional (economist, engineer, lawyer, etc.) 186 12.4 38 9.5

3. Service sector 68 4.5 43 10.7 4. Skilled (non-white collar) 694 46.3 147 36.7 5. Administrative support 261 17.4 48 12.0 6. Unskilled worker 123 8.2 19 4.7 7. Farming (including subsistence agriculture) 29 1.9 24 6.0 8. Businessman/woman or entrepreneur 11 0.7 31 7.7 9. Day laborer 9 0.6 10 2.5 10. Other 75 5.0 25 6.2 Total: 1,500 100.0 401 100.0


28

Figure 10. Salaries of current vs. former employees (reporting salaries)

155183

170 170142

169176148

184 180 173 171

0255075

100125150175200

Management-Administration

Mining Production Maintenance Other Average

Euro

s per

mon

th

Current Former

Source: author calculations based on survey data RTB Bor salaries are considered low. It has already been noted that the current level RTB Bor wages are quite low by Serbian standards, which partly explains why former employees are able to earn higher salaries even when they find jobs for which they are perhaps not qualified. At end of year 2003, average gross salaries in Serbia were €243 (16,612 CSD).20 Again, looking at Majdanpek, it was found that unemployment rates are higher there than among other enterprises. Table 16. Employment status of former Majdanpek employees, %

Former employees Majdanpek Other Total Employed 36.2 39.3 38.8 Unemployed 41.4 32.3 33.8 Not active 22.4 28.3 27.4

Source: author calculations based on survey data Approximately 16 percent of former employees have left the region. Of the 66 respondents who left, 39 remained within Serbia and 27 left the country. The reasons for moving were usually because of family connections. Of those who left the region, it is believed that most have steady employment, based on the ten who were contacted for the survey. Of these, eight had formal jobs and two informal. Table 17. Destination of former employees who left the region Destination N All Serbia and Montenegro 39 Belgrade 12 Vojvodina 8 Italy 14 Other foreign 5 Unknown 8 Total 66

20 Statistical Office of the Republic of Serbia. 2004 Statistical Yearbook. Belgrade.


29

Source: author calculations based on survey data Almost half of current employees are interested in leaving the region. A remarkable share, 44.6 percent, of all current employees stated they would try to leave the region if they were made redundant, with the greatest interest seen among young workers. 64.2 percent of employees under 35 said they would leave, compared with decreasing rates for older employees.

It doesn’t matter what job, it depends on finding an opportunity. In the end, people are thinking here – get what you can!!! if I stayed in the region, it might be easier because I have parents who would be support and help, but that wouldn’t last long. Then I should have to move out of the region. If I left Bor, I would move to as big town as possible. The larger the town, greater the opportunities, and with that, higher welfare as well. (M. S., higher qualifications, age 27, male, current employee at TIR).

Figure 11. Share of current employees willing to leave the region, by age

64.2%

39.7%

29.8%

44.6%

0%

20%

40%

60%

80%

≤35 36-55 ≥56 Average

Source: author calculations based on survey data Higher unemployment levels than in 2002 suggest there are fewer local employment opportunities. Labor market conditions which the next round of employees will face are not quite the same as in 2002 with more unemployed looking for work. As the business survey, which follows the section on employment, indicates, there is reason to be cautiously optimistic.

5.4 Sever ance pay and willingness to leave the company Severance pay is the focus of discussion among unions, management and employees. Because severance pay is a direct, easily quantifiable, and immediate form of assistance it has received the most attention during discussions about RTB Bor’s labor restructuring. It has been subject to an ongoing debate among the stakeholders and has yet to resolved. The trade unions and employees have expressed dissatisfaction with the government mandated rate of €100, noting that they will seek at least double this amount. RTB Bor management, searching for alternative sources has proposed the sale of non-core assets, with the proceeds going to top up the government mandated severance level. The feasibility of this proposal was unknown at the time of writing. The vast majority of current employees would prefer to stay at RTB Bor even if offered ‘a reasonable severance package.’ When asked if they would leave voluntarily, given a reasonable severance package, 6.9 percent of employees said yes, a further 8.4 percent gave indecisive answers while 83.7 percent said they would not leave voluntarily. This represents a much smaller


30

percentage than the 26 percent who left voluntarily in 2002. However, it must be noted that a social action plan was not designed or publicized at the time of the survey, and lack of confidence in additional support acts as a deterrent to those who might, under the right conditions, leave voluntarily. When broken down by enterprise (Table 18) we see that the greatest reluctance to leave is found among Copper Institute and Majdanpek employees. This may be explained by the higher number of educated workers in the Copper Institute and by the unfavorable economic situation in Majdanpek. Table 18. Employees who would voluntarily leave now, compared to those who left in 2002

Current Former

Enterprise Would prefer to stay at RTB Bor

Chose to stay at RTB Bor in 2002

Copper mines - Bor (RBB) 81.9 77.4 Copper mines - Majdanpek (RBM) 87.0 59.2 Smelter and Refinery (TIR) 84.9 79.9 Factory of Enameled Wire (FLZ) 86.0 81.4 Factory of Equipment and Parts (FOD) 83.0 71.7 Copper Institute (Institut) 88.9 82.2 Average 83.7 74.0

Source: author calculations based on survey data For former employees, the issue of severance pay is weakly related to welfare. Most former employees were dissatisfied not because they couldn’t live on their severance package. That severance payment s are not linked closely to welfare is demonstrated both by consumption levels and by responses of former employees. Of those who left in 2002, only 3.4 percent said they thought the severance package was reasonable and yet, as Figure 3 shows, their average welfare levels have not declined. When asked to explain why the severance was considered unreasonable only 18.7 percent of former employees said that they could not support themselves with that amount. The vast majority (80.5 percent) said that the government or company could have afforded more, or that they deserved more for the number of years they were with the company.


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Figure 12. Reasons why current and former employees felt severance payment was unreasonable

43.3

37.2

18.7

11.2

4.5

2.5

24.0

20.3

45.6

6.4

4.8

4.4

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Other

A severance package should not bebased on years of service

I should have received more moneybecause my responsibilities at the

company are/were higher

I could/cannot support myselfadequately with that amount

RTB Bor owes/ed me more thanthat for all the years worked

RTB Bor/government could haveafforded to pay me more

Former Current

Source: author calculations based on survey data In contrast with former employees, the greatest share of current employees believe they won’t be able to support themselves on with the standard severance package. Current employees, when asked the same set of questions (but in the conditional tense, i.e. why they wouldn’t be satisfied) responded very differently. In this case, the largest number (45.6 percent) claimed that it would be too low to support themselves (Figure 12). Younger workers are interested in continued education and retraining, older workers in self-employment support. When asked what type of assistance interested them, self-employment support (37.8 percent) and continued education and training (36.7 percent) were the most common answers. Most young workers (58.8 percent) said they would be interested in assistance in education and retraining. With increases in age the preference changes to self-employment support. Older workers were much more likely to be dissatisfied out of a sense of entitlement for all the years they worked (50.0%). Most former employees used severance pay to pay off debts and cover consumption needs. In line with other international experience, it was found that the main areas for use of severance pay were paying off debts and consumption, with 54.5 percent of respondents reporting this in their top three options, almost matched by paying off of debts (which helps explain their lower household debt burden) with 52.0 percent. Many former workers reported that severance pay was inadequate for investing in a business. Among former employees, it was generally felt that significantly higher severance pay levels would be necessary. Even if severance pay were doubled, from €100 per year worked, employees were divided on whether it would make a difference. The following responses given during in-depth interviews, are typical:

If the severance pay was higher, I would have immediately set up my own business and not wait for a loan from the Agency (National Employment Agency) With that money I


32

could help my wife in her existing work and paid back all I owed. I paid back what I owed already, but there was not much left to invest. (I.M, high school, unemployed, FLZ).

If severance pay were 50% higher it could have been enough to make a “small business”, but 100% would be certainly enough to start some production with some friends or cousins. (M.V, high school, middle age, disabled, former employee at RBB).

Among former employees, the median length of time which severance pay lasted was 5.5 months. The survey found that half of former employees spent their 2002 severance pay in just under half a year, though the mean average was 9 months because some employees have made it last up until the present. Younger employees (≤ 35) spent it twice as quickly, a median period of 3.8 months, than older employees (> 55) who made it last 7.5 months. Interest in investing in a business is unusually high. Current employees were asked about a future scenario: what they would spend their severance pay on in the event they were laid off. Their responses differed significantly from those of former workers. Almost half of current employees (48.6 percent) checked off ‘investing in a business’ among their top three choices. Based on experience this is unrealistic – a much smaller share (21 percent) of former employees used their severance pay to invest in a business (though this workers is a higher rate than normal) – and many would need to be redirected from such an option. This may reflect the smaller number of established companies in Bor, which means there are relatively fewer alternatives to starting one’s own business. Alternatively, these may simply be perception issues, which can and should be addressed through the work of the Transition Center or an information campaign, if possible before the social action plan has been announced. The objective of the social action plan designers should be to make terms sufficiently attractive to induce enough employees to leave, while staying under budget and not setting costly precedents for either RTB Bor or other enterprises. Figure 13. Where current employees would and where former employees did spend their severance (% that listed option among their top three choices)

4.8%

8.1%

14.3%

18.2%

21.2%

27.4%

44.4%

52.0%

54.5%

17.6%

19.8%

20.0%

14.7%

48.6%

25.8%

27.1%

38.9%

29.6%

0% 10% 20% 30% 40% 50% 60%

Moving to a different region

Investing in education, retraining

Savings

Medical treatment, medicine

Investing in a business

Fixing the house

Purchase durable goods

Pay off debts

Consumption items

Former Current

Source: author calculations based on survey data


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5.5 E mployment suppor t Most employees are interested in retraining and self-employment support. When asked what kind of help would be most useful to them, most young workers reported interest in assistance for education and retraining, while the largest share of older workers, 35.8 percent between 36 and 55, and 40.4 percent over 55, were focused on self-employment (also mentioned by a large share of younger workers, 43.6 percent). Continued education and training and self-employment support are also the assistance measures that most respondents had heard of. (over 50 percent) while less than a third had heard of any of the other options. Business center services and job seeking clubs were also among activities mentioned. Some former employees indicate they would have benefited from advice.

My first plan was the production of music instruments. Since I had not enough money, I switched to house painting. Because of large competition, there was not enough work to earn good money. Before I accepted the social plan, I should have planned better and done a cost analysis. As I did it wrong, now I am very dissatisfied. (A.G, elementary school, unemployed, former employee at RBB).

Table 19. Preferences for assistance among current employees, % Age group ≤ 35 36 - 55 ≥ 56 Continued education and training 58.8 31.6 15.8 Self-employment support 43.6 35.8 40.4 Business center services 25.5 20.9 19.3 Job Seeking Clubs 21.6 18.9 14 Employment in Public Works 17.7 19.2 19.3 Support for finding employment outside of region 17.7 14.5 10.5 Business incubator 15.2 14.6 8.8 Subsidies to employers 14.2 12.9 14 Employment and rehabilitation of disabled persons 6.9 9.2 12.3

Source: author calculations based on survey data Few employees believe their skills are useful outside RTB Bor. Requalification is obviously a key issue, as even if the mining industry in Bor rebounds, its labor requirements will henceforth be quite small relative to the past. Over half of all RTB Bor employees (52.7 percent) do not believe their current qualifications would enable them to find work outside the company. Of these, 32.8 percent said there was no demand in the labor market for their skills, and 35.1 percent said they were too old (presumably to be retrained). Clearly, a good retraining program would give more confidence to employees to leave voluntarily, as well as prepare them for new professions. Contacts among friends and family the most useful for finding work. Former RTB Bor employees who had found employment were asked what was most useful in finding their job. Out of the 139 employed respondents, the majority found a job through person connections. Visiting the NES, applying directly for job openings and starting one’s own business were also said to be useful

Today it is rare to find a job without connections, friends, acquaintance etc. At the Employment Bureau, there is no chance to find a job, especially if you are over 30. There is many youth without a job. (G.K, high school, employed, former employee at FLZ).


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Table 20. Activities which employed former employees found the most useful in finding their job

Actions taken Most common responses

Used contacts among friends and family 23.5 Visited National Employment Service 17.6 Applied for job openings 10.6 Tried starting my own business 10.1 Consulted job postings (newspaper or bulletin boards) 9.8 Looked at opportunities in other regions/cities 7.0 Other 4.2 Applied for small business loan 2.8 Attended training courses 2.2 Went to job fair 0.6 Visited business center 0.6

Source: author calculations based on survey data Former employees did not find the NES helpful. Among the 218 former employees who visited the NES, 84 percent reported that they did not find it helpful. When asked why, most said they were not given job assistance or counseling, followed by lack of information on the labor market situation. These are very general findings but they do suggest that the NES capacity can be strengthened. Further consultation with RTB Bor employees is suggested in order to understand better what kind of assistance they expect and need.

I tried at the Bureau (National employment agency) to find a job, but nothing. I was registered at the Bureau, now I am not, because I think there is no effect. I am old for a job; they are not paying for the pension fund, so there is no effect. (M.M. associate degree, unemployed, middle age, FOD)

Table 21. If the NES was not helpful, what was the reason? Reason Main reason, % I was not given job search assistance or counseling 19.3 I was not given information about the labor market situation 14.5 I was not given information about the programs available 12.6 I was not offered to participate in any other program 12.3 I did not qualify for the unemployment benefit 6.7 Other 13.7

Source: author calculations based on survey data There is a perception among current employees that older workers have fared best since redundancy. Former employees were asked their opinions about who they believed had fared best following redundancies in 2002. By far the most, 38 percent believed that older workers, i.e. those near retirement, have fared the best, followed by those who joined a company. Youth was not considered an advantage, even though the survey showed that younger employees had the highest employment rates, and their households had higher welfare levels than current young RTB Bor employees. Training is not perceived to have had much of an impact. Nonetheless, as


35

we have seen, almost 60 percent of young employees are interested in continuing education, suggesting that there is room to increase it effectiveness. Figure 14. In your opinion, who among workers who took the voluntary severance have managed the best?

3.4%

0.6%

10.9%

11.5%

22.4%

28.8%

38.0%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Other

Took training

Were younger

Started their own business

Left the region

Found a job with a company

Were close to retirement

Source: author calculations based on survey data Many employees would be interested in financial advice. Managing severance pay and household finances is often a major issue. Among current employees 45.2 percent stated they would be interested in training on handling their finances. Nonetheless, as the in-depth interviews revealed, many believe that the amount in question would not be worth receiving advice for. Some 20 percent expressed an interest in receiving their severance spread out in monthly payments while 57.4 percent preferred a lump sum.21

21 The remaining 22 percent either didn’t know or declined to answer the question.

In general it is the more educated employees who are interested in advice.

Well, it could help. It was not little money, and since we have all different ideas regarding finances, I believe that my family would need advice very much. (M.T, elementary school, retired, female, TIR). If there were some agencies or institutions which would give ideas and exact programs with all elements about realizations and placement of them I would be interested for advice. (M.V, high school, middle age, disabled, RBB).


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6. LOCAL BUSINESS ENVIRONMENT

6.1 B ackgr ound Snapshot of local business environment. In order to better understand the labor market and business environment which newly redundant employees will be entering, data was collected on businesses operating in Bor and Majdanpek. In addition to data from the municipality, a sample of local businesses and entrepreneurs was surveyed. The main purpose of the exercise, which was limited in scope, was to determine whether businesses intend to expand, in terms of both investments and workforce, what constraints they face, and whether they would hire former RTB Bor employees. The results provide a snapshot of the current business environment. The number of registered businesses in Bor has been increasing. Contrary to popular belief, the business environment, according to informal indicators, is growth-oriented. Reforms aimed at moving businesses into the formal economy were quite successful in Bor, contributing to a 60 percent increase in the number of registered businesses from 2001 to 2002. Since then growth of registered businesses has been slow but steady. Figure 15. Registered businesses in Bor Municipality

441

741804 844 848

492

0

200

400

600

800

1000

2000 2001 2002 2003 2004 2005*

Source: Bor municipality data *through August Most businesses are retail and specialized trades. The year 2002 is the year of the first tranche of the RTB Bor social program, and it corresponds with a rise in registered businesses, but data on what share of the increase came from newly established business and what share from businesses moving out of the grey economy is unavailable. Among small businesses, the dominant share, 45 percent are retail stores (STR) and service and specialized trades (23.6 percent), and a high share of taxi drivers and private transport companies. Almost half (46 percent) of all registered employees in Bor are employed by RTB Bor. The high share of RTB Bor employees underlines the extreme economic dependence on the company. Although in recent years the establishment of new firms and shops in Bor has intensified, so that there are now 457 small firms and 848 private shops as of September 2005, their share in the economic structure and the number of the employees is still modest, Bor’s population is still deeply connected to RTB Bor.


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Table 22. Small businesses in Bor municipality Type N Small businesses (STR) 384 Specialized trades (SZR) 200 Taxis 76 Services 74 Hotels, restaurants and tourism (SUR) 69 Car repair shops 25 Healthcare and pharmacies 20 848

source: Bor municipality All existing large enterprises in Bor are related to mining and metallurgy. All five of the large enterprises operating in the Bor region are current or former divisions of the RTB conglomerate. Among medium sized companies there both socially owned and private enterprises. The socially-owned companies dominate the agricultural (Slaughterhouse Polet, Polyester Foil Factory, Abrasives Factory, Pneumatic Valves Factory, Boranka), transportation (Borprevoz, Cargo transport), catering (Socially-owned catering firm Bor, Hotel for single persons), and construction (Building company Sloga ) sectors. In terms of regional gross product, the losses at RTB Bor Group in 2003, exceeded the realized regional gross product of all other economic activities combined. Table 23. Structure of regional income by sector, 2003

Activity Bor € ‘000

Majdanpek € ‘000

Agriculture and Forestry 5,455 3,494 Mining -14,993 -8,032 Manufacturing Industry 4,393 3,881 Electric Power Industry and Water Supply 1,689 678 Construction Industries 2,401 384 Trade 7,166 2,149 Catering and Tourism 510 569 Transportation and Communications 3,990 1,181 Real Estate Activities 745 37 Health and Social Work 92 30 Other public utilities, social and personal services - 7 Total with RTB Bor 11,448 4,378 Total excluding RTB Bor 26,441 12,410

Source: Serbian National Bureau of Statistics; 2003 exchange rate € 1= CSD 65.26 The survey of selected indicators including available resources and economic development of Bor and Majdanpek municipalities can be found in Annex 4. A variety of small and medium sized business were included in the survey on the local business environment, representing a cross section of local activity including furniture making, food and meat processing, transport, PVC and aluminum joinery. Table 24 provides an example of the size of these companies by number of employees and revenue in 2005.


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Table 24. Business surveyed

Name of Business Sector Workforce size

2005 revenue '000 €

1.Bortravel-Bor Passenger transport 34 600 2.La Primavera-Bor Mushrooms production and sales 3 na 3.Simpec-Bor Processing non-ferous metals 6 360 4.Mejlanović- Zlot Cattle food -processing 12 4.4 5.Simpo Majdanpek- Majdanpek

Upholstered furniture 100 1,043

6.Albo-Bor PVC and Al joinery 38 1,550 7.Dekor Đorđević-Bor Building joinery and furniture 8 165 8.Antris-Bor Metal products 2 180 9.Kompjuter Centar -Bor Trading and computer services 9 185 10.Antić company – Bor Meat processing 85 1,800

Most businesses plan to increase their workforce. Four out of ten planned to invest more than €100,000 next year, with the main purpose being to introduce new product lines and construct new facilities. On aggregate, they planned to increase their workforce by 77 percent over the next four years. As reported by enterprise managers, the main problems to expanding their business, ranked in order of importance, were:

1. Taxes 2. Credits availability and credit security 3. Licenses for business 4. Tax administration 5. Financing costs (interest and other costs)

6.2 Pr ospects for the employment of R T B wor ker s in local companies Most local businesses are ready to hire former RTB Bor employees. Among the surveyed companies there are 68 former RTB workers, or almost one fourth of all employees. Eight out of ten said they would hire former RTB Bor employees. Reasons given were their experience and technical expertise. Some did have misgivings, however, noting that former mine employees lacked initiative and the necessary skills. Many count on receiving employer subsidies for hiring redundant workers. Tax policies and inadequate skill levels of personal have the greatest influence on hiring practice. When asked what policies would have the greatest influence on increasing employment, the local businesses ranked tax policy first, followed by training of personnel.


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Table 25. Measures which would increase employment (1 = most important, 5 = least important)

Measures which would increase employment Average rank

Tax policy 1.56 Personnel training 1.67 Subsidies for wages 2.17 Other* 2.60 Lower costs or gratis real estate acquiring 3.17

*other: favorable credit lines with lower interest rates, lower marketing fees, greater authorizations and assistance from the association of private entrepreneurs. Mining and metallurgy were ranked as activities which have the greatest chance for the success in the region. Despite the present conditions at RTB Bor, owners and managers of private companies estimate that mining and metallurgy have the greatest chances for the success in the region. Ranked close behind are agriculture (especially cattle breeding) and tourism. Among other sectors, the following were also considered as having potential: food-processing industry, timber and wood industry, metal manufacturing industry, mechanical engineering, construction, and transportation. Availability of raw materials and good market conditions were the main reasons Bor was chosen as a business location. When asked why they found Bor an attractive region to operate in, Main reasons for interviewed businesses operating in the region are ranked in Table 26. Personal and family reasons are highly ranked as well. Weak competition and tradition in business operations are of less significance. Table 26. Main reasons for doing businesses in the Bor region

Average rank* Availability of raw materials from the region 2.00 Good market 2.13 Personal and family reasons 2.40 Traditional-historical (family reasons) 3.00 Weak competition 3.00

*1 = most significant, 5 = least significant

6.3 E xpectation of oppor tunities for futur e development of the r egion For an evaluation of the potentials for future development a brief SWOT analysis examining strengths, weaknesses, threats and opportunities was made.22

22 Prepared by Vera Spasic of Conzit.

A more detailed analysis will be the subject of a Local Development Planning Study for Bor region, to be conducted in early 2006.


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Table 27. SWOT analysis of Bor – Majdanpek region Strengths Weaknesses

- deposits of copper ore and precious metals

- potential for agriculture development (livestock breeding )

- forestry resources - resources of healthy drinking water - tourist potential - human resources (qualified and highly-

educated personnel)

- poor utilization of natural and human resources

- mono-structural economy - low level of economic activity and falling

domestic product - weak transportation infrastructure - decreasing population - low welfare levels - environmental damage

External opportunities External threats - growth of economic activity - elimination of political risks - successful privatization and revitalization

of RTB production - development of agriculture - development of tourism - development of small and medium-sized

companies, with priority in sectors using local resources

- macroeconomic instability - increasing of risk of investing in Serbia - unfavorable result of RTB privatization - lack of financial resources for investments

in obsolete transport infrastructure - lack of support for private business

development - further declines in purchasing power,

welfare - low level of demand for consumer goods

and services Dependency on RTB Bor will continue in near-term . The SWOT analysis suggest that the development of the region will continue to be dependent on RTB Bor business activity in the near-term. It is unrealistic to expect that the mono-industrial economy built up over many years can be restructured in relatively short period through the development of small and medium sized enterprises. They will be unable to absorb existing levels of current unemployed persons, let alone those to be laid off at a future date. 6.4 Conclusions Stimulation of other sectors should begin As RTB Bor is restructured, and the regional mining sector developed regardless whether at Borska Reka, Crni Vrh or elsewhere, it will be crucial to stimulate the growth and development of small and medium sized enterprises in sectors in which the region has comparative advantages (e.g. natural resources, low labor costs). Sectors which appear to have the most potential are: agriculture (livestock breeding, cultivating medicinal herbs and berries), food-processing, wood processing and tourist-catering activity, and also in work-intensive industrial branches, as textile and leather industry. Successful development of private enterprises will depend on credit terms for the new programs, tax policies for newly-formed business subjects and implementing the measures of active employment policy. Bor’s relative underdevelopment presents an opportunity. Because of the almost exclusive concentration on developing Bor’s mining and metallurgy industry in the past, (the very reason for its existence as an urban center), resources for the development of other activities have been underutilized. This can be seen as an opportunity gap, waiting to be exploited.


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7. SUPPOR T OPT I ONS

7.1 Social Pr ogr ams in Ser bia The Government’s “Programme for Resolving Redundancy in the Process of Restructuring, Preparation for Privatization and Rationalization” was approved in March 2002, and amended in 2005. It targets those who became jobless as a result of enterprises being restructured in preparation for privatization, bankruptcy and liquidation. Only eligible enterprises approved by the GoS are included in the Program. According to the revised Law, the employment of the employee defined as redundant labor shall terminate upon the employee having chosen to exercise one of the rights, which he deems the best option, namely:23

1) pecuniary remuneration amounting to 10 average wages in the Republic in the industry sector, according to the latest data published by the Republic Statistic Authority, for employees with more than 10 years of insurance span,

2) pecuniary remuneration amounting to EUR 100 per year of service in Dinar equivalent, at mean exchange rate, as of the date of delivery of the redundancy lists by the employer, with the possibility for monthly adjustments of the level of remuneration in Dinar equivalent;

3) severance pay according to the Labor Law and exercising the rights to receive pecuniary remuneration in compliance with the employment regulations.

The pecuniary remuneration under the Program may be paid in lump sum, in installments or through voucher coupons. In 2003, 36,900 individuals benefited from the program, of which 97.7 percent opted for cash payment; 2.2 percent participated in training program, and 0.1 percent received self-employment assistance. In total, 5.4 billion CSD were utilized for the program in 2003. It can be said that the program does not have a clearly defined objective of employment creation. According to the labor law of the Government of Serbia a public enterprise is under certain obligations when instituting a labor redundancy program. These relate to assessing business operations and financial conditions, setting up either a restructuring team or a transition center, determining the number of needed workers, identifying new employers, etc.24

23 Government of Serbia “Programme for Resolving Redundancy in the Process of Restructuring, Preparation for Privatization and Rationalization.” 24 A complete list of the 14 itemized obligations can be consulted in the “Programme for Resolving Redundancy.”

However, the degree to which these are fulfilled pro forma or fully implemented is essentially dependent on management and outside support and monitoring. It is not so much the law as the level of determination by decision makers and availability of resources which will determine how much impact they have.


42

Laid off workers often end up in the category of ‘transient poor’ but have the potential to recover income losses and avoid joining the ranks of the long-term unemployed if appropriate support is provided.25

7.2 National E mployment Str ategy

The 2005-2008 National Employment Strategy (officially the “Change Strategy of the National Employment Service: 2005-2008” and hereinafter ‘Strategy’) was adopted in April 2005.26

Good functioning of the mediation in employment can contribute to the cost effectiveness through reduction of job search costs, more efficient harmonization of supply and demand, vacancies, which justifies the need for public intervention in this area. Given that public employment agencies are generally not in the position to open new vacancies, the role of the NES in the market and its contribution to the unemployment reduction is important.

It aims to increase employment, investment in human capital, labor quality and productivity; reduce differences between regional labor markets; support gender equality and fight against discrimination in employment. The Strategy takes a comprehensive, rational, incentive-driven approach to boosting employment by targeting the adoption of EU Employment Guidelines. Its successful implementation will likely depend on available resources, active staff and strong leadership in the NES. The Strategy calls for increasing competitiveness and employability of the labor force. One of the priority objectives to enable dynamic and sustainable economic development is the transformation of the principles upon which employment in Serbia has been based – from passive employee retention to pro-active, individual-focused. It hopes to do this through increasing employee knowledge, and integrating research, entrepreneurship and life-long education and learning. Changes in the working methods will have an increasing effect on the demand for workers with new knowledge, skills and ability to adapt to the ever-changing environment.

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– public service focused on harmonization of supply and demand;

The ALMP is based on the following principles laid out in the Strategy:

– Instead of centralized planning satisfying the needs of employers and job seekers and planning at the regional and municipal level;

– Instead of guaranteed employment and salaries, the model of developing the capability of the labor force to remain competitive has been promoted, and also to seek and keep the appropriate jobs and prolong participation at the labor market beyond the retirement age limit; and

– no longer based on the right to receive the unemployment benefit only, but conditional on the personal effort to find other work; individual right to access larger number of quality services provided by the employment service.

The full adoption of the Strategy’s guidelines by the local Bor NES will be welcome. The risk remains, however, that without active local economic development initiatives, these efforts will 25 Chen, Yi. 2001. “The World Bank and the Provision of Assistance to Redundant Workers: Experience with Enetreprise Restructuring and Future Directions.” 26 Republic of Serbia. National Employment Service. “Change Strategy of the National Employment Service: 2005-2008.” Belgrade. 2005. 27 “Change Strategy of the National Employment Service: 2005-2008.”


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take place in a void – no matter how closely job-seekers and supporting institutions come to realizing the NESS approach, a lack of job opportunities may stymie their efforts. It must also be recognized that the NESS is a long term strategy and it will some time before its effects are felt. At present, in Bor for example, it is reported that the most common form of obtaining work is by paying a bribe for the position.

7.3 E mployment Pr omotion Pr oject (E PP) The Employment Promotion Project, a PIU established within MoLESP, is one of the most visible initiatives introduced by the Ministry to work with redundant employees. The objective is to: i) build the capacity of the NES in helping the unemployed, ii) promote labor redeployment, iii) support local economic development, by helping communities assess their resources, and iv) stimulate the creation of economic clusters, allowing businesses to become more efficient and capture economies of scale. Funded by a World Bank and DFID demonstration grant, a pilot program was launched in mid 2005 in four municipalities in Serbia: Lazavarec, Nis, Pancevo and Kraljevo, all of which have enterprises dealing with labor redundancies. The EPP establishes a presence in the town through coordinators which liaise with the PIU, the enterprise and local support services. EPP provides numerous employment promotion activities, including worker transition centers, virtual business centers, organizing job fairs, and business incubators. So far six transition centers have been established and early results indicate that this approach, a concept developed in the United States some 20 years ago, is working very well. An informal assessment suggests that effectiveness depends largely on the commitment and motivation of the transition center staff, as well as management support.

7.4 E mployment and business suppor t institutions in B or The following is a brief description of the most visible employment and business support institutions in Bor which should be considered resources for any program to assist future redundant employees. The list is not exhaustive. National Employment Service – Bor regional office

The NES is a public service for job seekers that offers an array of services to job seekers and employers. As part of ongoing reform in the role of the NES is shifting to a focus from passive to active labor market support. The local NES, in addition to registering unemployed and providing benefits, three main active labor market programs: i) self employment program; ii) training services targeted at career changers; and iii) an employers program which subsidizes employers at a rate of 70,000 CSD per employee, while also covering the payroll tax. Demand and interest for thes services among both employers and job seekers in Bor far exceeds the current capacity and funding of the local office.

National Employment Service – Business support program

Part of the NES, the Bor center is one of 16 centers in Serbia and focuses on education of unemployed who are interested in starting their own business. The aim is to stimulate


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entrepreneurship while filtering out those who are not suited for this type of vocation. The Bor office was launched in the fall of 2005.

Transition Center at RTB Bor

EPP and Worldwide Strategies began the process of sponsoring a Transition Center in Bor in December 2005 and RTB Bor management has already set aside space and is in the process identifying staff. Training will take place in January and the facility should be functioning by February.

EAR - Employment Support Program

The EAR employment support program in Serbia (part of the CARDS project) encompasses a variety of components. Bor is one of four regions where the active labor component has been established. The program’s intended beneficiaries come from the following categories: young, unskilled, redundant, over 45, and vulnerable groups. Credit is provided to applicants who must turn in business proposals. About €450,000 have been allocated for the Bor region, and will provide credit of between €25,000 to €100,000 per successful applicant.

Business incubator, Bor Municipality

The municipality is the in process of developing plans for a business incubator. EPP, CARDS, and the Serbian SME Agency provide technical and funding support for business incubators.

Local Council for Employment – Bor municipality

The local council for employment, organized by the Municipality. Still in the formation stage.

Technical School, Bor

The local technical school offers 38 courses in the following nine areas: i) food processing; ii) foreign languages; iii) metallurgy; iv) thermo-technics ; v) informatics; vi) health; vii) pedagogy; viii) entrepreneurship; ix) woodworking. `Each course lasts from 15 to 92 hours, with most typically lasting between 30 and 60 hours. The cost per hour is €13. The NES cooperates with the Technical School in covering fees for unemployed workers for the courses on informatics, providing each candidate from €140 in subsidies.

Technical Faculty Bor (Regional Campus of Belgrade University)

The Technical Faculty at Bor belongs to Belgrade University. Besides its traditional departments in Mining, Metallurgy and Technology, in 2002 it adapted to the new economic environment by beginning new programs in Management, Informatics, and Electromechanical engineering. It offers three year diplomas, four year degrees in engineering, as well as Masters and PhD level programs. It has developed suggested curricula for the requalification of former RTB Bor employees.


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7.5 Standar d mitigation measur es The ILO, in a paper summarizing the social and employment consequences of privatization in transition countries28

• early retirement provision and voluntary severance ahead of compulsory redundancy, subject to retention of required skills mixes;

lays out the typical range of possible measures to mitigate the effects of downsizing:

• measures to maintain incentives for employees volunteering for redundancy but whose skills and experience cannot be lost;

• protection of pensions and other employee benefits; • negotiated levels of severance pay, based on statutory minimums; • skills assessment, counseling and placement services to enable workers to access new

employment opportunities; and • affordable credit facilities and advisory services to enable redundant employees to

develop small enterprises and self-employment.

The paper also emphasizes the importance of complementing these measures by the implementation of effective policies and facilities in the wider economy and society. These could include active labor market policies such as the following:

• job search and mobility assistance; • training, retraining or vocational training; • job-creation schemes, especially in infrastructure projects; • development of business advisory services and credit facilities; • counseling and support about entrepreneurship; • development of micro, small and medium-sized enterprises. • credits for small business development at affordable rates of interest; and • conditions for freelance and self-employment.

They also include broader social policies and social security services to effect:

• protection of pension systems; • adequate unemployment benefit; • health and social insurance (replacing those attached to enterprises); • social assistance programs for the disabled, disadvantaged, poor, etc.; • access to social services; • policies to prevent serious disparities of income.

7.6 L essons lear ned and best pr actice Drawing on lessons learned, primarily from mine closures in Transition economies, this section describes some of the problems faced and lessons learned, along with recommendations. There are a wide variety of support options, and time and experience will tell which mixture is best suited for RTB Bor employees. In any case, a multiple choice, attractive post-redundancy social assistance program should be offered in conjunction with severance pay. 28 Martin, B. “The Social and Employment Consequences of Privatization in Transition Economies: Evidence and Guidelines.” ILO. 1996-2005.


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A. Transition Centers Worker Transition Centers are much more than job search facilities. They provide a stopping point for employees who are considering leaving a company, as well as those who must or have chosen to become redundant. They are designed specifically to deliver tailored services and support to redundant workers in transition. Transition Centers have, at a minimum, facilities with computers, a library and social area staffed by staff reassigned by the company, are located physically within the enterprise. They provide assistance appropriate to the post-redundant phase which the individual is going through. Workers transitioning from a closing, restructuring, or downsizing enterprise typically need and benefit from some or all of the following pre- and post-layoff services:29

Pre-layoff

Post-layoff Peer counseling and support Outreach Information sharing Assessment and planning Delivery of other services Budgeting Job development Job search Job clubs or networking groups Vocational testing and counseling Referral to training Social support networks Referral to social, financial, and health

services Relocation assistance

B. Severance pay Generally, it has been found that severance pay by itself does not provide a long-term solution to redundant labor problem. With regard to Bor, an underlying tension seems to persists between two types of assistance, i.e. passive assistance, between direct assistance in the form of lump sum severance payments, and active assistance, indirect, ALM-type measures. This is, in essence, a false dichotomy. Severance pay and indirect support measures are not interchangeable and should be used in tandem. Severance pay is a short-term, in some ways a reward for years worked, but very important to workers because it is direct, quantifiable, and immediate. However, it rarely leads to investment in new income earning opportunities, in this area only broad-ranging redundant employee support measures can help, along with stimulation of the regional economy.

– typically severance is used mainly for consumption and paying off debts – it is rarely made to last over the period while new job opportunities are being sought – recipients lack experience in managing large sums of money – not a good source of seed capital it is rarely sufficient to invest in a start-up business;

there is generally a “disjunction between the attributes of the severance pay-out, and the needs of a successful small business development program,”30

29 Grant, Michael. Worker Transition Center Manual. Worldwide Strategies. 30 Haney and Shkaratan.

Normally, fewer than 5 percent of redundant employees use it for investment, although according the the survey


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results some 20 percent of former employees reported investing it. (We do not know what share of these amounts went into in the respondent’s own business.)

– there is a temptation to spend it on ‘wish fulfillment’ items The purpose and limitations of severance pay should be made known to the employees. Expectations should be managed as to what severance pay can and cannot do. Training in managing household finances should be offered as a way of stretching the severance package, as well as improving household budgets. C. Vocational training Training for redundant employees is a commonly used support component. Because the skills of many mine employees are unlikely to be in demand and may not be transferable in the labor market, retraining for another profession is a key step to re-entry into the workforce. The survey demonstrated that there is a great deal of interest among younger workers for retraining. Nonetheless, based on a study of Bank provision of assistance to redundant workers, training has not been found to be the most effective form of assistance.31

D. Entrepreneur potential

This is bound to arise when a training program is poorly targeted. Thus even when the quality of training is high quality (which is not always the case) it is often not well-correlated with market demand. Many older workers also face difficulties in crossing over to what can be completely new vocations, which may have nothing in common with their former employment tasks. As a result, finding and holding a new profession has been difficult for newly trained workers. Programs should be small and well targeted. Potential participants should be carefully screened to avoid raising expectations of those who have little chance of finding work. Linking training with job placement into specific jobs or into self-employment is advised. In Bor, both the Technical School and the University offer courses in a variety of subjects aimed at workers interested in retraining or continuing education.

Few mine employees are natural entrepreneurs and most will be unable to take advantage of self-employment support programs

– Full-time and lifelong employment at a mining operation and socially-owned enterprise where many needs were taken care of by the company is not conducive to a business mentality

– In an economically depressed region, the customer base will be smaller than usual, reducing chances for success

– There are fewer successful examples to inspire would-be entrepreneurs. Bor region: Employment and business support programs should help individuals identify alternatives in the region. In the short term, major environmental clean-up, and in the medium- 31 Chen, Yi. 2001. “The World Bank and the Provision of Assistance to Redundant Workers: Experience with Enetreprise Restructuring and Future Directions.”


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term, exploration and production in the Black Summit area will provide new employment opportunities. E. Labor mobility – relocation assistance Research in some mine restructuring locations suggests that migration out of these regions is fairly common, whether or not sanctioned by local authorities. The survey results showed that the majority of workers under 36, if laid off, would want to leave the region. Labor mobility is a key policy issue in Serbia and its successful transition to a private sector dominated workforce in part depends on this kind of flexibility. Migration will be the logical response by some mine employees to loss of employment in economically struggling mono-industrial towns. The temporary or permanent move out of the region in order to find new employment is to be expected. It also relieves some of the pressure on the local labor market for those who remain. Because of Bor region’s poor economic performance, there does not appear to be a housing market to speak of, with the result that it can be difficult to sell private houses or apartments. Prices are said to be so low, that it becomes nearly impossible to trade in for a similar house or apartment in another region and the would-be migrant must rely on friends or family for housing support. Understandably, municipalities may be unenthusiastic about what amounts to population loss, for either strategic or symbolic reasons. This translates into a deep reluctance to provide funding to facilitate migration. However, for individuals who decide to relocate support should be given. In Novoshakhtinsk in Russia, for example, an agency was set up which assisted people considering accepting job offers (often seasonal or temporary) in other regions. The agency verified the legitimacy of the employer, an important role given the frequency of deception. A municipality reluctant to institutionalize support relocation support must be weighed against its ability to create employment. In any case, only positive incentives, such as an active and credible economic development strategy, should be used to keep employees from leaving. F. Microcredit Microcredit is not a panacea and has certain limitations in mono-industrial regions such as Bor. However, it should be considered as one of the several components of a successful employment and business support strategy. The following is a list of ways in which microcredit can lead to job creation for RTB Bor’s redundant workers:32

− Promote and build awareness about entrepreneurship;

− Offer both financial and non-financial support, in the form of training and business support;

− Loans for existing and start-up businesses; − Provide alternative credit sources to banks, which are not motivated for start-ups; and

32 These suggestions are taken from Microcredit Development Fund’s (MDF) proposals on “How to create new jobs for redundant workers in Bor”


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− Strengthen the private sector. For successful introduction of microcredit programs, cooperation with different service providers is essential. G. Redeployment coordinator Good planning of the redundancy and employment re-entry program will require accurate information, and a clear understanding of the problem. For this reason, it is suggested that planning be led by the redeployment coordinator, possibly a former RTB Bor employees based in the Transition Center. His or her role should be broader, however, and involve working together with the local Bor support institutions acting as the chief service providers, and MoLESP. The role of the coordinator is to ensure implementation of support programs is conducted in a timely, efficient, and effective manner. He or she must i) direct the overall coordination and implementation of support programs, ii) liaise between the Ministries and supporting institutions, and local initiatives, iii) track progress of implementation and report to MoLESP, and iv) advise on overcoming obstacles as they are encountered, and v) advocate for the best interests of the redundant workforce Without a coordinator, the support programs risk delay, responsibilities for their implementation will be shared too widely to be meaningful, and the program will not be a priority for an individual or institution that takes on this role as an additional responsibility. The personal characteristics of the coordinator matter. The coordinator should be an individual with enough experience and seniority to be able to work with different institutions involved (MoLESP, Ministry of Economics, Municipality, trade unions, donors) but young and energetic enough to be a driving force in leading the support program as envisioned. The importance of moving from plan to action is especially crucial in the context of RTB Bor, where the pressure of restructuring, and the potential rejuvenation of the region, depends on a timely and successful redundancy. As the management expert Peter Drucker has said, “plans are only good intentions unless they immediately degenerate into hard work.” Having a person responsible for overseeing and promoting the progress on the various fronts can greatly facilitate, and accelerate implementation of redeployment projects and coordination among support institutions. H. Advocacy Trade unions, workers, the municipality, and whoever else has the worker’s best interests at heart must recognize the value of early comprehensive support and advocate for it. Trade unions are half right when they focus on severance pay as compensation. It is a quantifiable, direct and immediate source of assistance, even though it usually ends up being spent quickly. Government institutions, for bureaucratic and funding reasons, are in most cases slow and inefficient when it comes to implementing and refining comprehensive support programs (such as ALMP) which is why trade unions, and workers, prefer to go for the sure thing – cash payouts. However, the economic benefits to individuals from these payments have been shown to be general negligible.


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Stronger advocacy for support programs is one way of concentrating the minds of policy planners and pushing them to act early and decisively. They should not be seen as a lower-cost alternative to severance pay, but as the key to the successful re-entry, the transition to new employment, of the redundant workforce. Key stakeholders, especially ministry officials and trade union representatives should work, separately or together, to ensure that the many ideas which are floated during early discussions are pinned down and acted upon (or rejected, as the case may be). I. Information campaign Three main factors appear to underlie employee opposition to restructuring, all of which can and should be addressed in an information campaign. These are:

1. Fear of losing personal (and family) economic security and professional identity as an RTB Bor employee, and negative assessment of the proposed €100/year worked severance package;

2. Different perception of RTB Bor’s sustainability, vis à vis company’s financial circumstances;

3. General lack of knowledge regarding Government restructuring plans, social program, support.

The fear of losing economic security is rational and understandable. For many, economic circumstances will in fact decline, at least on a temporary basis. Employees should be informed, before they are laid off, of the various measures being undertaken to assist them in finding alternative sources of income. This will allow them to start thinking about what choices they have, and what is most realistic or attractive to them. Expectations must also be set that the process will take time, and that a drop in living standards is normal but should be temporary. Another source of opposition to further redundancies comes from a different understanding of RTB Bor’s circumstances. The employee perspective is based on a more restricted understanding of the situation than that laid out in the feasibility study, and generally takes into account only direct, visible costs, which appear to make RTB Bor enterprises seem more viable, especially in light of record high world copper prices, than they are. The information in the feasibility study regarding RTB Bor’s viability as a profit-making enterprise should be summarized clearly and persuasively, along with information on the basic restructuring proposal and the steps necessary to make it a success. An information campaign can and should include various approaches using different media, such as i) information bulletins posted at Bor enterprises, ii) media appearances, including Q&A sessions on television, iii) articles in the local and national press and the RTB Bor newsletter ‘Kolektiv; and iv) statements made by the Ministers of Economy, and Labor, Employment and Social Policy. Two key principles to follow to promote a successful transition can be summarized as: i) communicate early with employees to prepare them for upcoming redundancies; and ii) communicate clearly to workers of how redundancy criteria were decided.


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J. Mono-industrial regions Clearly, mono-industrial regions face greater challenges than those with multiple industries.

− Dependence on industry leads to a lower willingness to change the status quo and undertake measures that will disrupt employment. The lack of alternatives combined with a sense of solidarity brings out conservative tendencies.

− Reluctance of companies from other sectors to invest because of lack of appropriately skilled workers.

− Greater ripple effects. Sector-oriented upstream and downstream companies will experience knock-on effects.

− Lack of experience in other sectors. In Bor region the local governments should design and then actively promote the implementation of a local economic development plan to stimulate alternate industries and a ‘re-tooled’ workforce. There have been successful examples of mono-industrial regions reinventing themselves, but much depends on the creativeness and ingenuity of local authorities. K. Evaluation of support programs In order to ensure that the support programs are functioning as designed it will be important to conduct regular monitoring and evaluation exercises. This could take the form of surveys of institutions, job seekers and local businesses on effectiveness of support program components The expected value of such an exercise will be the ability to reallocate of funding to the most effective support programs and institutions, making adjustments where necessary, and even discontinuing support in areas not . Evaluations can also provide a record of lessons learned for use in other, similar circumstances. L. Vouchers Voucher coupons, an option included in the GoS Social Program, are a means of providing assistance to redundant employees in lieu or in addition to a direct financial payment. In terms of efficiency vouchers are a second best option, since they are not as fungible as cash (though trading is possible). If social action plan designers are interested in affecting redundant employee spending behavior, the best solution is to provide them with the necessary information and advice in this area, and provide them with cash. However, vouchers may be more acceptable to the Government as a way of avoiding increasing severance payments and setting undesirable precedents. They can also be a way of encouraging employees to enroll in continuing education, or to use as relocation assistance. M. Employer subsidies Employer subsidies are partial and temporary compensation to employers for the hiring of s specific type of individual, in this case former RTB Bor employees. While the provision is clearly attractive to employers, there are certain drawbacks, relating to incentives, market interference and budget constraints. The amended Employment Law, Article 8 (amendments to Art. 34 of the


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current Law) outlines the provisions relating to employer subsidies. The World Bank is not very supportive of this idea due to its high unit costs, "substitution" effects, deadweight losses, etc. 33

33 The World Bank’s position is outlined in comments by Arvo Kuddo,World Bank, submitted to MoLESP in 2005.

An employer incentives scheme has been included as an amendment to the 2003 Law on Employment and Unemployment Insurance currently in Parliament. In particular, Art. 8 of the draft Law (amendments to Art. 34 of the current Law) offers a wage subsidy in the amount of an annual (minimum) salary with taxes and social contributions (salary subsidized at this rate for two years in regions in which the rate of unemployment exceeds 10 % of the national level) to all employers who engage in a permanent position an unemployed person of the listed category (long term unemployed waiting for employment more than two years; redundant workers unemployed for two years; youth unemployed for at least one year; older unemployed above the age of 45 (females) or 50 (males), etc.); single parents or parent where both unemployed with underage children; unemployment beneficiary for at least 6 months.


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PART III. STAKEHOLDER ANALYSIS AND CONCLUSIONS

8. ST A K E H OL DE R A NA L Y SI S

8.1 Objectives The purpose of this stakeholder analysis is to help clarify where the interests and incentives lie with respect to RTB Bor’s social program and restructuring process. The analysis consists of two parts: i) a description of each stakeholder’s positions and role in the process, and ii) an examination of stakeholder attitudes towards a variety of key issues. It is hoped that spelling out where key stakeholders stand on the most relevant issues can help the implementation process proceed more smoothly. By laying out the attitudes, interests and relative influence of each stakeholder, those responsible for both negotiating and implementing the social program can approach the task with a better understanding of what is and is not feasible. The ultimate acceptance of any social program will depend on the degree to which it satisfies the interests of key stakeholders. Because these interests and objectives often conflict, compromises will be necessary. Breaking down the issue into its component parts and outlining the respective positions of stakeholders, though it may seem to multiply the areas of disagreement, can in fact enlarge the space for working out compromises. It is a truism that the successful implementation of any program depends to a large degree on the commitment and goodwill of those influencing or influenced by its outcome. As important as the design of any program is the conviction among stakeholders that they have had a say in its development and implementation (that they have been empowered). This is the essence of ‘ownership’, with the implication that the project will be attended to, and its success promoted, more inclusively than when a project is introduced by fiat and with little participation.

8.2 Stakeholder r oles The stakeholders under discussion do not represent all interested parties. The focus is on those with the highest stakes, i.e. the greatest influence or the greatest interest, in the outcome. Because they are somewhat more indirectly affected by the process, the Ministry of Energy and Mining, Bor Municipality, the general population in Bor and Majdanpek, and donor agencies (aside from the World Bank) are not included The following brief descriptions of stakeholders are largely restricted to i) their general position in the restructuring process; and ii) their roles with respect to the labor restructuring program. A. RTB Bor employees

First and foremost in any discussion is the workforce, at the heart of the issue and most directly affected by the outcome. The role of employees is to perform their respective tasks at the company. Being laid off is a direct challenge to the identity of an employed individual, especially one in a sector such as mining which requires specialized qualifications. The difference between a mine company employee and the general labor force is going to be more pronounced than less specialized professions, in part because


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skills are not easily transferable, making the cross-over for employees to another vocation more challenging. For this reason, as well as the lack of opportunities in Bor, resistance to leaving the company is high. The role of (the vast majority of) RTB Bor employees in the social program is to leave the company and find alternative income sources.

B. RTB Bor management

RTB Bor management is charged with running the company on behalf of GoS and, because it is, nominally, a SOE, on behalf of the employees. The competing demands from GoS (as represented by the Privatization Agency), which are to restructure the company and downsize the labor force, and from employees, which are to maintain their jobs, put management in a difficult position. In any socially owned (or similar type of) company the pressure on management to satisfy both parties can be expected to result in ambiguous signals and cautious decision-making. Because management deals on a regular basis with employees (and is, of course, itself composed of employees) while communicating at a greater distance and with less frequency with central government, a built-in natural bias in favor of employees is normal and expected. This appears to be the case with RTB Bor. Management’s role in the social program is to fulfill GoS directives while making the redundancy process as smooth as possible for employees.

C. Trade Unions

The two main trade unions at RTB Bor are “Jedinstveno Samostalni Sindikat” (referred to either as “Jedinstvo” or “Samostalni”) and “Nezavisnost”, representing approximately 6,000 and 2,000 employees respectively. There are also other, smaller unions. As representatives of employee rights and interests, the unions are the main counterpart in relaying information to employees and in negotiating on their behalf. Since the raison d’être of a union is representing the interests of a workforce, the larger the workforce the more powerful the union. Large-scale labor redundancy will naturally perceived as a threat. However, depending on the degree to which the social program is perceived as inevitable, unions can maintain their relevance by promoting the interests of employees as they transition to other vocations. The role of the unions in the social program lies in acting as communicators between employees and the government, and in ensuring that redundant employees have the best outcome possible.

D. Ministry of Labor, Employment and Social Policy (MoLESP)

MoLESP is charged with policy regarding labor, employment and social assistance, both with respect to planning and implementation. The most critical benchmarks for MoLESP’s success are lowering the unemployment rate and improving the efficiency of social assistance and active labor market measures. At the same time, a particular transition challenge faced by MoLESP lies in transforming large SOEs from de facto elements of Serbia’s social assistance program to competitive companies and moving the redundant labor into productive modes. The survival of large SOEs burdened with surplus labor can be viewed as extremely inefficient and a costly means for keeping down unemployment. MoLESP has embraced active labor measures and similar support mechanisms as the


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preferred alternative to the passive unemployment support (as well as an emphasis on severance pay) of the past. MoLESP’s combined mandate for employment as well as social assistance policy is therefore optimal.

MoLESP’s role in RTB’s social program is to oversee implementation of its nationwide policy on an enterprise level, and promote the successful redeployment of former workers through its support programs.

E. Ministry of Economy (MOE) / Privatization Agency

The Ministry of Economy is charged with, among other things, promoting economic growth and improving market mechanisms, including divestiture of state- and socially-owned assets to more productive use. The Ministry carries a primary responsibility for carrying out a transparent and successful market test for RTB Bor, implemented at the technical level by the Privatization Agency with the help of qualified financial advisors. The goal of the Ministry of Economy is to attract a reputable investor for RTB Bor’s assets, capable of developing the mining potential of the area. The level of employment to be retained by potential buyers is expected to become one the key variables in sale process. In a broader sense the Ministry of Economy is interested in fostering sustainable, private-sector led economic rejuvenation of the Bor region. The role of the Ministry of Economy in the social program is to put pressure on all parties involved to carry out the Social Program in a timely manner to ensure the success of the market test.

F. Ministry of Finance (MOF)

The Ministry of Finance is in charge of fiscal policy and decides on budget allocation and approves all budget expenditures. Expenditures include direct RTB Bor’s subsidies, allocated through the Development Fund (RTB Bor is one of the largest subsidy recipients), as well as GoS funding designated for the social program. Given RTB Bor’s dire financial situation, the Ministry therefore controls the company’s lifeline to RTB Bor and is therefore a key player, albeit acting largely behind the scenes. One of the key issues in the GoS dialogue with the IMF and WB is fiscal discipline. This requires that subsidies to SOEs, which act as severe drains on the budget, be gradually eliminated. Therefore, the MOF shares MOE’s interest in the resolution of RTB Bor status through the market test, and the two will be therefore considered together in the following assessment of stakeholder positions. The role of the Ministry of Finance with regard to the social program is passive but compelling: the threat of ending subsidies exerts pressure on all parties to come to a solution before the subsidy ‘crutch’ disappears.

G. World Bank

The World Bank is the largest and most powerful multilateral economic development agency in Serbia, working closely with the GoS on reform policy and implementation. Its overarching goals with respect to the issue at hand are in reducing poverty (or preventing its increase) through promoting private sector led growth in Bor region. It supports the implementation of the Action Plan for Restructuring and Privatization of RTB Bor, and would consider broader regional development project upon successful completion of the


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market test. By basing its assistance on conditions for policy reform, the Bank is able to strengthen GoS capacity temporarily as government institutions undergo reform. The role of the World Bank in the social program is to create incentives for restructuring, through the funding of employee support initiatives, and to reduce the short-term costs to employees.


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8.3 Stakeholder positions A. Investment/funding priority Question: What is the investment or funding priority with respect to RTB Bor? Stakeholder Position 1. Employees Investment in new equipment, in rehabilitation of smelter in order

to keep their jobs. 2. Trade unions Investment in new equipment, in rehabilitation of smelter in order

to keep jobs as first best option, and increased funding of severance pay as second best option.

3. Management Investment in company and higher severance pay. 4. MoLESP Investment in employee redeployment through funding of support

programs (ALM) 5. Ministry of Economy/

Ministry of Finance Private investment in saleable RTB Bor assets, new exploration.

6. World Bank Private investment in saleable RTB Bor assets, new exploration and support programs (ALM).

Analysis The differences in attitude toward investments are related both to the position of the stakeholder and the information being used to make the proposal. Employees and unions do not want to lose their jobs and would prefer to see RTB Bor return to its formerly productive position. They are aware that the current situation is untenable but see the problem in terms of mismanagement and neglect as opposed to lack of competitiveness on world markets. The ministries and World Bank are interested in market solutions with accompanying mitigating measures. A compromise would involve investment and funding in all of the above areas, to the degree that it is rational. This is a realistic scenario, but a satisfactory outcome is linked to timing, with much of the funding and investment not becoming available until at least a year after the social program takes place.


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B. Timing of social program Question: When should the social program take place? Stakeholder Position 1. Employees Preferably never 2. Trade unions As far in the future as possible, but if necessary, then only

following the creation of a comprehensive set of fully funded support measures

3. Management Early, in order to comply with GoS directives, but as late as possible in order to avoid antagonizing employees and unions

4. MoLESP As soon as support institutions are in place 5. Ministry of Economy/

Ministry of Finance As soon as possible, to facilitate the market test

6. World Bank As soon as possible, but in tandem with the creation of stronger support institutions

Analysis With respect to timing, those most affected by the social program (employees, unions, management) would prefer to see it take place as late as possible, while those institutions farther from the direct impact (the World Bank and Ministry of Economy especially) would prefer early implementation. The problem arises with respect to the timing of funding and investment, as noted above. Those with the greatest interest in early action have limited ability to provide funding in a timely manner.


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C. Severance pay Question: What is the purpose of severance pay? Stakeholder Position 1. Employees To create a new employment positions (through investment), pay

off debts, cover expenses after redundancy, award for years worked

2. Trade unions For employees to invest in own business 3. Management Method for gaining goodwill of employees and incentive for

voluntary redundancy 4. MoLESP Legal obligation to redundant employees to cover period until new

employment 5. Ministry of Economy/

Ministry of Finance Reallocation of subsidies from loss making enterprise and the cost of layoffs which must be kept low to avoid setting costly precedent

6. World Bank Necessary but costly measure to cover short term needs of redundant employees

Analysis There is a fundamental difference in how severance pay is viewed by the different parties, and this is related to a difference in information (i.e. probability of what severance pay is used for) and position. Employees (and unions) perceive the role of severance almost as the government’s obligation to secure them continued employment, which may be a legacy of the socialist system’s focus on providing employment for all as opposed to creating a functioning labor market. The World Bank and the GoS, on the other hand, see severance pay as a short term provision for covering expenses until redundant employees are able to find other employment or income sources. While this latter position is correct in theory, and international experience shows that severance pay cannot be relied upon for seed capital, the precarious local economy and high unemployment rate in Bor region lends credence to employee skepticism.


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D. Potential stakeholder contributions to social program Question: What is the potential stakeholder contribution to the social program? Stakeholder Position 1. Employees Taking voluntary redundancy, actively pursuing alternative

employment 2. Trade unions Communicating in good faith between government, management

and employees, helping employees accept and benefit from social program

3. Management Supporting the Transition Center, smoothing the transition 4. MoLESP Providing redeployment support through Employment Promotion

Program (EPP), ALM, and NES, and the Transition Center 5. Ministry of Economy/

Ministry of Finance Bringing pressure to come to an early solution

6. World Bank Bringing pressure to find a solution, supporting policy dialogue, funding assistance measures

Analysis Each stakeholder has a potential contribution to make. Whether or not these contributions are offered depends both on the types of obstacles in the way as well as goodwill established. Employees will be reluctant to leave if alternatives are not attractive or support mechanisms are weak. Trade union will be reluctant to participate in the process if they are not listened to or their role is not acknowledged. Management will have a difficult time contributing if it does not receive adequate support from MoLESP, while MoLESP will need to have a dedicated individual or team overseeing the program. MOF and MOE’s ability to exert pressure on all parties will depend on its willingness to make the buck stop with it. The World Bank will be limited in its effectiveness if it is unable to manage the potential delay in funding.


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E. Risk of failure Question: What is the greatest concern of each stakeholder should RTB Bor’s restructuring and the social program fail or be poorly executed? Stakeholder Position 1. Employees Market test failure and/or the shutdown of RTB Bor accompanied

by abrupt mass layoffs without negotiated solution, leading to little or weak support

2. Trade unions Market test failure and/or the shutdown of RTB Bor accompanied by abrupt mass layoffs without negotiated solution, leading to little or weak support

3. Management Market test failure and/or the shutdown of RTB Bor accompanied by abrupt mass layoffs without negotiated solution, leading to dismissal

4. MoLESP Strikes and demonstrations by employees with blame pinned on MoLESP, loss of a potential restructuring model

5. Ministry of Economy/ Ministry of Finance

Economic crisis in Bor region as unemployment skyrockets

6. World Bank Failure to follow through on its commitment to achieving a smooth transition using market mechanisms while reducing costs to those most affected

Analysis Each stakeholder faces quite different risks. In the case of the unions and World Bank these are largely reputational, with the former unable to protect the employees it represents and the latter unable to provide a solution for a common challenge to economic and labor reform in Serbia. For management, a poorly executed social program might call into question its capacity, while for MoLESP failure might call into question its ability to transform the Serbian labor market. Those hardest hit would be the employees themselves. Their acceptance of a social program may actually depend on their ability to envisage this worst case scenario.


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F. Ideal outcome Question: What is the ideal long-term outcome of RTB Bor’s restructuring? Stakeholder Position 1. Employees Keeping current jobs or finding new jobs in the mining sector 2. Trade unions New investments in mining, a large but also productive workforce 3. Management Sale of RTB Bor as a going concern 4. MoLESP Investments in exploration and new mining operations,

redeployment of most of current workforce 5. Ministry of Economy/

Ministry of Finance Investments in exploration and new mining operations, redeployment of most of current workforce

6. World Bank Investments in exploration and new mining operations, redeployment of most of current workforce

Analysis At one level, the ideal outcome for all stakeholders is not very different. A rejuvenated mining sector in the Bor region is the eventual goal of all stakeholders, but while GoS and the World Bank are focused on new exploration and streamlined current operations, while will take 5-8 years to accomplish and require far fewer employees, the employees and their unions would like to see investment in current operations and minimal reductions in the workforce. All stakeholders will welcome the revitalization of the local economy which could accompany outside investment in mining and the strategic promotion of local business and new industries.


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9. C ONC L UDI NG R E M A R K S For better or for worse, the planned labor restructuring of RTB Bor involves an economic transformation of the region, leading to much less dependency on mining. It may result in a deeper slide into poverty, crippling unemployment, and worsening social problems or, conversely, in the gradual diversification of the industrial base, and greater economic opportunities for both businesses and workers. In economic terms, subsidizing operations at RTB Bor is a far from optimal policy, since shutting down operations and redirecting the subsidies to workers directly would be a far more efficient use of resources. Such a radical move is beyond consideration, of course, and there are vested interests in maintaining the status quo. For now, the Government is willing to continue supporting RTB Bor, as a kind of vehicle for social assistance. But by subsidizing loss making operations instead of transferring funds to employees directly (a far cheaper option) GoS is paying a premium for social calm. It is generally acknowledged that workers in Bor region must still go some way toward overcoming the old, ingrained attitudes bred by the socialist system which fostered a dependency mentality. Releasing surplus labor from a failing enterprise where most are not involved in productive activity and supporting them in their pursuit of new endeavors is a good step to take. This is true regardless of whether a market test is on the horizon or not. If the workers’ best interests are kept at heart, the extent of pain can be minimized, paving the way for sustainable, long term gains. The direction of change will depend not only on the type of policies pursued but very much on the level of stakeholder engagement and government commitment to the process. It is the hope that this study, and the process of which it was a part, will help move the stakeholders to a more optimal solution.


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Annex 1. RTB Bor Social Program (2002) Translation of RTB Bor document.

CRITERIA FOR RESOLVING THE EMPLOYEE SURPLUS IN RTB BOR IN ACCORDANCE WITH THE SOCIAL PROGRAM OF THE GOVERNMENT

OF THE REPUBLIC OF SERBIA

1. Existing criteria 1. Expressions of interest for separation by employee. Pursuant to these criteria, an employee may give in his notice of separation with the consent of the employer only. 2. Employees who fulfill the criteria for retirement under any criteria or who lack up to two years of insurance or age to fulfill the criteria for retirement by 1 March 2002. 2. Criteria for identification of surplus employees 1. The key criteria is evaluation of the work performance The elements for establishing work outputs are as follows:

• The quality of work performed (knowledge and abilities required, attitude to assets and equipment, waste, finalization, etc, professional qualifications and educational degree in case of administrative staff, etc);

• Independence at work and innovations; • Efficiency (fulfillment of technological norms, time frames, etc.); • Attitude to work, tasks and assets ( tardiness, frequent absences from the work place,

unaccounted absences from work and sick leaves, unpaid leaves, drinking, stealing, relationship to colleagues and managerial staff, etc.);

• Extended forced vacations over the previous 4 years (6 months) at the personal request of an employee.

The evaluation of work performance shall be done as follows: Employee's work performance (0 - 25 points)

1. Exceptional 25 2. Good 20 3. Satisfactory 14 4. Partially satisfactory 8 5. Not satisfactory 0

The evaluation shall be made against each element individually, by giving a numeric grade pursuant to the criteria application scale. The work output grade shall be established by calculating the average grade of work outputs i.e. the sum of grades received for all elements and division by the number of elements.


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An employee with a higher educational degree shall be given preference for a certain position for which alternative educational level has been provided for. 3. Additional criteria

I

Should employees have equal work outputs, the additional criteria shall be taken into account, as follows:

• Financial status (income per household member, private company, possession of agricultural land, office space and rented residential space, etc.);

• Social status (number of dependants, number of children and school children, number of family members employed, spouses employed in RTB Bor Group, possession of housing, etc);

• Medical status of an employee and his family members; • Length of employment.

The additional criteria shall be applied in succession.

II In line with the production plans and the volume of production a Breakdown of posts and the optimum number of employees shall be defined. The employees shall be deployed in line with the criteria defined. The employees shall be deployed by direct supervisors and the managers of production lines and the final decision thereon shall be passed by the director of the company. Following deployments, a list of employees constituting surplus shall be drawn and forwarded to the trade unions for their opinion and remarks. Only then shall the final list of surplus workers be established.

III The key and the additional criteria for establishment of the surplus of employees shall not be applied to the below, protected, categories:

• An employee during pregnancy, during maternity leave and leave for care and special care of a child (Art. 76 of the Labor Law );

• Single parents or foster parents of a child aged up to two; • An employee with a grave or terminal illness (harmful disease).

IV

The employees identified as surplus may submit an appeal to the Appeals Committee within 48 hours from the time of announcing the list. The Appeals Committee shall review and decide on all the appeals within 48 hours.


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Draft

SOCIAL PROGRAM

FOR SURPLUS EMPLOYEES IN PRODUCTION COMPANIES OF RTB BOR - COPPER LINE

I The 2002 business policy of RTB Bor provides for significant organizational, technological and financial changes in the entire system, and particularly in the base part thereof where only organizational parts in mining and metallurgy which are directly linked to copper production shall remain (cathode copper, brass, copper wire and dip forming). The restructured base part will be comprised of the copper mines with flotation plants in Bor and Majdanpek and in metallurgy Topionica, Elektroliza and Sumporna (smelting, Electrolisys and Sulferous) to cathode, and Livnica and Bakarna zica (Foundry and Copper wire) to products of the primary copper processing. The base part shall be divided into Belorecki Pescar and Exploratory works from RBB, Termoelektrana, FOZ i Metaloprerada from TIR, as well as dependent companies FOD and the Copper Institute. The main objectives and tasks of the RTB Bor business policy in production at the copper line are, on the one hand, creation of conditions for increase in ore and concentrate production as compared to 2001 and full utilization of capacities on one melting line; and significant improvement of all economic principles of operation i.e. decrease of operating costs, on the other. The volume of the planned production and the needs to decrease the costs of all forms of operation (and the labour costs) give rise to the need for decreasing the number of employees harmonizing it with the volume of production, costs and organizational changes. In line with the above, the necessary number and structure of all employees shall be established in all companies, new systematizations of posts will be made and a necessary number of employees deployed. For the others who constitute surplus a social program shall drawn.

II Pursuant to the Art 114 of the Labour Law, the social program for the surplus of employees in production companies of copper line RTB Bor shall contain the following data: Total number of employees, breakdown of surplus employees and the duties they perform, their qualifications and age breakdown. These data will be available upon adoption of the Plan of the necessary number of employees. The data submitted for each company and each employee with a proposal of measures for their employment, the separation period for those who have not been deployed elsewhere.

III Pursuant to the Article 116 of the Labor Law, the proposal of measures for resolving the surplus of employees shall contain the following options:


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1. Re-deployment of the surplus of employees within the company This measure is based on the fact that there is a discrepancy of employees in plants of the company, especially that there is a lack of production works. This measure shall provide for filling in of posts in the company RTB Bor in the copper production line, irrespective of the plant and department where each employee had been employed previously. Depending on the needs requalifications and additional trainings shall be organized for new posts. Refresher sessions shall also be organized for those production workers who worked in services for long periods. 2. Re-deployment of the disabled workers to the newly established protected workshops This measure is based on the fact that the disabled workers in the companies of RTB Bor possess significant experience and knowledge of certain areas and might put them to use with certain training in the new programs of protected workshops. A protected workshop shall be organized in such a way so as to ensure engagement and rehabilitation of the current and future disabled workers in the companies of RTB Bor. An integral part of the resolution of the problem of disabled workers is the review of the health status of current disabled workers aiming at retiring a part of them and assessing the remaining work capacity of the others with a view to their engagement in the protected workshops. 3. Payment of indemnity pursuant to the Social Program of the Government of the Republic of Serbia This measure is based in the Social Program of the Government of the Republic of Serbia . It provides for payment of indemnities amounting to 200 DEM in CSD equivalent for each year of employment ( it shall not be applied to the employees needing less than two years for fulfillment of one or more conditions for retirement). In this case an individual will be able to register with the unemployment bureau but the Labor Market Institute shall pay neither indemnity nor insurance. 4. Compensation paid by the Labor Market Institute Pursuant to the Art. 119 of the Lab our Law, the Law on Employment and the regulations of the Labor Market Institute, an employee who was laid off on the basis of surplus shall be entitled to compensation including medical and pension insurance. The compensation shall be payable for a certain period of time depending on the previous years of employment (24 months for employees with more than 25 years of employment), and totals 60% of the average three-month wages of an employee in the months preceding separation augmented by 2% for each year of employment. The compensation thus established shall not be lower than 40% nor higher than 80% of the average monthly wages of an employee in the Republican economy ( the average in December totaled CSD 11,767.000). 5. Other possibilities Other possibilities for resolution of the surplus of employees are provision of equipment, space and other conditions for self-employment of the surplus employees. These possibilities may be


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offered to the surplus workers only through and in cooperation with the Republican Agency for Small and Medium-Sized Companies, the Employment Agency on the basis of their self-employment programs, the banks granting loans for SMEs, local communities, etc. The condition posed is that these institutions dispose of certain funds for these purposes, programs, organizational and other conditions for training of the interested workers. 6. The programs of the Labor Market Institute The Labor Market Institute may, in combination with the above measures, and independently, provide for the below possibilities of resolving the surplus of employees:

• Self-employment of the unemployed by participating in funding of an investment of the unemployed ( including payment of one-time monetary compensation);

• Employment and work engagement of the unemployed through participation in funding investments in economy;

• Employment of the disabled through participation in investments in opening new posts for the disabled and their preparation for employment;

• Employment of the unemployed in another company through financing investments of employers creating new conditions for employment;

• Provision of funds for re-qualification, additional qualifications, renewal and innovation of know-how, etc.

The scope of realization of these options of the Institute depends on the amount of funds available at the Labor Market Institute.

IV Pursuant to the Article 115 of the Labor Law, the representative Trade Union shall give opinion and proposals concerning this Program. This Program is elaborated in cooperation with the Institute for Labor Market.


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Annex 2. Benefits package framework and staff reduction procedures34

Potential wage costs for a retrenchment program depend on alternative courses of divestiture: a) “passive course” – everybody continues working during the whole term of notice; b) “active course” – the employees leave gradually when new job or training opportunities occur.

The benefit packages could be summarized in accordance with the following framework:

OBJECTIVE TASK 1. Identify potential temporary income support programs and their costs.

(a) General Social Benefits: Review existing general income support programs (e.g. unemployment benefits, social assistance) and develop a scenario on these standard benefits based on projected take-up, unit costs, and number of participants over the duration of the labor restructuring program (using data from business plans) (b) Special Severance Benefits: Review existing general severance regulations, special severance packages anticipated (e.g. early retirement, special lump-sum payments, special social assistance, etc.), , then develop a scenario based on projected take-up, unit costs, and number of participants over the duration of the labor restructuring program (again using data from enterprise business plans) (c) Overall costs: Summarize the costs of the general social programs (a) and MPS special severance benefits (b) by type and year for the duration of the restructuring/privatization program.

2. Identify potential labor redeployment support programs and their costs.

(a) General Labor Redeployment Programs: Review program type, unit costs, impact of existing active labor programs (e.g. retraining, small business assistance, intervention works, community temporary employment, etc.) for the unemployed. (b) Special Labor Redeployment Programs: Review program type, unit costs, potential impact and take-up of labor redeployment programs in general and in areas of special sensitivity (e.g. mono culture or remote) (c) Take up and Costing: Based on review conducted under (a) and (b), develop an estimate of take up and cost for each type of program for a broad menu of programs (e.g. small business assistance, retraining, community temporary employment etc) for each year of the labor restructuring/privatization program).

34 Excerpted from World Bank. “An Institutional Framework for Labor Redeployment Program (LRP) and a Menu of Pre-Layoff and Post-layoff Labor Policies for Workers Made Redundant” Draft note based on materials prepared by David Fretwell (World Bank), Arvo Kuddo (World Bank) and Jolanta Hess (World Bank Consultant).


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Staff reduction procedures

• Jobs are classified according to the new job classification system. • Workers currently in jobs that are being reclassified are placed on surplus lists. • Workers who are on surplus lists are matched according to their qualifications to newly

classified jobs and available vacancies in the firm; • Workers whose qualifications match the new job requirements are given new job offers. • Workers who do not meet the requirements or who do not accept the offer are placed on

the potential redundancy lists. • List of names with potential redundancies is then refined according to the criteria for

redundancies (workers who enjoy employment protection are excluded). • From the remaining list of specific individuals designated for redundancy (those not

subject to exclusion) an amended list of names is sent to trade unions organization for comment.

• The personnel (human resources) department prepares redundancy notification letters with assistance from the Labor Redeployment Team.

• Operational unit managers are trained to hand out letters to persons designated as redundant.

• Advance notification is according to seniority. Workers who are notified are obligated to contact Labor redeployment Team (twice) a month.


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Annex 3. Self-reported household expenditures

Self-reported household expenditures, € Question: Please tell us what is the total value that the household spent on:

Item

Current employees

Former employees Period

Food and non-alcoholic drinks 36.12 37.46 For past week Alcoholic drinks and tobacco 5.81 8.13 For past week Transportation (public transport, gas) 7.26 7.20 For last week Hygiene and beauty products 24.11 22.76 For Sept. Communal services (electricity, gas, heating) 41.60 46.10 For Sept. Telephone (mobile, fixed) 13.93 16.10 For Sept. Rent 8.40 7.86 For Sept. Recreation and culture 2.00 1.34 For Sept. Restaurants and hotels 1.59 1.25 For Sept. Healthcare and medicine 26.83 31.45 For last 3 months Clothing and footwear 84.51 71.11 For last 6 months Children’s toys 6.22 5.49 For last 6 months Hospitalization costs 26.06 9.57 Since January Education- classes, schoolbooks 62.01 40.95 Last school year Tuition for out of town student 38.13 41.48 Last school year Rent, other expenses for out of town student 12.98 15.22 For Sept. Other 31.86 25.36 For Sept.


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Annex 4. Selected indicators for Bor and Majdanpek municipalities

Indicators Bor Majdanpek 1.Natural resources Agricultural areas ( ha) Plowed fields and gardens ( ha) Orchards (ha) Meadows and pastures ( ha) Forests ( ha)

41 000 15 636 1 559

23 245 31 804

20 089 7 922 1 382

10 723 64 769

2. Population - census 2002 - census 1991 Decrease of population in period 1991-2002 Average annual decrease of population Natural population growth (%)

55 817 59 424 -3607

-328 -5,7

23 703 26 952 -3249

-295 -11,7

3. Employment– 2003. Total number of employed Employed female – share in total employed (%) Number of the employed by 000 inhabitants Rank of the employed in relation to Serbia Number of the employed in companies and institutions Number of persons in business as self-employed Number of unemployed persons per 1000 inhabitants

15 935

38,3 290 17

15 285

650

137

6 658

42,0 288 19

5 510

1 148

141 4. Agricultural production -2003. Production of wheat ( tons) Production of corn ( tons)

5494 8588

2414 4247

5.Tourism Number of tourist arrivals

- domestic - foreign

Number of tourist overnight stays - domestic - foreign

13 544 13 138 406 43 084 42 254

830

31 108 29 961 1 147 60 351 57 552 2 799

6. Retail trade-2003. Total turnover per capita- EUR Level - Serbia =100 Rank

835 54,5

84

702 45,8 117

7.National income Total national income – 000 EUR 2002 2003 NI per capita 2003- EUR Level – Serbia =100 Rank

30 063 9764 208 15,4 161

11 450 4 379

189 14,0 162

Source: Republic Bureau of Statistics


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References Arandarenko, Mihail with Marko Paunovic. “Labor Market Performance and Job Creation Programs in Serbia.” Draft. 2005. Brkanovic, Igor. “Is there a case for public support to self-employment programmes?” ILO Project: Social Finance for Support to Self-Employment. Belgrade, 2004. Chen, Yi. 2001. “The World Bank and the Provision of Assistance to Redundant Workers: Experience with Enterprise Restructuring and Future Directions.” Social Protection Discussion Paper Series. No. 0112. World Bank Group, Washington, DC. Citizen’s Forum Technical Expert Team. Local Environmental Action Plan: Municipality Bor. Serbia and Montenegro. 2003. Cvetkovic, Mirko and Ira W. Lieberman. “Serbia Briefing Note on Direct and indirect Subsidies and Redundancy Payments to Socially Owned Enterprises in the Process of Restructuring/Privatization.” 2005. Felske, Brian and Ira Lieberman. 2005. “Feasibility Study.” HIP PetroHemija. “Promotion of Business Incubators.” Presentation. September 23, 2005. Pancevo, Serbia. HIP PetroHemija Transition Center. “Questionnaire for Employees.” April 2005. Jovanovic, Slobodan L. Bor: “Istorijski putokazi.” (in Serbian) (“Bor: A Historical Roadmap.) Bor, 2001. Lieberman, Ira W. “RTB Bor: An Analysis of Restructuring/Privatization Options.” Feasibility Study. 2004. Martin, B. “The Social and Employment Consequences of Privatization in Transition Economies: Evidence and Guidelines.” Interdepartmental Action Programme on Privatization, Restructuring and Economic Democracy - Working Paper IPPRED-4. ILO. 1996-2005. Micro Development Fund. “August 2005 Report.” Ministry of Labor, Employment and Social Policy. “Programme for Resolving Redundancy in the Process of Rationalization Restructuring and Preparation for Privatization.” Draft. June 2005. Ministry of Labor, Employment and Social Policy. RTB Bor Redundancy Program. Draft. 2005. Municipality of Bor. “Strateski opstinski akcioni plan 2004-2006.” Draft. (in Serbian) (“Municipal Strategic Action Plan 2004-2006.”) Popovic, Pavle. What ensures success of self-employment by the unemployed in Serbia? ILO Project: Social Finance for Support to Self-Employment. Belgrade, 2005.


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Radulovic, Miroslav. Sto Godina Rudarsko Topinicarskgo Basena Bor. (in Serbian) (One Hundred Years of RTB Bor.) Bor, 2003. Republic of Serbia. 2005. “Programme for Resolving Redundancy in the Process of Restructuring, Preparation for Privatization and Rationalization” Republic of Serbia. “First Progress Report on the Implementation of the Poverty Reduction Strategy in Serbia.” 2005. Republic of Serbia. National Employment Service. “Change Strategy of the National Employment Service: 2005-2008.” Belgrade. 2005. Republic of Serbia. 2004. “Action Plan for the Restructuring/ Privatization of RTB Bor GROUP d.o.o. and Subsidiaries.” Republic of Serbia, Ministry of Labour and Employment. “The Law on Employment and Unemployment Insurance.” Belgrade, 2003. RTB Bor. “Kriterijumi za resavanje viska zaposlenih u RTB Bor po socialnom programu Vlade RS.” (in Serbian) (“Criteria for the solution of redundant labor at RTB according to the Social Program of the Republic of Serbia.”) RTB Bor. “Analiza Struktura Zaposlenih Preduzeca RTB Bor na dan. 30.06.2005.” (in Serbian) (Analysis of the structure of employee enterprises at RTB Bor.”) RTB Bor. Company prospectus. 1988. Stankovic, Stevan M. “Bor and its Surroundings: A Tourist Guidebook.” Bor, 1991. World Bank. “Republic of Serbia – An Agenda for Economic Growth and Employment.” 2004. World Bank. “An Institutional Framework for Labor Redeployment Program (LRP) and a Menu of Pre-Layoff and Post-layoff Labor Policies for Workers Made Redundant” Draft note

Documents

RTB BOR LABOR AND WELFARE IMPACT STUDY - World Banksiteresources.worldbank.org/...Bor_Labor_and_Welfare_Impact_Study.pdf · Bor. Dragan Randjelovic, Human Resources Director, RTB