In Georgia, employers often can't find staff, and the unemployed struggle to find jobs. Why?

Georgia faces a peculiar scenario: recent polls show that 58% of the population considers unemployment the primary issue (NDI, December 2023). Yet businesses, according to surveyed Georgian economists, grapple with the challenge of recruitment as their most pressing concern (PMCG, December 2023).

Due to the inadequate quality of education in Georgia, there has been a longstanding shortage of highly qualified labor. More recently, there are indications that even low-skilled labor, which does not necessitate specialized knowledge or experience, has become scarce.

Information about the shortage of such personnel can be found on social networks, where posts seeking domestic helpers, gardeners, waitresses, and similar roles are common. The shortage is particularly pronounced in the regions.

In this article, we will attempt to understand the factors behind this paradoxical situation – why there is a personnel shortage in a country where thousands of people are actively seeking employment.

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According to the National Statistics Service, Georgia’s unemployment rate stands at 16%, a notably high figure globally.

When individuals express concerns about staff shortages on social media, the common response in the comments is often suggesting that employers should raise salaries to resolve the issue.

It would appear that if raising employee salaries generates more income for the company than dealing with a staff shortage, why not consider increasing their salaries for the company’s own benefit?

In reality, the situation in Georgia is much more complex, and the labor shortage is not solely attributable to low wages.

Unemployment and a scarcity of labor coexist in the country, and this paradox is influenced by various factors.

In Georgia, there are 3 million people of working age (i.e., over the age of 15).

Out of this population, 1.6 million are part of the labor force, meaning they are either employed or actively seeking employment. According to the official definition, an unemployed person is someone who is not working but actively searching for a job and is ready to commence employment.

1.4 million people are outside the labor force, meaning they are neither employed nor actively seeking work.

One of the major challenges in this area in Georgia is the low labor force participation rate, which stands at 54%.

This cannot be solely attributed to low wages. While it is commonly argued that higher wages would encourage more people to seek employment, this argument is only partially true. Even in much poorer countries with lower wages than Georgia, the labor force participation rate is significantly higher.

For instance, in Angola, which is three times poorer than Georgia, the rate is 90%.

According to Trading Economics, Georgia ranks 14th from the bottom among 100 countries worldwide in terms of labor force participation.

In Georgia, a portion of the potential labor force with low or even medium qualifications stays outside the workforce for various reasons.

Two main contributing factors to this situation include the ineffective organization of state-provided social assistance and financial support from emigrants’ remittances.

Reason 1: The social protection system diminishes the inclination to work

Currently, the social assistance system in Georgia is structured in a manner that diminishes people’s motivation to work.

For instance, if a member of a socially vulnerable family secures employment, they cease to receive social assistance after one year. However, a one-year period is insufficient for a family to lift themselves out of poverty.

Moreover, socially vulnerable individuals typically possess low qualifications, making it practically unattainable for them to find employment with an equal monthly salary of GEL 1 000.

Consequently, recipients of social assistance fear that their earnings will result in the loss of their much more reliable allowance.

In reality, the social protection system in Georgia diminishes the motivation and inclination to work, fostering a tendency to remain unemployed.

In most countries with unemployment benefits, such benefits are not unconditional; they are provided only if an individual is actively seeking employment but is unable to secure a job.

Reason 2: Remittances from abroad

A second factor contributing to the low labor force participation rate is the reliance on remittances from abroad.

According to the World Bank, Georgia ranks 22nd globally in remittances for 2022, with these funds constituting 15.7% of the country’s total economy.

It is a prevalent scenario in Georgia for emigrants to support their families and relatives, diminishing their inclination to work.

Reason 3: Emigration of human resources from the country

Out-migration from the country significantly influences the labor market. From 2018 to 2022, 383 thousand citizens emigrated from Georgia, while 263 thousand people returned during the same period.

This resulted in a negative migration balance of 120 thousand people.

If we exclude emigrants under the age of 15, the Georgian labor market experienced a loss of at least 100 thousand people.

Reason 4: Tradition reinforces the dependence of younger people on their parents

One cultural factor to consider is that, unlike in Western countries, Georgian traditions do not involve early employment from school age, even during summer vacations when schoolchildren and students have more free time.

Children often remain financially dependent on their parents for an extended period. While the situation is gradually changing, with more people aged 15-21 entering the labor force in recent years, it is still far from ideal.

Meanwhile, this demographic represents citizens with fewer qualifications and less experience, and they should, at the very least, partially fulfill the growing demand for low-skilled personnel. Early work experience would prove beneficial for their future employment.

Reason 5: Inflation

One reason for the manpower shortage is the high inflation experienced in recent years. Inflation, characterized by a decrease in the purchasing power of money, effectively diminishes wages, thereby reducing people’s motivation to work.

Over the last 10 years, the average salary in Georgia has doubled, increasing by 110%.

However, during the same period, inflation stood at 50%, resulting in a real wage increase of 60%.

While such an increase would be considered significant in wealthier countries, in Georgia, where the average salary was 650 GEL per month (about $241) a decade ago, it does not substantially improve the standard of living.

Therefore, achieving high rates of economic growth and a substantial increase in labor productivity is essential for a significant wage increase.

If the heightened demand for labor persists and inflation stabilizes, wages will continue to rise despite substantial issues in the labor market concerning skills, education, and motivation to work.

An objective assessment of the challenges in the labor market and Georgia’s economy as a whole is crucial.

Relying solely on the hope that employers will significantly increase wages, leading to full employment, is unrealistic without concurrent economic development.