THE REAL STORY BEHIND ARMENIA'S 7.7 PERCENT

UNCLAS SECTION 01 OF 03 YEREVAN 000176

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: ECON ETRD ELAB AM
SUBJECT: THE REAL STORY BEHIND ARMENIA'S 7.7 PERCENT
UNEMPLOYMENT RATE

REF: A) 05 YEREVAN 1705 B) 05 YEREVAN 1044

Sensitive but unclassified. Please protect
accordingly.

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SUMMARY
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1. (SBU) According to the Armenian National Statistical
Service, official unemployment at the end of 2005 was
7.7 percent. The official statistic is based on the
number of Armenians collecting unemployment benefits.
Many international organizations estimate that the true
rate is closer to 25 percent. Low salaries, poor
working conditions, and gender and age discrimination
are common problems faced by Armenians in the market
place. Underemployment is also a significant problem
as many qualified specialists are obliged to work
outside of their field of expertise often in low paying
jobs in the service sector. The high levels of
unemployment reported by international organizations
and widespread underemployment are indicators that the
benefits of Armenia's double-digit GDP growth (ref A)
may not be reaching all segments of the population.
End Summary.

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THE OFFICIAL STORY
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2. (SBU) In December 2005, the National Statistical
Service reported an unemployment rate of 7.7 percent, a
drop of 1.7 percent when compared to December 2004.
The vast majority of the unemployed, more than 70
percent, are women. According to the Ministry of Labor
and Social Affairs State Employment Agency Chief Sona
Harutyunyan, the official statistics reflect the number
of people registered for and receiving unemployment
benefits. Harutyunyan told us the decrease in the rate
was a direct result of government efforts to combat
unemployment. She explained that the GOAM provided
training courses for unemployed individuals to learn
skills which were in high demand. She also said that
many government public works programs were designed in
part to increase employment.


3. (SBU) Harutyunyan explained, however, that these
official statistics may not reflect actual rates of
unemployment in Armenian. According to Harutyunyan,
many Armenians failed to register because they viewed
the 10-day registration process as a waste of time and
effort, particularly given the low rate of unemployment
compensation. Unemployment benefits are currently
valued at approximately USD 14 per month, and will
likely increase to approximately USD 20 later in 2006.
She estimated that the actual unemployment rate may be
as high as 15 percent. Harutyunyan also noted that her
estimate and the official statistics did not include
many rural Armenians who were not eligible for
unemployment because they owned land on which they
could grow food.

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INTERNATIONAL ORGANIZATIONS ESTIMATE HIGHER RATES
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4. (SBU) Labor market surveys conducted by the World
Bank and United Nations Development Program indicate
that unemployment in Armenia was as high as 30 percent
in 2003. A recent study by the International Monetary
Fund (IMF) states, "experts estimate that the true
figure (for unemployment) lies between 15 and 25
percent." According to the IMF, the National
Statistical Service also conducted a household survey
based on an International Labor Organization
methodology which had a much broader definition of
unemployment. The survey results indicate that
unemployment fell from approximately 38 percent in 2001
to 31.6 percent in 2004. The survey defined unemployed
persons as those looking for jobs during the four weeks
preceding the survey or persons who had received a job
offer, but were not working at the time the survey was
conducted.

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UNDEREMPLOYMENT REMAINS A PROBLEM
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5. (SBU) While many Armenians use personal networks to
job search, the number of private employment agencies
in the country is increasing. These companies charge
approximately USD 2 as an application fee and 30-80
percent of the first month's salary for job placement
services. The Head of the Tanger Employment Agency
told us there has been an increase in the number of
Armenians trained in U.S. or Europe and who, because
they were unable to find work in their fields in
Armenia, have accepted positions far below their level
of expertise. Representatives from both the Tanger and
the Kizoghlyan employment agencies said approximately
50 percent of their clients were employed at the time
of application, but were unsatisfied with the nature of
their work, salary or working conditions. (Note: Many
Armenians feel this problem acutely because under the
Soviet education system the number of graduate degrees
issued in a given area was set by the state to meet
projected demand and graduates were essentially
guaranteed employment in their field. Even 15 years
after the Soviet system collapsed, the old mindset has
not entirely loosened its hold. End Note.)

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"ONLY THE YOUNG AND BEAUTIFUL NEED APPLY"
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6. (SBU) Harutyunyan told us that in rural areas there
is a high demand for teachers, doctors and other
professionals, and in Yerevan the highest demand is for
skilled laborers (carpenters, masons, plasterers,
etc.),drivers and service sector employees including
hotel clerks, restaurant workers, and sales personnel.
Salaries in the service sector are extremely low,
averaging between USD 70-100 a month. Many employers
(including the highly regarded ACBA Bank and KPMG
Armenia) include age and/or physical appearance
requirements in their vacancy announcements. The most
common age limits are from 18 to 30. Many service
sector job announcements require that applicants have a
minimum 3 years of work experience and a good command
of Armenian, Russian and English. The fact that
employers set such stringent requirements for
applicants is an indicator of how weak the labor market
is in Armenia.

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POOR WORKING CONDITIONS
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7. (SBU) The National Assembly adopted a new labor code
in November 2004 which, among other provisions, limited
the work day to eight hours and required that employers
provide 28 calendar days of vacation annually. While
the new law has been in force since June 2005, many
private sector employees told us that they were unable
to get paid leave and were required to work more than
eight hours a day. The Head of the Kizoghlyan
Employment Agency told us that many employers also hire
employees for a "probationary" period of ten to 30 days
during which the employee is not paid. Often these
employees are subsequently fired, but, because their
initial employment was "off the books," they are unable
to claim payment for the time they worked. Anecdotal
evidence suggests that some private sector employers
underreport the size of their staff or the amount of
salaries paid in an effort to avoid paying taxes.

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REMITTANCES AS ALTERNATIVE TO EMPLOYMENT
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8. (SBU) Available information on the importance of
remittances to the Armenian economy suggests that many
Armenians choose not to claim unemployment because they
supplement their incomes with funds sent from abroad.
According to the Ministry of Foreign Affairs, at the
end of 2005 there were 2 million Armenians living in
Russia and 1.4 million living in the U.S. These
numbers suggest that the total number of Armenians
living abroad exceeds the domestic population,
estimated to be 3.2 million. Many Armenians living
abroad provide financial support to family members
living in Armenia and Central Bank statistics indicate
that the net inflow of private remittances amounted to
USD 352 million in 2005, an increase of 27 percent
compared to 2004. A 2004 USAID-sponsored study
suggests that remittances are significantly higher and
may account for as much as 25 percent of Armenia's GDP
(ref B). Individuals benefiting from these inflows may
be less likely to claim unemployment compensation even
if they qualify under the law.

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COMMENT
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9. (SBU) The official unemployment rate of 7.7 percent
masks a much larger problem with unemployment and
underemployment in Armenia. While statistical
information concerning the situation is limited, it
appears that many Armenians work in poor conditions for
low wages in jobs for which they are overqualified.
The statistical information provided by international
organizations suggests that true unemployment rates are
declining, but at a very gradual pace. This fact is
surprising given Armenia's double-digit GDP growth over
the past four years (ref A) and highlights the need for
continued efforts to ensure that all levels of Armenian
society benefit from the country's impressive rates of
economic growth.
EVANS