Tashkent, Uzbekistan (UzDaily.com) -- In the context of the current macroeconomic conditions, trends and dynamics of labor market indicators for most central banks are becoming a key factor when making decisions on the main rate and forecasting inflation.

The reaction of the labor market in countries around the world to the ongoing economic shocks remains different. Slower adaptation of the labor market to imbalances in aggregate demand and supply requires careful analysis when developing macroeconomic policy measures.

Current trends in the labor market of Uzbekistan

The population of Uzbekistan as of the beginning of 2024 is 36.8 million people. The rate of population growth in recent years (2020-2023) has accelerated to 2.1%, or in absolute terms by approximately 700-800 thousand people annually.

At the same time, a significant part of the population (57%) belongs to the working age group. At the same time, starting from the 2010s, the share of the working-age population of the total population gradually decreased, which was caused by an increase in the birth rate from the 2000s to the present. This, on the one hand, indicates an increase in the demographic burden in the short and medium term, and on the other hand, in the long term it may lead to an increased need to create more jobs.

In 2022, the active population was about 15 million people (41.7% of the total population), which is 1 million more than in 2016. This difference represents a growing pool of human capital.

At the end of 2022, 13.7 million people were employed, which is 3% or 400 thousand people more than in 2016. In 2022, the number of unemployed people who submitted applications to labor authorities was 2 times less than in 2021.

The situation on the labor market remains quite stable. Based on the results of the first half of 2023, the unemployment rate dropped to 8.1%.

Labor supply (the number of requests related to job search) remains stable in the fourth quarter. Job searches in the capital, as well as requests for civil service through the platform for vacant positions in the state civil service (argos), remain high across the republic.

Labor demand, estimated by the Central Bank as the number of vacancies collected based on open data web scraping technology in December 2023, amounted to more than 49 thousand.

Vacancies are mainly presented in the field of retail trade (5.8 thousand), manufacturing (5.1 thousand), public catering (4.3 thousand) and construction (4 thousand).

Employment continues to rise, according to the latest available data, although the rate of growth has slowed slightly from last year. At the end of the first half of 2023, the number of employed people amounted to 13.9 million people and increased by 0.7% compared to the end of the same period last year.

The average nominal wage in the economy at the end of the third quarter of 2023 amounted to 4.4 million soums1 and increased in annual terms by 18%. Wage growth rates vary significantly across industries. Wages are growing most significantly in the field of information technology (+44%), accommodation and food services (+38%), transportation (+37%), trade (32%) and finance (+30%).

During the period from 2018 to the first half of 2023, productivity in the economy grew. Growth rates remain high in the industrial and transportation sectors, and moderate in agriculture and trade. However, in mid-2023 there was a slight decline in productivity in the construction sector.

Without taking into account the agricultural sector, production costs (ULC - unit labor cost) may continue to be reflected in higher prices. This trend can be seen in the construction, trade and transportation sectors.

External labor migration

When considering the national labor market, it is necessary to take into account the flows of external labor migration, which are an important part of macroeconomic, social and demographic policies.

Labor migration processes influence the total income of the population, domestic demand and the stability of the balance of payments through the channel of remittances.

For the period 2018-2023. about 16% of total population income came from remittances from labor migrants. Most of the trade deficit is also offset by the influx of cross-border remittances, which are also one of the main sources of supply in the domestic foreign exchange market.

At the same time, there is a gradual geographical diversification of such flows. After an atypical influx of remittances in 2022 (2.1 times), their level has stabilized this year. The share of remittances from Russia, against the backdrop of high volatility of the ruble/US dollar exchange rate, increased inflationary processes and a slight reduction in migration flows, decreased to 78% in 2023 from 87% in 2022 (to 2019 levels).

According to the latest available data from Rosstat, based on the results of the first quarter of 2023, the number of patents and work permits issued for citizens of Uzbekistan in Russia decreased by 12% and amounted to 1.2 million units. According to data from the Ministry of Internal Affairs of the Russian Federation, in the first half of 2023, the number of migration registrations of citizens from Uzbekistan also decreased from 2.9 million to 1.7 million, or by 43%.

The volume of remittances from other countries increased by 14% in 2023, after muted growth in 2022 (about 3%). Continuation of an active external labor migration policy and an increase in the number of countries for cooperation in the direction of labor migration in the medium and long term may lead to changes in the structure of remittance inflows.

Labor market and macro indicators

The relative underestimation of the impact of a robust labor market on the recent surge in inflation in forecast models and its more persistent impact on price growth is prompting central banks to reconsider how they define the relationship between inflation and unemployment (the Phillips curve), the sources of inflation pressures, and future monetary policy. IMF experts3 note that during the period of the latest economic turbulence (2020-2022), the elasticity of inflation in relation to unemployment increased.

Estimates of the relationship between inflation and unemployment in the models of the Central Bank of Uzbekistan are also calculated based on the Phillips curve through the output gap indicator. The output gap serves as an alternative indicator for cyclical unemployment (Oken’s Law). Preliminary estimates show that, indeed, during periods of shocks, the elasticity of inflation to unemployment (through the output gap) increases, and during periods of relative stability it gradually decreases. Thus, calculated on a quarterly basis, the coefficient of dependence of cyclical unemployment on the output gap from 2018 to 2022 was -1.3 percentage points4, and excluding 2020 - -0.2 percentage points. (For comparison: in Russia this coefficient reaches -0.2; in Switzerland - -0.24; in Japan and Austria - -0.16 and -0.14, respectively, in the USA - -0.4 and in Spain - -0.85).5

The variability of the labor market’s response to macroeconomic changes requires further constant study and taking into account when analyzing the emerging monetary conditions in the country.

Expectations

By the end of 2023, unemployment in conditions of sustainable economic growth will be at the level of 8% (in 2022 - 8.9%). In 2024, the downward trend in the number of unemployed is expected to continue, and the unemployment rate is projected to be about 7.5-8% against the backdrop of the creation of new jobs, the expansion of the activities of the self-employed, and the introduction of new financial instruments.