Chapter 2. Overview of the Slovenian case study areas
In-depth field work has been undertaken for this study in the South-East Slovenia and Drava regions, both of which are located in Eastern Slovenia. This chapter provides details about the general economic development and employment outcomes in both regions which differ in terms of industrial structure as well as labour market challenges.
Overview of the Drava and South-East Slovenia regions
Previous OECD research has found evidence of significant differences between Slovenian regional labour market in terms of the level of skills of the workforce and the demand for skills by employers, as well as employment and job creation trends (OECD, 2014; OECD, 2016a). Banerjee and Jesenko (2015) also found significant regional variation in terms of GDP per capita in Slovenia, which can be explained for a large part by differences in labour productivity as well as employment rates (OECD, 2016b). However, when looking at the spatial distribution of income, the gap between Slovenian regions is relatively small compared to other OECD countries (OECD, 2016c), due in part to significant commuting flows between regions. Slovenia is also a fairly balanced country in terms of indicators of well-being such as access to basic services, education and health (OECD, 2016c). As part of this OECD study, in-depth analysis was undertaken to look at the labour market challenges and policy actions that have been taken in the regions of Drava and South-East Slovenia.
The Drava and South-East Slovenia regions in brief
Both regions are part of the Eastern cohesion region, which is less developed on average than the Western region of Slovenia. However, when looking at regional GDP per capita (Figure 2.1), one can see that South-East Slovenia compares favourably to other regions within Slovenia, while the Drava region falls in the middle range of performance.
Source: SORS (2017).
South-East Slovenia is a highly diverse region, both geographically and economically. A large part of the region is covered by forest, and the hilly terrain has historically contributed to relatively poor transport connections within the region as well between the region and other parts of Slovenia. The two major cities of the region (Kočevje and Ribnica) gravitate more towards the region of Central Slovenia and the capital Ljubljana, while Bela Krajina (the region around the Kolpa river) gravitates towards Novo mesto, the capital of the South-East Slovenia region, which is also a strong industrial centre.
In South-East Slovenia, Osilnica and Kostel are the two smallest municipalities comprising 36 and 56 square kilometres and a population of 386 and 650 people respectively. These two municipalities are among the poorest in the region, and feature an ageing labour force with generally low skill levels. Novo mesto is the largest municipality with 236 square kilometres and a population of 36 000. In 2013, the average wage in Slovenia was EUR 997, while Osilnica had the lowest average wage in Slovenia at only EUR 693. On the other hand, Novo mesto municipality, which hosts two industrial giants in Slovenia (Krka, the pharmaceutical company, and Revoz, producing Renault cars) as well as several other strong companies (Adria Mobil, TPV) had an average net wage of EUR 1 116, significantly above the national average and the third highest among Slovenia’s 212 municipalities. The region has several other industrial and economically strong municipalities. Ribnica municipalitiy is home to the Riko compny, an engineering firm with a number of high quality jobs. Trebnje was until recently known for Trimo, a construction sector company. Šmarješke and Dolenjske Toplice are known for thermal tourism, and several other locations are also pursuing niche tourism markets.
The Drava region is located towards the north-east of Slovenia, bordering Austria on the north and Croatia on the south. The largest municipality is the regional capital Maribor with 148 square kilometres and a population of 111 000. The municipality with the highest average net wage is Ruše with EUR 1 118, while Maribor (the regional capital) falls just below the Slovenian average of EUR 997 with an average of EUR 966. The poorest municipality in the region was Starše, which ranks just above Osilnica (South-East Slovenia) with EUR 702.
The region was hit hard by industrial decline, leading to significant unemployment, but efforts are being made promote local employment and economic development opportunities. Several large companies are located in the region, which has become more service-oriented. Among industrial firms, the metal industry remains important (Talum, Mariborska livarna), as well as the construction sector (Nigrad, Stavbar, AJM). Similarly, there are large employers in the agricultural and food processing (Perutnina Ptuj, Košaki, Jeruzalem) and in services (Terme Maribor, Terme Ptuj, Sintal, Varnost Maribor).
Regional economic development and the impact of the crisis
The Drava and the South-East Slovenia regions vary in terms of economic structure and development. For example, South-East Slovenia has quadrupled its GDP (in constant prices) since 1995. The Drava region increased its GDP by a factor of 3.6 over the same period. The global financial crisis had a significant impact on both regions. Between 2008 and 2014, aggregate output declined by annual average rate of 1.6% in the Drava region and 1.4% in the South-East Slovenia region.
Source: SORS (2017).
The two regions differ significantly in terms of industrial structure. While the Drava region is relatively similar to the Slovenian average, South-East Slovenia has the highest share of manufacturing jobs in the country. It is also the most important exporting region, contributing the majority to Slovenia’s exports of goods. During the past 15 years, the role of manufacturing in South-East Slovenia has increased from 39.7% of GDP in 2000 to 45.2% in 2013. A strong manufacturing sector gives the region significant growth and development potential due to value chains, trickle-down effects, knowledge and technology absorption (Greenwald and Stiglitz, 2014). In addition, the strong manufacturing core also provides a stable environment for the development of supporting services and the overall services sector. High wages attract talent and contribute to the development of intangible capital in the region.
The South-East Slovenia region has been expanding its ecological orientation in agriculture, where both vegetables and wine remain important products. Agriculture also facilitates employment to an increasing number of farmers; 17 co-operatives in the region support their work. Wood represents a major natural resource in the region, especially in Kočevska, where forests cover almost 80% of the area, well above the Slovenian average of 60% (SORS, 2015). Construction has remained relatively strong even during the crisis. On the other hand, the economic performance of the region varies between municipalities. For example, while Novo mesto and Trebnje are economically stronger, the deteriorating economic situation in Bela Krajina (Črnomelj, Metlika) and in Kočevska (Kočevje, partially Ribnica) is contributing to the loss of human capital. The remaining labour forc is often structurally unemployed with skills pertaining to traditional industries from the area (e.g. textile, wood, construction).
The Drava region has a strong industrial legacy from socialism, but the majority of big companies have been closed. While many medium and even larger companies have emerged and contribute to sustaining the industrial tradition, the potential for industrial development is strong. Maribor is a university centre with good infrastructure (e.g. an airport) and geographic and transport links to Austria and economic connections to former Yugoslav markets.
The region is also an energy centre due primarily to hydro-plants on the Drava River. It also has significant tourism potential (e.g. skiing and spa activities in Maribor, Pohorje, Ptuj). But in comparison to the South-East Slovenia region, the Drava region has a smaller number of larger industrial companies to drive broader development. Similar to the South-East Slovenia region, entrepreneurship is under-developed. In comparison with the South-East Slovenia region, the Drava region has low productivity and lower value added activities, as well as lower R&D activity. The region also lacks investment potential from domestic as well as foreign companies.
Labour markets in the South-East Slovenia and Drava regions
Labour market trends in both regions generally followed the patterns of economic activity at the national level over the past few years. Unemployment has increased between 2010 and 2013 in both regions, but less in the Drava region than in the South-East Slovenia region (Figure 2.3). Unemployment figures in the Drava region were significantly poorer than the national average at the peak of the crisis, but the region has seen major improvements in recent years, including for long term unemployment. The South-East Slovenia region has experienced a more severe deterioration of its labour market conditions. The regional unemployment rate increased by more than four percentage points between 2010 and 2013, and remained higher in 2016 (11.7%) compared to 2010 (10%). The long-term unemployment rate also increased sharply in the region and, at 7.2%, was much higher than the national average in 2016. The biggest changes in the unemployment rate in the South-East Slovenia region were in the less-developed municipalities of Črnomelj and Kočevje.
Source: SORS (2017).
Looking at unemployment by age groups in both regions in comparison to the national average, one can see a U shape showing the highest levels of unemployment for youth between the ages of 15-24 year in both 2010 and 2014. Older age groups (e.g. 55-59) also have a higher unemployment rate than their younger cohorts. The unemployment rate of 25-29 year olds in the Drava region is also significantly above the national average.
Source: SORS (2017).
Education levels have improved in all regions, with increasing shares of employed people with tertiary education and decreasing shares of low qualified workers. Both Drava and South-East Slovenia have levels of education slightly lower than the overall national average. In both regions, one can see significant growth in the number of individuals who possess tertiary education between 2005 and 2015. This trend aligns with the overall impressive growth in tertiary education levels in all regions of Slovenia (OECD, 2016c).
Source: SORS (2015).
Balance between skills supply and demand at the sub-national level
To supplement the above analysis within this chapter, the OECD LEED Programme has developed a statistical tool to understand the balance between skills supply and demand within local labour markets (Froy, Giguère and Meghnagi, 2012). In the Slovenian context, this tool can supplement the previous analysis to provide policy makers with an understanding of potential skills mismatches that may be occurring at the sub-national level. It can also inform place-based policy approaches at the local level on specific challenges and opportunities related to skills.
The analysis is carried out at Territorial Level 3 regions (regions with populations ranging between 150 000-800 000). The supply of skills was measured by the percentage of the population in employment with post-secondary education. The demand for skills was approximated using a composite index: percentage of the population in employment having medium to high skilled occupations and Gross Value Added (GVA) per worker (weighted at 0.25 and 0.75 respectively). The indices are standardised using the inter-decile method and are compared with the national median. Further explanations on the methodology can be found in Froy, Giguère and Meghnagi (2012).
Looking at Figure 2.6, in the top-left corner (skills gaps and shortages), demand for high skills is met by a supply of low skills, a situation that results in reported skills gaps and shortages. In the top-right corner, demand for high skills is met by an equal supply of high skills resulting in a high skill equilibrium. This is the most desired destination for all high performing local economies. At the bottom-left corner the demand for low skills is met by a supply of low skills resulting in a low skill trap. The challenge facing policymakers is to get the economy moving in a north-easterly direction towards the top-right corner. Lastly, in the bottom-right corner, demand for low skills is met by a supply of high skills resulting in an economy where what high skills are available are not utilised. This leads to the out migration of talent, underemployment, skill under-utilisation, and attrition of human capital, all of which signal missed opportunities for creating prosperity.
Source: Froy, F. and S. Giguère (2010), “Putting in Place Jobs that Last: A Guide to Rebuilding Quality Employment at Local Level”, OECD Local Economic and Employment Development (LEED) Working Papers, No. 2010/13, OECD Publishing, https://doi.org/10.1787/5km7jf7qtk9p-en.
This typology is applied to regions in Slovenia in Figure 2.7 which shows how the country’s 12 sub-regions (NUTS3) compare to each other in terms of skills supply and demand in the year 2013. As proxies for skills supply and demand, the tool considers educational attainment on the supply side (X-axis), and occupational structure and regional Gross Value Added figures on the demand side (Y-axis). Being in high skills equilibrium can be a good indication that a region is characterised by innovative and dynamic sectors.
Source: SORS (2014a); SORS (2014b); SORS (2014c).
The results of the diagnostic exercise can also be seen through the country map of Slovenia (Figure 2.8), which clearly shows the divisions between the east and west of Slovenia in terms of skills mismatches.
Source: OECD (2016d).
In 2013, 5 of the 12 Slovenian regions – Central Slovenia, Coastal-Karst, Upper-Carniola, Gorizia and Southeast Slovenia – fell into a high skills equilibrium, while another five – Central Sava, Savinja, Carinthia, Littoral-Inner Carniola and Mura – in a low skills trap. Two regions showed an unbalanced situation in skills, Drava, in which there is a relatively higher supply of high-skilled workforce than demand for skills, and Lower Sava, where the relative demand for such a workforce exceeds the relative supply.
Central Slovenia Region, which encompasses the capital city of Ljubljana, is the most economically developed region in the country, which is reflected in its position on the graph in the upper corner of the high skills equilibrium quadrant. The Coastal-Karst region is the only region with access to the sea, which provides a comparative advantage in the tourism sector. The trade, accommodation and transport sector provide 36% of the total GVA of this region. While Inner Carniola had one of the highest employment rates in 2013, it was also located in a low skills trap due to comparatively weaker educational, occupational structure and GVA outcomes.
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