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2011 Karta Graphic Publishing House, Romania

RESEARCH MONOGRAPH ON



THE ROLE OF LABOUR MARKETS
AND HUMAN CAPITAL IN THE
UNSTABLE ENVIRONMENT













The publication includes the results of research obtained within the project Macroeconomic analysis
and empirical evaluation of active labor market policies in Serbia supported by the Regional
Research Promotion Programme in the Western Balkans (RRPP), which is run by the University of
Fribourg upon a mandate of the Swiss Agency for Development and Cooperation, SDC, Federal
Department of Foreign Affairs. The views expressed in the paper are those of the authors and do not
necessarily represent opinions of the SDC and the University of Fribourg.






iv

2011 Karta Graphic Publishing House, Romania

RESEARCH MONOGRAPH ON



THE ROLE OF LABOUR
MARKETS AND HUMAN
CAPITAL IN THE UNSTABLE
ENVIRONMENT




Edited by

JEAN ANDREI,
DRAGO CVIJANOVI,
and
JOVAN ZUBOVI





KARTA GRAPHIC Publishing House, Ploiesti, Romania
2011
vi
Editors

Jean ANDREI
Petroleum and Gas University of Ploiesti
Economics and Business Administration Department
Bucharest Avenue, No.39, 100680
Ploiesti, Prahova, Romania
ajvasile@upg-ploiesti.ro

Drago CVIJANOVIC
Institute of Agricultural Economics
Volgina str., No. 15, 11000
Belgrade, Serbia
drago_c@iep.bg.ac.rs

Jovan ZUBOVIC
Institute of Economic Sciences
Zmaj Jovina str., No. 12, 11000
Belgrade, Serbia
jovan.zubovic@ien.bg.ac.rs



Reviewers:

Dr Felix Arion - University of Agricultural Sciences and Veterinary
Medicine, Cluj-Napoca, Romania
Prof. Dr Mirko Savi - Faculty of Economics, Subotica, Serbia
Dr Stejrel Brezuleanu - University of Agricultural Sciences and
Veterinary Medicine, Iasi, Romania


e-ISBN 978-606-8312-46-0


2011. All rigths reserved. No part of this publication may be repoduced,
stored in a retrieval system, or transmitted, in any form or by any means,
without the prior permission in writing from the editors.
vii
Preface




This thematic monograph is a collection of selected scientific papers on
the topics relevant to human resources and labour markets development
in the second decade of the 21
st
century. It was partly developed as a result
of the dissemination process of the results achieved in the project led by
the Institute of Economic Sciences entitled Macroeconomic analysis and
empirical evaluation of active labour market policies in Serbia, which is
implemented under the Regional Research Promotion Programme in the
Western Balkans (RRPP Western Balkans) of the University of Fribourg in
Switzerland.

Contributors are primarily engaged on reviewing the role and importance
of human resources that have been identified as a strategic factor for
economic growth and development in the 21
st
century and the policies
introduced by the governments aimed to reduce growing levels of
unemployment, which especially increased after the breakout of the crisis
in 2008. The contents are interdisciplinary, hence combining the main
topic with marketing aspects, management strategies and IT systems.

The book also provides some empirical findings from Serbia which need to
serve as a basis for the comparison with other countries in the region, and
wider with all EU countries.

We would like to express our gratitude to all those who have contributed
to this book either by writing a chapter or by discussing the research
results.

Ploiesti, Belgrade
Editors
viii

C O N T E N T S



I Reviewing Development of Active Labour Market Policies
and the Evaluation Techniques 1
Dr Jovan Zubovic, Dr Jonel Subic

II The Role of Information Systems in
Human Resource Management 25
Dr Dorel Dusmanescu, Mr Aleksandra Bradi-Martinovic

III Improving the Quality of Human Resources by
Implementation of Internal Marketing 47
Dr Ioan Done, Dr Ivana Domazet

IV Especially Voulnerable Groups in the Serbian Labour Market 77
Mr Jean Andrei , Mr Saa Stefanovic

V Importance of the Management Incentives for the
Improvement of Companys Activities 105
Mr Slavica Stevanovic, Dr Ivana Simeunovic

VI Economic Crisis and its Consequences on the Living Standard
and Development of the Agriculture in Serbia 127
Mr Marko Jelocnik, Mr Lana Nastic

About the authors 155

Index 161

x

C O N T R I B U T O R S

Jean Andrei Department of Economics, Marketing and Business Administration,
Faculty of Economic Sciences, ajvasile@upg-ploiesti.ro
Aleksandra Bradic-Martinovic Institute of Economic Scineces, Belgrade, Serbia,
abmartinovic@ien.bg.ac.rs
Drago Cvijanovic Institute of Agricultural Economics, Belgrade, Serbia,
drago_c@iep.bg.ac.rs
Ivana Domazet Institute of Economic Scineces, Belgrade, Serbia
ivana.domazet@ien.bg.ac.rs
Ioan Done Department of Economics, Marketing and Business Administration,
Faculty of Economic Sciences - Petroleum and gas University of Ploiesti,
Romania, done.viorica@yahoo.com
Dorel Dusmanescu Faculty of Economic Sciences - Petroleum and gas University
of Ploiesti, Romania, zlin50@yahoo.com
Marko Jelocnik Institute of Agricultural Economics, Belgrade, Serbia,
marko_j@mail.iep.bg.ac.rs
Lana Nastic Institute of Agricultural Economics, Belgrade, Serbia,
lana_i@mail.iep.bg.ac.rs
Ivana Simeunovic Belgrade Banking Acedemy, Faulty for Banking, Insurance and
Finance, ivana.simeunovic@bba.edu.rs
Saa Stefanovic GMS International, Belgrade, Serbia, stefanovic.sasa@gmail.com
Slavica Stevanovic Institute of Economic Scineces, Belgrade, Serbia,
lhoffman@ers.usda.gov
Jonel Subic Institute of Agricultural Economics, Belgrade Serbia,
jonel_s@iep.bg.ac.rs
Jovan Zubovic Institute of Economic Scineces, Belgrade, Serbia,
jovan.zubovic@ien.bg.ac.rs


Cha pt e r 1

REVIEWING DEVELOPMENT OF ACTIVE
LABOUR MARKET POLICIES AND THE
EVALUATION TECHNIQUES

Jovan Zubovic, Jonel Subic

Abstract: Active labour market policies are commonly used tool to fight
unemployment. In the early 1960s all Scandinavian countires have
introduced several different measures to have an effect on their labour
markets. In the late 1970s in most developed countries of OECD
government expenditures on those policies reached the level of 1-1.5% of
GDP. High levels of expenditures created a need to assess the impact of
such measures and perform their cost-benefit analysis. Evaluations have in
the previous 30 years been undertaken by using different methods: from
experimental and quasi-experimental, to micro and macro analyses. Most
precise evaluations are based on complex econometric methods. Moreover,
during last decade there have been several meta-analyses to make cross-
analysis of evaluations made worldwide in a long time-span. General
conclusions of most papers are that ALMP do not have very high influence
on the employability. The best results are experienced in services provided
by local national employment services, as well in training programs,
especially in on-job training. In the last few years there have appeared
some indications that subsidized employment has high positive effects,
however there is no general consensus on that matter. Despite large
number of published papers on evaluations, there has been no research
aimed on analysing overall ALMP effects on the economy, and creation of
a model which could ex-ante estimate future effects of ALMP.

Key words: Active policies, evaluation, econometric models, economy
JEL Classification: J08, E24, J21, H55
2 Reviewing Development of ALMP and the Evaluation Techniques

INTRODUCTION
3

Unemployment is one of the most important economic and social
problems of today. For that reason, the issues of unemployment became
one of the key components of labour economis. Labour economics is
almost for a whole century the field of intense interest and great progress
in the economic science, both in theoretical and in practical terms.
Although modern labour economics is based on microeconom(etr)ic stu-
dies, which almost completely dominated in the past two decades, we must
not forget the importance of macroeconomic aspects and phenomena
observed on the higher scale.

The analysis of the unemployment economic theory begins with pre-
Keynesian theories; it goes over Keynesian interpretation of mass unem-
ployment, and finally deals with contemporary unemployment theories. It
has shown that problems and methodology in research and theoretical
perspectives on unemployment have significantly changed over time
under the influence of social and economic environment. So far there has
been no comprehensive theory which could offer lasting solution to
complex problems of the labour market.

The goal of this paper is to present the process of Active labour market
policies (ALMP) development and to analyise different evaluation
techniques.The paper consists of five parts: The first part will describe a
brief history of active policies in the world. In the second part we analyse
expenditures on ALMP in developed, developing and transition countries.
In the third part we present general principles of evaluations and their im-
portance including types of evaluations and different approaches to evalu-
ations classification. The fourth section brings literature review and meta
analyses which have been implemented during the last decade. Finaly we
give conlusions and recommendations in the fifth section of this paper.

3
The paper includes the results of research obtained within the project Macroeconomic analysis and
empirical evaluation of active labor market policies in Serbia supported by the Regional Research
Promotion Programme in the Western Balkans (RRPP), which is run by the University of Fribourg
upon a mandate of the Swiss Agency for Development and Cooperation, SDC, Federal Department of
Foreign Affairs. The views expressed in the paper are those of the authors and do not necessarily
represent opinions of the SDC and the University of Fribourg.
Zubovic, Subic 3
THE BRIEF HISTORY OF ALMP
Active Labour Market Policies in its original form were created in the
early decades of the twentieth century. They represented an attempt by
public institutions to open job vacancies by introducing public works. As a
consequence of World War I and great depression caused by the collapse
of the New York stock exchange these measures were applied in two cycles
of the so called New Deal in the U.S. Economic theorists of that time, led
by Keynes were engaged in development of the (un)employment theory
and the ways on how to cope with labour market trends. By using the
theory of multipliers, firstly introduced by Kahn (1931), Keynes (1936) had
managed to oppose the claim that public works and government spending
can not solve the problems in the labour market but that only cause
inflation. Kahn has demonstrated is the multiplier model that government
interventions in the labour market not create only primary employment,
but that there is so called secondary employment as well. Although for
over eight decades there is such a theoretical assumption, one of the main
problems in modern approaches to evaluations of active labour market
programs is that there is still no model that estimates the level of the
secondary employment.

According to basic economic principles, labour demand is a derived
demand. For this reason, unemployment must be observed as a consequen-
ce of economic trends. The neo-liberal approach to economics is based on
the hypothesis that the market is the best and only necessary regulator of
economic trends. However, in periods of recession, Keynes economic
theory always appears as an alternative to this approach, and justifies
government interventions through the assertion that the necessary
corrective influence of irregularities in the labour market. Classical
economic theory states that the reduction of wages is sufficiently to
increase the demand for labour, and that the unemployment can be
managed through the change of wage levels. However, Lord Keynes's
interpretation suggests that the earnings (wages) are inflexible downwards,
and therefore wages reducion will not be enough to sufficiently increase
demand for labour (job offers), but the effect will be partially transferred
to the reduction of the aggregate price level and thus decrease aggregate
income. The consequence is lower aggregate demand, which according to
4 Reviewing Development of ALMP and the Evaluation Techniques

the above basic economic principles, results in a decrease in demand for
labour - which is called the "Keynes effect". The unemployment in that way
might be called involuntary or cyclical unemployment. In addition to
unemployment resulting from insufficient aggregate demand which can
be corrected by shifting on Phillips curve with an increase in inflation,
there are two other basic categories of unemployment - structural and
frictional, which result from mismatches in the labour market. Having
introduced such division of unemployment types, there came the need for
different types of market interventions. The question is what theoretical
framework is suitable for the formulation of necessary interventions. In
addition to the traditional approach to "cheating on the Phillips curve", or
enhancing the relationship of unemployment-inflation (Baily and Tobin,
1977), it is understood that the present unemployment level is partly the
consequence of unemployment in the previous period. This is proven in
practice by the fact that the extension of unemployment reduces the
probability of an individual tp find the way out of it. Since the cost of
increased level and length of unemployment are extremely high, it was
necessary to create a model which could generate significant positive
effects on labour market. That opened the way for introduction of Active
labour market policies.

Although they are basically set up as a policy, formulated by the political
representatives, and implemented through the political agreement, the
two main adapting functions of ALMP are economic and social (welfare).
The objectives of active measures are to reduce the effects created by the
above named three types of unemployment. This includes mitigating the
lack of available jobs through subsidies and public works, support
reallocation of labour and reduce the mismatch in labour skills through
various forms of training, etc. Betcherman et al (2004) note that ALMP are
used to reduce the risk of unemployment and increase wages of workers,
and programs are implemented to enhance labour supply (eg training),
increasing the demand for labour (eg, public works, subsidies) and
improving functioning labour markets (for example, employment
services). Active measures are often aimed at long-term unemployed
workers in poor families, and other discriminated groups. Active labour
market measures are not intended to address long-term mass
Zubovic, Subic 5
unemployment, but are only defined as programs that enhance the
possibility of (re) joining the labour market.

Contemporary ALMPs were created after the Second World War and until
today have gone through (at least) three development stages. The first
stage begins after World War II, primarily in the Scandinavian countries,
as an integral part of the model of economic and social change. At that
time there was a need to set up systems that would reduce short-term
inflationary impact of higher employment levels, and at the same time
help solve problems fast-growing demand for labour (OECD, 1964, Barkin,
1967). Nickel et al (2001) showed that in the period from 1960 to 1980
there has been a significant shift to the right on the Beverage curve as a
result of the initial measures, which resulted in better matching of
vacancies with skills of unemployed persons. Similar analyses are
presented in other papers (OECD 1993, Katz 1994, Calmfors 1994, etc.).

The second phase was initialized in France, Germany and the United States
during the oil shock crisis in 1973-1975 by introduction of new programs
targeting labour supply, specifically vulnerable groups. Estevao (2003) and
Betcherman (2004) pointed out that the constant increase in the
unemployment rate in the 1970s and 1980s assessed inter alia as a
consequence of a mismatch in labour supply and labour demand.
Unemployment level in OECD countries grew from 3% in 1973 to 7% in
1988 (Martin, 2000). At the same time there was a significant growth on
the supply-side as a result of the emancipation of women and young
people who have entered the labour market. New active policies were
generated to increase labour demand by creating jobs; alongside passive
measures such as early retirement. The effects of these measures were
short-term and proved to be insufficient to curb rising unemployment in
the long-run.

The third stage relates to the period of the 1990s when ALMPs have
become an important policy to accompany structural changes in the EU.
The goal was to encourage unemployed and inactive persons to enter into
the labour market. Interventions were extensively used to facilitate
adjustment of labour to market needs. During this period ALPM became a
part of the employment strategies in transition countries in the form of
6 Reviewing Development of ALMP and the Evaluation Techniques

public works or training programs (OECD, 1990). Framework for the
labour markets (OECD, 1990) claimed that structural defects were
primarily on the supply side and that it was necessary to create medium
and long term strategies to facilitate adjustment. It was also recommended
to redirect spending from passive to active measures. During the transition
period, these measures have advanced from state to market-oriented
measures, but have not become part of a lasting solution to risk
management in the labour market, especially in countries in transition.

As noted ALMP were originally introduced in developed countries of
OECD and EU. They were later transferred to the Middle East and North
Africa, while the in East Asia they have not been so widely used. In the last
fifteen years, the implementation of these measures has become
widespread in Central and Eastern Europe and the CIS region (Spevacek,
2009).

Three groups targeted by these measures are unemployed, employed at
risk and inactive population. Besides them, there are situations where the
authorities provide special assistance for the promotion of employment
groups that do not belong in these three categories. Such measures
include programs for youth employment, which are available to those
young people who already work (European Commission, 2006).

Active labour market policies are today classified in accordance with the
document titled Labour Market Policy Database: Methodology (European
Commission 2006). This methodological document classifies labour
market policies into three groups: a) Labour market services (counseling,
mediation); b) measures (training, job sharing, subsidies, support to
employment, public works) and c) support (financial, support to the
unemployed and early retirement). This classification is somewhat
different from classical classification of active policies presented in table 1,
where services and measures belong to a same category, and in reporting
there may arise some confusing results.



Zubovic, Subic 7
Table 1 Active labour market policies in OECD countries, archetypical
types of programs and generic purpose
Type of program Generic purpose
Public employment services Improve marching efficiency
Labour market training Attenuate skill mismatch; human
capital accumulation
Employment incentives / start-up
incentives
Improve job matching process,
increase labour demand
Direct job creation / public sector
employment
Increase labour demand, prevent
human capital deterioration
Youth measures All of the above
Measures for disabled Integrate discriminated persons into
the labour market
Note: This classification is usually used in OECD and Eurostat reporting
Source: Lehman and Klueve (2010, pg. 38)

The function of public employment services is primarily to co-ordinate
matching labour demand and offer. Training measures aim to reduce the
mismatch between skills required, and subsidy measures are aimed to
increase the demand for labour. Direct job creation is often considered the
last chance to influence the state labour market trends. Their next goal is
to increase demand for labour, prevent loss of human capital that results
from long-term unemployment. It is known that each person loses 50% of
their knowledge which is not used during a period of one year (Zubovi,
2010), and thus re-integration of employees as soon as possible has great
significance. Finally, measures for people with disabilities are significant
primarily in the reduction of discrimination and exclusion of this group of
people from the labour market.
EXPENDITURES ON ALMP
The consolidated data on expenditure on ALMP are available from 1985,
which coincides with the end of the second phase of development of active
measures. This can be attributed to the above named "Framework for
Labour Market Policy" by OECD, which was the first institution to begin
8 Reviewing Development of ALMP and the Evaluation Techniques

with systematic recording of government expenditures on ALMP of its
member states. Table two shows data on spending on active measures as a
share of GDP for the period since 1985.

Table 2 - Expenditures on ALMP in OECD member states (% of GDP)
1985 1990 1995 2000 2005 2008
Australia 0,36 0,22 0,74 0,37 0,37 0,29
Austria 0,28 0,32 0,38 0,52 0,63 0,67
Belgium 1,17 1,09 1,21 1,16 1,11 1,28
Canada 0,61 0,49 0,55 0,4 0,32 0,3
Czech Republic .. .. 0,13 0,2 0,25 0,23
Danemark .. 1,06 1,72 1,89 1,58 1,35
Finland 0,73 0,84 1,42 0,89 0,91 0,82
France 0,6 0,72 1,19 1,19 0,89 0,81
Germany 0,58 0,79 1,19 1,23 0,89 0,81
Helas 0,16 0,19 0,4 .. .. ..
Hungary .. .. 0,41 0,38 0,3 0,3
Ireland 1,06 1,06 1,35 0,81 0,64 0,7
Italy .. .. .. .. 0,57 0,45
Japan .. 0,33 0,32 0,28 0,25 0,26
Korea .. .. .. 0,38 0,12 0,2
Luxembourg 0,41 0,2 0,14 .. 0,5 0,42
The Netherlands 1,31 1,27 1,36 1,47 1,3 1,04
New Zealand 0,87 0,88 0,68 0,49 0,39 ..
Norway 0,59 0,89 1,25 0,61 0,74 ..
Poland .. 0,12 0,38 0,25 0,42 0,56
Portugal 0,21 0,48 0,5 0,63 0,69 0,57
Slovak Republic .. .. 0,75 0,31 0,34 0,25
Spain 0,33 0,78 0,43 0,79 0,72 0,73
Sweden 2,09 1,68 2,35 1,75 1,29 0,99
Switzerland 0,19 0,21 0,47 0,56 0,75 0,47
UK 0,71 0,58 0,43 0,24 0,45 0,32
USA 0,26 0,23 0,19 0,17 0,13 0,17
Average 0,66 0,66 0,80 0,71 0,64 0,57
Source: addopted on OECD (2011)
Zubovic, Subic 9
The data in table 2 clearly show the tendency in some groups of countries.
The first group consists of non-European countries with relatively low
level of expenditure which goes up to 0.3% with a tendency of continuous
fall. The second group is made of the Scandinavian and neighbouring
countries, where the level of spending was stable at the level of around 1%
of GDP, until 2008 when it began to decline slightly. The third group
consists of the Mediterranean countries, where the share of spending is
about 0.7% with no significant oscillations. The fourth group consists of
(transitional) countries of Eastern Europe, where spending is at a relatively
low level with a slight increasing trend. Germany, Austria and Ireland are
the countries that have their own trends which are different from all
abouve named four groups.

Table 3 Expenditure on ALMP in transitional countries of EU (% of GDP)
2006 2007 2008 2009
EU 27 0,70 0,64 0,65 ...
EU 15 0,72 0,67 0,67 ...
Cyprus 0,09 0,13 0,11 ...
Malta 0,15 0,14 0,18 ...
Transition countries of EU* 0,28 0,25 0,23
Bulgaria 0,44 0,36 0,32 0,28
Czech Republic 0,26 0,25 0,23 0,22
Estonia 0,07 0,05 0,07 0,24
Hungary 0,28 0,31 0,30 ...
Latvia 0,26 0,17 0,13 0,32
Lithuania 0,27 0,32 0,22 ...
Poland 0,45 0,50 0,56 ...
Romania 0,14 0,11 0,09 0,07
Slovak Republik 0,32 0,22 0,26 ...
Slovenia 0,27 0,20 0,18 0,33
* Transitional countries of EU are 10 countries of Eastern Block
Source: Eurostat (2011)

The beginning of economic reforms in countries with centrally planned
economies (countries in transition) from the beginning of the 1990s had
10 Reviewing Development of ALMP and the Evaluation Techniques

strong effect on the increase of open unemployment, and increased levels
of unemployment to above the average of EU 15 countries. For this reason,
in these countries funds allocated for ALMP began to increase. This
increasing trend has been maintained by 2005, when it began to decline
slightly, while the level of funds allocated for passive measures remained
at the same level of about 0.3% of GDP. Data on trends in transitional
countries is shown in the table 3.

Like in other transition countries, Serbia experienced similar trends in the
labour market, and consequently increased spending on labour market
policies. In Table 4 one can see the levels of spending on active measures
in Serbia during the transition period.

Table 4 Expenditures on ALMP in Serbia
Year
Expenditure (mil.
Dinars)
Share in GDP
2005 750,00
0,04
2006 1.300,00
0,07
2007 2.384,40
0,10
2008 3.014,00
0,11
2009 3.500,00
0,12
2010 3.700,00
0,12
2011 5.550,00
0,17
Source: MERR (2011)

Distribution of funds among measures is shown in the table 5. According
to presented data it is visible that Serbia is following a trend recommended
by the European Commission that most of the funds should be used for
education and training. Their share increased from initial 1% in 2008 to
48% in 2011, the share of public works decreased from 37% to 18% of total
expenditure, while subsidiesed employment decreased from 50% to 33%.

Given the volume of funds allocated to ALMP, we can expect that they will
have some impact on target groups or the microeconomic level. However,
Zubovic, Subic 11
these effects will spill over into macroeconomic level. Programs such as
job creation, wage subsidies or training not only affect the employability of
workers targeted groups, but may influence the relationship between
inflation and unemployment. One of the key justifications for the use of
active measures is that, under appropriate circumstances can reduce the
inflationary impact of increasing employment in the short term and the
long term to reduce structural unemployment (OECD 1993).

Table 5 Distrubution of funds among types of measures (million RSD)
Type 2008 2009 2010 2011
Active job search 5,95 5,00 5,00 10,00
Training and education 8,05 1.495,00 2.095,00 1.890,00
Subsidised employment 1.535,00 700,00 900,00 1.300,00
Public works 710,00 1.300,00 700,00 700,00
Total 3.014,00 3.500,00 3.700,00 3.900,00
Source: MERR (2011)
PRINCIPLES ON ALMP EVALUATIONS
Findings in the section two lead to necessity for evaluation of the funds
used in active labour market policies. If governments use up to 1% of their
GDP at annual level for financing those policies it is necessary to
implement continuous and precise evaluation of the effects these policies
create. To what extent should the authorities rely on active labour market
programs? This is a controversial issue on which there are many answers.
Proponents argue that active policies are the most direct instrument to
combat unemployment and poverty. Opponents counter that active
policies largely waste public money and that any benefit to the participants
is realized entirely at the expense of other workers. For this reason it was
necessary to precisely evaluate impacts, effectiveness and benefits of the
interventions.
Assessment and evaluation of active labour policies require good
knowledge of evaluation methodology carried out in different countries.
12 Reviewing Development of ALMP and the Evaluation Techniques

At the same time one must take into account the specificities of the
country in which the assessment is conducted including the level of
economic development issues, labour market trends and the influence of
state regulation on labour market imperfections. The literature on the
evaluation indicates that during periods of economic growth effectiveness
of active measures increases (Dar and Tzannatos, 1999), which means that
it is necessary to observe a longer period of time so as not to get
overestimated results.

According to Harrell et al (1996), there are four basic types of evaluation
performance monitoring, impact evaluation, cost-benefit analysis and the
process evaluation. Hujer et alia (2002) give the instructions on what the
evaluation should include: the process of adjustment of supply and
demand for labour; the benefit of the unemployed; the competitiveness of
the labour market; productivity.

Similarly Fays defines evaluation as consisting of three steps (Fay 1996).
First one needs to assess the impact of the individual (micro-evaluation).
Second, we should examine whether it achieves sufficiently large net
social benefits (macro-evaluation). Finally, it should answer the question
whether this is the best outcome that could be achieved for the funds
spent. Since there has been a great progress in the IT sector in the past
fifteen years, such as databases and various state institutions and the
associated improved, there cam an opportunity for adding a fourth step - to
evaluate the net social gains from policy implementation. This fourth step
is based on Harrella and Razik principle with a difference that at
macroeconomic level we do not assume that the increase in the level of
employment is the main goal of active measures. It is necessary to conduct
the evaluation coverted into monetary value, where the input parameters -
the amount of funds allocated to ALMP, should be compared with output
parameters - the value of increased gross value of work of new employees
for the time spent at work over time.

The first scientific papers on evaluations, for example, the one written by
Calmfors (1994) gave very confusing results. However after Lehman and
Klueve (2010) improvement the research methodology, recent studies
Zubovic, Subic 13
show that ALMPs do have significant effects, both on employability and
the net increase in employment, especially in developed countries,.

Many other papers define methodological framework for the evaluation of
the impact of ALMP (Dar and Tzannatos 1999, Daguerre, Etherington
2009, OECD 1993). For example, de Koning and Peers (2007) focus on
assessing the net impact by using experiments or non-experimental
models (matching and econometric methods).

In experimental (classically designed) evaluations there is a randomly
selected sample before the intervention (measures). If the sample is large
enough and if there is a properly set control group, by chaging the
independent variable (in this case participation), we may measure the
change in the achieved results. Such changes can be attributed to
participation in ALMP. Such experiments have their disadvantages, like
inproper selection of a random sample, change in behavior after learning
about participation, high cost of creating large samples and some ethical
issues on deliberate exclusion of specific group from participating in the
measure.

Quasi-experimental techniques differ from experimental because control
group and sample are selected after the implementation of selected
measures. In analyzing the effects by this method some econometric
techniques are used to correct the disparities between the two groups. The
advantage of this evaluation is that the price is far lower and that active
measures may be implemented independently of the evaluation process.
There are several quasi-experimental methods which include: a) regression
analysis with monitoring of observable variables, b) regression analysis of
observable and unobservable variables, c) different matching methods. In
a) we define observable variables (eg gender, age, education level) that
differ in the target and the control group. Evaluation of the impact of
these factors enables us to assess the influence of the measures on
employability. In b) in addition to defining the observables, we introduce
unobservable variables (difficult to measure, such as innate ability or
behavior change after the inclusion of the measure) which can alter
behavior and results. Finally, the matching methods create a subset of the
14 Reviewing Development of ALMP and the Evaluation Techniques

control group whose members are paired with participants in the factors
measured, and thus get precise and robust results.

Martin (2000) divides the evaluation of individual programs into two basic
groups. The first group measures the impact program participation on
employment and earnings after exiting the program, by comparing
participants results with the results of the control group. The second
group measures the net effect on the aggregate employment, taking into
account externalities such as deadweight, substitution and displacement
effects. Martin and Grubb (2001) make addition to such division so that the
first group utilise micro data to measure the impact of the program on
employability and earnings of an individual, while the second use
aggregate data to measure the net effects of programs on aggregate
employment and unemployment.

Somewhat different division of the evaluations is offered by Spevacek
(2009) and Fields (2007, p. 32). They identify six types of data analysis
aimed at measuring and evaluations of the interventions in the labour
market:
Aggregate cross-sectional quantitative data analysis
Cross-sectional study of micro data analysis
Panel data analysis
Cross-country time series analysis
Experimental studies
Qualitative data analysis

The first scientific papers on the evaluations, like Calmfors (1994) brought
very confusing results. Development of information systems facilitated
data analysis, and Lehman and Klueve (2010) claim that by improved
research methodology, recent studies show that ALMPs do have the
positive effect both on individual likelihood of exiting unemployment and
on aggregate employment growth, especially in developed countries.

While the first papers on the development of evaluation methodology
were written in the United States, over the past fifteen years significantly
increased the number of papers among researchers in Europe. In the
transition countries of Central and Eastern Europe during last ten years
Zubovic, Subic 15
also emerged several high-quality studies on the impact of ALMPs. These
studies have helped to better understanding of labour markets in the new
economic environment (Lehmann, Klueve 2010). In transition countries,
the available budgets for ALMP are very limited, and for that reason it is
important that the effects are properly assessed in order to make the right
distribution among different types of measures. Evaluations in transition
countries include several papers (Lehman, Klueve 2010, Ognjenovic
(2007), Bonin, Rinne (2006); Betcherman, Olivas, Dar (2004); Spevacek
(2009) and many others).
REVIEW OF EVALUATIONS AND META-ANALYSES
The literature on empirical evaluations of ALMPs is very complex and
often with contradictory conclusions depending on country, time period of
observation and the specific program being observed. As noted above,
most evaluations were conducted in developed countries, although
recently there are findings in other countries. Evaluations are conducted
by international organizations, specialized research institutes and
individual researchers. Most scientific studies have analyzed the policy in
individual countries; while only few studies are multi-country evaluations.
In this section we will present a summary of various evaluations and meta-
evaluations

Dar and Tzannatos (1999) conducted a review of 72 evaluations conducted
in several countries and provided an overview of the effects. Betcherman et
al (2004) in their work add to initial 72 evaluations another 80 in their
review. Summarized effects of 152 evaluations show that the employment
services and mediation generally are the most cost-effective interventions.
Impact on employability and earnings is positive in general, and costs are
lower than for the other measures. Training programs for the unemployed
can also have a positive impact on employability, but not on earnings.
These programs are most effective when conducted in on-job. Other types
of training - for workers who became unemployed as a result of mass
layoffs and youth participants in the labour market generally give less
favorable results. Interventions that are successful often include several
measures (education, employment, social assistance, if needed), which
16 Reviewing Development of ALMP and the Evaluation Techniques

complement the training. The review also proved the weak effects of job
creation - employment subsidies and public works. Also, Public Works
have shor-time positive effects, but in most cases do not increase the
employability of participants after the completion of measures. Finally it
was confirmed that projects of subsidies for self-employment have a
positive impact on the small number of users, but these are mainly people
with higher education levels.

Martin and Grubb (2001) in their overview of evaluations conducted in the
period 1985-2000, without a clear emphasis on the coverage, concluded
that the impact of many measures being implemented in the labour
market do not have encouraging results in terms of increasing
employment and earnings, especially when it comes to programs for
youth. However, they stress that there are some programs that provide
positive indicators, such as counseling, subsidies for employment in the
private sector and training, but with a note that the effects are small.

Calmfors et al (2002) gave an overview of more than 70 evaluations
conducted in Sweden. He classified them on 30 microevaluations and 40
macroevaluations. Among other findings, he notes that measures only
slightly help match supply; demand for labour and that subsidized
employment results in high level of substitution (displacement); and
training programs are not effective. Conclusion of the research is that in
both micro and macro evaluations the results are disappointing. In general
the programs help reducing unemployment level, but at the samed time
not having impact on the aggregate level of employment. The greatest
impact was achieved in increasing activity level. Also very important
conclusion of the study is that the programs lose their effectiveness with
an increase in volume, so it is advisable to keep the volume at a lower
level, which for Sweed is below 1% of GDP.

Kluve and Schmidt (2002) have conducted a meta-analysis, a technique
that synthesizes a variety of statistical studies. They assessed the results of
53 evaluations using the binom indicators of THE ALMP effects. For
explaining the effects of measures they have analyzed different types of
programs, design studies, implementation time and impact of the
macroeconomic environment. Results showed that the probability favors
Zubovic, Subic 17
training for increasing employability, while public works and subsidies
almost never have a positive impact.

Greenberg et al (2003) also used meta-analysis of effects for the synthesis
of 31 evaluations in 15 voluntary training programs conducted in the
United States between 1964 and 1998. Programs use different types of
training, including structured job search, continued education, training,
on-job training, as well as programs that allowed subsidized employment
in the public or private sector, in order to determine which programs and
how much they have influence on earnings growth. The results show that
programs are most effective for women, with moderate effects on men and
no effects for youth. The greatest impact of training programs are made
for women who have generated a wage increase of around 2,000 $ a year.

Estevao (2003) uses substantially different methodology for evaluation of
active measures. It is based on panel data from 15 OECD countries on the
amounts of funds allocated to ALMPs and their distribution. By
controlling data on institutions, peculiarities and the level of economic
development of different countries, he found that the greatest effects are
achieved with different types of subsidies, at the same time with a negative
impact on wages. Very important part of this paper os that the author has
established linear equation for calculating the level of allocations to active
measures, depending on the rate of employment:

ALMP/GDP = 0.03 0.04 * ER (1)

where ER stands for employment rate.

He also set an equation for distribution of funds between active and
passive measures:

ALMP/GDP = 0.28 + 0.36 * PLMP/GDP (2)

With PLMP representing passive labour market policies.

Estevao also showed that there was a substantial change in the effects of
ALMP for the period before 1993 and beyond. While in the period 1985-
18 Reviewing Development of ALMP and the Evaluation Techniques

1992 the coefficient was negative and amounted to -0.12, in the period
1993-2000 there was a growth of 1.88, meaning that every 1% increase in
spending on ALMPs (as a share of GDP) resulted in an increase in the
employment rate by 1.88%.

Betcherman et al (2003) have made a review of the effects of nearly 200
evaluations in developed and transitional countries. The survey concluded
that most effective measures are counseling, with training being effective
if implemented at work (on-job tranining). The effects of subsidies were
higher in more recent studies, but generally they do not have a significant
effect. He also shows that the effects are not differing in transitional
countries compared to developed ones. However in transitional countries
he emphasizes a problem of a large share of the informal economy
(employment) which significantly alters the results of evaluations.

In their research, de Koning and Peers (2007) also used meta-analysis,
although they note limitations of price efficiency, the time horizon of
observation and non-economic aspects including health and social
exclusion. Using regression analysis, with 155 observations constituted of
net impact evaluations they have observed a set of controllable factors, as
stated in an equation:

NI
i
= X
i
+
i
(3)

NI stands for a net impact; X is a group of factors affecting the volume of
estimated effects, and an index number of studies (evaluation), is a
vector of unknown parameters and stands for an error.

With such a precise econometric approach de Koning and Peers came up
with results that be accepted as a basis for deciding on the introduction
and implementation of ALMP. The conclusion is that the net impact of
ALMP is only 3%. The greatest impact create training and counseling with
7%, while subsidies have negative effects.

Spevacek (2009) has done pioneering work in the evaluation survey
conducted in Central and Eastern Europe and CIS. The review included 20
studies from 10 countries and 4 cross-country studies. The survey
Zubovic, Subic 19
concluded that econometgrics significantly contributed to the quality of
evaluations, and that it is necessary to increase the number of evaluations
on cost effectiveness. In general it is the overall conclusion that ALMP
reduce unemployment, increase the number of employees. Not all types of
measure have equal effects, with consulting and training being widely
applied and most effective.

Kluve (2010) added on hios study from 2002, by including greater number
of studies and expanded the number of countries analyzed. Introduction of
improved methodology by using trinome indicators facilitated better
monitoring of effectiveness of ALMP. Conclusion of this paper is that since
ALMPs play a key role in the "European employment strategy" and that
the funds allocated for these measures 2008 amounted to 80 billion of
which 57 for the measures, and 23 billion for services, there is a growing
need to develop scientifically based method of measuring the effectiveness
of various types of ALMPs. Kluve analyzed a total of 137 programs from
95 evaluations in 19 European countries using the method of meta-
analysis. He found that 54% of programs achieve positive effects, 21% had
significant negative effects, while in 24% of the studies were not able to
measure neither positive nor negative statistically significant impact.
Using trinome results as a dependent variable and by controlling
independent variables which included the types of programs, research
design, institutional and economic situation, he has come to the
conclusion that trandicionalni mediocre training programs are likely to
have a meaningful impact on employment rates. Compared with training,
subsidies and support programs in employment had a 50% positive effect,
while the public works programs had 25% less chance of success. Finally
Kluve concludes that youth programs have very little chance of success,
and that the positive signs in recent years show that the national
employment serviced became more effective compared to external
projects.

Finaly the study of Forslund et al (2011) showed that depending on the
phase of economic cycle, different programs have different effects. They
showed that in periods of recession, the greatest effects provide training
programs, since they significantly reduce length of job search.

20 Reviewing Development of ALMP and the Evaluation Techniques

CONCLUSIONS
Active Labour Market Policies (ALMPs) first appeared between the two
world wars, and they were based on the Keynesian interpretation of
unemployment, with the wider use after the World War II. Today they
have become one of the most important elements of the European
Employment Strategy. Given the scope and volume of their application,
which is in the EU over 80 billion euros a year, it was clear that there was a
need to address the question of their usefulness. Review of over 200
evaluations in more that 100 research papers shows that there are different
conclusions in the matter of the effectiveness of ALMP.

Such a large number of papers gave answers on the effectiveness of
individual programs on their participants, as well as on the net effects on
macroeconomic trends in employment. The fact is that during the period
of more than half a century of implementation of ALMP they have
become a significant part of life for all inhabitants in developed countries,
while in the last 20 years that is the case with economies in transition as
well. The basic functions of ALMP are economic and social. Since from the
presented results one can see that the effects are limited from the
economic point of view, we may conclude that measures have a far greater
social impact than economic. This means that active measures are used in
order to increase the psychological safety of participants in the labour
market, as well as confirmation that decision makers are taking care of the
population in working age in the periods when they are not productive, or
when they are unemployed. In this paper we have not made the analysis of
social effects of active measures, and for that reason we have not given a
final conclusion on non-economic effects of ALMP.

The methodology used in research on the effects of active measures is
steadily improving in quality, but it must be stressed that all evaluations,
reviews and meta-evaluations have not provided answers to two very
important issues. The first question is how to allocate funds for active
measures to achieve the highest net effects. The other is what is net
monetary social benefit achieved by allocating resources for the
implementation of active measures. These two questions remain open for
future research.
Zubovic, Subic 21
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Cha pt e r 2

THE ROLE OF INFORMATION SYSTEMS
IN HUMAN RESOURCE MANAGEMENT

Dorel Dusmanescu, Aleksandra Bradic-Martinovic

Abstract: Persistency of the organization, competitive advantage and
realization of extra profit, in contemporary environment, are directly
connected with balance of the resources available to the firm. One of the
key issues of successful business is human resource management and that
process is under great influence of modern information technology.
Human Resources Information Systems (HRIS) are systems used to
collect, record, store, analyze and retrieve data concerning an
organizations human resources, but it is not merely reduction of
administrative procedures. The importance of HRIS system is
multifaceted, ranging from operational assistance in collecting, storing
and preparing data for reports, simplifying and accelerating the processes
and controlling the available data, reducing labour costs for HR
departments, and providing timely and diverse information to the
management of the company, based on which it is possible to make quality
strategic decisions related to human capital. The aim of this paper is to
highlight the importance of HRIS and to give a comprehensive insight of
the subject. Special focus in the paper will be on companies in Serbia,
which have started to apply this concept, but in most situations not widely,
but just partially. They must be aware that positive results can be expected
only if this subject is approached in the right way.

Key words: Human resource management, information systems, HRIS,
ERP
JEL Classification: M15, J24
26 The Role of Information Systems in HRM

INTRODUCTION
3

Social and organizational changes in the economic environment are
numerous and extensive. According to that, it is important for human
resource management (HRM) to be comprehensive, high in quality, fast,
flexible and in line with upcoming trends, because it is one of the
parameters of successful business. Use of information and communication
technology becomes an imperative for HRM, as well as the other activities
in the company.

Enterprise Resource Planning (ERP) is very widely applied in HR
departments. For instance, company can track employments life cycle or
engagement of the new labour. These changes can be viewed as tran-
sactional data, because employment of workers begin and end within the
organizational structure of one company. As a result of that, HRM with its
data is ideal for traditional ERP infrastructure, thus it has found the appro-
priate support in ERP systems. However, modern Knowledge economy and
labour statistics impose the need for consistent initiatives in real time, so
HRM department must implement these initiatives before the actual em-
ployment of workers. For these reasons, HRIS systems separate from stan-
dard ERP solutions and become stand-alone platforms with wider range of
options, such as adjustable employment statistics for each enterprise.
4


There are lot of terms in use for these systems, but the most common are
the following: e-HRM (e-Human Resource Management), HRIS (Human
Resource Information Systems) and HRMS (Human Resource
Management Systems). We must be aware that there is a fundamental
difference between e-HRM and HRIS. HRIS, as human resource

3
The paper includes the results of research obtained within the project Macroeconomic
analysis and empirical evaluation of active labor market policies in Serbia supported by
the Regional Research Promotion Programme in the Western Balkans (RRPP), which is run
by the University of Fribourg upon a mandate of the Swiss Agency for Development and
Cooperation, SDC, Federal Department of Foreign Affairs. The views expressed in the paper
are those of the authors and do not necessarily represent opinions of the SDC and the
University of Fribourg.
4
We must be aware that software market is characterized by sharp competition, so ERP
producers reacted very fast and they added new features in their platforms.
Dusmanescu, Bradic-Martinovic 27
information system, has direct implementation in HR department and
employees in this department are users of that system. Enhancement of
HR department is the main goal of HRIS, which will indirectly improve
business. Term e-HRM covers services not only for HR department, but
also for wider range of employees, potential employees and management.
Those services are available over Internet or Intranet. The difference
between HRIS and e-HRM could be defined as transition from the
automation of HR services (Transactional Systems) to IT support of HR
information (Management Information Systems). Apart from that, HRIS
can be viewed as a database system or a series of interconnected databases,
and HRMS as software that can combine multiple HR functions
(Venkateswaran, 2007). The differences between two systems are quite
blurred so these terms are in use as synonyms in many references. In this
paper term HRIS will be used in a wider context, because the aim of this
paper is not to define the term precisely, but to give an insight into the
importance and necessity of introduction of modern information
technology in the processes of HRM. The aim is to comprehensively show
the role of HRIS systems, their evolution, structure, advantages and
possible shortcomings, as well as the process of implementing the systems
in organization and to highlight the importance they play in modern
business.

In the first part of paper HRIS systems are explained in details with the
brief history. Evolution of the systems is shown from the point of new role
in organization, because they switch their role from transactional to
strategic. Following the changes, HRIS systems adjust and start to offer
new features for increasingly wider range of users. The second part of
paper expose structure of standard HRIS solutions with most important
functionality of software designed for a whole variety of activities related
to HRM, while the third section presents the advantages of using the
system. The fourth part gives an insight into numerous of HRIS
advantages for enterprises, and also points to a few problems faced by the
enterprises during the implementation. Description of methods that are
available to companies during the decision process of HRIS introduction is
part of the fifth section, while the sixth section provides a brief overview of
the situation in this particular field in the Republic of Serbia.
28 The Role of Information Systems in HRM

HRIS SISTEMS DEFINITION AND EVOLUTION
Effective HRM, in order to provide competitive advantages, requires
adequate updated information on current employees, as well as potential
employees in the labour market. IT evolution has improved a technique of
collecting this information through the development of HRIS systems
(Kavanagh, Mohan, 2009, p. 5). HRIS includes systems and processes that
connect the function of HRM and information technology. Enterprises
often choose to introduce this information system after the successful
implementation of ERP (Enterprise Resource Planning) and CRM
(Customer Relationship Management) solutions, aiming to improve the
processes associated with making decisions about employees. Information
technology have enabled the broad implementation of HRIS applications
and help companies to improve efficiency in general by increasing the
efficiency of HRM (Nuasair, Parsa, 2007, p. 70).

Vujovic (2005, p. 310) points out that the modern HR function is not
merely reduced to administrative procedures in the processes of
recruitment, organizing the employees, regulating their rights and
obligations, but also has a major role in creating corporate culture. In the
new environment employee can propose, control and execute planning
decisions, so development of HR must adapt to the new requirements. De
Sanctis (1986, p. 15) indicates that apart from daily and operational
information, HRIS has the ability to supply with strategic information
management of the company. Data collected within the HRIS provide a
mechanism for management decision support. With proper HRM
companies are able to provide calculations that will have consequences for
the entire business. These calculations include the following: health care
costs per employee, turnover rates and costs, the time required to fill in the
appropriate position, return on invested capital in HR and increase the
value of human capital. Numerous studies have offered evidence
supporting the recognition of the role of HRIS systems in support strategic
decision making. For this reason, there has been a dramatic increase in the
use of HRIS systems in companies, over time. For example, Lower and
Mohrman (2001) reported that the use of HRIS is in constant increase over
the years. Obviously, the use of HRIS solutions raised sustainable
Dusmanescu, Bradic-Martinovic 29
development, even in those companies where HR management does not
have a strategic role.

Vujovic (2005, p. 311) put the specific dimension on this themes with the
view that modern business requires intensive use of knowledge based on
multidisciplinary approach, while education should provide the acquisition
of new skills, such as finding relevant information, encouraging creative
thinking, effective communication, teamwork etc. We already have
companies where employees, in addition of official duties, acquire new
knowledge and these organizations are called learning organizations.

Hendrickson (2003, p. 382) made a first step in accepting the employee in
the form of human capital. It was in the period 1945-60. However, that has
not led to the substantial changes in the functioning of the HRIS (at that
time information systems have existed and operated without the use of
modern information technology). In the next twenty years (1960-80) HR
departments have become an integral part of the core activities in the
company. During this period, computers (mainly mainframe) provided a
new dimension in collecting, storing and processing HR information. At
that time HR departments have become one of the most important users
of computers resources in company. Despite that, HRIS were only useful
in transactional information processing. The new period started in the last
twenty years of the 20th century when computers become available to
many users (with commercial use of the Internet) and when companies
started to use HR information for strategic management. Management
started to relay on HRIS systems in the decision making process about
human capital, even in small and medium enterprises. According to that,
HRIS become integrated system with the objective to provide information
for decision making on human resources. The base of their functioning
are databases that are used for collecting, storing, searching and
manipulating data on employees and other data related to human
resources. Typical HRIS includes personal information about employees,
information on income, information on various types of training, the most
diverse reports etc.

HRIS are developed following needs of HR department or company
management. Changes that have taken place in the role of HR in the
30 The Role of Information Systems in HRM

company, also reflected in the development of HRIS. The role of HR had
three stages: a) phase of personnel or staff management, b) phase of HRM
and c) phase of strategic HRM. Personnel management was focused on
various forms of services in the HR departments. Those departments had
to collect and store personal data (records) of each employee, handle their
salaries, benefits, vacations etc. In the next phase, when it became clear
that the importance of HR is much higher, personal management
becomes HRM. Since then, this function developed and became very
important function of management, while HR became a component of
competitive advantages. The last stage introduces a strategic component in
HRM and can be defined as: development and implementation of human
strategies that are integrated within companys strategy ensuring that
culture, values and companys structure together with the quality,
motivation and commitment of employees fully contribute to
achievement of companys objectives (Dainty, Loosemore, Lingard, 2003,
p. 37). In this stage, the level of integration in the processes of HRM is
much higher, then in the previous stages. The transformation process can
be observed in Figure 1.

Figure 1 Parallel functions development of HRM and HRIS

Source: Authors own research

Dusmanescu, Bradic-Martinovic 31
The next dimension in HRIS is related to direct or indirect users. Modern
HRIS can be seen as a spine of the company and it has to meet the needs
of all stakeholders in the company. We can recognize three main groups:
1) HR professionals and directly involved in HR department,
2) management of the company and 3) employee. Each of these groups
has unique interest in the use of HRIS (Hendrickson, 2003, p. 381), and
because of that, each of these groups of users have a special module(s)
which can meet the needs.

HRIS can be ranging from strategic to operational level in one company,
as we can see in Figure 2.

Figure 2 Three levels of HRIS systems

Source: Authors own research

The HRIS achieved new dimension with development of computer
networks. By then, only trained employees, mainly from the HR
department could perform operations in separated computers or in
32 The Role of Information Systems in HRM

mainframes
4
, through a local network of terminals. However, the sudden
expansion of networks and falling prices of computers enabled everyone to
become part of the system, no matter where they are. Under the new
conditions each employee can use the HRIS. The level of use is
determined by the need and permissions. Structure of the HRIS becomes
significantly more complex, and the new problems appear, primarily
related to security and privacy of information about employees.

HRIS, like other information systems must be flexible and adaptable to
changes. They have to follow the development of the organization in order
to satisfy all existing and new needs. On the other hand, if the company
does not follow trends in the field of information and communication
technology, it can have a problem with inefficient or insufficiently
effective HRIS (obsolete or unfit to the company needs). Consequently, it
will affect the overall business, especially in large enterprises with
complex organizational structure.
THE STRUCTURE OF HRIS SYSTEMS
HRIS applications are systems of databases that allow users to store and
track all types of data that are related to human capital in the company. It
is necessary to pay attention to the fact that in practice company can buy
partial software solutions, which only partially cover the needs of HRM
(for example, just a collection of basic information about employees and
payroll). These systems cannot be classified as HRIS, because under the
term of systems we imply complex and comprehensive software with all
integrated functions for HRM. Only properly implemented systems that
permeate the entire company will have maximum positive impact. These
are systems that are used to collect, store, manipulate, analyze, retrieve
and disseminate HR information.

Individual HRIS software solutions differ according to the need of
company that developed a specific application. The solutions offered by
software companies can be generally divided into three groups. The first

4
Mainframe solutions were available and cost-effective only for large companies.
Dusmanescu, Bradic-Martinovic 33
group represents modules for HRM as part of ERP systems (for example
SAP HRMS, as one of the biggest module of SAP R/3
5
system). The second
group represents the integral software solutions which merge different
modules for computerization of HRM, i.e. integral HRIS. The third group
includes partial software packages that cover only one function. This
group of software is much simpler and relatively cheap solution for small
companies that do not require all modules or solutions for those
companies which consider it necessary to automate and improve only
certain segments of HR. Regardless of the group they belong all of these
solutions are the parts, i.e. modules that are integrated into the HRIS
system in one company.

In most cases HRIS contains all or most of the following modules:

Collection and monitoring of applications for employment or
online recruiting is an application that allows candidates to apply
for a certain position in the company, but also for HR department
to collect and process the received applications. In this module of
HRIS the using of computer systems and networks are very
important, especially because of online accesses to the system.
Online collection of application has become standard in developed
countries.

After collecting applications, the company accesses to the next
level using the HRIS module. This includes support for the
following activities: generating reports with statistics about labour
market in the country (in U.S. it is called EEO Form), monitoring of
interviews and the score assigned by the staff responsible for their
evaluation, monitoring of job descriptions, keeping internal
statistics on employees, auto-tracking and analysis of profiles of
candidates, creating a list of e-mails (for sending circulars), making
online remarks etc.


5
The last version of SAP systems R stands for real-time data processing and 3 stands for 3-
tier (three-tier client-server architecture).
34 The Role of Information Systems in HRM

Record keeping of all personal data is application which has
database with data of all employees. It is very important for each
company to have these data, and in most cases data must be
standardized. For instance, if company needs information on
whether an employee has a certificate for particular type of work
and if the company has 7000 employee only search of standardized
records can be effective.

This module usually includes data for regular and emergency
contact with the employee, data on all previously received wages
(wage history), data on absenteeism from work, trainings and
certificates, estimates the characteristics of employees, information
on possible disciplinary action, injuries at work, and data that
companies can define by itself, unless they are part of a standard
software package. In addition to these data, it is possible to store
scanned documents (education diplomas, birth certificates,
judgments, etc.).

Payroll module automates the pay process by collecting data on
employee time and attendance, calculating various deductions and
taxes, and generating periodic pay checques and employee tax
reports. This module is often not fully part of the HRIS, because it
is heavily integrated into the system for financial management of
the company. However, the financial management system cannot
work without necessary input of the payroll data on time spent at
work, absences, performances or regulatory compliances. We can
find very different solutions in synergy of these two applications.

Benefits Administration provides administration of employee
participation in various forms of benefits. All employees must be
aware of their rights and obligations. The most important activities
are included in pension plans, buying life insurance policies, but
also in the distribution of shares of the company or division of
profits. The primary function of this module is to monitor all
benefit programs and to notice any potential deficiencies.

Dusmanescu, Bradic-Martinovic 35
The advantage of online access is very important in this module.
The fastest and cheapest way to maintain the beneficiary database
is ability of online access to the data by the employees. In self
service module they can fill the forms about their preferences.

Training module and learning management systems provides a
system for organizations to administer and track employee training
and development efforts. Company can buy this module on the
software market as a separate solution.

The most important functions of this module are tracking the
education level of employees, their qualifications and / or skills. It
allows storing and displaying various types of courses, books,
lectures or materials that are suitable for web learning. Online
learning and testing of employees is a remarkable savings in time
and money, and provides a high flexibility.

Performance management is very important for each company
because continuous monitoring and evaluation are essential when
company makes conclusions about effectiveness of HRIS. It is also
important to realize whether the objectives are met and which
segment should improve. The goal of this process is not criticism
but insight in potential updates and upgrades of the system. This
module contains features for monitoring system performances,
which provides valuable information for the management of the
company.

Employee Self-Service in modern environment is module based on
web technology which allows employee, together with
professionals in HR department to manage the employees
database. With the right permission they can access their data with
read-only or change status. Depending on the exact solutions data
access can be provided within Intranet (safety is increased) or
through the Internet (in which case the company has greater
availability of data). These applications are usually used with
standard Internet browsers, such as Internet Explorer or Firefox.

36 The Role of Information Systems in HRM

In addition to these modules, which cover the basic functions of any HRIS,
there are still a number of solutions. These include modules with
corporate documents such as instructions for the various programs for
employees
6
, HR planning module which include the analysis of previous
employment policy, documents about employees database development,
assessment tasks and jobs and the implementation of various satisfaction
survey of employees in the company.

Selection of software solution depends on the company's management and
its decision. This situation also involves the possibility of internal
development, acquisition of complete solutions (outsourcing) or renting
the resources, i.e. cloud computing. Regardless of the choice management
must assess their needs and thus choose a software solution that will have
the highest level of utilization. It is equally wrong to choose software that
has too many options, which will never be used or does not possess the
necessary options. Decision on HRIS choice must be taken as a strategic
decision.
ADVANTAGES OF USING HRIS
In situation when administrative and HR department tasks become too
large, the implementation of HRIS is solution to the problem. Companies,
regardless of the size have already recognized the benefits of this solution,
so they continuously implement software packages. In that way they
improve the efficiency of the entire organization.

HRIS advantages can be systematized according to Kovach (Kovach, et.al.,
2002, p. 47) as follows:

Increase competitiveness by improving the operational transactions
in the HR department;
The ability to implement a number of different operations related
to HR;

6
The name of this module is Employee Manual (Handbook) and usually contains all the
instructions for new employees (various guidelines and codes of conduct, code of ethics,
various policies, procedures) in order to easily turn-up companies.
Dusmanescu, Bradic-Martinovic 37
Shift the focus from the operational (transaction) HR information
to strategic HR information;
Include employees as an active part of the HRIS and
Re-engineering the entire HR department.

Many authors (Hendirks, 2003; Beadles, et all, 2005, Kovach, 2002)
emphasize the advantages of HRIS. If we collect all those opinions with
practical advice in web sites of HRIS producers (www.employease.com,
www.hrworld.com, www.link-softsolutions.com etc.) we can observe all
HRIS advantages through three dimensions: the benefits for the
management, the benefits for the HR department and benefits for
employees.

The most important advantages for management of the company are:

Increase of overall decision making efficiency,
Cost reducing and better control of budget,
Business transparency,
A clear business vision and
A clear insight into the process of hiring and firing employees, at
the aggregate level.

The HR department also has a numerous benefits for HRIS:

Possession of single database of all employees in the company with
all necessary information and opportunities for different reports,
The ability to update databases in real time, on the basis of all
changes, which is of extreme importance to regionally diversified
companies;
Elimination of paper forms that are much slower and with much
higher probability of errors;
Minimize errors caused by human factor;
Employees in HR department do not have to constantly refer to the
instructions on working hours, because the application is
configured according to existing guidelines, which have reduced
delays and uncertainties;
Improved management system in accordance with the legislation;
38 The Role of Information Systems in HRM

Reduction or elimination of redundancy in the system;
Standardization of business processes;
Highly reliable data in the system, whether it is external or internal
threats;
Increased employee satisfaction in HR department because the
easiest and efficient execution of the tasks;
The ability to establish full control over internal migration of
employees and the management of their talents and
The ability to take preventive measures to avoid unpleasant
situations in the company.

HRIS provide the advantages to the employees among which the most
important are the following:

The possibility of independent access to data, which often means
working in one software window;
Saving time (for example, if the employee wishes a day off the
simplest wait is to fill the online form available as an option of the
HRIS and wait for approval by superiors);
Automatic tracking and reminder to the business obligations and
events;
Encouraging employees to make decisions and initiatives on the
basis of information obtained in the HRIS system (for example,
workers can monitor the internal competition for jobs and thus to
advance in your company);
Data availability 24/7;
Reducing the time required for desired information, which are
available in the system;
The ability to attend internal training courses via the web and the
development of personal skills and knowledge and
Increasing staff morale.

Besides all these advantages, there are a few shortcomings that need to be
mentioned. First it is the need of additional training of employees for
using self-service module. There is a problem to force employees to use
new features that system provides instead the way they previously used
(for instance, some of employees always use contact phone in order to
Dusmanescu, Bradic-Martinovic 39
obtain the desired information). In addition, employees in HR department
must attend several trainings to be able to use modules and to exploit all
the options it provides. This problem is given special attention in
companies, because without competent software users the company can
miss a large number of advantages. The last problem is connected with
the process of replacing the old system with the new one. If the company
chooses another producer or provider the problem may arise with
incompatible data or possible danger to the security of database. Because
of privacy issues, replacement process can be much longer comparing to
other types of software integration.

Regardless to the shortcomings connected with the implementation of
HRIS the benefits provided by these systems are dominant. However, these
systems may not be introduced without prior analysis of company needs.
In this context, the main question is: What are the criteria that should be
fulfilled when the company has to decide whether to introduce or replace
the existing HRIS system?
INTRODUCTION AND REPLACEMENT OF HRIS
The work that employees in the HR department do is very suitable for
computer processing. Many of these activities are the transaction
processes, routine, recurring daily, weekly, monthly. A study of a
pharmaceutical company
7
showed that just before the HRIS introduction
71% of employees in the HR department s conducted the transactional and
administrative tasks. In other words, it is time consuming to perform tasks
such as checking worksheets (carnet), updating various information about
employees (change of addresses, phone numbers, different status, etc.) and
tracking data and employees for the benefits (insurance, contributions,
etc.).

Introducing HRIS is a significant investment for each company, but most
of the companies are forced to do that when HR activities become
extensive, slow and inefficient and start to limit the decision making

7
www.citeman.com/8022-hris-in-action/#ixzz1A4KwG16u
40 The Role of Information Systems in HRM

efficiency. But there is a huge difference between small and medium
enterprises and large companies.

For example, if we consider the organization of a large company with
decentralized structure, number of branches and numerous employees it is
obvious that this company must introduce a certain level of HRIS in HR
department. Performing tasks manually or partially computer-integrated
in these conditions is very slow and expensive, so they choose to
implement one of the solutions. Some of them internally developed
information system, relying on its own capacity, while some implement
external ERP systems that include modules for HR management.

Small and medium enterprises generally find alternative methods for
resolving the backlog of manual labour in this department. For that
purpose they usually use standard Microsoft Office or similar software,
especially spreadsheet (Excel). There are also open source solutions, such
as Orange HRM
8
software. Web sites like www.comparehris.comoffer free
advice about HRIS/HRMS software
9
.

In practice it is common for companies, and this applies particularly to
small and medium ones, to begin a job with the ad-hoc network and
information system. They start from the basic needs and then they add
information step by step as well as communication resources. They do not
need feasibility study for that process. Such a system slowly grows and
becomes more difficult for future maintenance. After a while, when the
information system reaches critical point, management of the company
meets with the problem of further development, so they must define
objective criteria for replacement of the earlier solutions (Milainovi,
2010, p. 1).


8
This company offers the ability to download program from the web site
www.orangehrmlive.com,with the reference of 500,000users. They also offer so-called Live
versionand this software does not require IT professionals, software installation or server -it
is for online users.
9
After filling the series of questions, company get a list of proposals with the best software
for them.
Dusmanescu, Bradic-Martinovic 41
There are few available techniques for assessing cost-effectiveness of HRIS,
regardless of companys size.

The first criterion that can measure the contribution and importance of
the introduction of these systems is the return on investment or ROI
coefficient. It is a ratio of profits and investment. The calculation of this
ratio is not easy because many financial benefits are immeasurable.
However, despite of that it is strongly recommended to carry out this
analysis.

ROI analysis should include the following segments:

1. Data Management (with the goal of achieving a satisfactory level
of operational efficiency). In this segment, it is necessary to
calculate the savings that are realized through the reduction of
time and resources to fulfill the task, the benefits to be obtained by
increasing the reliability and value data in the system and
eventually to incorporate the costs for the purchase and
maintenance.

2. Human resource management (as an organizational unit -
department). It is necessary to calculate the savings that are
realized through the reduction of time and resources to fulfill the
task, the benefits to be obtained by increasing the reliability and
value data in the system, the benefits of improving individual and
team performance and improving the attractiveness of jobs in this
department, which retain high quality employees.

3. Talent management. As in the previous two cases it is necessary to
calculate the reduction in time, the benefits of increased reliability,
but also contribute to achieving strategic business goals and
achieve strategic objectives in the development of talent within the
company.

4. Organization Management. In this segment it is needed to be
focused on the expression of the global benefits of achieving the
strategic goals and objectives in the field of talent.
42 The Role of Information Systems in HRM


Further analysis of the ROI ratio is reduced to the inclusion of measurable
investment costs and direct costs, which are necessary for HRIS
implementation or replacement. This is useful for cross-section analysis of
the system, at some point of work.

As we can conclude, the ROI coefficient is an extended Cost/Benefit analy-
sis. Cost-benefit analysis includes consideration of all the positive and
negative impacts that occur when implementing new or replacing old
HRIS system. The aim of this analysis is to relate all positive and negative
impacts, to perform a certain type of evaluation and to make a decision,
based on results. This analysis is very useful for HRIS evaluation over long
time.

The third method that can be used is the Kaplan-Norton's method Balan-
ced Scorecard performance measure system. It assumes that it is necessary
to consolidate financial and non-financial measures in order to provide a
quality requirement for decision-making by management. This method
requires that each company develops its own system of measures for asses-
sing organizational performance. It is necessary to perform through four
dimensions: a) the perspective of users, b) internal process perspective, c)
the perspective of finance and d) learning and growth perspective.
10


Now we can make a conclusion that presented methods, which are used in
practice, are not ideal solutions, but it is certainly recommended to use one
of them. In the future, information systems will be changed and improved,
so it is useful for the companies to have a specific benchmark that will
help them in decision making process about this business segment.
HRIS IN SERBIA
The business use of information systems in the Republic of Serbia is
increasing over the years, although the situation is far from satisfactory.

10
More about the subject: Hagood, W., Friedman, L. (2002), Using the Balanced Scorecard
to Measure the Performance of Your HR Information System, Public Personnel
Management, Vol. 31, No. 4
Dusmanescu, Bradic-Martinovic 43
Based on data obtained from survey of the Statistical Office of Serbia
presented in the publication Use of ICT in the Republic of Serbia in 2010
during that year 97.8% of enterprises used a computer in their business
and 79.5% of companies have Wire based LAN. If we observed using of
ERP systems the situation is very bad, because only 11.5% of companies
use this type of systems. Analysis of enterprises by size shows that 43.1% of
large enterprises use ERP, while the number of medium-sized enterprises
is more than half - 17.8%. The worst situation is in small businesses,
because only 7.6% own ERP system. Banks and insurance companies use
these systems the most - 27.3%, and followed by companies from the
manufacturing industry - 15.4%.

The reason for this situation is that most of large companies are faced with
the need to increase efficiency and cost savings benefits so they are forced
to implement modern information system. Companies that have
introduced ERP systems as an integral part of these systems use modules
for managing HR, to a greater or lesser extent (for example 2008. Zdravlje
Actavis has introduced a SAP HR module).The situation in small and
medium enterprises is much worse. Most of these companies do not have
specialized and trained employees for HR, and often they do not know
enough about this topic. In small companies Microsoft Excel is more than
enough to satisfy all the requirements of HRM sector, but with increased
number of employees companies need appropriate specialized software.

In the software market in Serbia there are two producers of HRIS modules.
SoftLINK company from Belgrade offers HRIS (trademark), software
platform with all options for HRM in companies regardless of the size or
type of business. Wurth, Imlek, Tropic Group and Tagor Electronic use
their own software. The other one is company Perfecta, also from Belgrade.
They made Module KADROVI which includes all most important records,
but also additional options like training on protection and safety at the
workplace or scholar records.

Awareness of this need in Serbia has increased over the last ten years, but
the general impression is that there is no systematic analysis during the
implementation process. In many situations, the introduction of the HRIS
is done ad hoc. It would be interesting to conduct a comprehensive
44 The Role of Information Systems in HRM

analysis of domestic companies, small, medium and large, in order to
reach a conclusion at what level of development is the implementation of
HRIS system in Serbia.
CONCLUSIONS
HR management had undergone radical changes over the last fifty years,
while technological development has enabled the transformation of many
business activities. Small and medium enterprises managed to overcome
the HR management tasks without specialized software, more or less
successfully. Large enterprises, with numerous employees and complex
structure, on the other hand are no longer able to do that. The importance
of HRIS system is multifaceted, ranging from operational assistance in
collecting, storing and preparing data for reports, simplifying and
accelerating the processes and controlling the available data, reducing
labour costs for HR departments, and providing timely and diverse
information to the management of the company, based on which it is
possible to make quality strategic decisions related to human capital.

In the conclusion it is necessary to point out several trends that lead to
further improvements. First of all we expect improvement in the field of
dashboard type of view over data, so management of the company can
access accurate information when they need it. Then, we expect the
improvement in the Intranet and Internet interface for self-service
modules, as well as further development of e-learning, which is believed to
become very popular among younger generations. We also expect further
development of distance working and in that environment HRIS will
improve control and track the impact of this category of employees.
Technological development will enable the widespread use of certain
functions of HRIS through web, mobile phones, WAP or PDA, with e-mail,
as a key component.

At the end we can point the importance of these systems with the citation
of Martyn Sloman
11
: Professionals who deal with human resources, and

11
Martyn Sloman, CIPD Training, Learning and Development Adviser,
www.hrplatform.org/general/a/articles/embrace_hrtech.html
Dusmanescu, Bradic-Martinovic 45
who fail to realize the potential importance of HRIS system will not be
able to fulfill their role in the organization. They will not be able to
provide information which management need for successfully manage
operating costs and development of their employees. Management of the
HR department should be more ambitious in terms of their requirements
and to unite with the IT sector, to enable better functioning of the system.
REFERENCES
1. ______ (2010) Upotreba informaciono-komunikacione tehnologije u Republici
Srbiji, RZS Srbije
2. Beadles, A., Lowery, C., Johns, K., (2005), The Impact of Human Resource
Information Systems: An Explarotary Study in the Public Sector,
Communications of the IMMA, Volume 5, Issue 5
3. Dainty, Loosemore, Lingard, Human Resource Management in Construction
Projects - Strategic and Operational Approaches, Taylor & Francis, 2003
4. De Sanctis, G. (1986), Human Resource Information Systems- A Current
Assessment, MIS Quarterly, Vol. 10, No.1
5. Hendrickson, A. (2003), Human Resource Information Systems: Backbone
technology of contemporary humam resources, Journal of Labour Research,
Volume XXIV, No. 3
6. http://www.e-hrmresearch.org/index.php?id=submissions.htm
7. Kaplan, R., Norton D. (1992), The Balanced Scorecard: Measures that Drive
Performance, Harvard Business Review
8. Kavanagh, M.J, Mohan, T. (2009), Human Resource Management Basics,
Applications and Future Directions, Sage
9. Kovach, K.A, Hughes, A.A, Fagan, P, Maggitti, P.G. (2002), Administrative
and Strategic Advantages of HRIS, Employment Relations Today, Vol. 29,
Issue 2
10. Mayfield, M, J. Mayfield, S. Lunce, (2003), Human Resource Information
Systems: A Review and Model Development, Advances in Competitivness
Research, Vol. 11, Issue 1
11. Milainovi, S. (2010) Optimizacija informacionih sistema korienjem Cloud
Computing reenja, Savetovanje ZITEH 10 Zloupotreba informacionih
sistema i zatita, Beograd
12. Nuasair, K.K., Parsa, H.G. (2007) Critical Factors in Implementing HRIS in
Restaurant Chains, Advances in Hospitality and Leisure, Vol. 3, ed. Joseph S.
Chen, Elsevier, UK
46 The Role of Information Systems in HRM

13. Venkateswaran, N. (2007) e-HRM, Department of Management Studies
Panimalar Engineering College Chennai, available on:
http://www.indianmba.com/Faculty_Column/FC555/fc555.html
14. Vujovi, S. (2005), Informacioni sistemi u poslovanju i menadmentu,
Slobomir P Univerzitet, Republika Srpska



Cha pt e r 3

IMPROVING THE QUALITY OF HUMAN
RESOURCES BY IMPLEMENTATION OF
INTERNAL MARKETING

Ioan Done, Ivana Domazet

Abstract: Internal marketing includes programs intended for employees
and their development. It is targeted on identifying, motivating and
retaining customer oriented employees. For that reason, it is ov great
importance for labour intensive, and especially service oriented compa-
nies, since knowledge, expertise, activity and behavior of employees create
overall business portfolio that the consumers/clients are buying on
external market. Regardless of its industry, adoption and implementation
of internal marketing concept lead to long-term growth and success of the
company. Internal marketing has important points of contact with human
resources field of activity; therefore the analysis of internal marketing
concept and its basic dimensions is a significant factor for creating
competitive advantage in current business environment. The goal of
internal marketing is to focus attention of employees on internal activities
that need to be developed, maintained, and promoted for the purpose of
business and strengthening competitiveness of the company on the
external market. Human resources management through qualifying and
motivation of employees to fulfill customer market needs as much as
possible, namely to recruit appropriate personnel, and maintain and
improve long-term relationship with them, is one of the key prerequisites
for companys business success.

Key words: Human Resources, Internal Marketing, Competitiveness
Improvement

JEL Classification: J24, M31
48 Improving the Quality of HR by Implementation of Internal Marketing

INTRODUCTION
3

Basic goals of internal marketing are the choice, motivation and retention
of high-class and competent personnel, who are focused on the quality of
overall portfolio of the company in order to improve its profitability.
Practicing of internal marketing concept leads to high level of fulfillment
of business obligations, internal competitiveness, as well as considerable
improvement of the quality of the personnel. In this context, internal
marketing is often connected to human resources management and the
model that a company uses to develop its business culture. While
analyzing the internal marketing concept, one must take into
consideration the tasks of the human resources management, concerning
motivation of employees and creation of such personnel structure that will
assure highest possible level of overall interactions efficiency. Here,
internal marketing plays an important role, since its implementation is
related to development and retention of internal business culture that
contributes to fulfillment of companys goals.
THE CONCEPT AND SEGMENTATION OF INTERNAL MARKETING
More than twenty years ago, Leonard Berry has applied the term internal
marketing, defining it as a theoretical and practical marketing implemen-
tation in respect to servicing of external customers in a way that purports:
employing and retaining of best personnel and their readiness to
accomplish their tasks at their best (Little and Marandi, 2003, p. 114).

Internal marketing includes programs designed for employees and their
development. It is targeted on identifying, motivating and retaining
customer oriented employees. For that reason, it has extreme importance
of labour intensive, and especially service oriented companies, since

3
The paper includes the results of research obtained within the project Macroeconomic
analysis and empirical evaluation of active labor market policies in Serbia supported by
the Regional Research Promotion Programme in the Western Balkans (RRPP), which is run
by the University of Fribourg upon a mandate of the Swiss Agency for Development and
Cooperation, SDC, Federal Department of Foreign Affairs. The views expressed in the paper
are those of the authors and do not necessarily represent opinions of the SDC and the
University of Fribourg.
Done, Domazet 49
knowledge, expertise, activity and behavior of employees create overall
business portfolio that the consumers/clients are buying on external
market. Some of the internal marketing critics claim that it is a synonym
for human resources management, but researches show that they differ.
Human resources management is a wider concept than the internal
marketing, and has four meanings: branch of science, management
function, special business function within the organization and specific
management philosophy.

Basic internal marketing goals are:
Successful fulfillment of personnel business obligations in a whole
in order to accomplish companys goals,
Motivation of employees to perform their tasks as customer
oriented experts, concentrated to quality of the product/service,
Attract and retain high-class personnel, focused on companys
clients.

Internal marketing demonstrates its results externally. The company
might have brilliant ideas, but if it fails to accomplish, there is no object in
doing that. The time and money spent on product promotion are a waste, if
employees do not understand the product and its value. The time, process,
resources and knowledge must operate mutually and effective if the com-
pany wants to make a profit on external market.

The core of internal marketing lays in a fact that the employees should
treat their colleagues, who come after in the business process, as their
customers, and that the principles of internal marketing are implemented
through the organization. If all personnel is to accept marketing
principles, than each and every employee is trying to make the work of his
colleagues easier. On internal market, the company treats its employees as
consumers/clients.

Internal and external markets are quite different. Therefore, for the
successful implementation of the marketing on internal market it is
important to adopt specifics and to develop appropriate approach. Internal
market is reserved, and here, the supply and demand relation is relatively
fixed. In addition, the influence of external factors on the internal market
50 Improving the Quality of HR by Implementation of Internal Marketing

participants is significantly reduced. For that reason, the communication
of internal market parties and exchange of values between them is of key
importance. Accordingly, the psychological aspects and the quality of
relations between the internal market participants are a key for
accomplishing results that are measured with motivation and satisfaction
intensity, professional task performance, etc.

Segmentation of internal market has to be conducted due to the existence
of heterogeneous preferences of internal consumers within the company.
People differentiate in respect to their role as consumers on external
market, as well as when they are acting as employees on internal market.
Internal customers (clients) have fractional or no choice in respect to who
they will make business with, while consumers on external market can
(unless in the case of monopoly) choose between several suppliers.

Figure 1 - Internal marketing

Source: Jobber, 1995
Target group
Sympathizers

Internal marketing
mix 1

- product
- price
- communication
- distribution
Target group
Neutral

Internal marketing
mix 2

- product
- price
- communication
- distribution
Target group
Opponents

Internal marketing
mix 3

- product
- price
- communication
- distribution
Internal consumers
Internal marketing
segmentation
Done, Domazet 51
Internal marketing is focused on internal consumers, i.e. internal market
that includes employees and segmentation of internal market is shown in
Figure 1 (Jobber, 2005).

Three fundamental internal market segments consist of the following
groups of employees:

Sympathizers those who support changes;
Neutral those who have no opinion in respect to labour
organization changes and
Opponents those who are against the changes, and who would
like to retain status quo.
THE ELEMENTS OF INTERNAL MARKETING MIX
Basic instrument of the companys management, in the process of
satisfying and motivation of personnel, and in order to accomplish the best
quality of service possible, consist of additional elements of internal
marketing mix (Saad, Ahmed, Rafiq, 2002, p. 33):
Strategic rewards,
Internal communication,
Internal coordination,
Education and training of personnel,
Organizational structure,
Senior management,
Physical environment,
Employment, future employees choice,
Motivation system,
Invigoration and
Operational/process changes.

At a glance, it looks like there is no difference between the motivation
system and the strategic reward. Nevertheless, the nuance that differen-
tiates the strategic reward is that it influences behavior, functioning and
achievements that contribute companys progress in accomplishing
business goals. The motivation system refers to principal reimbursement
52 Improving the Quality of HR by Implementation of Internal Marketing

system defined within the company, aiming to establish organizational cul-
ture, through remuneration of business activities, behavior and values that
senior management would like to encourage. Stipulated elements of inter-
nal marketing mix are control susceptive and it is necessary to implement
them properly in order to achieve desired results, defined as organizational
possibilities that have the direct influence on business performance.

Figure 2 - Internal marketing elements

Source: Saad, Ahmed, Rafiq, 2002, p.34

Market orientation, employees satisfaction and special/individual
competences are presented as the instrument that intermediates internal
marketing mix and organizations business performance. Market
orientation stands between that relation, sin a proper o that the
organization can take cognizance and properly react on customers needs
and capabilities of the competitors. Market orientation creates competitive
advantage in consumers perception, and leads to better organizational
performances (Domazet, 2011, p. 265).

The essence of internal marketing means that the key for gratifying
business results resides in creating satisfied and motivated employees
oriented towards external clients.
Internal
Marketing
Mix
Organizational
skills

Market
orientation

Employees
satisfaction

Individual skills
(competences)
Business
performances
Marketing-
Philosophy
Marketing
Instruments
Done, Domazet 53
The company is governed by various factors arising from external
environment. Although those factors cannot be influenced on, and are
unchangeable, they have to be constantly monitored and familiarized by
the company in order to adjust business goals and accomplish planned
results. Unlike external environment, for the internal environment it is
necessary to provide peremptory conditions for business goals realization
using the best possible combination of the following elements:

People with their knowledge and skills,
Technologies and
Labour organization.

Primary results of internal marketing mix instruments implementation
are high-class, capable and motivated employees, who are focused and
service oriented. On the other hand, important factors of internal
marketing are (Ferdous, 2008, p. 25):

Duties (business tasks);
Environment in which the tasks are performed;
Authority, rights and responsibilities of the employee;
Resources that the employee can utilize;
Shaping processes themselves: organizational structure, task force
or group structure, structure of rights and responsibilities
delegation, remuneration structure;
Operational aspects (i.e.: when, where and how the meetings are
held; who can run them, etc.).

Duties or business tasks, should motivate employees to answer
management demands, related to shaping, implementing and customer
oriented development of successful interactive and external marketing, in
adequate manner.

Important element that must not be neglected while shaping marketing
reflects in a situation that almost all companies, even in most developed
countries, are facing. Job attraction for employees is reduced, and on the
other hand expectations and stress are increasing, and more flexibility is
demanded. Inversely, there is no appropriate progress, in terms of status,
54 Improving the Quality of HR by Implementation of Internal Marketing

material resources and benevolence towards the employees. In such an
environment, it is quite challenging to maintain the attractiveness of
offered product (workplace) in stagnating or even aggravated market
conditions. Marketing acts towards development of techniques and
procedures that can assure employees skills and desires for offering high-
quality services. Employees and clients satisfaction are tightly interlinked.

In the context of internal marketing it is advisable to consider the price as
the balance between the benefits/values and the cost for the company and
its employees. The price is mainly determined through traditional concept
of expenditure (financial and non-financial) with respect to the value
derived in return. Thus, it is possible to calculate the cost of the employee
(for example, psychological demands and time spent) when he is asked to
change his behavior at his workplace, as well as what benefit/value can be
achieved with such change. For example, the employee can be asked to
perform higher quality, to practice different working tasks, to master new
knowledge and skills (from his point of view those are expenses), but in
return the employee could gain: more freedom in decision making
process, promotion, supervise higher number of employees, higher salary,
or become more competitive on internal (and external) labour market, etc.
Accordingly, internal marketing price is considered related to invested
efforts, time, work applied and other criteria connected to expenditures,
with respect to value that the employee is granted for the role he plays
within the organization. That value should reflect employees personal
satisfaction while maximizing his performance.

Sales and distribution as internal marketing mix instruments include sales
activities and distribution channels, as well as the combination of both, in
order to achieve desired targeted market segment. Sales and distribution
are visible and tangible, but also invisible and intangible workplace and
business environment aspects. They are related to physical workplace and
the atmosphere in which the transactions between the company and its
employees are made, as well as companys culture and symbolic values of
the company. Since for the external marketing it is highly important to
have optimal combination and coordination of sales and distribution
activity, in internal marketing it is important to shape adequate
surrounding. The number, the structure, and the hierarchical level of
Done, Domazet 55
workplaces, on one hand, and delegation of rights and responsibilities on
the other, will create the environment that should enable successful
business on internal and external market.

Researchers conducted in the US, questioning What the employees
desire? have a dominant answer Open communication (Lings and
Brooks, 1998, p. 330). In those researches salary is ranked 16
th
. When the
examinees are asked why they want to quit, common answer was that they
want an acknowledgement for their contribution, and not to feel as they
are working in the vacuum. Communication as an internal marketing mix
element implies flow and information sharing. This information can be
transmitted via: company journals, direct mailing, video presentations of
new skills and practices, and a like. Information is transferred in order to
increase employees level of consciousness, so that they can act in
accordance with demands set by the company.

The goals of internal communication can include (Domazet, 2011, p. 270):
communication and analysis of arguments pro change,
motivation of employees (communication meaning that
employees concerns and interests are observed and included in
new practices planning),
motivation of employees and mediators to accept the significance
of the change,
education and training of employees for new practices,
admonishment of all employees in respect to requirements and
implemented changes,
Q&A and problem solving,
Feedback.

Internal communication and promotion are successful in introduction of
employees with the facts regarding to what is expected in business perfor-
ming. In this way, each employee has clearly determined role in the
company.

Stauss and Hoffmann are differentiating communication goals depending
on desired influence on knowledge, attitudes and behavior of employees
(Stauss, Hoffmann, 2000, p. 145). If the goals are related to knowledge, the
56 Improving the Quality of HR by Implementation of Internal Marketing

communication has the purpose to inform the employee (for example
regarding to consumers/clients demands, product/service attributes, and a
like).

Communication connected with the attitude of the employees is related to,
for example, shaping and adoption of the orientation towards the
consumer/client. Knowledge and attitudes influence the behavior, and
appropriate communication is aimed to accomplishing active, independent
engagement into process of solving various challenges.

Figure 3 Communication within the company Golden Triangle
Internal marketing
vertical communication
horizontal communication
External marketing
communication
Advertizing
Sales improvement
Sponzorship
Public Relations
Direct marketing
Personal sales
Personal sales
Client services centre
Sales outlet
Services environment
Interactive marketing
Company
Employee Buyers/clients

Source: Kitchen, 2004, p. 112

Figure 3, apart from two primary communication flows between the
company and its clients, shows the third communication flow directed
towards internal public (employees), in other words internal marketing.

Communication flows directed towards customers/clients include the
following:
Done, Domazet 57
External marketing communication through advertising, sales
improvement, sponsorship, PR, direct marketing and personal
sales, one is communicating with targeted clients;
Interactive marketing oriented on establishing contact with
services personnel and/or services environment with the client and
communication is transmitted via personal sales, call and contact
centers, the sales outlet itself and services ambient with all its
elements.
Internal marketing is aiming to enable free communication within
the company, as through different levels in organization structure
(vertical), as well as various organization departments, or business
functions (horizontal communication).

It is extremely important to improve internal communication, namely to
ensure free communication within the company through internal mar-
keting, as through different levels in organizational structure (vertical), as
well as various organization departments, or business functions (horizontal
communication).

Internal marketing mix can generate satisfactory results only if the
following conditions are fulfilled (Grnroos, 2000, p. 232):

Internal marketing is a part of strategic management
Internal marketing program must not be disabled by existing
organizational structure,
Management of the company must have continuous positive
attitude in respect to internal marketing process.

Internal marketing and internal marketing mix elements implementation
is in the early phase of development, and it is considered that this area of
marketing will experience intensive research and applying in practice in
near future. Growing necessity for internal marketing exists due to
dominant peoples role in doing business in todays competitive business
environment. The presence of transformation of industrial into services
activity is growing. The meaning of the service and service know-how
have more and more importance since well educated, trained and service
oriented employees are the most critical resource that a company needs.
58 Improving the Quality of HR by Implementation of Internal Marketing

The basis for top-quality business is the investment into high-class
employees. Even more companies are delegating responsibilities to higher
number of employees in order to build long-term relationship with their
clients, thus increasing the necessity for continuous improvement of their
task force. New ways of doing business demand that the employees adopt
new skills and practices. Numerous enterprises are constantly
transforming. Acquisitions, alliances, demerging and taking over occur.
All this processes demand continuous communication with employees.

Internal marketing concept has been adopted by successful companies,
and especially by world leading service enterprises. The best known world
enterprise that successfully practices internal marketing concept is The
Walt Disney Company. Internal marketing is impeccably functioning in
other American companies, such as Delta Airlines, The Marriott
Corporation, Dun Bradstreet (consulting), etc. In Europe, we must
highlight British Airways, SAS Scandinavian Airlines, Marks & Spencer,
and Ericson.

Current researches show that the implementation in Europe is not that
often as in the US. Nevertheless, these studies indicate that the European
examples that have formally shaped internal marketing programs are still
relatively inconsiderable. Although the internal marketing implemen-
tation in Serbian companies was not the subject of systematic research,
occasional data collected in respect to the level of its application, point out
that there are numerous activities that by their nature respond to internal
marketing (for example: employee training, election and remuneration of
best employees, remunerative impetus trips, etc.). Those activities are
commonly planned and conducted without formal internal marketing
plan, and usually are a part of a human resources management practice
within the company.
INTERNAL MARKETING ACTIVITIES
Selection and motivation of appropriate personnel, as well as maintaining
long-term relationship with them, represents the basis for internal
marketing installation. Integral process starts with the selection and choice
Done, Domazet 59
of appropriate staff. Selection criteria are knowledge and skills that the
potential employees possess, their willingness to educate and progress
together with the organization, as well to adopt its goals. To that effect, the
development of internal marketing strategy includes three-stage approach
(Egan, 2004, p. 164):

1. Create a business environment that promotes safety of employees;
2. Designing organizational structure and lines of communication
with no functional barriers;
3. A clear vision of the internal organization by top management.

The company should create a business environment where the employees
will feel safe. In this way the company demonstrates its commitment to
human resource development and creating conditions for proper com
munication with employees, including the creation of organizational
structure in which the functional barriers are cleared. A good way for
effectively erasing functional barriers of employees and managers is
organizing various trainings for promotion of team spirit (Team building),
which quickly removes the distance between managers and employees.
The main task of these meetings is to present and solve potential problems
without the pressures associated with the function of the company.

The profitability of a company depends on a company's ability to
continuously adjust to the dynamic and competitive environment. Hence,
the entire company's development strategy must incorporate high-class
internal marketing strategy whose main activities are:

Education of employees in order to adapt to the changing
environment;
Concern and motivation of employees;
Creation of team spirit through the promotion of mutual
interaction and
Development of appropriate infrastructure in order to avoid
barriers to internal marketing communications.

Todays conditions have forced companies to harmonize their business
with innovations, if they want to keep pace with market processes. One of
60 Improving the Quality of HR by Implementation of Internal Marketing

appropriate ways to follow trends of the modern world is the continuous
education of employees.

Education is indispensable in hiring new staff, while introducing new
products or services, or while introducing any innovation in the company's
operations, because it contributes to improving knowledge and
performance of employees and their productivity. Particular importance is
education of employees in the process of accepting new technologies.
Development and application of new technologies are reflected through
increased effectiveness in communication and execution of tasks in the
internal environment, but also by increasing the effectiveness of the
process of developing good long-term relationships with customers. The
success of the company in a competitive market largely depends on the
extent of finding the optimal integration of new technologies, but also the
creation of appropriate ways for overcoming employees resistance, which
is a priori present when introducing new technologies related to work
performed by employees.

Most of the companies have educated their employees and thereby
reduced resistance to change and trained them to use new technologies in
performing their daily tasks. In doing so, companies have pursued
different strategic approaches and tactics. One of the most successful
internal marketing tactics is to include training, with the aim to encourage
formal and informal communication, while at the strategic level internal
marketing expands to a wider acceptance of management styles and
personnel policies that promote employees, customer services training and
planning procedures (Egan, 2004, p. 164). Studies that develop investment
models in the areas of employees performance, if implemented properly,
result in companys profit growth. The results of studies that have focused
on the impact of training on ROI (Return on Investment) were an increase
in productivity of 17% and achieving long-term relationship with a
company of 14% (Trust Technology Solutions).

However, if we want the results of implementation of these models to be
even better, through the concept of internal marketing, it is necessary to
incorporate interactivity, as basic determinant of direct communication of
managers and employees. The reason is simple - a traditional internal
Done, Domazet 61
mass marketing practices (distribution of companys newspapers and other
information in writing within a company) become insufficient, since they
do not communicate with staff in a proper way, and therefore it is
necessary to add a social dimension in the interaction with employees
(Gummesson, 2003, p.198).

Concern for employees and motivation of employees by the companys
management directly, determines creation of long-term relationships
between the employees and management, and are thus an important
dimension of the entire management process. The main task of any
manager is to continuously analyze the environment, correctly anticipate
development trends and to guide the company in step with changes in it.
Hence, the role of manager implies the identification of the maximum
interest arising from cooperation between the organization, its employees
and external environment. As an important factor for success during the
process of cooperation, excels the emotional intelligence of managers.

Emotional intelligence is the ability to recognize feelings, their clear
identification, and understanding, ability to control and use to express
thoughts. In this regard, the importance of emotional intelligence of
managers in business and everyday stress situations, or the decision
making process is understandable. The involvement of managers in
solving problems of employees, their empathy, increases the motivation
and loyalty of employees. Expression of empathy, along with the
knowledge and skills, is of particular importance in contact between
employees and customers. Show genuine interest and involvement in a
friendly conversation with people you might meet, represents so called
emotional effort (Zeithaml, Bitner, 2003, p. 322). To reach employees with
these skills, organizations should carefully select people who are able to
bear emotional stress, but at the same time conduct trainings towards
acquiring the necessary knowledge and skills. Managers, at which a high
degree of emotional intelligence is present, are able to motivate others in
the organization. Such a mode of communication between managers and
employees, combined with properly created system of mutual interactions,
significantly improves the quality of business environment.

62 Improving the Quality of HR by Implementation of Internal Marketing

Enhancing mutual interaction and communication reduces the risk of
potential conflict between employees at a minimum, but also acts
preventively in terms of reaction to potential problems among employees.
The business environment in which all employees will feel well and do
their best as a team, can cause an increase in the quality of delivered
products and services, whose customers are satisfied with the purchase and
as such potentially loyal to the organization. In this segment of internal
marketing resides an evident cause and effect relationship between
employees and customer satisfaction, since the team effort investment in
improving the quality of provided services is the purpose of internal
marketing activities.

To make these activities produce a synergistic effect, it is necessary that all
employees, including all levels of management: be loyal to the company,
that there is a high degree of mutual trust and to believe in the quality of
their products. If your employees are at the same time consumers of
products that are being produced or sold, their effect in contact with
external customers will be higher. Then, we might call the company
employees internal clients. Moreover, if the employees are loyal to the
company, they will be the best promoters of their surroundings, thus the
value of propaganda "by word of mouth" would came to the fore. If the
company takes care of employees outside business environment as well,
and if it understands and meets their individual needs, the impact of
loyalty will not fail. In addition, it is important that the employees can
trust each other, and especially their superiors.

Mutual support in performing business tasks can create an atmosphere
where there will be less conflict, or will they, if they occur, be quickly
resolved. A proper system of rewards and sanctions, the effective exchange
of information in the function of acquiring knowledge and information,
and treating employees as the most valuable resources are key factors for
achieving the effectiveness of internal marketing.

The internal marketing is a concept that works as a system, so it is neces-
sary that the elements of the system produce the appropriate synergetic
effect. Consequently, it is necessary that all activities are synchronized to
the positive influence on satisfaction and employee loyalty. The basic
Done, Domazet 63
condition for the coordination of activities is to establish effective infor-
mation exchange system that would improve internal communication
between the marketing staff at all levels (the vertical and horizontal basis).
Possible barriers of internal marketing communications are (Wright, 2004,
p. 374):

Unawareness of the highest management level of their strategic
importance,
Lack of formal or informal strategic approaches,
Lack of communications system,
Bureaucratic structures and a like.

In order to improve the final effect of all internal marketing activities, it is
necessary to bear in mind the potential limitations, especially in the field
of internal communications. Tool that can simplify and speed up com-
munication is provided in the form of new information and commu-
nication technology (ICT). Managers and employees who have the
knowledge of information and ICT have the chance to progress faster than
the others. Continuous improvement of business procedures in accordance
with the progressive development of new technologies enables companies
to establish effective internal communication. In this way it is possible to
prevent potential conflicts in the field of internal communication and also
promote activities that constitute an internal marketing. In addition,
internal communications systems set in this way present a solid basis for
developing effective communication with customers.
INTERNAL MARKETING AND CUSTOMER SATISFACTION
Internal marketing is aimed at improving employees satisfaction, which
will, through increased company loyalty, impact on customers satisfaction
with whom they are in direct or indirect contact. Hence, employees should
be informed about the company offerings, but also to understand the
business mission, goals, strategies and organizational processes. According
to Gummesson, internal marketing has emerged from the service
marketing and its purpose was to influence the personnel in interactive
contact with customers/clients (i.e. first-line employees) towards better
64 Improving the Quality of HR by Implementation of Internal Marketing

management of the business portfolio and the manifestation of greater
autonomy in dealing with customers/buyers. In services industry, delivery
channels are shorter, and the buyer is usually in direct contact with service
providers (producer of service). The services are inseparable from the
service and cannot be stored, so it is very important that the service
provider is satisfied his task and the conditions he operates in. Employees
are promoters of their company even when away from their jobs, so their
behavior in public may affect the company's image. Employee satisfaction
affects customer satisfaction (Little, Marandi, 2003, p. 123).

If the employees believe in what the organization does and means, they
are motivated to work harder and their loyalty to the organization is grater
(Bradley, 2004, p.7). In the external environment, the outcomes of
implementation of customer retention strategies are directly dependent on
their satisfaction with product/service. In the internal environment,
employees retention depends on their job satisfaction and the quality of
internal services.

The positive correlation between these dimensions implies the implemen-
tation of various activities that should be organized and coordinated in
order to achieve continuity. If one dimension is not displaying properly,
activities carried out further will not make any sense. This is the reason
why there is no evidence that there is causality between employee- and
customer satisfaction (Egan, 2004, p. 165). In other words, employee
satisfaction alone is not sufficient. However, if properly directed and if it
refers to the work environment in which a quality product/service is
created and delivered, it can be a factor in customers satisfaction and
loyalty and, consequently, greater profitability of the company. The basis
for linking employee satisfaction and satisfaction and loyalty of
customers/clients and, consequently, making profit, is shown using the
service-profit chain that is basically the same as a positive feedback and
employee satisfaction as shown in Figure 4.

Dependency between satisfaction and loyalty of employees, and customers
satisfaction, shows a positive feedback loop, because the profitability
increases if there are more loyal customers, which means that we should
make special efforts to maintain good long-term relationships with
Done, Domazet 65
existing customers, and to the direction of expanding cooperation. Also,
customer loyalty increases if they are satisfied, and their satisfaction is
even higher if the quality of service is above their expectations. This value
will be delivered only by employees who are satisfied and motivated, and
who know their job well.

Figure 4 Circle of employees and customers satisfaction













Source: Adapted on Zeinthaml, Bitner, 2003, p. 320

The service profit chain illustrates the relationship between internal
services quality, satisfaction of employees, their productivity, the value of
services provided to customers and ultimately the satisfied clients, main-
taining long-term relationships with them and profit. The essence of their
explanation rests on the following points (Zeinthaml, Britner, 2003, p. 229):

Hire the right people;
Retain the best people (reward high-class and professional staff);
Educate employees to deliver best quality services (trainings for
technical and interactive skills);
Promote team work;
Provide the necessary support systems by measuring the quality of
internal services and to provide supporting technology and
equipment;
Develop internal employee-oriented processes.
Satisfaction of
employees
Carefulness of
employees
Productivity of
employees
The quality of
external services
The quality of
internal services
Satisfaction of
clients
Productivity and
growth
Loyalty of
employees
66 Improving the Quality of HR by Implementation of Internal Marketing

Considering the above stated, internal marketing can be defined as a set of
management activities conducted to ensure conditions for the delivery of
quality services through activities related to recruitment, training, moti-
vation, remuneration of staff and provision of modern equipment and tec-
hnology (Zeinthaml, Britner, 2003, p. 230). As the concept of internal mar-
keting includes the activities listed in this definition, there is an evident
connection with the quality of employees that comes in the form of pro-
ducts/services delivery, or the advancement of their knowledge and skills.
On the other hand, the quality of the offer defines customer satisfaction
and his willingness to become loyal and, as such, valuable for the organi-
zation. However, in addition to quality of the offer, there are several factors
that can affect customer satisfaction. One of the most important relates to
the perception, and preformed expectations of the customer. If expecta-
tions are greater, the less likely that the customer will be satisfied and vice
versa. Therefore, the process of customer relationship management (CRM)
should be used as a tool to comply the planned product quality with the
customers expectations. In other words, customers perception that
depends exactly on their expectations, results in customers satisfaction.
THE ROLE OF CRM
CRM involves the concept of capability, methodology and technology that
allows the company operates through improved customer relationships.
The purpose of CRM is to enable more effective (and efficient)
implementation of companys goals through a more analytical review of
real customers needs. CRM is focused on creating and maintaining long
lasting relationships with customers. Although there are several
commercial CRM program packages on the market that support the CRM
strategy, it is not technology itself, but a fundamental change in
organizational philosophy whose emphasis is on the consumer. These
program packages, namely the development of appropriate software and
hardware, enable that CRM system becomes largely automated process,
with a mission to provide not only information but also to serve as an
important tool for decision making and the market analysis. However,
successful CRM strategy cannot be implemented simply by installing and
integrating a software package and cannot be implemented overnight. The
changes are necessary at all levels, including corporate policy, training of
Done, Domazet 67
employees, marketing systems, information management and the like.
This means that all aspects of business must comply with the principles of
CRM (Domazet, Zubovic, 2007, p. 83).

CRM represents the alignment of business strategy, organizational
structure and culture of the company, customer information and infor-
mation technology, in order that all contacts with clients meet their needs
and achieve business benefit and profit. Client's business strategy that sets
the client in the center of business activities provides the answer to a
question that many companies often cannot answer how many clients do
they have and which of them are really profitable. The effectiveness of
CRM processes, which should be integrated throughout marketing, sales
and customer relationships, includes (Domazet, 2010, p. 197):

Identification of factors that contribute to a successful relationship
with customers,
Development of customer relationship practices,
Development of processes that will serve the customers,
Formulating questions that would most appropriately help in
solving potential customer issues,
Suggesting solutions for customer complaints regarding to
product/service,
Tracking sales and customer support.

CRM model could be applied in the internal environment as well, but then
it would comprise modified activities of the bid value, segmentation,
targeting and positioning, the system of business operations and delivery,
metrics and feedback, external and internal market (Figure 5).

By the selection and hiring of employees, the organization creates the
right foundation for growth and development, continuously identifying
new processes for the maximal utilization of personnel potential. Internal
marketing as a concept that links employee satisfaction, their commitment
to the organization, together with improvement of business expertise and
skills, and consequently customer satisfaction and loyalty, points to the
necessity of creating individual relationships with them in order to
establish attractive work environment.
68 Improving the Quality of HR by Implementation of Internal Marketing

Figure 5 CRM chain

Source: Adapted on Lovreta et al. (2010, p 180)

Analogous to strategies in an external environment that consists of a wide
variety of customers, companies need to create a personalized relationship
with their employees, in order to get to know their range and utilization of
their potentials towards developing a working environment that will,
together with the promotion of human resources, profitably meet the
needs of customers/clients and the thus achieve raison de vivre of each
company the profit. CRM concept can significantly improve the relation-
ship with customers, but also internal communication within the company.

Fundamental requirements for successful implementation of CRM inclu-
de: appropriate business skills and competition intelligence; understanding
of end consumers in depth, market way of thinking, synchronized
company behavior an integrated approach to managing channels of
communication, sales, and database development. These assumptions form
the basis of a conceptual framework for developing the CRM strategy
(Payne A, Frow P. 2005, p.171). Here, one must emphasize and recapitulate
that CRM process includes: defining bid value, segmentation, targeting
and positioning, operations and delivery systems, measurement and
feedback, external and internal market as shown in Figure 5.
Measuring and feedback
-process review and
consultancy
-costumer satisfaction
studies on product /
services
-employee satisfaction
studies
INTERNATIONAL MANAGEMENT
(Internal planing of marketing, culture, climate and employee loyalty)
EXTERNAL MARKET MANAGEMENT
(External planing of marketing, CRM)
-Segmentation, targeting
and positioning
-Costumer preferences
identification
-Sectoral profitability
analysis
-Creation of package values
Business
operations system
and delivery
-mass adapting
-partnership
-process
reengineering
Done, Domazet 69
This process requires strategic approach in its implementation. Possibly
the most adequate strategic approach to organizational design was given
by Mack et al. (2005) in which they organized the elements of a successful
CRM strategy into a Diamond framework as presented in Figure 6. It
focuses on vision and basic business activities as key factors for successful
implementation of CRM.

Figure 6 - CRM diamond
CRM
Guide-
lines
Customer
Valuation
Customer
Segmen-
tation
Organi-
zation
IT/
Systems
Culture
Customer
Product/
Service
Mgmt.
Customer
Lifecycle
Mgmt.
Customer
Transaction
Mgmt.
Customer
Inteligence
Mgmt.
CRM-Vision
CRM-Activities
CRM-Basis
CRM-Activities

Source: Adapted on Mack, Mayo and Khare (2005, p. 100)

Buttle (2001) presented The CRM value chain (Figure 7) as a proven
model which businesses can follow when developing and implementing
their CRM strategies. The model is grounded on strong theoretical
principles and practical requirements of business.

The ultimate purpose of the CRM value chain process is to ensure that the
company builds long-term and mutually-beneficial relationships with its
strategically-significant customers. Not all customers appertain onto this
group of customers. Indeed, some customers are simply too expensive to
acquire and service. They buy little and infrequently; they pay late; they
make extraordinary demands for customer service and sales resources;
they demand expensive, short-run, customized output; and then they
defect to competitors.

70 Improving the Quality of HR by Implementation of Internal Marketing

CRM value chain refers to primary and secondary activities in the process
of creation of long term relationships with customers, in order to achieve
higher level of their satisfaction as the basis for long-term loyalty.

Five primary activities in the CRM value chain include:

1. Customer portfolio analysis analysis of the customer database
aiming to offer different products to them (cross sales).
2. Customer intelligence activities in respect to understanding
individual or groups of consumers and setting up database
accessible to all stakeholders whose decisions and activities may
affect the attitudes and behavior of consumers.
3. Networking building a strong relationships network with
employees, suppliers, partners and investors who understand the
requirements of target consumers. Central role in the model is
reserved for customers, who are surrounded by other elements:
suppliers, owners, investors, employees, and partners. Management
and coordination, according to these elements, can ensure the
structuring, communication and delivery of preferred products to
customers.
4. Development of products/services value development of proposals
which are creating value for the customers and the company.
5. Managing relationships with customers with a focus on structures
and processes.

Supporting activities are aimed at: culture and leadership, procurement
processes, Human Resources, data management process and company
organizational design. There are different approaches for defining what
necessary elements are needed for successful implementation of CRM
strategy. According to Zubovic, Bradic and Dzopalic (2010) fundamental
requirements for creation of high quality CRM models are:

Customers satisfaction and loyalty
Data protection
Business intelligence tools
Enterprise resource planning
Creation of integrated business systems.
Done, Domazet 71
RECONSIDERING THE MOTIVATION FOR CHANGE
Any strategy in management and marketing must be built on a
permanent and full compliance fund with specific labor market. Without
proposing any comprehensive overview of issues involved, consider the
following significant components:
uneven, inconsistent and segmented elements which are limiting
flexibility and labor factor mobility;
rigid, sensitive and prone to conflict
confrontation between supply and demand occurs with direct
involvement of the main carriers of interest - employee, employers
and the state, things which determine the presence of some
restrictions of economical, social and political nature;
equilibrium price, namely salaries are determined by the reduction
of the supply accepted because a priority is to maintain and
sometimes to increase the wages, even if it determines certain
inconsistencies in the sphere of profitability and competitiveness;
it is a market where intervention elements are based on direct
participatory democracy foundations that do not exclude the
occurrence of elements from the dictates area;
it is the market that has the most domestic and international
regulations, which gives the status of an imperfect market. (Done
I, 2000, p. 22 )

Obviously, any marketing strategy aims to create and to maintain the
balance between different markets and focus on harmonizing specific
elements. In this context, giving the fact that labor market is "the active
and the decisive factor of any production," it requires respecting specific
priority. Not accidentally the labor market is presented as a "sphere of
consequences", while other market influences are found in the "sphere
causes". For example, it is enough to think that the employees cannot
spend money on consumer goods if they didnt sell their labor force for a
sufficient wage, and the producers will not make any hiring unless they
have sold or contracted a physical production, which by selling it ensures
the expenditures recovery and economical profit. (Gilbert Abraham-Frois,
1994, p.304)

72 Improving the Quality of HR by Implementation of Internal Marketing

A marketing strategy that aims for the harmonization of human needs,
under the existing economical and social imbalances, has to pay a
particular attention to moral motivation, especially cultivation of
behaviors that ensure the fundamental human rights. In this context, it is
essential to stimulate fundamental economical correlations, particularly
the correlation between production and consumption, between the
temptations of consumerism, the ostentatious and potential recovery of
themselves in the factors of production. Life has shown that when people
are strongly and positive motivated by the values and the nonconsumiste
sources, they are less inclined to consume more than what is normal and
they are willing to help and support those who have problems. This
strategy is known as "voluntary simplicity." (Amitai Etzioni, 2002, p.98.)

Although the position of various states in ranking happiness and well-
being are not identified and not sufficiently correlated with GDP per capita
level, studies show that the real motivation for performance is conditioned
by the existence of a functioning and competitive market economy.

Anyone who would establish a state economic policy in transition
economies, as in Romania and Serbia, and wants to join the European
Economic Area must be based on the fact that, from the six criteria of
convergence of the European community of values, four are being related
to human factors: work is a strong cultural value as pleasure; increasing
the value of multiple social relationships (friendship, partnership,
voluntary association etc.); orientation towards global self; foreshadowing
quality of life as a new religion.
CONCLUSION
Application of new technologies in all aspects of business require that
companies and employees continuously acquire new knowledge and skills,
where building of a learning organization is the key of long-term market
success. The goal of internal marketing is to focus attention of employees
on internal activities that need to be developed, maintained, and promoted
for the purpose of business and strengthening competitiveness of the
company on the external market. In this context, implementation of
Done, Domazet 73
internal marketing aimed at continuous improvement of the quality of
employees, their motivation and satisfaction is crucial to create a highly
competitive and progressive companies. Therefore, internal marketing as a
concept focuses on the impact and importance of human resources
management, because the attraction and selection of competent personnel
who are also willing to grow along with the company, is the basis of
successful business. Employees are willing to take initiative and identify
their goals with corporate goals if there is concern about the company's
employees who are educated, motivated and progressing continuously. An
organization's ability to take care of employees depends on recognizing the
importance of the concept of internal marketing, but also of the level of
development of emotional intelligence of managers. In fact, from the
managers point of view, internal marketing influences the development
of organizational competencies and improve business performance
through the implementation of marketing as a philosophy focused on the
external business environment, and human resources, that are the most
important instrument for implementing strategy and achieving company
goals. This concept includes a well-established and implemented system of
education, motivation and stimulation of employees as the basis for their
loyalty, without which the management of the company cannot expect
optimal results after applying the concept of internal marketing.
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76 Improving the Quality of HR by Implementation of Internal Marketing


Cha pt e r 4

ESPECIALLY VULNERABLE GROUPS IN
EU AND SERBIAN LABOUR MARKET

Jean Andrei, Saa Stefanovic

Abstract: The paper analyzes the situation of especially vulnerable groups
both in EU and in the Serbian labour market. They include Roma as
particularly vulnerable ethnic minority, refugees and displaced persons
from Kosovo and Metohija (IDPs) and people with disabilities. The results
of the analysis indicate that the position of these groups is particularly
disadvantaged since their unemployment rate in Serbia is significantly
higher than among the general population. It turned out that the high
unemployment and low employment activity rates are the main causes of
extreme poverty among the Roma and Romani women which are
particularly affected by the problem of unemployment. The population of
refugees and IDPs is different than in the general population of Serbia
primarily in higher participation of self-employed and lower participation
of persons who share the status of unpaid family members.
Unemployment rate of persons with disabilities is close to the level of
average unemployment rates due to high rates of inactivity. Roma and
people with disabilities belong to category of highly vulnerable
population, as long as the refugees and internally displaced persons
belong to moderately vulnerable population. Due to the lack of data we
could have not determined a solid indicator of change in their position
during the economic crisis.

Keywords: Labour Market, Especially Vulnerable Groups, Unemployment

JEL classification: J78, J82

78 Especially Vulnerable Groups in EU and Serbian Labour Market

INTRODUCTION
3

As defined by the International Labour Organization (ILO, 2011)
vulnerable employment includes self-employment (the owners of
enterprises, shops, self-employed and farmers) and helping household
members. This indicator should point out the employment in insecure
jobs, often in the informal sector, with low wages, low productivity, low
levels of safety, poor working conditions, and it is not uncommon that
these are the jobs without basic health and social security.

In the context of the economic crisis emphasis, the labor market is one of
the most affected elements from both of the national and European eco-
nomic structure, by being the most resistant to the changes required for
adapting to the new economic context and also by the nature of the
structure of the relations it incorporates. Reducing the economic activity
has a direct and explicit effect on the number of employees engaged in
production structures, heavily contributing to lower income and therefore
to the standard of living. As it was noticed in an European Commission
document (COM, 2010, 682), the current economic crisis has dramatically
reduced the labor employment in the European Community by up to 69%,
and also significantly contributed to rising the unemployment, this pheno-
menon reaching by 10%. The stabilization of the labor market began in
2010, under the uncertain conditions where the employment rate was very
high and after many efforts it will be expected around 75% in perspective
of 2020, which means, an average increase of this rate with at least 1%.
Increasing labor employment can be a viable way of reducing social
exclusion for some classes of individuals if we consider that the income
from work in modern economies has the highest share in family budgets.

Considering this situation, figure 1 presents the projected employment
levels by broad categories of occupations and education attainment level,
EU-25 in 2020 perspective.

3

3
The paper includes the results of research obtained within the project Macroeconomic analysis and
empirical evaluation of active labor market policies in Serbia supported by the Regional Research
Promotion Programme in the Western Balkans (RRPP), which is run by the University of Fribourg
upon a mandate of the Swiss Agency for Development and Cooperation, SDC, Federal Department of
Foreign Affairs. The views expressed in the paper are those of the authors and do not necessarily
represent opinions of the SDC and the University of Fribourg.
Andrei, Stefanovic 79

Figure 1 - Projected employment levels in 2020, by broad categories of
occupations and education attainment level in EU-25

Source: according to Cedefop (2008) estimations and COM(2008) 868 final

According to some forecasts (Cedefop, 2008), in terms of employment
level, considering the categories of occupations and education attainment
level, the situation is favorable for those with secondary education level. A
low professional training and a high professional training can be the
causes of exclusion in the current labor market, depends how the
phenomenon is perceived. So the risk of job loss is much higher for those
with a low level of training. A high professional training often generates
incompatibilities with the production structures and systems. The level of
professional training turns into growth factor of labor market exclusion
for those who fail to adapt to the conditions of training and adaptation to
production structures.

According to the European Commission (COM (2008) 868 final) in the 25
EU Member States, without taking into account the new states accessed
into Union in 2005, for the period 2006 -2020, the proportion of jobs
involving a high level of training should grow in 2020 by at least 6%,
respectively from 25.1% to 31.3% of the total. A slight increase is recorded
in the case of intermediate-skilled jobs, respectively from 48.3% to 50.1%.
0 10 20 30 40 50 60 70 80 90 100
High-skilled non-
manual occupations
Skilled non-manual
occupations
Skilled manual
occupations
Elementary
occupations
Million jobs
Low level of education attainment Medium level of education attainment
High level of education attainment
80 Especially Vulnerable Groups in EU and Serbian Labour Market

In absolute terms this situation describes about 38.8 respectively 52.4
million high-level and medium-level jobs. Although the number of jobs is
estimated to have increased by 135% in 2020 perspective, the prospect of
unemployment is quite high. If we add to these the low level of wages we
get the image of a process by which current employees can easily turn into
potential unemployed.

Going further, the same European Commission (COM (2008) 639 final)
states that for those who can work, getting a job is the safest route out of
poverty, but this should be limited to issues related more to economic
growth and the level of employment than to the policies promoting active
inclusion in the labor market. In this sense long-term unemployment still
grows up to 3% and 16% of the population is at risk of poverty and one in
five people lives in poor conditions or extreme poverty. Enlightening for
this situation is the analysis of the indicator in-work at-risk-of-poverty rate.
According to Eurostat methodology in-work at-risk-of-poverty rate repre-
sents the share of persons who are at work and have an equivalised dispo-
sable income below the risk-of-poverty threshold, which is set at 60 % of
the national median equivalised disposable income (after social transfers).

Table 1 presents the evolution of this indicator at EU level in 2005-2010.
The data in the table presents the incomes disparity in the case of the
employees is kept constant throughout the period analyzed. Thus in the
case of EU-27 it varies around 8.3%, instead for the EU-15 Member States,
although this rate has registered a slight increase, the situation tends to
balance. In the case of EU-12 which represents the wave of the 12 new
states entering the EU, the situation is dramatic. The risk has significantly
increased, over the European average, exceeding the psychological
threshold of 10%. The most difficult situation is in the case of Greece,
Spain, Poland, Portugal and Romania.

The difficulty in finding a job and the fear of unemployment are just some
of the elements which lead to a docile behavior of the employees and their
compliance to personnel policies promoted by companies, which most of
the times taking advantage of this situation impose on the market low
levels of wages or promote employment with minimum wage. Companies
are in this respect the greatest beneficiaries of this situation, frequently
Andrei, Stefanovic 81
promoting employment policies and staff remuneration at lower limit of
the formal regulations regarding the labor market. Although the
measures to combat discrimination on the labor market have increased,
and the state promotes active legislative and financial measures that
stimulate employment of people of 45 years old and older, of young
people, retraining, provides incentives for the companies which create new
jobs or employ persons with disabilities, the effects are very hard to
measure and often take a long time to be put into action.

Table 1 In -work at-risk-of-poverty rate
Country /Year 2005 2006 2007 2008 2009 2010
EU -27 8.2 8.2 8.5 8.6 8.4 8.5
EU -15 7.3 7.4 7.9 8.1 7.9 8
EU-12 11.7 11.2 10.4 10.5 10.3 10.5
Belgium 3.9 4.2 4.4 4.8 4.6 4.5
Bulgaria - 5.4 5.8 7.5 7.4 7.6
Czech Rep. 3.5 3.5 3.3 3.6 3.1 3.7
Denmark 4.9 4.5 4.2 5.1 5.9 6.6
Germany 4.8 5.5 7.5 7.1 6.8 7.2
Estonia 7.5 7.5 7.8 7.3 8.1 6.4
Greece 12.9 13.9 14.3 14.3 13.8 13.8
Spain 10.4 9.9 10.7 10.7 11.4 12.7
France 6.1 6.1 6.5 6.8 6.7 6.6
Italy 8.8 9.6 9.8 8.9 10.2 9.4
Hungary 8.8 6.8 5.8 5.8 6.2 5.3
Malta 4.8 4.4 4.5 5 5.7 5.9
Austria 6.7 6.4 6.1 6.4 5.9 4.9
Poland 13.9 12.8 11.7 11.5 11 11.4
Portugal 11.9 11.3 9.7 11.8 10.3 9.7
Romania - - 18.5 17.7 17.9 17.3
Slovenia 4.6 4.8 4.7 5.1 4.8 5.3
Slovakia 8.9 6.3 4.9 5.8 5.2 5.6
Finland 3.7 4.5 5 5.1 3.7 3.6
Sweden 5.5 7.4 6.5 6.8 6.9 6.5
United Kingdom 8.3 7.8 8 8.5 6.7 -
Norway 4.6 6.2 5.8 5.4 5.6 5.3
Source: EUROSTAT (2011)

82 Especially Vulnerable Groups in EU and Serbian Labour Market

According to Hernanz et al. (2004) the estimated levels of recourse to
social assistance services in the case of countries like UK, France, Germany
and the Netherlands varies between 40% and 80%. If we referring to the
EU average the reality is much more difficult. Thus a study as Ecorys
(2008) or Immervoll et al. (2004) claims that only 18% of the unemployed
population is at risk of poverty and benefit from social assistance in these
circumstances. The figure 2 presents the evolution of Gini coefficient on
inequality of income distribution in EU countries, at the level of the
European Community.

Figure 2 Inequality of income distribution in EU countries The
evolution of Gini coefficient in 2005-2010

Source: authors own adaptation based on EUROSTAT database (2011)

The issue of poor employees is one of the most current debated in the
global context of European economic relations. The salary is often the
only and most important source of revenue for European households. In
this context, the minimum wage does not cover through its level the value
of the average monthly cost. On the other hand, the unemployment
Andrei, Stefanovic 83
incensement, labor migration, industrial changes are just some of the
factors that significantly alter the economics of labor relations.

Both in literature and in European public debate the notion of poor emplo-
yee is frequently imposed, describing the situation of workers unable to
earn an income that would ensure a minimum living standard and thus
being in a state of economic dependence they form a social group which
becomes more vulnerable to the evolution of the economic environment.

In terms of determining a poor employee status we see that the term is
ambiguous. If we consider the fact that poverty is defined under a double
aspect, the first referring to the activity carried out for individuals emplo-
yed and the second examining the household, the level of understanding
the phenomenon is seriously flawed. According to the definitions provided
by literature (Allgre,2008, Ponthieux,2009) and in European analysis
documents (Social Protection Committee, 2011), the risk of poverty
indicator under employment conditions includes in its analysis sphere all
people who had a job for at least seven months of the 12 in the reference
period. Thus in the chart below is presented the situation of the indicator
Poverty and in work-poverty in the European Union, in 2006.

The situation described in figure 3, shows a trend that can be classified at
most interesting, from the perspective of the two elements considered - at
risk of poverty after social transfers for people in employment and at risk
of after social transfers, in the case of the EU member states. The rate of
the employees at risk of poverty varies significantly from one state to
another with different consequences from one state to another. According
to the data presented in the chart above, Greece and Poland recorded the
highest values of this indicator for workers, situation which is still present
in the case of at risk poverty after social transfer, for general population,
with one change of hierarchy in the case of Portugal.

Thus, according to the European Commissions records (2008), at the end
of 2006, approximately 16% of Europeans were at risk of poverty, and 8%
of EU workers were below the minimum threshold of poverty. These
values are however dispersed, ranging from 4% in the case of countries
like the Czech Republic, Belgium, Denmark, Netherlands and Finland and
84 Especially Vulnerable Groups in EU and Serbian Labour Market

13-14% in Poland and Greece. Referring to the causes which created this
situation, in the same report (European Commission, 2008), are mentioned
the low skill level, precarious jobs, low payment, but also part-time work
regime.

Figure 3 Poverty and in-work poverty in the European Union in 2006
Source: own author adaptation based on Eurostat database, EU-SILC and European
Economic and Social Committee, SOC/336
0 5 10 15 20 25
Czech Republic
Denmark
Netherlands
Finland
Belgium
German
Slovenia
Malta
Austria
Ireland
France
Slovakia
Bulgaria
Sweden
Cypru
Hungary
European Union (EU-25)
United Kingdom
Estonia
Spain
Lithuania
Luxembourg
Italy
Portugal
Latvia
Poland
Greece
At-risk-of-poverty after social transfers for people in employment
At-risk-of-poverty after social
Andrei, Stefanovic 85
Continuing the analysis regarding at risk of poverty situation, in figure 4 is
presented a new component for the same indicator, dispersion around the
at-risk-of-poverty threshold. At risk of poverty for those whose cut-off
point: 40% of median equivalised income. According to the calculation
methodology of EUROSTAT (2011), this indicator shows the percentage of
persons with an equivalised disposable income below respectively 40%,
50%, 60% and 70% of the national median equivalised disposable income.

Figure 4 Dispersion around the at-risk-of-poverty threshold at risk of
poverty rate (cut-off point: 40% of median equivalised income)

Source: own author adaptation based on Eurostat database 2011

Regarding the evolution of the average level of this indicator we can
appreciate that for the period 2005-2010 this is relatively constant across
the EU. If we consider the structure of the Member States, based on
seniority in the EU, and for the same period, in the case of EU-27, the
value of this indicator oscillates around 5.2%, 5.1% for EU-15, the
disadvantage is for EU-12 new member states, where the average level of
this rate is 6.99%.

86 Especially Vulnerable Groups in EU and Serbian Labour Market

Thus at the beginning of the analysis period, in 2005 the highest levels of
this indicator were recorded in Poland (9.3%), Spain (7.8%), Greece (7.2%)
and Italy (7.1). Levels below the EU-27 were recorded among the new EU
states, such as the Czech Republic (2.8%), Hungary (3.1%) and Bulgaria
(4%). Five years later, in 2010, the situation is favorable for the latter, the
level of this indicator significantly diminishing. The only exception being
Bulgaria which recorded a 9.2% rate (164% higher than the EU-27
average).

Figure 5 At-risk-of-poverty rate - Two adults with one dependent child (%)

Source: own author adaptation based on Eurostat database 2011

But if we consider the ability to financially support a family in the classic
situation of two adults and one dependent child, the risk of social
exclusion and to be below the threshold of poverty is unevenly distributed
across the EU. The highest levels and above the European average in 2005
were recorded in Spain, Lithuania, Poland, Portugal and Romania with
Andrei, Stefanovic 87
range between 14.5% to -16.5%. The lowest levels oscillated between 4.3%
in the case of Denmark and 4.4% for Sweden, countries with very well
articulated systems of social protection. Five years later, in 2010, the trend
is upward; the minimum level is a bit higher and is still registered by the
two countries - Denmark (5.9%) and Sweden. The greatest value of this
indicator is registered in Spain of 18.2%. The evolution of this indicator for
2005-2010 is shown in figure 5.

In the context of the analysis regarding social exclusion analyzed by
generalization of the poverty degree, in the literature are frequent
references to the recorded material deprivation at the level of households.
According to the European Economic and Social Committee
(SOC/336/2009) the indicator measures the proportion of people living in
households without at least three of the following: 1) ability to cover
unexpected expenses, 2) a week of vacation per year, 3 ) ability to pay
loans, 4) a meal with meat, chicken or fish at least once every two days, 5)
a properly heated home, 6) a washing machine, 7) a color TV, 8) a phone,
9) a personal car. The figure 6 presents the Material deprivation in the EU
Percentage of people living in households that lack at least three of the
listed elements for the year 2006.

Figure 6 Material deprivation in the EU Percentage of people living in
households that lack at least three of the listed elements (2006)
3
6 6
8
10 10 10
11 11
13 13 13
14 14
18
20 20
23
31
36
38
41
44
50
0
10
20
30
40
50
60
L
U

S
E

N
L

D
K

F
I

A
T

U
K

E
S

I
E

F
R

B
E

D
E

I
T

S
I

E
E

C
Z

P
T

G
R
C
Y

S
K

H
U

L
T

P
L

L
V

Source: own author adaptation based on Eurostat database, EU-SILC and European
Economic and Social Committee, SOC/336
88 Especially Vulnerable Groups in EU and Serbian Labour Market


The highest levels of this indicator are recorded in countries such as Latvia
(50%), Poland (44%), Lithuania (41%) and Hungary (38%), which are part
of the new EU member states. We can say that the indicators level
through which are considered the materials shortages, or at least their
perceived level, for the former communist states is high, as a result of
evolution and economic constraints to which the population was subjected
over a long period of time.

Some of the limitations of the indicators (ILO, 2011, p. 21-22) are:

Employees for pay may also be exposed to great uncertainty and
economic risk,
Unemployed are not included, although they are vulnerable,
Persons who fall into the category of vulnerable employment dont
need to be exposed to high economic risk and vulnerability,
especially in developed countries.

Despite these limitations, it is argued, vulnerable employment can serve as
an indicator of informal employment, especially in less developed
countries and regions (ILO, 2010, p. 18). According to the data and
estimates of the International Labour Organization (ILO, 2011) in the
world, about half of total employment related to vulnerable employment
(between 49.4% and 52.8% in 2009).

Under the vulnerable groups in the labour market are considered the
working age population groups whose position on key indicators of labour
market (employment rate, unemployment rate, activity rate, the share of
vulnerable employment) substantially less favorable than the
corresponding average values for the total population of working age.

The population groups identified as vulnerable in the labour market in
Serbia (Ministry of Labour and Social Policy, 2005; Arandarenko, Nojkovi,
2007, Krstic et al., 2010; Krsti, Arandarenko, 2010) include: women, youth
(15-24 years), older working-age persons (50-64 years), uneducated, and
rural dwellers (especially in South Serbia and those who do not own land),
and particularly vulnerable groups - Roma, refugees and internally
Andrei, Stefanovic 89
displaced persons (IDPs)and people with disabilities, whose position is the
subject of this paper. Their characteristic is that they make a relatively
small group, and their disadvantage in the labour market is closely linked
to long-term or permanent state of social exclusion.

This paper analyzes the vulnerability in the labour market of each of these
particularly vulnerable groups using the following key indicators:

Unemployment and/or inactivity rate
Employment rate
Share of vulnerable employment in total employment.

Due to unavailability of more recent data the analysis of the situation of
particularly vulnerable groups in the labour market will be based on the
data from the Labour Force Survey (LFS) in 2009and the Living Standards
Measurement Survey (LSMS) in 2007, and data from other surveys: the
Living Standards Survey of internally displaced persons in Serbia (LSMS-
IDP) conducted by UNHCR in 2007, Research survey of refugees in 2006
conducted by the NGO Group 484, and data obtained from recent research
studies in this area (Krstic et al., 2010; Krstic, Arandarenko, 2010).
POSITION OF ROMA IN SERBIAN LABOUR MARKET
Roma in Serbia are recognized as a National Minority from 2002, and in
2009 the Government of the Republic of Serbia adopted a Nation-wide
strategy to improve the situation of Roma and established the Council for
Advancement of Roma, which is responsible for the implementation of
this strategy and the Decade of Roma Inclusion
2
.

According to the census in 2002 in Serbia lived 108,193 people that
declared themselves as Roma (1.44%), while in the same year a survey was
conducted in 593 villages inhabited by 201,353 indigenous Roma
people and 48,238 Roma IDPs from Kosovo and Metohija (the Ministry of

2
The Decade of Roma Inclusion 2005-2015 is an international initiative to promote social
and economic status of Roma integration. Serbia has chaired this initiative in 2008/2009.
90 Especially Vulnerable Groups in EU and Serbian Labour Market

Human and Minority Rights, 2009 ). The results from the survey
(Government of Serbia, 2011) note that most authors estimate total
population of Roma in Serbia to be around 450,000 Roma (about 6% of the
total population of Serbia).

According to Statistical Office of the Republic of Serbia (LMS, 2009)3 it
can be concluded that the situation of Roma in the labour market in Serbia
is extremely unfavorable. All the basic labour market indicators
(unemployment, employment and activities) among Roma are
significantly worse than the overall population.

Unemployment rate among Roma is as high as 40.7% (compared to 16.4%
of total population). In a particularly disadvantaged position are women
and youth members (ages 15-24) of this population, whose unemployment
rate is 68.2% and 60.0% respectively.

The employment rate of Roma is only 27.8%, compared to the average rate
of 50.8%, and again women and youth are particularly vulnerable (the
employment rate of 10.3% and 11.1%, respectively). The activity rates of
32.3% for women and 27.7% for the Roma youth are below the average for
the total Roma population (46.8%) and significantly below the average
total population of Serbia (60.8%). The data also point out to the
disadvantage of these two groups of Roma.

The picture of a very unfavorable situation of Roma in the labour market
is further illustrated by the fact that the share of long-term and very long-
term unemployment of Roma are above the average of the total
population (74.2% and 66.3%, respectively), and that the share of
unemployed with no prior work experience is almost twice as high than
among total population, reaching 61%.

According to data from the same source, the percentage of vulnerable
Roma employment is significantly higher than the total population (46.8%

3
Survey does not include Roma from illegal settlements (urban slumps), categories that
are certainly more vulnerable than the Roma integrated into the basic population.
Andrei, Stefanovic 91
vs. 28.6%) as a result of almost ten times larger share of self-employed
Roma (34.3% versus 3.8% in the general population).

As a further illustration of the plight of Roma serve the data from the
National Employment Service (NES, 2009) and the monthly changes on
the number of unemployed members of ethnic minorities in 2009,
according to which 90% of registered unemployed Roma are unskilled
workers and have the lowest level of education (i.e. have not completed at
least the primary school). Also, broken down by sector of activity (ARS,
2009, ANS, 2007), most Roma were engaged in services and agriculture.
We can see the very low percentage of full-time employees in the Roma
population of 39%, well below the average for the total population of 88%.

A very unfavorable position of this group is illustrates by the fact that
almost half (49%) of the employed Roma work as seasonal workers or are
temporarily employed (32% and 17% of total employment respectively).

According to the National Employment Service (NES, 2010, Serbian
Government, 2011b), among the total number of unemployed persons
registered at the NES the share of Roma is 1.9%. Looking at the duration
of job search, 40% of Roma actively seek for job less than one
year. However, the biggest problem is the job quality of employed Roma,
which is very low because it is dominated by informal employment. High
number of Roma lack adequate education in order to successfully
participate in the labour market. Their exclusion from the labour market
and non-participation in productivity and income generation results with
an annual loss of around 231 million Euros in productivity and 58 million
Euros in fiscal contributions (World Bank, 2010) in Serbia.

Given the demographic trends and forecasts that the share of Roma in the
working population will grow, social integration and employment of
Roma would have to be given special attention in the future.


92 Especially Vulnerable Groups in EU and Serbian Labour Market

REFUGEES AND INTERNALLY DISPLACED PERSONS
The large influx of refugees and internally displaced persons from former
Yugoslav republics and Kosovo and Metohija lead to the mechanical
increase in population of Serbia (excluding Kosovo and Metohija), which
served to largely offset the natural demographic losses (due to low birth
rates) and mechanical outflow of the Serbian population, which was
particularly evident in the nineties. These developments resulted in the
great change in the ethnic structure of population.

The total number of refugees and displaced persons in 2010 amounted to
304,152, out of which 82,603 persons were with a refugee status, and
204,753 as internally displaced persons. In 2010 collective centers were
home to 4791 people, out of which there were 1,044 refugees and 3,747
internally displaced. At the same time in the unofficial collective centers
there were about 1,600 persons. It is estimated that in private
accommodation live around 8,500 very vulnerable refugees, such as
chronically sick and people with disabilities (Government of Serbia, 2011).

The situation of internally displaced persons (IDPs) in the labour market is
extremely unfavorable (Cveji and Babovi, 2007), given that their
unemployment rate, according to LSMS-IDPs was 36% which is
significantly higher compared to the main population, with
unemployment of Roma is less than IDPs (30.1% compared to 36.7%). To
illustrate the magnitude of the problem is the fact that 90% of
unemployed IDPs (not including the Roma) who previously had jobs,
waited for work for two or more years. The data (LSMS, 2007) indicate a
somewhat smaller share of long-term (67.7%) and very long-term
unemployed IDPs (51%) in total unemployment.

Among the IDPs, women (excluding Roma) were particularly vulnerable,
given that only 43.2% of women of working age were active, and 22.5% are
employed, which is much lower compared with the population of Serbia.

The unemployment rate of refugees by SLS was 18.1% and was
significantly higher than the general population (13.9%) and significantly
less than the study of refugees in 2006, which included the entire
Andrei, Stefanovic 93
population of refugees (30.6%). The employment rate of refugees
according to the LSMS was approximately at the level of employment rate
of the total population (53.6% vs. 55.3%), and also very close to the rate of
employment for the entire refugee population (54.4%).

The greatest risk of unemployment had wives, then persons with the
lowest levels of education, and young people (15-24). These categories of
refugees integrated in the basic population were significantly more
vulnerable compared to the same category of the general population
(Babovi, 2007).

Participation of long-term unemployed and the very long term
unemployed in total unemployment was extremely high, since 83.7% of
the refugees sought a job a year or longer and 76.1% sought work for two
years or longer. The percentage of long-term unemployed was the same
for integrated refugees as well as the general refugee population
(83.5%). However, the problem of long-term unemployment was more
pronounced among refugees than among the overall population (83.5% vs.
75.1%).

More than half of unemployed refugees seek first time employment
(56.5%), slightly higher share than in the total population (45.9%). In
contrast, the data of the entire population of the refugees say that about a
third of the unemployed have never been employed, while 14.5% lost their
jobs during the restructuring or liquidation of the company or they just
got fired. According to the LSMS, the percentage of unemployed that
reached that status because of the termination or liquidation of companies
was 56.2% in the general population. This suggests that the refugee
population was less affected by the restructuring or liquidation of
companies then the general population, due to their lower involvement in
markets that had been exposed to these processes.

According to labour market status, refugee populations differ, according
to the LFS to the general population of Serbia primarily in higher
participation of self-employed and lower participation of persons who
share the status of unpaid family members. Percentage of vulnerable
refugees in employment was slightly higher than the general population
94 Especially Vulnerable Groups in EU and Serbian Labour Market

in Serbia (28.6% versus 25%). The data of the entire refugee population
indicate a very similar structure of employees by labour market status of
refugees as integrated in the basic population. Employees committed
70.2% of total employment, 27.6% self-employed and 2.2% and the
integrated refugee population consisted of 71.4% employed, 28.1% self-
employed and unpaid family members were not in this
example. Percentage of vulnerable employment in total employment of
the entire refugee population was approximately equal to the indicator for
the integrated population of refugees (29.8% vs. 28.6%).

Comparing the data of unemployment and employment among the
vulnerable population of refugees and integrated refugee population, as
well as key indicators of vulnerability in the labour market, we can
conclude that the integrated refugees were in a much better position in the
labour market when it comes to unemployment, and that there were no
significant difference in the position of employees, taking into account
approximately the same percentage of their vulnerable employment
(Arandarenko and Nojkovi, 2007).

According to labour market status (Cveji and Babovi, 2007), the
population of IDPs is different than in the general population of Serbia
primarily in higher participation of self-employed and small businesses
owners and the participation of persons with the status of unpaid family
members. Percentage of vulnerable employment is slightly lower than the
general population of Serbia (22.7% versus 25%). Within the IDP, there are
important differences in the structure of employees by labour market
status between the Roma (mostly self-employed) and other IDPs.

In terms of job protection, IDPs are different than the general population
of Serbia with a much smaller share of employees in full-time (58.7% vs.
77.5%), and greater participation of employees in seasonal and part-time
jobs.

According to the sector of activity, IDPs are different than the general
population with a much higher share of employment in services (68.5% vs.
51.6%) and smaller share of employees in agriculture (3.8% versus
19.3%). Within the IDP, there is also a significant difference between the
Andrei, Stefanovic 95
Roma and other IDPs. Roma were the most engaged in trade, catering and
repairs jobs than other IDPs (53.2% vs. 23%).

The educational structure of unemployed IDPs is significantly worse than
in the general population of Serbia, which makes their employment
harder. Participation of persons with education below high school was
36.5%, and the general population that accounted for 21.7%. Also there is a
smaller share of unemployed with secondary education compared to the
general population (51% vs. 67.6%).

Based on the indicators of unemployment and vulnerable employment, we
can conclude that the IDP population integrated into general population
were in a much better position when it comes to the unemployed in the
total population of IDPs, while no significant differences in the position of
employees.

According to the sector of activity, the largest integrated representation of
the population of refugees was in the service sector, more than in the total
population (62.2% vs. 51.6%), and in industry (24.2% vs. 29.1%). According
to the type of work, refugees were more likely to work part-time jobs in
relation to the total population of Serbia, while the share of informal
employment of refugees was slightly lower (32.5% vs. 34.9%).

Of the total number of refugees registered with NES as many as one third
of them are unskilled, while over a half (55% of total applicants) have
completed three or four years of secondary school. This educational
structure of unemployed refugees is at the level of the total unemployed
population (about 30% of the total number of unemployed are without
qualifications, and about 50% of them completed some high school).

Somewhat more unfavorable structure of the unemployed by level of
education can be found among internally displaced persons. About 40% of
the total population of IDPs, recorded in the NES, are unqualified, while
the largest share of this population (50%) completed secondary school.

While the number of unemployed refugees decreased throughout the
2009, the number of unemployed IDPs basically follows a pattern of
96 Especially Vulnerable Groups in EU and Serbian Labour Market

movement of the total unemployed population - growth in the first half of
2009, and continued, albeit moderately, and then decline since July
2009. However, the relatively favorable trends in unemployment of
refugees can be interpreted as part of a secular process of reducing the
refugee population through the integration (with the resulting loss of
refugee status), return, or emigration (Krsti et al., 2010).
PERSONS WITH DISABILITIES
According to estimates by the World Health Organization (WHO), the
number of people with disabilities in Serbia is about 800,000. Status of
persons with disabilities is regulated by a number of legal acts and legal
procedures, as well as international conventions ratified by Serbia. Serbia
has also adopted the strategy of improving the situation of persons with
disabilities (Government of Serbia, 2006), which sets the targets for the
period 2007-2015, and its strategic goal is the advancement of people with
disabilities to positions of equal citizens enjoying all rights and
responsibilities.

According to the Living Standards Measurement Survey (LSMS, 2009), the
unemployment rate of persons with disabilities was 13.6% and was
approximately at the level of average unemployment rate to this survey
(13.9%), and as the main reason for such low unemployment rate, persons
with disabilities may be considered highly inactive with a rate of 69%. This
can be explained by the fact that most persons with disabilities are
discouraged to find work. This is indicated by a very small number of
people with disabilities who are reported to the National Employment
Service. The main reason for high discouragement of people with
disabilities to find work is related to the prejudice of employers to recruit
these people and their lack of willingness to adapt the workplace to people
with disabilities. In addition, there is concern that persons with disabilities
will lose the right to social protection when they find a job (Krsti and
Arandarenko 2010).

The activity rate of people with disabilities is extremely low (31.1%
compared to 64.2% in the basic population), regarding that they are the
Andrei, Stefanovic 97
most inactive group. Also, just over a quarter of the population of working
age (15-64 years) people with disabilities are employed. Women,
uneducated and elderly persons with disabilities are significantly
disadvantaged in the labour market, since their employment rates are
significantly lower compared with the average of this group.

Although a relatively low unemployment rate does not give a true picture
of the extent of the problem of unemployment within this group, we will
briefly analyze the basic characteristics of the unemployed actively
seeking work (not including the category of discouraged). As with the
main population, the highest unemployment rates have women, youth and
persons with secondary education. Participation of long-term unemployed
in total unemployment was slightly lower compared with the main
population (69.1% compared to 75.1%), but still very high. Also, the share
of very long-term unemployed in total unemployment is slightly higher
than the overall population (64.8% compared to 60.1%). This means that
the share of those jobs require between one and two years less than the
basic population, and the participation of these groups in the overall
employment rate of persons with disabilities is at least (4.3%).

The structure of the unemployed, about 86% are persons who were already
employed. The most common reasons for staying out of work vary in
relation to the total population. The most common reasons for people with
disabilities to get unemployed are personal reasons such as illness,
education, etc., and retirement which account for 29.4%. People with
disabilities stated liquidation of companies as the reason to get
unemployed at a much lower percentage (49.2%), which could indicate
that unemployed persons with disabilities were relatively less affected by
the restructuring process because they were the less integrated part of the
labour market that is subject to the restructuring, or that there was no
discrimination in dismissals of employees with disabilities (Krsti et al.,
2010).

The share of vulnerable employment for people with disabilities is slightly
higher than the total population (31.2% compared to 25%), mainly due to
greater participation of farmers than the total population (16.2% compared
to 7.5%). Participation of owners of companies and shops is much less than
98 Especially Vulnerable Groups in EU and Serbian Labour Market

the total population (3.6% compared to 7.2%), as was expected given the
nature of work and various restrictions that brings with it the nature of
disability.

Observed by sectors of activities (LSMS, 2007), most people with disabilities
are employed in the service sector (42.5%), and in agriculture (31.7%).
People with disabilities were more represented in temporary, seasonal jobs,
and were also represented in the informal economy compared to the total
population (47.3% versus 34.9% respectively). And among people with
disabilities there is a slightly higher percentage of unqualified persons as
compared to the total population of registered unemployed. Among the
unemployed, people with disabilities have the largest share of those with
secondary education (50%), corresponding to the participation of
education in the total number of unemployed.

Encouraging employment by reducing discrimination in employment is a
priority to reduce poverty and improve the living conditions of persons
with disabilities. Encouraging active employment of persons with
disabilities could be achieved through subsidies for equipping the
workplace, wage subsidies and social security contributions.
CONCLUSION
The situation of Roma in the labour market is very unfavorable, since their
rate of unemployment in Serbia more than 40% which is significantly
higher than among the general population. High unemployment and low
participation rates and employment are the main reasons of extreme
poverty among Roma. Roma poverty is several times more widespread,
and also much deeper and sharper compared with the main
population. Almost half of the Roma population was poor, and almost
every tenth member of the Roma population is extremely poor.

Roma unemployment rates observed by some structural features suggest
that Roma are particularly affected by the problem of unemployment,
since more than half of active women are unemployed. This high rate of
women comes on top of their greater inactivity, which fits into the
Andrei, Stefanovic 99
traditional pattern whereby women mostly take care of children and
household, as the average number of children per household Roma is
much higher than the basic population.

Observed by education level and age groups, there are no significant
differences in the unemployment rates. Unlike the total population, where
young people are most affected by unemployment, the Roma population
of this age group (15-24 years) had an unemployment rate similar to
persons aged 25 to 49 years of age, while older (50-64 years) had slightly
lower unemployment rates.

The picture of a very unfavorable situation of Roma in the labour market
is further illustrated by the fact that the share of long-term and very long-
term unemployment of Roma above the average of the total population,
and that the share of unemployed with no work experience almost twice
higher than the total population.

The unemployment rate of refugees is much higher than the permanent
population of Serbia. According to labour market status, the refugee
population is different than in the general population of Serbia primarily
in higher participation and lower self-employment and unpaid family
member status.

The situation of IDPs in the labour market is extremely unfavorable, since
their unemployment rate on average is far above the general population.
According to labour market status, the population of IDPs is different than
the general population in Serbia in the first place with a greater share of
self-employed and small businesses and the participation of persons in the
status of unpaid family members.

Although there is no accurate data on the number of people with
disabilities, it is estimated that around 800,000 people with various types of
disabilities are living in Serbia. Unemployment rate of persons with
disabilities is approximately at the level of average unemployment rate.

The main reason for such a low unemployment rate of persons with
disabilities is the high rate of inactivity. This can be explained by the fact
100 Especially Vulnerable Groups in EU and Serbian Labour Market

that most are discouraged to seek work. This is indicated by a very small
number of people with disabilities who are reported to the National
Employment Service.

The main reason for high discouragement of people with disabilities to
find work is related to the prejudice of employers to recruit these people
and their lack of willingness to adapt the workplace to people with
disabilities. In addition, people with disabilities fear they will lose the right
to social protection when they find a job.

In the category of particularly vulnerable groups, Roma and persons with
disabilities have very deep vulnerability, while refugees and internally
displaced persons have shallow vulnerability. Extremely deep vulnerability
of Roma is primarily due to their very high unemployment rate and low
rate of activity also, as the percentage of vulnerable employment is higher
than the average by 5.5 percentage points.

Extremely deep vulnerability of people with disabilities is the result of
their significantly low rates of activity. In a way, people with disabilities are
below standard "radar" of unemployment due to them being excluded, and
therefore their extremely low rate of inactivity is a leading indicator of
their high vulnerability.

In the category of particularly vulnerable groups, due to lack of com-
parable data, there are no strong indicators to trace the change in the
position of especially vulnerable groups during the global financial crisis.
However, we can assume that the relative position of Roma in the labour
market deteriorated bearing in mind that they are a very young popu-
lation. Also, we can assume that the situation of persons with disabilities
improved to some extent due to the effects of implementation of the
Law on Vocational Rehabilitation.
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godine


Cha pt e r 5

IMPORTANCE OF THE MANAGEMENT
INCENTIVES FOR THE IMPROVEMENT OF
COMPANYS ACTIVITIES

Slavica Stevanovic, Ivana Simeunovic

Abstract: In this paper we have emphasized on the importance of the
management incentives and their impact on companys efficiency and
effectiveness of corporate governance. Company owners, who regard
managerial incentives as an investment rather than as a financial outlay,
could expect a commitment of the managers to the interests of the
company, achievement of desired results and business prosperity. At the
same time, the potential conflict of interests between companys
shareholders and management could be solved by allocation of
appropriate management incentives. As the effectiveness of management
incentives depends on their good evaluation, it is important to identify
potential indicators and to measure their consistency with the value
created to business owners. Moreover we have identified financial
measures for managers contribution to the company operations, used as a
criterion for entitlement to managers incentives. Paper ends by assessing
the need to adjust the company to changing global financial envirnoment,
with a special reference to the changes of incentives policy in Serbian
companies, and the most important motivational factors affecting
Romanian employees during the current period of global financial crisis.

Key words: Management Incentives, Principal-Agent Problem, Incentive
Schemes, Company Performance

JEL classification: M12, J33, M52
106 Imporatance of the Management Incentives for Company Activities

INTRODUCTION
1

Modern business conditions impose to company owners the obligation to
respect the interests of employees, either to direct executives or to
managers at various levels of management. Successful modern society
operation comprises the effective human resources management. High
quality human capital is the driving force and a prerequisite for the
achievement of profitability, growth, and development of modern society.
Competent employees who approach to their jobs with due professional
care are an important factor of companies growth and development, while
the continuous acquisition of knowledge and skills, together with
employees, the organization itself has an important role. Complete
employees development is necessary in order to achieve successfully
corporate objectives.

As an efficient management of human resources has the impact on
business improvement, it is not surprising the fact that the human
resources management, being enterprises development function,
constantly is becoming more and more important. If the human resources
management is seen as an organizational process which aim is to improve
organizational performance and to meet the needs of enterprise
employees, an important task of human resource management is the
creation of an adequate system of motivation of employees, in order to
successfully achieve set corporate objectives.

The incentives are part of HRM system that is consistent with other parts
of the system, simultaneously fitting into the overall human resources
strategy and support skills, knowledge and values that are important to the
organization. Stimulation system design allows the realization of defined
human resources strategy and its implementation in practice. Companies
incentive plans are comprised of various forms of stimulations and

1
This paper is a part of research projects numbers 47009 (European integrations and social
and economic changes in Serbian economy on the way to the EU) and 179015 (Challenges
and prospects of structural changes in Serbia: Strategic directions for economic
development and harmonization with EU requirements), financed by the Ministry of
Science and Technological Development of the Republic of Serbia.
Stevanovic, Simeunovic 107
rewards that are focused on the higher motivation of employees at all
levels of the organizational structure. Through the provision and
improvement of financial status and meeting other employees interests,
the companies impact on creating a good business climate and getting
closer the personal interests of employees to the organization's goals. Good
business position, social status, highlighting the possibility of knowledge
and skills, and adequate evaluation of the same, contribute to employee
satisfaction, and ultimately, the achievement of planned business and
financial performance of the company.
MANAGEMENT INCENTIVES AS INSTRUMENTS FOR SOLVING
PRINCIPAL-AGENT PROBLEM
The employees represent a special interest group which consider the
company as a place where can demonstrate skills and abilities, express
ambition, achieve a certain status, gain new knowledge and experience,
but primary as a source of their income. Every employee in the company
can and should be led by common interest, but it is also possible that
individual or group interests that are in conflict with the basic objectives of
the company and its shareholders guide the performance of assigned
activities. Potential conflicts between owner-employee and negative effects
on the company activities have made that in the recent years the special
attention in literature and practice is paid to manager and other
employee's interests. Professor Sengi highlights that the main factor in the
revolution of an organization is when the entire organization is fully
delivered to the benefits of its employees (Sengi, 2007, p. 155).

Managers as employees of the company, and in the same time agents of
shareholders have the task of managing available capital in a way that will
allow its fertilization and increase the wealth of the same principals who
hire them. The various functions of management and shareholders,
conditional on the specific corporate entities, result that managers have
more detailed knowledge about the business and have access to more
information in relation to the owners of capital. The existence of
asymmetric information between managers and owners open space for the
emergence of certain problems relating to corporate governance. Great
108 Imporatance of the Management Incentives for Company Activities

power concerning rights on management and decision-making, assigned
to the company top management, and often the fear of bad business and
financial performance, loss of bonuses, ratings decline, etc, may lead the
management to unexpected business operations and decisions that, as rule,
deviate from those that would meet the requirements of the owner.
Managers who receive fixed earnings for their engagement, due to
insufficient motivation to increase the companys profitability can do
business in accordance with their own interests that are different from the
interests of shareholders. On the other hand, insufficient motivation for
the results may have less commitment to activities that can improve the
performance of companies, or avoiding highly profitable investment
because it would require hard work and high-risk involvement. If
additionally to the foregoing, it is added the possibility of relentless use of
the advantage they have in the company, including luxury offices,
restaurants, and events, so called agency costs, it inevitably adversely
affects the market value of the company.

A number of conflict situations caused by the separation of ownership and
management, raise the question of how successfully solve growing
principal agent issue. The seriousness of principal agent issue,
highlights the frauds in companies Enron and Tyco International, where
managers were accused of using funds for personal needs (Mishkin, p.
181). By solving the principal agent problem adequately, it will be
difficult to eliminate agency problems, but it is certain that after taking
certain measures could be expected lower agency costs. Problem could be
solved to some extent by applying current accounting and auditing
regulations and efficient functioning of the internal control system.
Developed internal audit and certified internal auditors, whose task is
assessment of internal control system reliability, reduce the managements
playing field in terms of doing business in accordance with their own
goals and interests. Some measures for issue solving could be in engaging
firmly the board of directors, more frequent company audits, and request
for recurrent financial reporting by management, as well as some
additional costs, not only in form of cash expenses, but also, in more time
spent for monitoring.

Stevanovic, Simeunovic 109
Regarding the creation of possible growing costs, in addition to the
uncertain resolution of principal agent issues in monitoring managers,
shareholders are looking for solutions that would affect the greater
management motivation to put their individual goals within the context of
the general aims of the company. The reward seems to be the most
effective instrument of coordination of the interests of managers and
shareholders regarding monitoring. Development and continuous
improvement of awareness on commitment to the company, as well as
promotion of the enterprise as a common interest of all employees implies
the existence of an adequate system of motivation and its effective
implementation. Managers full commitment to finding a profitable and
avoidance of unprofitable investments, and consequently, increase of
companys market value, owners could expect only from sufficiently
motivated companys management. Highlighted importance of enterprise
management incentives to undertake the business, investment, and
financial activities in accordance with the interests of shareholders, results
in the introduction of compensation plans, which define the possibility,
and the conditions under which managers and other employees can be
stimulated and rewarded. The company O.M. Scot is an example where,
among other, by improving incentives they recovered managers
performance, which were greatly disturbed. The Company managed to
increase sales by 25 percent and earnings before interest and taxes by 56
percent only by increasing the number of employees participating in
bonuses, and enhancing the participation of employees in the capital of the
Company (Malini, 2002, p. 308).

The degree of balancing individual interests of employees and the general
aims of the company and the extent to which management will effectively
manage the shareholders capital, in terms of increasing value for the
owners, depends on the existence and types of incentives. The fact is that
the partnership reflects the behavior of managers on the performance of
the company, but also that the method of stimulation chosen by the
company imposes new additional costs. Therefore, it is pointed out that the
level, the way of incentives and target group to which the company refers
motivational plant depends of the possibilities of the company. The politics
adopted by the company regarding the motivation of employees is in line
with funding opportunities, as well as the estimating benefits that
110 Imporatance of the Management Incentives for Company Activities

implementation of the compensation plan will bring to the company. The
following are types of stimuli that are present in practice, concerning that
each company creates a structure of the compensation scheme in
accordance with its own policy.
THE STRUCTURE OF MANAGEMENT INCENTIVE SCHEMES
The quality of managers business activities and their effects in the
company are the result of their competences, being at the same time, the
consequences of the current level of motivation. The connection between
the compensation that managers receive for efforts made, and their
behaviour is confirmed in theory and practice. Benefits based on regular
salary, wage increases and premiums established in agreement; represent
a legal obligation of the company as unavoidable business expenses,
charged to income or earnings of the observed accounting period. It is
compensation based on volume and quality of work, positions in the
company, responsibilities, and skills required for performing the delegated
tasks. Other managers cash income is defined by motivation plan that is
tailored to the specific characteristics and capabilities of specific
companies. The motivation system usually includes a combination of
several forms of incentives, both of financial and non-financial nature,
which aims to reward the managers who lead in achieving positive results
in relation to the average achievement of other employees.

Compensation Package, in addition to base salary that is determined by the
value of work, expertise, and skills, includes incentives that exist in various
forms of tangible and intangible nature. As a short-term incentive, awards
may be used as rewards for achieving high results, payments in
recognition of outstanding professional commitment, the rewards for
passing the professional examination and improvement of knowledge and,
bonuses. Categorization of these short-term incentives as determined by
the fact that the stimulation usually paid annually, while companies
annual financial performance serve as criteria for their acquisition.
Bonuses are the most common form of incentives for managers and they
usually are awarded when are realized the predefined exercise goals in
terms of job performance and contribution to the success of the company.
Stevanovic, Simeunovic 111
By its nature, the bonuses are not part of regular salaries, but have the
character of participation in enterprises profit.

In spite of substantial heterogeneity across companies and industries,
executive bonus plans can be categorized in terms of three basic
components: performance measures, performance standards, and the
structure of the pay-performance relation. Figure 1 illustrates these basic
components for a typical bonus plan. Under the typical plan, no bonus is
paid until a threshold performance is achieved, and a minimum bonus is
paid at the threshold performance. Target bonuses are paid for achieving
the performance standard, and there is typically a cap on bonuses paid.
The range between the threshold and cap is labeled the "incentive zone",
indicating the range of performance realizations where incremental
improvement in performance corresponds to incremental improvement in
bonuses (Murphy, 1999, p. 10).

Figure 1 - Components of a "Typical" Annual Incentive Plan50

Annual
Bonus
Bonus
"Cap"
Target Pay/Performance
Bonus Relation
Performance
Measure
Performance
Threshold
Performance
Standard
The "Incentive Zone"

Source: Murphy, 1999, p. 80

Companies compensation plan may include paid fellowships, scholarships
and seminars, and various kinds of benefits such as pension and life
insurance, sick leave compensation higher than the legally guaranteed.
112 Imporatance of the Management Incentives for Company Activities

Use of loans through the company at discounted prices, free legal and
financial advices, business car, free air transportation, fitness club
membership, are the examples of benefits which managers may enjoy.

In addition to the aforementioned financial incentives and benefits of
various non-financial nature, managers incentives to work in the interests
of shareholders, and therefore in the interest of prosperity of the company
in the long run, could be achieved by including managers in the
companys shareholders board. Plans to encourage ownership in the
company, plans on the company's stock option, plans of awarded shares
with limited rights, plans of allocation of increased share value and
deferred bonus plans, are examples of commonly used long-term incentive
plans (Malini, 2007, p. 77).

Inclusion of the managers into the company ownership, the owners of
capital accept as an effective way to stimulate the management to be
accustomed to the company and to closer their own interests, as much as
possible, to the interests of other stakeholders. Ownership is a powerful
motivating factor for the management and effective means for
overcoming differences, which unifies the interests of principals and their
agents. Just by becoming owners of enterprises, and on that basis exercise
all ownership rights, management will present their skills and ability to
focus on making quality management decisions and achievement of
planned performance. Long-term stimulation contributes to the
realization, not only quantitative but also qualitative goals of the company,
encouraging the development of new production processes, products, and
markets.

The fact is that salaries, incentives, and other benefits that managers enjoy
in the company can be viewed as activities that directly or indirectly result
in the outflow of funds that may be considerable in relation to total cash
outflows. However, if the owners of capital, the outlay of money or other
form of compensation paid or awarded, consider as an investment, they
can expect from their managers quality work, commitment, and achieving
the desired improvement of business operations.
Stevanovic, Simeunovic 113
MEASURES OF MANAGERS CONTRIBUTION TO THE
COMPANY PERFORMANCE
Some notable authors have opinion that the form of the payment,
specifically the sensitivity of total compensation to the performance of the
firm, is more important than the level of compensations. For example,
Jensen and Murphy show that U.S. CEO (chief executive officer) pay is not
very sensitive to performance, although they note that the portion of pay
delivered as restricted stock and stock options creates a portfolio which
increased value to the CEO is clearly related to the price performance of
the firms stock. Few studies, including studies of CEO compensation, had
established a clear statistical link between the structure of compensation
and the performance of the firm. (Abowd, J.M. and Bognanno, M., 1995, p.
68) Abowd and Bognanno concluded that a careful international
comparison of executive compensation and its relation to the
compensation of ordinary employees could provide important evidence on
the inter-country variation in CEO, high-level manager, and regular
employee compensation.

Measurement of employee performance is a relevant element of
companies motivation system. Alignment of individual companies and
general objectives include, inter alia, an adequate measure of individual
and group contributions to the positive performance of the company, as
well as the distribution of adequate incentives to comply. The fact is that
the effectiveness of compensation depends based on criteria on which
compensation is calculated. Only if the employee contributes to the
success of the company is consistent with the established standards and
value creation for owners, we can talk about effective rewards. In the
opposite situation can occur that achieved poor performance are rewarded
rather than sanctioned, but also that achieved high performance by
employees at all levels of the organizational structure of enterprises are
insufficiently rewarded.

Employee performance evaluation procedure consists of a series of
activities that connect organizational goals and individual work results.
Measuring the achievements of employees work involves establishing
criteria of success, the choice of methods and tools of measurement,
114 Imporatance of the Management Incentives for Company Activities

choice of sources of information on performance, and the measurement
process and discusses the evaluation and determination of corrective
measures (Prulj, 2007, pg. 302). Evaluation of business performance,
among other, includes the identification of results, behaviors and
characteristics of employees, necessary for the realization of companys
achievement, while the evaluation procedure should b adopted in
accordance with the type of work that employees perform. Regardless of
which business effects aspects are the evaluation subject, it is important
that the choice of performance appraisal criteria is reliable and objective.

The best information source on employee performance often depends on
the nature of assignment. It is important to choose the source or sources
that provide the best possibility of observing the employees behavior and
results. The frequency of conduct and results observation, concerning the
realization of tasks, and to the various sources of information, on
performance, could be seen in Table 1.

Table 1 - Observing frequency for different information sources
Source
Behavior
Results
Superior Colleagues Subordinate Self Clients
periodicaly often rarely always often
often often periodicaly often often
Source: Noe, Hollenbeck, Gerhart, Wright, 2005, p. 303

When assessing the employees contributes to the enterprise performance,
the ratings from multiple sources of information could be combined, both
from internal sources presented by superiors, subordinates and colleagues,
as well as by business partners and assessment comities as external, and
more objective information sources. Employees performance evaluation
usually involves a combination of some previously mentioned estimation,
and may partly be due to so-called employees self-evaluation, in order to
obtain objective access to rewarding employees. Technique called 360-
Degree-Feedback is often used when assessing the employees
performance, and consists of the fact that assessors, like boss, colleagues,
associates and customers, provide inputs for the managers employee
evaluations. The main advantage of this method, used primarily in
Stevanovic, Simeunovic 115
strategic and development purposes, is that it offers a means for
minimizing bias in an, otherwise, subjective assessment techniques (Noe,
Hollenbeck, Gerhart, Wright, 2005, p. 303).

Individual or group managers contribution to the success of the company
could be measured by traditional accounting criteria, the ones based on
cash flows, so-called economic benchmarks, as well as non-financial
performance indicators. The selected indicator or more often, selected
indicators combination determine the dynamics of compensation granted
to the companies managers. In a study realized in the United States, of 177
surveyed U.S. companies, 68 used only one-performance measure in their
annual compensation plans, while the rest of 109 companies combined two
or more criteria, where in both cases, the highest percentage (91% of
surveyed companies) were using the profit-based criteria (Murphy, 1999, p.
67).

According to the companies compensation plans, as criteria for achieving
employees cash bonus, could be used earnings, revenues, costs, return on
total assets, return on equity, earnings per share, dividends per share,
operations net cash flow, free cash flow, etc. Cost and revenue criteria are
commonly used to measure the employees and managers achievements
on profit and investment center level. The improvement of cost
performance is reflected in finding ways to reduce costs, or at least avoid
the formation of larger one, in relation to the forecasted cost plan. Sales
volume increase and sales achievements results in improving revenue
performance. The aforementioned accounting standards can be observed
as a measure of employees contribution in creating value for share-
holders, provided that the use of amounts and trends of dividends per
share, the right and the amount of managers compensation tends to be
directly related to the shareholders benefit in form of dividends.

Bonuses based on profit are one of the most common ways of incentives
provided for the managers to perform activities in accordance with the
interests of shareholders. The amount of bonuses linked to profit or to
performances based on income, could be determined in several ways.
Retention in the realized profit is the simplest way to define the value of
the bonus. By defining a certain percentage of participation in the realized
116 Imporatance of the Management Incentives for Company Activities

profit, only over a certain rate of return, it is avoided the payment of
bonuses in the case of low profit value, and rewarding based on
unsatisfactory rate of return on equity. Improvement in performance
compared to the level of previous years, in relation to achievements at the
level of other companies, or the average level of the industry the company
belongs, can also be used as a criteria for gaining bonuses. Amount of
bonus depending on the planned activities can be recommended criteria
for obtaining incentives, if the planned values are based on realistic
assumptions.

The companies market value, economic value added, market value added,
total shareholders returns are financial indicators of success that are
increasingly being used as a criterion for achieving company managers
compensation. Added economic value, as a difference between net
operating profit after taxes and overall capital costs, indicates if the value
for shareholders is realized, and to what extent the value is above the
expected returns for shareholders and creditors. It could be said that only
management that is able to achieve goals in an amount greater than the
cost of capital in general, creates value for shareholders, so that the
management compensation level is linked to the expected increase in
economic value added and increased economic value added above the
expected level. Marked Value Added MVA is also seen as a measure of
value created for shareholders, given that the difference between market
value and the amount of equity capital invested by shareholders (Fabozzi,
2006, p. 15). In theory, market value added is viewed as the present value
of all expected economic value added. Total shareholders return TSR
combines the yield from dividends (expressed in the form of dividends per
share) and capital gains, putting the total yield in relation to the company
shares market price at the beginning of the monitored period. Observed
from the standpoint of shareholders, the yield determined in this way
represents an increase of shareholders value, and it can be used as a
measure of the management contribution to value increase.

Companies compensation plans in addition to financial measures of
performance may also include non-financial measures such as new
product development, customer satisfaction, and increase of production
capacities. Highlighting the non-financial measure of success is result of
Stevanovic, Simeunovic 117
observations that certain management activities in order to minimize
losses, the avoidance of adverse developments, and reduce of harmful
effects on the company can be greater success than achieving planned
profitability in normal conditions of doing business.

In practice, common are situations that companies in addition to sales,
profit, rate of return and other traditional performances, use performance
based on cash flows, as criteria for entitlement to employees
compensation, such as net cash flow from operations and free cash flow
(Kapi, 2009, p. 41). In that case, may be required the realization of
growing performance, or may be precisely specified which growth rate of
individual performance should be achieved and in what period. The use of
free cash flow level, as a basis for compensation awarding, is explained by
the fact that the increase in free cash flow leads to an increase in company
shares market price, based on which can be confirmed an individual
management contribution to the enterprises success. The use of
performance-based on cash flows as measure for assessment of managers
contribution to company value is a positive access to create a business
environment in which management will act in interests of shareholders, in
order to increase the market value of the company. The benefits of
incentives granted may be relevant to both managers in person, and the
company as a whole.

The ability to create value for shareholders can be considered using the
realized rate of return on equity. Stable growth rates of yield usually
indicate efficient use of capital, which is putted at the disposal of the
company owners, but should not always be a case. Motives to demonstrate
the power of capital yield greater it really is are different, but the fact is
that such efforts hide the dominance of management personal interests.
The desire to meet the required criteria for entitlement to compensation
often makes up the companys performance date presented by
management. The significance of observed criteria for adequate
compensation can be highlighted through the example of companies
whose decision on the amount of compensation to be divided among
managers of two divisions, depends on whether the only observed criteria
is ROE expected rate, or it is monitored cash flow performance (Brigham,
2004, p. 99). If the level of compensation is solely determined on basis of
118 Imporatance of the Management Incentives for Company Activities

expected ROE, higher amounts of compensation will be attributed to the
division B management, which provides a higher rate of return on its own
capital.

Analyzing at the same time the stability of the companys cash flows
together with expected rates of return on equity as a criterion for
compensation realization, the conclusion could be that the previously
mentioned way of compensation creates an unequal relationship between
the two division managers. Division B management boasts a higher rate of
return, but unstable cash flows may be the cause of a miscarriage of
expected return rate in future periods, later impossibility to pay off a
financial compensation and other companys cash expenses, which all
together, can affect the poorer yielding strength assessment, the financial
position of the company, and its financial stability. The A Division
Managers credits to obtain a higher compensation, in relation to the
management of Division B, can be justified by the fact that, regardless of
the lower expected rate of return of Division A, they are able to effectively
manage owners capital, and to generate stable cash flows, which
consequently, results that the level of cash flow risk is lower. Unequal
compensation relationship between the managers, together with
unreasonably high compensation, could be the result of excessive
emphasis on achieving returns on capital, regardless the cash flow
performance, and other targets such as business maintain or increase of
market share, product development, technologies, human resources and
maintenance of the companys the reputation, which in the long run may
undermine the very return on equity.

The fact is that the performance of companies based on profit is more
often under the influence of manipulative activities in relation to ones
based on cash flow performance. Yet, one should not disregard the
possibility that the reported companys cash flows are subject to creative
accounting practice. Overstatement of net cash flow from operations, and
based on this data, the expression of free cash flows higher than real ones,
is a sign that management want to send a positive signal about the
companys performance to its shareholders, and on its basis to achieve
some personal interests at the owners, and other enterprises stakeholders,
expense. Tyco International (Mulford and Comiskey, 2005, p. 29) is an
Stevanovic, Simeunovic 119
example of the company that by compensation plan defines the right of
management at higher hierarchical level on company's stock options. The
eligibility criteria as an option on shares, plans to increase profit and
improve net cash flow from doing business. Tyco International is also an
example where management turns to the shaping on net cash from
operations in direction of an unrealistic increase of its value, in order to
increase market share price and compensation gaining, in the moment of
option execution.
MANAGEMENT INCENTIVES IN THE ACTUAL ECONOMIC
CRISIS SERBIA AND ROMANIA
An effective enterprise policy stimulus effects on creation of positive
business environment, and advancement of knowledge and values that are
important to the organization. A good system of incentives requires
constant evaluation and review in relation to the changed circumstances.
Motivation system change by defining and implementing measures to
reduce the impact of financial crisis on the company, is the expected
response to changed global economic conditions in the last three years in
Serbia. Measures in the field of human resources management related to
the optimization of the employees cost mainly include reducing cost of
salaries, travel, training, and development, organization of corporate
events and employment, as well as freezing the growth of these costs. The
companies prefer to resort to short-term measures, while a smaller
number of companies are prepared to implement major changes ob
business process and motivational system. Concerning short-time
incentives, enterprises in Serbia implement a number of quantitative
changes, such as reducing bonuses and other forms of incentives, while
the change in reward system and redefining the relation between
performance and reward system, as well as the relationship of base salary
and other compensation are of far lesser presence in 2009. When analyzing
the employee benefits, companies turn to limiting and controlling the use
of companys car, mobile and fix telephones, taxi services, etc.
2


2
The above mentioned measures, as well as the data given below, represent results of
survey called HR Barometer, published by PwC in 2009. PricewaterhouseCoopers has
120 Imporatance of the Management Incentives for Company Activities

Table 2 - The measures implemented in the domain of short-term
incentives in Serbia in 2009.
The
companies
that were
planning ...
Total budget for short-
term incentives
Target bonus levels
The number of
companies
%
The number
of companies
%
Decrease 15 58% 9 45%
Growth freeze 11 42% 10 50%
Increase 0 0% 1 5%
Total sum 26

100% 20 100%
Source: www.pwc.com/rs

Observing the results of the mentioned survey, among the total number of
surveyed companies introducing changes in the overall budget for short-
term incentives, there are no companies that decided to increase fund, 58
percent determined to reduce the total budget for short-term incentives,
and slightly smaller percentage of 42 percent, have adopted to freeze the
growth of the budget for these purposes. Comparing this and PwC
previous research in Serbia, it can be concluded that the companies were
optimistic in early 2009, and had planned to increase this budget. When
analyzing the specific benefits available to the employees, the changes are
registered with membership in fitness clubs and the use of soft loans
through the company.

The total amount and method of allocating bonuses for employees can be
defined in advance in accordance with the enterprise policies concerning
staffs incentives. Employees may be rewarded by the principle of
discretion, when after completed current fiscal year are carried out a
detailed analysis of business performance, companys financial resources,
the impact of incentives on business climate, in accordance with existing
state decisions, on the amount and methods of incentives allocation to

launched a survey series among fifty domestic and foreign companies operating in Serbia.
Detailed results of its survey are available at www.pwc.com/rs.

Stevanovic, Simeunovic 121
employees. Defining so-called target level bonus is one way of regulating
the amount and distribution of bonuses to employees. The target bonus is
awarded after achieving target company performance, and usually ranges
from 20-30 percent below by 20-30 percent above the companys target
performance. Height of bonuses target level and factor of success that are
used as the target performance criteria, depend on decisions adopted by
particular company, and are in accordance with the existing bonus plan
and current business conditions. Payouts from bonus plans are determined
in a variety of different ways, but the most common payout method (for all
but financial companies) is the 80/120 plan. Under a strict 80/120 plan,
no bonus is paid unless performance exceeds 80% of the performance
standard, and bonuses are capped once performance exceeds 120% of the
performance standard. Murphy shows in his research that 42% of
industrial companies and 39% of utility companies adopt 80/120-type
bonus plans, and overall, 67 of the 177 (38%) sample firms report using
the 80-120 approach (Murphy, 1999, p. 13).

It is hard to expect that during downturns, companies decide to increase
target bonus level, therefore, the largest number of companies in Serbia
analyzed in the aforementioned study have implemented the reduced level
of target bonuses or had freeze their growth. The results of survey show
that the average decrease in target bonus levels is 30%. Of the total
number of the companies that responded to the question on changing
target bonus level, 50 percent opted for growth reduce, 45 percent for
growth freeze, while only one company decided to increase the level of
target bonus.

Compensation plans implies the existence of enterprise scale for awarding
bonuses to employees. Regardless of whether the credit or ranking
procedure in determining the scale is applied, it is real to expect a change
and improvement of calculation methods and ranking bonuses in
accordance with the changing business conditions and anticipated future
business actions. The negative effects of financial crisis on the companys
operations have led to the larger number of companies to refrain from
changes in the way of determining bonus, provided that among the group
of companies, subject of research, there are companies planning or have
122 Imporatance of the Management Incentives for Company Activities

already implemented changes previously mentioned. Al together, it
comprises 23 percent of the companies, which have declared their actions.

The corporate governance framework should provide timely and accurate
disclosure on all material matters related to business enterprises, inclu-
ding issues related to employees. One of the provisions of current Serbian
law on companies stipulates that meeting of shareholders decide on the
award and expenditure policies on remuneration basis for directors and
board members through the share issuance, warrants, and other financial
and non-financial benefits. It is an important provision, since the capital
owners should be informed in the process of defining the amount and
distribution of compensation for companies managers. The complex and
very important issue of regulating the system of motivation and the defini-
tion of compensation plan requires a well-placed regulatory basis, which in
our case means better regulation procedures. Quality legislation and its
adequate use are the prerequisite for a quality employees incentive
system. The fact that in practice are the companies, which adopt subjective
approach to determining bonuses and other forms of stimulation, indicates
that there are weaknesses in the current legal framework, together with
disadvantages in terms of respect of fundamental ethical principles of
conduct.

In the current crisis, many Romanian are in search for a job, which will
offer them an income and job security. Therefore, the job stability occupies
the first place in employee preferences, followed by job type and wage
offer. The vocational development and the job enrichment are also
important for the Romanian employees (Casuneanu, 2011, p. 931). The
results of the Casuneanu' study
3
do confirm the assumption that money is
not everything in terms of work motivation, suggesting that managers
need to focus more on non-financial incentives to better motivate
employees. At the question what is the additional amount for which the
employees would change its job? 8.7 percent of respondents have confir-

3
The Casuneanu' study analyze the main characteristics of employee motivation system in
the Romanian companies using data collected from 402 individual employees. The target
population of the study was employees who have managers position (general manager,
manager, department manager, and supervisor) and who have at least 5 subordinates. The
study was performed in the period 11-22 June 2009.
Stevanovic, Simeunovic 123
med the fact that they would change it for other benefits, but no for more
money. These benefits are flexible schedule, paid holidays, working
climate and inter-human relations, bonuses and primes, training courses.
An attractive benefit package include seasonal tickets or access to sport
clubs or beauty centers, medical insurances, facilities for nursery school,
facilities for a housing acquisition credit, personal courses financed by the
company as well as holidays paid by the company. As regards the main
incentives received by employees in order to increase their motivation
level, on the first place are situated performance related bonuses, followed
by the bonuses unrelated to performance and the short-term training
courses.

This study reveal that the most important motivating factors from the
point of view of Romanian employee are job authority, responsibility and
autonomy, job stability and professional development. Due to the
economic crisis, the stability has become the main motivating factor in
this period and the people turn to the lower level needs, safety becoming
primordial in the top of preoccupations. It looks that the employees like
their jobs more than before the crisis. If two years ago, it could be
summarized as, I want more now this phrases has been transformed into
I want a job (Casuneanu, 2011, p. 935).
CONCLUSION
Principal agent problem in the modern enterprise may result in disruption
of operations continuity and threatening the survival of the company.
Monitoring the companys management and an adequate level of
motivation, are in function of company goals realization, and mitigation of
conflicts between management and shareholders. The existence of
adequate managers motivation system and its effective implementation
strengthens the awareness of belonging to the organization, and
promotion of joint, non-personal interests. Incentives and rewards are an
effective instrument of coordination of employees and shareholders
interests. Investment in human capital becomes the main form of
investment creating the competitive advantage. Therefore, the building of
124 Imporatance of the Management Incentives for Company Activities

a quality system of motivation may increase companys competitive
advantage and its market value.

The primary criterion for managers participation in the allocation of
bonuses and other forms of stimulation should be the result of an
individual or group contribution to the positive performance of the
company. Regardless the fact, whether the contribution to the company's
success is measured by applying traditional accounting criteria based on
profit, the ones based on cash flows, so-called economic measures or non-
financial performance indicators, it is important that compensations
reflect the proper managers contribution quantum realized in the
companys performance. The structure of compensation packages,
considering the type of incentives and methods of its distribution, an issue
of individual company policy, which has to be consistent with the financial
opportunities and benefits that company estimates to achieve by
implementing this compensation plan. Quality regulations and ethical
principles of conduct are relevant support for installation and operation of
an effective employee incentive. Assuming that in the future period it will
be developed improvement in legislation, and that it will be respected the
standards and values of business conduct, both by managers, other
employees, and shareholders, it could be expected more efficient
functioning of motivational systems in the companies in Serbia.

Some of the companies short-term measures of adaptation to existing crisis
business conditions could be optimizing the employees cost, the
quantitative changes in terms of reducing or freezing the incentives,
restriction and the control of benefits which Serbian companies employees
enjoy. According to the mentioned study, the most important motivational
factors in term of motivation of Romanian employees are job stability, a
proper potential salary, opportunities to promotion, an attractive benefit
package, an appropriate logistic package, premiums and bonuses, job
attractiveness, job authority responsibility and autonomy, professional
development and job comfort. The importance of job stability in the
context of the actual economic crisis has been wholly understood by the
Romanian employees. The Romanian employee is in the situation of
reevaluating what he already possesses and is not willing to change very
Stevanovic, Simeunovic 125
often the job. However, there are employees who choose to change a job
for other benefits, but no for more money.
REFERENCES
1. Abowd, J.M. and Bognanno, M. (1995) International Differences in Executive
and Managerial Compensation, chapter title in the book Differences and
Changes in Wage Structures, University of Chicago Press,
http://www.nber.org/chapters/c7853.
2. Brigham, E., Houston, J. (2004) Fundamental of Financial Management,
Thomson, South-Western.
3. Casuneanu, C. (2011) The Romanian employee motivation system: an
empirical analysis, International journal of mathematical models and
methods in applied sciences, Issue 5, Volume 5, p. 931-938.
4. Fabozzi, F., Peterson, P. (2006) Analysis of Financial Statements, John Wiley &
Sons, Inc. Hoboken, New Jersey.
5. Kapi, J. (2009) Cash flow statements, Economic Analysis, Vol. 42, No. 3-4,
Institute of economic sciences, Belgrade.
6. Malini, D. (2007) Kompenzacione eme za menadere, Zbornik radova:
Korporativno i javno upravljanje u funkciji razvoja konkurentnosti,
Miloerski ekonomski forum, Savez ekonomista Srbije, Beograd.
7. Malini, D. (2002) Politika dobiti korporativnog preduzea, Ekonomski
fakultet, Beograd.
8. Mishkin, F. (2006) Monetarna ekonomija, bankarstvo i finansijska trita, Data
status, Beograd.
9. Mulford, C., Comiskey, E. (2005) Creative Cash Flow Reporting: Uncovering
Sustainable Financial Performance, John Wiley & Sons, Inc. Hoboken, New
Jersey.
10. Murphy, K.J. (1999) Executive Compensation, http://windbichler.rewi.hu-
berlin.de.
11. Noe, R.A., Hollenbeck, J.R., Gerhart, B., Wright, P.M. (2005) Menadment
ljudskih potencijala-postizanje konkurentske prednosti, Mate, Zagreb.
12. Prulj . (2007) Menadment ljudskih resursa, Fakultet za trgovinu i
bankarstvo Janiije i Danica Kari, Beograd.
13. Sengi. M.P. (2007) Peta disciplina-umee i praksa organizacije koja ui, Asee,
Novi Sad.
14. Stevanovi, N., Malini, D. i Milievi, V. (2009) Upravljako raunovodstvo,
Ekonomski fakultet, Beograd.
126 Imporatance of the Management Incentives for Company Activities

15. Vujovi, S. (2010) Uticaj emocionalnog rukovoenja na stavove zaposlenih,
asopis Ekonomske teme, broj 4, 591-605.
16. Zakon o privrednim drutvima, Slubeni glasnik RS, broj 125/2004.
17. www.pwc.com/rs/sr/publications/hr-barometer.jhtml.


Cha pt e r 6

ECONOMIC CRISIS AND ITS
CONSEQUENCES ON THE LIVING
STANDARD AND DEVELOPMENT OF THE
AGRICULTURE IN SERBIA

Marko Jelocnik, Lana Nastic

Abstract: The economic crisis had transferred to Serbia at the end of 2008,
causing the economic growth slowdown and macroeconomic stability
endangerment. Agriculture, the strategic branch of national economy was
affected as well, and despite favourable climatic, natural, human and technical-
technological potentials, it had influenced reduction of agricultural
development far below the real possibilities. Prior to the crisis potentials for
agriculturual development in Serbia were unused. Comprehensive and more
intensive institutional support lacked, along with growing necessity for the
concept based on profitability, market orientation and competitiveness of
national agriculture. All segments of agriculture would have to be harmonized
with the policies of agrarian and rural development of EU, mainly in terms of
agri-food safety, and economic, social and ecological efficiency of agriculture.
Due to decrease in living standard in most of the housholds in Serbia various
survival strategies models have been created, in which the great part of
personal consumption is being used for purchase of agri-food products.
Changes in local populations daily food consumption are reflected not as
much in the reduction of quantities used as in the quality of used nutrients.
That leads to a conclusion that to food production in Serbia should be paid
greater attention, especially during the period of economic crisis.

Keywords: Republic of Serbia, agriculture, food security, economic crisis,
employment

JEL classification: J43, Q11, E21
128 Economic Crisis and its Consequences on the Living Standard ...

INTRODUCTION
1

Agriculture takes an important place in the economic system of the
Republic of Serbia. As all world countries pay great attention to agriculture,
at the current level of socio-economic development of Serbia, with due right
it can be assigned the title of strategic branch of economy. Rather, if it is
known that even countries which do not have adequate conditions for
agricultural production development are trying to provide to themselves a
certain level of self-sufficiency in elementary agricultural products (Subi,
2010).

Compliance of Serbia with EU accession requirements considers the
realization of the National Program for Economic Recovery goals, as well as
redefining of the Strategy for long-term development of national agriculture
2
.
This approach inevitably perceives both external and internal conditions that
impact agricultural and rural development, and according to the
aforementioned, there is a need for model which would promote new concept
of agriculture and rural development sustainability which would in short
time, eliminate all effects of economic crisis in Serbia.

Agricultural production is the branch of the economy characterized by some
specificities that largely impact the forming of product prices, such
production seasonality, non-harmonized production and demand, as well as
variation of achieved yields due to weather conditions. In Serbia on prices
forming the largest influence have weather conditions, or yield height,
considering that small amounts of agricultural products are stored in modern
way.

Influence of prices on living standard is expressed both in producers, as in
consumers. Achieving for his product certain price, producer also
accomplished a certain income that is intended for personal consumption

1
Paper is a part of research project III 46006 - Sustainable agriculture and rural development in
the function of strategic goals achievement within Danube region, financed by the Ministry of
Education and Science of Republic of Serbia, project period 2011-2014.
2
Global goals of agrarian and rural development in EU are food security, economic, social
and ecological effectiveness.
Jelocnik, Nastic 129
and which affects his standard of living. However, from the consumers
point of view, increase of prices means a decrease of their living standards.
So it could be said that the price of agricultural product on market is a
factor that affects both the living standards of producers and consumers
(Hodi et al, 2009).

In relation to EU enlargement and implied perspectives for Serbia, it is
evident that future development of domestic agriculture will be focused on
production factors. Unfortunately, current level of national agriculture
development is below actual possibilities given by the climate, land fund,
human resources, science, etc.
MATERIALS AND RESEARCH METHOD
Research is based on all available data sources: statistical publications of
National Statistical Office and FAO
3
, scientific papers and electronic data basis.
Impact of world economic crisis and life standard decline in Serbia on situation
in agro-complex are analysed through the following criteria:

1. food security and level of agro-food products consumption;
2. agro-food products price level;
3. employment rate and salary level in agriculture.

According to research goal and available data sources, research was based on
desk top research and comparative analysis method, which enables real
perceiving of situation regarding selected parameters within serbian
agriculture (with short retrospective view on former sfry republics, some EU
countries, USA and Japan). Research included both, period prior to global
economic crisis and period from its start until current date. Analysed
parameters are presented by tables, in absolute and relative numbers.


3
It is important to note that national and FAO statistical publications often are not adequately
updated, nor methodologically and valuably harmonized with other relevant data sources. That
might be the reason of some potential valuable data variation.
130 Economic Crisis and its Consequences on the Living Standard ...

RESULTS AND DISSCUSION
Food Security and Agro-Food Products Consumption

Main function of agriculture, in any place on Earth, is food production and
food safety, and precisely because of alimentation needs of all people,
there is a need for sustainable development and modernization of entire
agriculture.

Some economists consider that agriculture is the backbone of one nation, a
vital sector, or framework for rural areas development, while in France it is
considered as a green oil of the nation (Zahiu, 2009).

The concept of food security was established after World War II and then
formulated within the framework of FAO discussions. Over the years, this
concept was developed and promoted in order to find adequate solutions
that would be acceptable at the national, regional and global level, in
order to fight against poverty and food shortage. Accordingly, FAO defines
food security as "direct accesses to needed food for all population" (Zahiu
and Dachin, 2001).

Presentation of actual situation regarding food security in Serbia required
food consumption analysis both in national and in regional level
(countries within region, some EU countries, USA and Japan). Wherever it
was possible, five years period prior to economy crisis (2003-2007), was
used which reflected food consumption characteristics in Serbia and
mentioned countries.

Within observed period, the average consumption of basic food products in
Serbia relatively differs from consumption in certain EU countries. The biggest
differences are in terms of consumption of cereals, grape, milk, eggs and
animal fats, while the smallest differences are at the consumption of meat,
vegetables and vegetable oils (Table 1.).

Jelocnik, Nastic 131
Table 1 - Average consumption of basic food products in Serbia and
selected EUcountries (in kg/capita/year)
Product Year
Country
Serbia
1
France Germany Poland Romania
Cereals (total)*
2003 81,50 116,90 108,60 151,30 185,60
2004 80,60 118,80 110,60 148,60 190,10
2005 80,60 119,60 114,80 151,40 186,30
2006 77,60 123,20 115,50 148,60 182,10
2007 69,60 118,50 114,30 150,30 180,60
Potatoes
2003 38,00 64,70 71,70 128,60 98,30
2004 47,90 66,90 79,90 128,20 98,70
2005 48,00 64,10 76,30 126,20 99,00
2006 44,40 62,70 68,80 132,30 99,00
2007 36,40 64,90 69,50 122,90 98,00
Vegetables (total)
2003 106,00 108,00 90,80 107,40 195,30
2004 128,10 113,40 93,10 119,90 199,70
2005 123,20 104,40 87,90 114,90 185,30
2006 124,50 97,90 89,60 113,00 193,10
2007 103,70 98,20 94,50 130,30 151,40
Fruits (total)**
2003 115,60 96,00 98,80 47,40 69,70
2004 118,40 106,20 90,50 49,30 71,50
2005 71,20 114,30 99,10 51,20 75,90
2006 100,70 111,40 85,50 51,70 70,10
2007 108,50 116,80 88,00 50,00 58,80
Grapes
2003 20,90 2,40 12,30 3,20 5,30
2004 21,20 2,30 7,00 3,40 5,80
2005 13,30 2,60 11,20 4,00 2,10
2006 18,20 1,90 9,70 3,90 3,40
2007 15,70 3,90 10,70 3,90 4,50
Meat (total)
2003 82,20 98,10 84,50 74,50 60,50
2004 79,20 93,30 84,30 72,90 54,30
2005 82,00 90,90 83,80 72,90 63,90
2006 74,10 86,10 84,10 76,20 63,10
2007 82,30 88,80 87,90 76,60 63,20
Fish (total)***
2003 2,90 34,00 14,30 8,70 3,90
2004 4,80 33,40 13,80 9,60 4,20
2005 4,50 35,20 14,80 9,50 5,20
2006 - 35,00 14,80 9,50 5,20
2007 - 34,80 14,80 9,50 5,30
Milk (total)****
2003 160,50 272,20 255,10 195,20 229,80
2004 159,30 266,50 240,90 180,10 246,60
2005 162,00 261,90 247,20 176,10 248,80
132 Economic Crisis and its Consequences on the Living Standard ...

Product Year
Country
Serbia
1
France Germany Poland Romania
2006 151,50 260,00 242,30 188,80 259,40
2007 154,90 260,50 247,20 198,50 266,20
Eggs (total)
2003 7,00 15,20 12,10 11,60 13,50
2004 7,50 14,50 12,10 11,60 14,30
2005 7,10 14,40 11,80 11,70 14,30
2006 7,00 14,00 12,30 11,30 14,90
2007 6,70 14,70 12,00 11,60 12,80
Honey
2003 0,30 0,50 1,20 0,10 0,40
2004 0,40 0,50 1,10 0,10 0,50
2005 0,40 0,50 1,10 0,10 0,60
2006 0,40 0,50 1,10 0,10 0,40
2007 0,30 0,60 1,10 0,10 0,50
Vegetable oils
(total)
2003 12,10 18,00 16,70 11,60 13,00
2004 10,70 17,40 17,00 12,00 11,90
2005 13,10 19,50 16,30 12,50 14,00
2006 14,50 21,20 17,40 11,90 14,80
2007 12,00 20,30 17,30 11,20 13,30
Animal fats (total)
2003 10,40 17,30 21,90 14,50 3,90
2004 10,40 17,20 20,10 14,50 3,10
2005 10,90 16,20 20,60 14,30 3,80
2006 8,80 17,40 21,30 14,30 3,90
2007 9,80 18,80 20,30 14,60 3,70
Sugar (total)*****
2003 30,70 40,70 49,20 45,60 27,40
2004 29,10 41,60 50,20 44,50 28,60
2005 33,80 42,10 51,80 43,60 30,70
2006 31,30 38,30 50,10 44,50 32,20
2007 33,30 37,40 51,20 43,70 28,70
Alcoholic
beverages
2003 73,10 90,90 140,50 87,10 86,90
2004 69,50 93,00 136,20 91,30 94,90
2005 61,00 92,80 133,40 96,20 91,20
2006 78,90 92,20 140,40 102,70 106,00
2007 80,20 91,30 136,60 105,80 119,80
*without brewers barley; **without wine grape; ***including seafood;****without butter;
*****including sweeteners;
1
data from period 2003-2005 refer to Serbia and Montenegro.
Source: http://faostat.fao.org/site/368/default.aspx#ancor

Average food consumption in Serbia is uneven, with significant oscillations
caused by present situation at domestic market and in foreign trade. National
consumer basket is generally characterised by: low consumption level of
cereals, potato, milk, eggs, honey, animal fat, plant oils and alcoholic beverages;
Jelocnik, Nastic 133
high consumption level of fruits and vegetables; and satisfying situation
regarding meat and sugar consumption.

Current alimentation condition of local population is in greatly reflected by
production parameters of agricultural and food products (quantity, quality
and continuity), as well as relation between supply and demand in domestic
market, so purchasing power often does not meet basic nutritional needs.

In regard to the former republics of Yugoslavia, the consumption of basic agro-
food products in Serbia reflects the visible differences in terms of average
consumption of potatoes, fruits, eggs, honey, vegetable oils and animal fats. In
particular the differences are noticeable in average consumption of cereals,
vegetables, meat, milk and alcoholic beverages (table 2). Presented deviations
are mostly supported by tradition and culture of nutrition, confessional norms,
as well as by different levels of living standard of the population within
observed region.

Table 2 - Average consumption of basic food products in countries former
republics of Yugoslavia (in kg/capita/year)
Product Year
Country
Slovenia Croatia B & H Montenegro* Macedonia
Cereals
(total)**
2003 137,50 117,70 188,50 81,50 131,30
2004 130,00 122,10 178,90 80,60 136,30
2005 138,20 123,40 174,70 80,60 138,80
2006 136,70 125,40 170,80 67,00 135,30
2007 141,00 119,40 169,30 67,40 135,20
Potatoes
2003 55,90 105,90 82,40 38,00 48,40
2004 62,00 77,50 93,60 47,90 58,00
2005 61,60 68,60 91,00 48,00 57,50
2006 62,20 65,30 80,40 191,60 51,90
2007 64,20 68,60 77,40 178,20 53,50
Vegetables
(total)
2003 77,20 104,70 179,50 106,00 159,50
2004 83,80 80,20 206,30 128,10 149,20
2005 87,30 72,50 204,50 123,20 141,70
2006 87,80 88,50 212,30 173,80 143,20
2007 77,40 92,30 197,30 163,10 157,50
Fruits
(total)***
2003 140,80 90,40 60,50 115,60 92,40
2004 163,10 69,20 111,40 118,40 102,50
134 Economic Crisis and its Consequences on the Living Standard ...

Product Year
Country
Slovenia Croatia B & H Montenegro* Macedonia
2005 155,50 73,80 105,70 71,20 96,80
2006 135,60 95,20 92,40 70,00 107,60
2007 120,50 101,50 92,40 71,70 99,70
Grapes
2003 38,40 18,50 3,20 20,90 36,70
2004 45,00 9,50 5,30 21,20 28,80
2005 44,40 19,70 6,70 13,30 29,90
2006 36,00 19,40 7,00 20,40 5,30
2007 34,00 22,90 5,70 15,10 8,20
Meat (total)
2003 92,70 41,90 19,60 82,20 37,80
2004 88,40 44,30 19,70 79,20 40,20
2005 90,60 39,90 21,70 82,00 37,90
2006 86,30 47,30 20,10 32,10 38,00
2007 83,90 50,10 21,30 46,50 50,60
Fish
(total)****
2003 8,30 14,40 5,80 2,90 5,00
2004 9,50 13,50 6,80 4,80 5,40
2005 9,40 15,30 7,50 4,50 4,80
2006 9,40 15,30 6,80 - 4,80
2007 9,40 15,30 6,80 - 4,80
Milk
(total)*****
2003 233,60 179,50 161,50 160,50 111,00
2004 248,70 189,30 171,30 159,30 122,40
2005 242,80 201,50 183,50 162,00 119,90
2006 241,40 216,30 183,20 304,90 128,40
2007 246,40 217,50 196,70 305,90 137,10
Eggs (total)
2003 6,90 11,00 4,50 7,00 7,40
2004 5,50 10,20 4,20 7,50 9,20
2005 6,00 10,50 5,10 7,10 8,90
2006 6,50 10,80 4,60 3,60 9,10
2007 8,90 10,80 5,30 5,80 8,40
Honey
2003 0,90 0,10 0,40 0,30 0,50
2004 1,20 0,50 0,70 0,40 0,40
2005 1,00 0,60 0,70 0,40 0,50
2006 1,40 0,40 0,90 0,80 0,40
2007 0,90 0,40 0,80 0,80 0,50
Vegetable oils
(total)
2003 13,30 15,50 7,40 12,10 14,10
2004 14,10 15,20 7,70 10,70 16,30
2005 12,80 16,60 8,80 13,10 15,70
2006 12,80 17,10 9,00 1,60 17,80
2007 12,70 15,90 6,60 2,20 18,10
Animal fats
(total)
2003 15,20 3,20 1,70 10,40 7,00
2004 17,90 5,00 2,10 10,40 7,20
Jelocnik, Nastic 135
Product Year
Country
Slovenia Croatia B & H Montenegro* Macedonia
2005 16,10 4,40 2,00 10,90 7,60
2006 16,30 5,40 1,80 0,80 9,70
2007 16,70 6,40 1,70 0,80 10,90
Sugar
(total)******
2003 20,30 62,40 15,40 30,70 37,30
2004 22,70 64,20 16,60 29,10 38,90
2005 23,80 69,00 17,40 33,80 35,10
2006 23,00 55,70 19,60 41,70 36,00
2007 24,10 43,30 25,60 36,20 36,40
Alcoholic
beverages
2003 81,50 127,50 57,90 73,10 43,10
2004 96,90 125,60 63,50 69,50 45,10
2005 103,60 111,20 66,40 61,00 43,10
2006 97,40 103,10 78,60 45,20 38,40
2007 103,80 113,50 81,30 34,30 37,10
*Data from period 2003-2005 refer to Serbia and Montenegro; **without brewers barley; *** without
wine grape; ****including sea fruits; *****without butter; ******including sweeteners;
Source: http://faostat.fao.org/site/368/default.aspx#ancor

As developed countries pay great attention to ensuring food security, allocating
accordingly significant budgetary assets for supporting the development and
promotion of agriculture, is presented also food consumption in the EU, USA
and japan (table 3.).

Table 3 - Average consumption of basic food products in EU, USA and Japan
(in kg/capita/year)
Product Year
Country
EU USA Japan
Cereals (total)*
2003 125,30 109,90 117,80
2004 125,50 108,40 117,10
2005 126,30 109,00 117,60
2006 125,80 110,50 115,40
2007 125,10 111,60 115,10
Potatoes
2003 80,20 65,20 22,10
2004 81,50 63,60 22,50
2005 78,90 58,30 22,00
2006 76,60 56,10 21,10
2007 76,50 55,60 22,60
Vegetables (total) 2003 121,50 121,00 107,50
136 Economic Crisis and its Consequences on the Living Standard ...

Product Year
Country
EU USA Japan
2004 128,20 124,70 105,30
2005 121,30 117,60 107,80
2006 116,90 122,30 106,20
2007 117,30 127,60 106,20
Fruits (total)**
2003 101,80 112,80 55,40
2004 104,90 114,50 57,80
2005 108,70 110,00 60,60
2006 108,50 108,10 55,60
2007 104,40 111,00 58,20
Grapes
2003 9,30 7,20 2,30
2004 8,00 6,10 2,30
2005 8,50 8,90 2,30
2006 8,60 8,20 2,30
2007 9,50 8,50 2,40
Meat (total)
2003 86,20 121,50 44,70
2004 85,20 124,10 44,10
2005 84,80 123,60 46,50
2006 84,60 123,90 45,70
2007 86,20 122,80 46,10
Fish (total)***
2003 21,80 23,70 65,20
2004 21,60 24,30 62,10
2005 22,20 23,80 60,80
2006 22,10 24,60 60,80
2007 22,00 24,10 60,80
Milk (total)****
2003 240,00 257,40 78,70
2004 235,90 253,50 78,80
2005 239,90 254,00 77,70
2006 239,00 249,70 75,30
2007 241,40 253,80 76,40
Eggs (total)
2003 12,30 14,50 19,20
2004 12,70 14,60 18,90
2005 12,20 14,50 19,10
2006 12,30 14,50 19,00
2007 12,40 14,30 19,60
Honey
2003 0,60 0,60 0,40
2004 0,60 0,50 0,40
2005 0,70 0,60 0,40
2006 0,70 0,60 0,30
2007 0,60 0,50 0,30
Vegetable oils (total) 2003 18,20 26,20 14,90
Jelocnik, Nastic 137
Product Year
Country
EU USA Japan
2004 18,60 26,80 15,80
2005 18,80 29,70 15,80
2006 19,80 29,50 15,80
2007 19,40 29,10 15,60
Animal fats (total)
2003 13,30 5,60 1,80
2004 12,80 5,50 1,70
2005 12,90 5,80 1,80
2006 13,10 5,70 1,80
2007 13,30 5,70 1,80
Sugar (total)****
2003 40,80 69,10 29,90
2004 41,30 69,80 29,90
2005 40,80 69,30 28,60
2006 38,10 68,80 27,80
2007 39,20 67,60 30,10
Alcoholic beverages
2003 109,30 99,80 47,50
2004 109,10 100,00 46,70
2005 108,40 99,90 43,90
2006 110,10 99,90 44,20
2007 109,10 98,30 47,10
*without brewers barley; **without wine grape; ***including seafood;****without butter;
*****including sweeteners.
Source: http://faostat.fao.org/site/368/default.aspx#ancor

In previous case, the criterion is not living standard and purchasing power of
the local population, as consumer habits, geographical distribution, food
tradition and culture. It could be seen that the consumption of basic agro-food
products in Serbia is significantly lower than in the EU (cereals, grape, milk,
eggs and animal fats) and USA (cereals, meat, milk, eggs, vegetable oils and
sugar). On the other hand, Japan is traditionally great consumer of fish and
seafood.

In todays circumstances, provoked by effects of the global economic crisis,
consumption of basic agro-food products in Serbia is below the EU average.
Decline in living standard significantly contributed to the decrease in trade and
consumption of agricultural and food products, which could be best seen
through the current meat consumption (per capita). Serbian average is 43,3 kg
(from which beef 4 kg, pork 16 kg, lamb 1,3 kg, poultry 17,4 kg and other types
138 Economic Crisis and its Consequences on the Living Standard ...

of meat 4,6 kg). The annual consumption of cow's milk (without processed
products) in average is 56,50 l/capita, while the average consumption of fruits is
on the level of 62,1 kg/capita and vegetables, 136,1 kg/capita.

It is certain that the future of humanity is closely linked to the food security,
where its basic elements are contained in the provision of necessary food per
capita (expressed in calories and proteins), as to the financial strength of the
population for obtaining it. That induces necessity of nutrition and agricultural
policies harmonization (the main goal would be in covering quantitative and
qualitative nutritional needs of all population, by food that is accessible to all
social categories).

Table 4 - Energetic value of average food consumption in Serbia and selected EU
countries
Element Year
Country
Serbia France Germany Poland Romania
Food supply
(kcal*/capita/day)
2003 2.694* 3.599 3.495 3.384 3.425
2004 2.700* 3.569 3.496 3.354 3.419
2005 2.703* 3.586 3.524 3.377 3.514
2006 2.748 3.541 3.519 3.394 3.562
2007 2.710 3.532 3.547 3.421 3.455
Protein supply
(g/capita/day)
2003 74,40* 117,20 100,10 100,00 108,20
2004 77,50* 115,10 98,60 99,10 108,50
2005 75,90* 113,80 98,70 99,70 111,20
2006 74,40 112,30 98,60 101,20 111,50
2007 74,70 112,90 101,00 102,70 109,90
Fat supply
(g/capita/day)
2003 118,00* 168,40 143,70 112,90 103,70
2004 111,90* 161,80 142,00 111,80 97,30
2005 121,50* 163,90 140,60 113,30 107,70
2006 119,80 163,20 143,50 113,70 112,10
2007 119,50 164,70 144,30 113,90 107,60
*1kcal = 4.184 j; ** data for Serbia and Montenegro;
Source: http://faostat.fao.org/site/368/default.aspx#ancor

According to FAO, the needed energy for average adult person is, at least 2.200
kcal/day, while the critical point of hunger is in the range of 1.460-1.620
Jelocnik, Nastic 139
kcal/day. During the last decade, energy value of daily meal on the world level
was 2.699 kcal/day (3.236 kcal/capita/day in developed countries, or 2.412
kcal/capita/day in developing countries). Following table shows the average
(daily) energy value of food consumed in Serbia and some EU countries.

Serbia significantly lags behind certain eu member states in daily
consumption of calories and proteins, while at fat consumption it somewhat
follows their standards (Poland and Romania).

Compared to former Yugoslav republics, except Slovenia, Serbia is below
Croatia, Bosnia and Herzegovina and Macedonia, while the average energy
level of daily meal is higher than in Montenegro (table5.).

Table 5 - Energy value of average food intake in former sfry republics
Element Year
Country
Slovenia Croatia
Bosnia and
Herzegovina
Montenegro Macedonia
Food supply
(kcal*/capita/day)
2003 3.106 2.885 2.944 2.694** 2.823
2004 3.182 2.970 3.076 2.700** 2.971
2005 3.226 2.992 3.091 2.703** 2.869
2006 3.212 2.978 3.082 2.443 2.974
2007 3.223 2.990 3.078 2.447 3.105
Protein supply
(g/capita/day)
2003 99,70 75,50 83,90 74,40** 72,90
2004 98,80 75,30 88,10 77,50** 76,60
2005 101,80 75,90 88,60 75,90** 73,70
2006 101,20 79,50 87,40 70,20 74,70
2007 101,30 80,10 88,20 74,40 79,00
Fat supply
(g/capita/day)
2003 120,00 94,30 62,70 118,00** 96,20
2004 123,80 100,30 70,00 111,90** 105,30
2005 120,00 103,10 75,10 121,50** 103,10
2006 121,60 108,50 75,00 63,7 114,40
2007 121,60 110,50 70,20 70,3 125,50
*1kcal = 4.184 j; ** data for Serbia and Montenegro;
Source: http://faostat.fao.org/site/368/default.aspx#ancor

The complete picture could be seen by an overview of energy and
nutritional value of average (daily) meal in some developed world
economies (table 6).
140 Economic Crisis and its Consequences on the Living Standard ...

Table 6 - Energetic value of average food consumption in EU, USA and Japan
Element Year
Country
EU USA Japan
Food supply (kcal*/capita/day)
2003 3.455 3.751 2.827
2004 3.465 3.785 2.831
2005 3.466 3.796 2.821
2006 3.455 3.766 2.786
2007 3.466 3.748 2.812
Protein supply (g/capita/day)
2003 105,60 113,60 93,70
2004 105,20 114,70 91,50
2005 105,10 114,30 92,10
2006 104,90 113,70 91,40
2007 105,60 113,60 91,80
Fat supply (g/capita/day)
2003 140,40 157,10 87,80
2004 139,90 160,20 89,80
2005 141,00 162,90 90,50
2006 143,60 160,20 89,80
2007 143,70 160,20 89,60
*1kcal = 4.184 j;
Source: http://faostat.fao.org/site/368/default.aspx#ancor

Apart from presented, it would be good to give a short overview of the
structure (origin) of consumed calories and proteins daily in observed
countries. In fact, despite some deviations from the standpoint of tradition,
food culture and religion, rule of the thumb is that the daily meal in more
developed economies is richer in energy and proteins from animal products
(Table 7.). Also, it is expected that with decrease in living standard, structure
of consumed calories and proteins daily will generally shift to toward calories
and proteins obtained from vegetable products, or from cheaper animal
products substitutes. Indisputable determination of Serbia for EU
approaching imposes the need for harmonization of national nutritional
meal value with the Community average.
Jelocnik, Nastic 141

Table 7 - Origin of energy and proteins in daily nutrition (in %, 2007)
Element Serbia Eu Germany France
Energy
Veget. Anim. Veget. Anim. Veget. Anim. Veget. Anim.
64,6 35,4 70,4 29,6 69,6 30,4 65,0 35,0
Proteins
Veget. Anim. Veget. Anim. Veget. Anim. Veget. Anim.
41,4 58,6 41,2 58,8 39,7 60,3 35,2 64,8
Element Romania Slovenia Croatia B and h
Energy
Veget. Anim. Veget. Anim. Veget. Anim. Veget. Anim.
74,2 25,8 71,2 28,8 75,3 24,7 83,7 16,3
Proteins
Veget. Anim. Veget. Anim. Veget. Anim. Veget. Anim.
49,6 50,4 43,5 56,5 46,9 53,1 65,6 34,4
Element Montenegro Macedonia Usa Japan
Energy
Veget. Anim. Veget. Anim. Veget. Anim. Veget. Anim.
66,1 33,9 77,0 23,0 72,6 27,3 79,2 20,8
Proteins
Veget. Anim. Veget. Anim. Veget. Anim. Veget. Anim.
40,1 59,9 55,7 44,3 35,6 64,4 43,3 56,7
Source: http://faostat.fao.org/site/368/default.aspx#ancor

Agri-food products price levels

An unwritten rule is that during the crisis period used quantities of basic agro-
food products are not subject to greater changes as they meet the basic life
needs of the population. The necessity of buying these stresses the importance
of their prices trend, as well as their impact on households budgets. The
important elements during the agricultural products price determination are
height of input prices and achieved yields. By analysis of average prices of basic
agro-food products in 2008, 2009 and 2010, it can be said that the prices in 2010
were at the same, or in some cases slightly below level, compared to the
previous years (Table 8). On the other hand, if observed is just a trend of
average prices during 2010, prices of many products had a growing tendency
(sunflower oil, pork meat, refined sugar, semi-white bread, fresh milk, etc.),
where the highest price-jump has been seen in vegetable oil. According to
142 Economic Crisis and its Consequences on the Living Standard ...

producers, processors and retailers further growth of elementary agro-food
products prices in following period could be expected.
Table 8 - Average retail prices (in RSD)
Products
Year
2008 2009 2010
Bread - wheat flour type 850, kg 57,64 57,33 -
Semi-white bread, kg - - 54,88
Bread - wheat flour type 500, kg 70,28 70,61 -
Wheat flour type 500, kg 51,97 47,18 42,04
Potato, kg 34,66 31,10 37,53
Beans, kg 187,96 201,81 195,92
Onion, kg 39,91 38,66 60,52
Apples, kg 64,44 57,89 56,18
Beef - boneless, kg 469,56 547,77 419,79
Veal meat - boneless, kg 743,23 853,50 -
Pork meat - boneless, kg 420,57 458,16 366,11
Lamb meat, kg 541,47 599,17 -
Chicken meat, kg 207,81 210,73 198,13
Eggs - chicken, pcs 9,49 10,49 9,47
Milk fresh, 56,61 52,57 55,60
Cheese white soft, kg 231,19 254,24 260,37
Butter, kg 612,07 615,67 670,34
Seam, kg 92,32 140,18 137,26
Sunflower oil, 127,03 107,14 104,20
Margarine, kg 187,51 198,59 205,24
Sugar refined, kg 58,65 61,40 68,37
Coffee, kg 589,80 696,13 728,54
Salt, kg 27,30 30,05 31,35
Milk chocolate, kg 774,19 869,52 770,62
Source: Statistical yearbook 2009, RZS, Belgrade, 2009; Statistical yearbook 2010, RZS,
Belgrade, 2010; Monthly statistical review, January - December 2010, RZS, Belgrade,
2010, 2011.

Statistical office of the Republic of Serbia defines the Consumer price index
(CPI) as the average change in retail prices of goods and services in personal
consumption. According to them, in 2010 retail prices were increased in
average for 6.5% in compare to previous year. With January 2011 prices are
higher for 1.4% compared to previous month.
Jelocnik, Nastic 143
Table 9 - Available assets and personal consumption, monthly average per
member of household (in 2008, 2009 and 2010)
Element
2008 2009 2010
RSD % RSD % RSD %
All households
Available assets total 14.315 100,00 15.880 100,00 16.114 100,00
Households income in cash 13.562 94,70 15.027 94,60 15.238 94,60
Households income in kind 753 5,30 853 5,40 876 5,40
Personal consumption
total
13.191 100,00 14.183 100,00 14.438 100,00
Food and non-alcoholic
beverages
5.451 41,30 5.856 41,20 5.934 41,10
Alcoholic beverages and
tobacco
589 4,50 633 4,50 641 4,40
Urban area
Available assets total 15.780 100,00 17.474 100,00 16.730 100,00
Households income in cash 15.641 99,10 17.306 99,00 16.569 99,00
Households income in kind 139 0,90 168 1,00 161 1,00
Personal consumption
total
14.263 100,00 15.444 100,00 15.120 100,00
Food and non-alcoholic
beverages
5.702 40,00 6.164 39,80 6.023 39,80
Alcoholic beverages and
tobacco
592 4,10 626 4,10 600 4,00
Other areas
Available assets total 12.280 100,00 13.813 100,00 15.226 100,00
Households income in cash 10.695 87,10 12.064 87,30 13.325 87,50
Households income in kind 1.585 12,90 1.749 12,70 1.901 12,50
Personal consumption
total
11.771 100,00 12.549 100,00 13.460 100,00
Food and non-alcoholic
beverages
5.114 43,60 5.457 43,50 5.805 43,10
Alcoholic beverages and
tobacco
584 5,00 644 5,10 701 5,20
Source: Statistical yearbook for 2009 and 2010, RZS, Belgrade 2009, 2010.
Statement no. 79, Questionnaire of households consumption, RZS, Belgrade, March
2011;

144 Economic Crisis and its Consequences on the Living Standard ...

Importance and impact of food prices on households budget is best
illustrated by the fact that per average household member, during the period
2008-2010, within the structure of personal consumption, expenditures for
food and non-alcoholic beverages dominated with 41% (Table 9.). Apart from
that, in observed period, average household received more than 94% of
income in cash.

The share of food and non-alcoholic beverages in personal consumption in
urban areas is on slightly lower level (39.8% in 2009 and 2010, or 40,0% in
2008) compared to other areas (share varied in the interval from 43,1% to
43,6%). Also, the available assets per household member are much higher in
urban areas, in which household incomes in cash are around 99% in structure.
EMPLOYMENT AND SALARIES IN AGRICULTURE
Currently, the number of agricultural population and size of labour contingent
within national agriculture can only be a result of estimations based on Census
of population, households and residences in 2002. According to this document,
agricultural population is 817.052 inhabitants (around 11% of total population
in Serbia), with 529.236 inhabitants being economically active
4
. It should be said
that in last few years, influenced by transitional processes and effects of
economic crisis, many people looked for additional income in agriculture, or
after quitting some economic activities; they have found a primary income in
agro complex.

Dominant part of Serbian territory has characteristics of rural areas, where over
40% of total population lives. Most of these areas are either in phase of dying
(senility) or demographic evacuation (expressed migratory processes). Based on
estimations, currently less than 750.000 agricultural households exist, from
which around 490.000 households are with registered husbandry.
Unfortunately, small number of them is market oriented (for example, in 2009,
approximately 80.000 husbandries have realized a right to use subsidies for
agriculture).

4
Among dependants (287.816) most of persons are in different ways involved in accomplishing of
agricultural activities within their family husbandries.
Jelocnik, Nastic 145
General characteristics of present labour contingent in rural areas are:
expressed migrations, senility, bad educational structure and insufficient level
of professional skills, and they are primary cause to extensive production,
aggravating breakthrough of innovations, variable quality of products, low
productivity, bad production structure, absence of cooperation, etc.

Strategic orientation of Serbia for agriculture development opens the question
of commercial husbandries' position strengthening, considering that they
have on disposal the most of production potentials. Mentioned issue, before
all, have in focus a necessary support from competent institutions, with main
goal to habilitate them to achieve full profitability, as well as in segment of
construction of missing rural and market infrastructure.

The effects of the global economic crisis that led to reduction of budgetary
assets for the Ministry of Agriculture, certainly didn't contribute to to above.
In 2009 and 2010 it was around 25.6 billion RSD (3.4% of total budgetary
expenses), while by the Law on budget for 2011 the agriculture is granted
around 32.6 milliard RSD. The agrarian budget was characterized as
developmentally limited, since agriculture, as strategic economy branch, with
significant share in total GDP and positive foreign trade balance deserves
much higher assets during the crisis period (current agricultural budget is
twice smaller than the budget 2008).

Human resources in agriculture means labour linked to execution of
agricultural activities, technical coordination, organization and management
of resources in function. Table 10 gives an overview of the municipalities with
maximal and minimal participation of active agricultural population in total
agricultural population in 2009, in order to perceive areas that use the best
available human potential in agriculture.

According to presented indicator, the leadership position has Svrljig
municipality, while the last one is Kula municipality. Shown indicators for
selected municipalities are either significantly above, or below the republic
average. Individual farmers dominate in the structure of active agricultural
population.

146 Economic Crisis and its Consequences on the Living Standard ...

Table 10 - Municipalities in Serbia with the highest/lowest participation of
active agricultural population in total agricultural population (in 2009.)
Territorial
unit
Agricult.
population
Active agri.
Population
Individual
agriculturalists
Share of active agri.
pop. in total agri.
pop.
Serbia 817.052 529.236 487.703 64,8
Municipalities with highest participation
Svrljig 3.702 3.161 3.122 85,40
Bor 2.098 1.774 1.694 84,60
Trgovite 1.270 1.048 1.028 82,50
Gadin Han 1.458 1.159 1.148 79,50
Majdanpek 2.112 1.673 1.567 79,20
Municipalities with lowest participation
Kula 3.429 1.593 1.106 46,40
Preevo 6.223 2.913 2.877 46,80
Srbobran 3.088 1.546 1.159 50,00
Bujanovac 8.267 4.220 4.108 51,00
Vrbas 2.030 1.047 639 51,60
Source: Statistical yearbook Municipalities in Serbia 2010, RZS, Belgrade, 2010.

It might be interesting to present an overview of employees within agriculture
sector in legal entities enterprises, institutions, cooperative farms,
organizations and small companies (up to 50 employees) during the period
2008-2010, selected by territorial units (Table 11).

At the republic level, participation of employees from the enterprises within
agriculture sector in the total number of employees, in analysed period had
ranged from 3.2-3.5%. In all three observed years, the leadership position, with
the highest number of employees in agriculture sector, had Palilula
municipality (around 2.700 employees, or 6.0% of totally employed persons in
companies and cooperatives of national agriculture), as a result of position of
PKB concern on mentioned territory.

Among shown municipalities, Baka Topola is a territorial unit with the highest
share of employees from the observed sector within totally employed persons
in companies and cooperatives on its territory (in observed period, participation
was ranged from 24,3-27,3%). As on the territory of Vojvodina dominant part of
Jelocnik, Nastic 147
high quality agricultural potentials is located, it seems logical that the
municipalities from this area have the most of employees in agrarian sector
(within business entities).

Table 11 - Territorial units with the highest number of employees in
enterprises and collective farms within the sector of agriculture (period
20082010.)
Territorial unit
Employees
Total
Agriculture, forestry, water
management and fishery
2008.
Serbia 1.428.457 49.528
Palilula 45.192 2.672
Novi Sad 102.135 2.365
Sombor 16.713 1.960
Panevo 26.069 1.857
Baka Topola 7.064 1.718
2009.
Serbia 1.396.792 46.429
Palilula 45.074 2.678
Novi Sad 100.080 2.320
Sombor 15.811 1.715
Panevo 24.136 1.652
Baka Topola 6.619 1.634
2010.
Serbia 1.354.637 43.384
Palilula 43.154 2.738
Novi Sad 98.567 2.348
Baka Topola 5.991 1.637
Sombor 24.679 1.538
Zrenjanin 15.103 1.524
Source: Statistical yearbook Municipalities in Serbia 2009 and 2010, RZS, Belgrade,
2009, 2010; employed persons in Republic of Serbia in 2010, RZS, Statement no. 19,
January 2011.

Also, the observed period is characterized by constant negative trend of
employed persons in agricultural enterprises within the territory of Serbia
(decrease for over 6 thousand workers, i.e. 14%), the most often as a
148 Economic Crisis and its Consequences on the Living Standard ...

consequence of unfinished or badly conducted privatization of agricultural
enterprises, as well as effect of the global economic crisis (lack of financial and
material assets for agriculture and slow development of enterprises).
Unfortunately, in following period further decrease of employees in
agricultural enterprises and cooperative farms could be expected.

Table 12 - Average gross salary per employee in Serbia
(period 2008-2011, in RSD)
Element Year Jan. Feb. March April May June
Total 2008 39.331 43.218 42.873 45.355 44.835 45.608
Economic 2008 38.209 40.680 40.135 42.747 41.915 43.332
Non-economic 2008 41.453 47.985 47.992 50.128 50.233 49.806
Total 2009 40.245 43.353 42.213 45.304 43.183 44.246
Economic 2009 38.153 39.562 38.032 41.526 39.628 40.684
Non-economic 2009 44.844 51.485 51.624 53.295 51.010 51.828
Total 2010 41.651 44.871 46.457 48.525 46.454 47.486
Economic 2010 40.635 41.488 43.337 45.857 43.950 45.033
Non-economic 2010 43.741 51.828 52.731 53.850 51.552 52.355
Total 2011 47.382 49.394 49.633 54.532 49.064 54.616
Element Year July Aug. Sep. Oct. Nov. Dec.
Total 2008 46.115 46.222 46.015 47.883 46.944 53.876
Economic 2008 43.504 43.927 43.837 44.826 44.177 49.191
Non-economic 2008 50.934 50.458 50.007 53.412 51.910 62.232
Total 2009 45.307 43.597 43.577 44.147 43.895 51.115
Economic 2009 42.055 40.074 40.114 40.637 40.400 46.539
Non-economic 2009 52.238 51.265 51.069 51.641 51.256 60.422
Total 2010 48.394 47.190 48.016 47.822 47.877 54.948
Economic 2010 45.965 44.577 45.604 45.448 45.440 51.165
Non-economic 2010 53.169 52.455 52.814 52.552 52.666 62.327
Total 2011 54.164 53.285 - - - -
Source: www.cekos.rs
Jelocnik, Nastic 149

The rural areas of Serbia provide real possibilities for employment of fairly
large number of employees, regarding that those are the territories in which
maximal employment effects with minimal investments could be achieved (e.g.
multi-functionality of current agriculture provisions the use of available
resources, not only to food production, but also to energy production, grow of
medicinal herbs, hunting, fishery, etc.).

Guided by this, employment would initiate development of certain rural
areas, as well as more balanced development of all areas within Serbia, and
parallel with development of agriculture development of other economic
activities will occur (tourism, transportation, trade, catering, etc.). However,
existing limitations of human capital and business entities in agrarian sector
require appropriate activities that will support their development, such as:
permanent education, scientific-technological transfers, introduction of
quality system, standardization, tax exemptions that will encourage the work
of SMEs in rural areas, etc.

Throughout analysed period gross salary per employee in non-economic
activities were at higher level than salaries achieved in economic activities
(Table 12).

For a long time, employees in the sector of financial intermediation, energy
production, mining and public administration, generate the highest salaries in
the Republic. Employees in agriculture, forestry, water management, fishery,
processing industry, trade, construction and hotel management are in much
unfavourable situation.

In Table 13, the average salaries per employee in Serbia (after tax deductions
net salaries) are shown, expressed as the average salaries for all economic
activities, or achieved in sector of agriculture, forestry and fishery. Much
lower level of salaries earned in agriculture compared to the average salary
from all economic activities (for 22.7% in 2008, or 15% in 2009) is noticeable.
Also, presented is the overview of municipalities with highest and lowest net
salary in agriculture, forestry and water management in observed period.

150 Economic Crisis and its Consequences on the Living Standard ...

Table 13 - Municipalities in Serbia where the highest and the lowest net salaries
per employee in sector of agriculture are achieved (in 2008 and 2009, in RSD)
Territorial
unit
Net income per employee
All activities - average
Agriculture, forestry and
water management
2008
Serbia 32.746 26.696
Highest net salary per employee in the sector of agriculture
Stara Pazova 31.799 42.796
Despotovac 29.667 40.052
Sremska Mitrovica 32.629 38.456
Uice 31.697 37.938
Palilula 40.971 37.656
Lowest net salary per employee in the sector of agriculture
Bojnik 15.502 5.015
Vladiin Han 14.945 6.021
Svilajnac 27.983 7.644
abari 27.619 7.902
Bosilegrad 22.668 8.730
2009
Serbia 31.733 27.582
Highest net salary per employee in the sector of agriculture
Velika Plana 26.958 43.231
Stara Pazova 25.166 40.933
Despotovac 29.981 39.660
Uice 30.542 38.919
Palilula 41.783 38.874
Lowest net salary per employee in the sector of agriculture
Knjaevac 18.977 5.889
Sjenica 25.104 6.322
Medvea 24.396 6.506
Ljig 23.282 7.779
Sremski Karlovci 28.832 9.035
Source: Statistical yearbook Municipalities in Serbia - 2009, 2010; RZS, Belgrade, 2009,
2010.

Net salaries in top five municipalities with the highest salaries in the sector of
agriculture are significantly above republican level for this branch of
Jelocnik, Nastic 151
economy
5
. Similarly, net salaries in top five municipalities with the lowest
salaries in the sector of agriculture are much lower than the republican average
for agriculture. Maximal salaries are usually achieved within the municipalities
where larger farmers and enterprises from food processing industry are
concentrated. Minimal salaries were earned in municipalities where, in spite of
the existence of favourable conditions for the organization of agricultural
production, this activity was marginalized. Ratio between maximal and
minimal salary achieved in agriculture during 2008 was 1:8.6, and in 2009, 1:7.3.
CONCLUSION
From the aspect of food security, it can be concluded that the average
consumption of basic agro-food products in serbia (per capita) has the
decreasing trend and still significantly lags behind, in terms of volume and
energy, consumption in developed world economies (EU, USA, Japan).

In spite of the given overview, which does not show the satisfactory image
about the average food consumption in serbia, it should not be forgotten that
national statistics does not include all realized food and alcoholic beverages
consumption at family husbandries (natural consumption), and consequently,
there is enough space for excepting unofficial claim that most countries in the
region can envy us on the food and beverages consumption.

The impact on the stability and price level of agricultural and agro food
products are of special importance during the crisis period. Price analysis of
certain agricultural and agro food products, during the period 2008-2010, shows
their relative stability. On the other hand, in the observed period in serbia in the
structure of total personal consumption of husbandries, food and beverages
expenses participated with 40% in average.

Previous period was characterized by constant decrease of the number
of persons included in the realization of agricultural activities (as

5
Some Belgrade municipalities, where high average net salary in agriculture is reported, but
where small number of employees work, are excluded, as their inclusion would significantly affect
the possible conclusions.
152 Economic Crisis and its Consequences on the Living Standard ...

employed in enterprises and cooperatives, as well as individual
producers). Besides that, average salaries achieved in sector of
agriculture, forestry, water management and fishery are at lower level
compared to salaries earned in most of economic or non-economic
branches. Mentioned is mostly the consequence of: unfinished or badly
conducted privatisation of agricultural enterprises, obsolete and slow
development of material base in agriculture and negative impacts of
global economic crisis (lack of investment assets necessary for national
agriculture). It is reasonable to expect that in the following period
number of involved persons and level of achieved salaries in the sector
of agriculture will still decrease.
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154 Economic Crisis and its Consequences on the Living Standard ...


ABOUT THE AUTHORS

Jean ANDREI is PhD candidate in economics at the National Institute of
Economics Research - Romanian Academy of Sciences. He is currently
teaching assistant at Petroleum and Gas University of Ploiesti, Department
of Economics, Marketing and Business Administration and, also,
Educational Director. He holds a B.S. degree in Administrative Sciences
(2005) and in Banks and Finances (2007) from the Petroleum and Gas
University of Ploiesti. He has a M.S. degree in Economics, Administrative
and Business Management (2007) earned at the same university.
Jean Andrei is Editor-in-Chief of International Journal of Sustainable
Economies Management (USA) and International Journal of Young
Researchers in Business Economics (India), scientific reviewer for
International Business Information Management Association Conferences
IBIMA (the 15th, the 16th and the 17th), and the World Scientific and
Engineering Academy and Society (WSEAS). He is member of scientific
organizations like: The Econometric Society (January, 2011), European
Association of Agricultural Economists (December, 2008), The Balkan
Scientific Association of Agrarian Economists, Serbia, (December 2008)
and General Assembly of the Romanian Economists (March 2010).
Particularly issues like business investments process, economic efficiency
and valuing economic and human potential are among his research and
scientific interests, where he has published articles and two books.

Aleksandra BRADIC-MARTINOVIC is currently pursuing her Ph.D.
degree in economics at the Union University, Belgrade Banking Academy
Faculty for banking, insurance and finance. She is a research associate at
Institute of Economic Sciences in Belgrade and teaching assistant at
Belgrade Banking Academy. From 1991-2006 she worked at the Faculty of
Economics, Belgrade on the following positions: Programmer at
Computer Centre, Technical Manager of Centre for Securities, Associate at
the Centre for Publishing Activities, Associate at the Scientific and
Research Centre and Chief Executive at Computing Centre. Shi is also
authorized examiner in ECDL system. In April 2009, she had a study visit
at the Faculty of Management in Turin (SAA) within the TEMPUS project
Business University of the New Age in Serbia (BUONA), and in May 2010
156 About the authors

stayed in France at Universit Nice Sophia Antipolis (UNS) in Nice, within
TEMPUS project Master d'tudes europennes double diplomation en
Serbie. She has published many articles and one monograph on
prediction techniques of share prices. From January 2012 she will be a
participant in FP7 Project Support for Establishment of
National/Regional Social Science Data Archives (SERSCIDA).

Ivana DOMAZET is a Research Fellow in the Institute of Economic
Sciences in Belgrade, and Assistant Professor at the Belgrade Banking
Academy on Marketing Principles and Marketing Management. She
obtained MA degree in 2001 (Management Department, average mark
10,00) and PhD degree in 2010. From 1998 to 2003 she has worked at the
Institute for market research. Since 2003 she has been employed at the
Institute of Economic Sciences.

Ioan DONE is Full professor and Head of Economics, Marketing and
Business Administration Department, Faculty of Economic Science from
Petroleum and Gas University of Ploiesti since 2004. In 1998-2004 he was
vice dean of Economic Sciences Faculty. He graduated Academy of
Economic Studies Bucharest in 1974, with a BA in general economics. He
holds a PhD in economics (1999) granted by the same academic
institution. He is Executive Editor of Petroleum and Gas University
Bulletin - Economics Sciences Series, member in board of trustee for
International Journal of Sustainable Economies Management (USA) and
Regional President of General Assembly of the Romanian Economists
(Prahova County) since 2000 and also member in scientific organizations
like: European Association of Agricultural Economists (December, 2008),
The Balkan Scientific Association of Agrarian Economists, Serbia,
(December 2008). His professional and research interests include: business
economics, labor market policies, trust capital, cultural models and their
implication in economic activity, where he published 6 books and over 50
journal papers.

Dorel DUSMANESCU (born in 3 of December 1964 in Mizil Town) is
associate professor at Department of Economic Analysis, Mathematics and
Economic Informatics, Faculty of Economic Sciences from Petroleum and
Gas University of Ploiesti. Currently he is Chancellor of Economic
About the authors 157
Sciences Faculty since 2007. Concerning his education, he holds a PhD in
Automation grated by Petroleum & Gas University of Ploiesti in 2001, and
currently he is perusing his second PhD in economics at National Institute
of Economic Research, Romanian Academy of Sciences. Also, he has a MA
in Management at Petroleum & Gas University of Ploiesti (2009). He took
his BS the in petroleum engineering at Faculty for Petroleum and
Petrochemical Installations from Petroleum and Gas University of Ploiesti
in 1989. He is Editor-in-Chief of International Journal of Sustainable
Economies Management (USA) and International Journal of Young
Researchers in Business Economics (India), scientific reviewer for
International Business Information Management Association Conferences
IBIMA and the World Scientific and Engineering Academy and Society
(WSEAS). His area of expertise is business informatics and system where
he published books (7), journal articles (over 40) and conferences
presentations.

Marko JELOCNIK is currently pursuing his Ph.D. degree in agro-
economics at the Faculty of Agriculture, University of Novi Sad. He is
researcher assistant at the Institute of Agricultural Economics Belgrade.
He holds a B.S. degree in Agro-economics (2006) from the Faculty of
Agriculture, University of Belgrade and M.S. degree in Agro-economics
(2009) at the Faculty of Agriculture, University of Novi Sad. He is a
participant in over 10 scientific research projects, Associate Editor of
International Journal of Sustainable Economies Management (USA),
member of the European Association of Agricultural Economists
(E.A.A.E.) and the Scientific Balkan Association of Agricultural Economists
(S.B.A.A.E.). He has published many articles on sustainable development
and investments.

Lana NASTIC is currently pursuing her Ph.D. degree in agro-economics at
the Faculty of Agriculture, University of Novi Sad. She is researcher
assistant at the Institute of Agricultural Economics Belgrade. She holds a
B.S. degree in Agro-economics (2002) from the Faculty of Agriculture,
University of Belgrade and M.S. degree in Agro-economics (2009) at the
Faculty of Agriculture, University of Novi Sad. She is a participant in over
10 scientific research projects, as well as member of the European
Association of Agricultural Economists (E.A.A.E.) and the Scientific Balkan
158 About the authors

Association of Agricultural Economists (S.B.A.A.E.). She has published
many articles on finance and investments.

Ivana SIMEUNOVIC is an Assistant Professor at the Belgrade Banking
Academy on the courses: Financial Mathematics, Financial Statistics,
Actuarial Mathematics and Science of Management. She is a manager and
trainer of actuarial training courses in Belgrade Banking Academy; and of
Financial and Actuarial Mathematics and Life Insurance in National Bank
of Serbia Academy for Banking and Finance. She has published a
number of research papers in the field of applied mathematics and
statistics.

Jonel SUBIC is Research Associate and Assistant Director at the Institute
of Agricultural Economics Belgrade and Asisstant Professor at the Faculty
of Economics and Political Science, University Alfa Belgrade. He is
doctor in Economics since 2003 from the Faculty of Management,
Academy of Economic Studies of Bucharest, Romania. He is Expert-
evaluator (2005 and 2010) for research projects submitted to the Ministry
of Sciences and Technological Development of the Republic of Serbia;
project manager of four scientific contracts; participant in over 20
scientific research projects; Associate Editor of International Journal of
Sustainable Economies Management (USA) and International Journal of
Young Researchers in Business Economics (India); Member of Series
Scientific Board of Petroleum Gas University of Ploe ti, Bulletin,
Economic Sciences Series (RO); Member of Advisory council of Journal of
economics and politics of transition (BIH); Member of Editorial Council of
Economics of Agriculture (SRB) and Economics (SRB). Also, he is member
of the European Association of Agricultural Economists (E.A.A.E.); The
Scientific Balkan Association of Agricultural Economists (S.B.A.A.E.); The
Balkan Environmental Association (B.EN.A.) and The Serbian Association
of Agricultural Economists (S.A.A.E.). He has published many articles and
seven books on sustainable development and investment sector.

Sasa STEFANOVIC has obtained MSc degree in 2008 at the Faculty of
Economics, University of Belgrade. As a teaching assistant he has been
engaged in many faculties in the field of financial markets, financial
management and management. He has published a monograph on
About the authors 159
mortgage market and several papers in scientific journals and also
participated in elaboration of a great number of studies which the Institute
of Economic Sciences realized independently or in cooperation with other
institutions. Currently he is Deputy Director for Investment and
Development at GMS International in Belgrade.

Slavica STEVANOVIC is currently pursuing her Ph.D degree in economics
at the Union University, Belgrade Banking Academy Faculty for
banking, insurance and finance. She is a research associate at Institute of
Economic Sciences in Belgrade and teaching assistant at Belgrade Banking
Academy as of 2002. Since 2005 she has worked at the Faculty of
Economics, as an Assistant on the courses Financial accounting and
Banking accounting. She has published several articles and took part in
many scientific projects.

Jovan ZUBOVIC has obtained PhD degree in 2009 since when is a
Research Fellow in the Institute of Economic Sciences in Belgrade, and
Assistant Professor at the Belgrade Banking Academy on Microeconomics
and Macroeconomics. He has published a monograph on development of
human resources in financial sectors, several papers in scientific journals
in the field of labour economics and applied econometrics, and edited 3
proceedings books in different fields of economics. He is member of the
editorial boards of International Journal of Sustainable Economies
Management (USA) and International Journal of Young Researchers in
Business Economics (India), Economic Analysis (Serbia).

160 About the authors

Index 161
INDEX
A
ALMP, 1, 2, 3, 4, 6, 7, 8, 9, 10, 11, 12, 13, 15, 16, 17, 18, 19, 20, 23
Andrei, vi, ix, x, 25
Arandarenko, 88, 89, 94, 96, 100, 101, 102
B
Betcherman, 4, 5, 15, 18, 21
Bradic-Martinovic, x, 25
C
Calmfors, 5, 12, 14, 16, 21
communication, 26, 29, 32, 40, 50, 51, 55, 56, 57, 58, 59, 60, 61, 62, 63, 68, 70, 74
consumption, 127, 128, 129, 130, 131, 132, 133, 135, 137, 138, 139, 140, 142, 143, 144, 151, 153
Customers, 70
Cvijanovi, vi, x, 152
D
Domazet, ix, x, 24, 47, 52, 55, 67, 73, 74, 75
Done, ix, x, 47
Dusmanescu, ix, x, 77
E
economic, vii, 2, 3, 4, 5, 9, 12, 15, 17, 18, 19, 20, 22, 26, 48, 77, 78, 88, 89, 106, 115, 116, 119,
123, 124, 125, 127, 128, 129, 137, 144, 145, 148, 149, 152, 153
empirical, iii, vii, 15, 125
employment, 1, 3, 4, 5, 6, 7, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 22, 23, 24, 26, 33, 36, 77,
78, 88, 89, 90, 91, 92, 93, 94, 95, 97, 98, 99, 100, 119, 127, 129, 149, 153
European Commission, 6, 10, 21, 22, 101
evaluation, iii, vii, 1, 2, 11, 12, 13, 14, 17, 18, 22, 33, 35, 42, 105, 107, 113, 114, 119
evaluations, 1, 2, 3, 12, 13, 14, 15, 16, 17, 18, 19, 20, 23, 114
H
HR, 26, 27, 28, 29, 31, 32, 33, 35, 36, 37, 38, 39, 40, 42, 43, 44, 45, 73, 119
HRM, 26, 27, 28, 30, 32, 33, 40, 43, 46, 106
Human Resources, ix, 25, 47, 70
J
Jelocnik, ix, x, 127
162 About the authors

K
Kluve, 16, 19, 23
L
Labor, 2, 3, 6, 7, 20, 21, 22, 23, 24, 77, 78, 88, 89, 103
Labour, iii, vii, 1, 2, 3, 4, 5, 6, 7, 10, 11, 12, 14, 15, 16, 17, 20, 21, 22, 23, 26, 28, 33, 40, 44, 47,
48, 51, 53, 54, 77, 88, 89, 90, 91, 92, 93, 94, 97, 98, 99, 100, 144, 145, 153
Labour market, iii, vii, 1, 2, 3, 5, 6, 7, 10, 11, 12, 14, 15, 16, 17, 20, 21, 22, 23, 28, 33, 54, 77, 88,
89, 90, 91, 92, 93, 94, 97, 98, 99, 100, 153
M
management, vii, 6, 25, 26, 27, 28, 29, 31, 34, 35, 36, 37, 38, 40, 41, 42, 44, 45, 47, 48, 49, 51,
52, 53, 57, 58, 59, 60, 61, 62, 63, 64, 66, 67, 70, 73, 74, 105, 106, 107, 108, 109, 112, 116, 117,
118, 119, 123, 145, 147, 149, 150, 152
market, 3, 5, 6, 7, 10, 11, 12, 22, 23, 26, 35, 43, 47, 49, 50, 51, 54, 59, 60, 66, 67, 68, 72, 88, 89,
90, 91, 93, 94, 99, 108, 109, 116, 117, 118, 119, 124, 127, 129, 132, 133, 144, 145
marketing, vii, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 62, 63, 66, 67, 72, 74
N
Nastic, ix, x, 127
NES, 91, 95
O
OECD, 1, 5, 6, 7, 8, 11, 13, 17, 21, 22, 23, 24, 103
organization, 25, 27, 32, 36, 40, 45, 49, 51, 52, 53, 54, 57, 59, 61, 62, 64, 66, 67, 72, 106, 107,
119, 123, 145, 151
R
Romania, v, vi, x, 9, 23, 72, 80, 81, 86, 131, 138, 139, 141, 152, 153, 158
S
school, 91, 95, 123
Serbia, iii, vi, vii, ix, x, 2, 10, 21, 23, 24, 25, 26, 27, 42, 43, 48, 74, 75, 77, 78, 88, 89, 90, 91, 92,
93, 94, 95, 96, 98, 99, 101, 102, 103, 106, 119, 120, 121, 124, 127, 128, 129, 130, 131, 132,
133, 135, 137, 138, 139, 140, 141, 142, 144, 145, 146, 147, 148, 149, 150, 152, 153
Simeunovic, ix, x, 105
statistics, 22, 26, 33, 151
Stefanovic, ix, x, 77
Stevanovic, ix, x, 105
Subic, ix, x, 1
Subi. See
Index 163
U
unemployment, vii, 1, 2, 3, 4, 5, 7, 10, 11, 14, 16, 19, 20, 23, 77, 88, 89, 90, 92, 93, 94, 95, 96,
97, 98, 99, 100
Z
Zubovi, vi, ix, x, 1, 7, 24, 67, 70, 73, 75, 103

164 About the authors

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