A. COUNTRY CONTEXT 

Political and economic situation 

The incumbent government, which took office in September 2013, has put the country on a path of comprehensive reforms and towards preparing for EU integration. The 2015 European Commission (EC) Report on Albania states that the country is “moderately prepared in developing a functioning market economy. Progress was made in improving macroeconomic stability, growth prospects improved (2.5%est. in 2015; up from 1.4%) and inflation remained low (below 1% annually). Further efforts are needed to sustain fiscal consolidation, improve the business environment and tackle the informal economy” (EC, p. 5). Unemployment levels (15-64 years: 17.5% in 2015 – highest in the North-eastern regions of Albania) and youth unemployment (15-29 years: 33.2% in 2015; an increase of 0.7% over the previous year) remain high. Significant investments in human and physical capital are necessary to improve Albania's competitiveness. 

Demography 

The population has been declining over the years to reach ca. 2,893,000 inhabitants in 2015. Albania has a relatively young workforce with 26.4% of people aged between 15 and 24 years in 2015. People Careful estimates have it that about a quarter of the working-age population continue to migrate for work to EU or other countries, mostly on a temporary basis. 

Employment 

Slightly over 40% of Albania’s workforce is employed in agriculture (41.3% in 2015, source for this and other data mentioned below: INSTAT, Labour Market 2015). This proportion has declined in the past years, but stays at a high level compared to other countries of the region. This indicates a lack of job creation in other sectors: services employ less than 40% of the workforce. The employment rate is relatively low (59.3% of those aged 20-64 in 2015) and is marked by a sizeable gender gap. The rate is some 17pp lower for women (50.7%) compared to men (68.1%). Unemployment (15-64) remains high and has increased in the past years (17.5% in 2015, up from 14.0% in 2010), although recent data show a downward trend from its peak in 2014. Rates are almost the same for females and males (17.4% and 17.5%). Unemployment levels are highest in the north-eastern regions of Albania. Youth unemployment (15-29 years) also remained high with 33.2% in 2015; an increase of 0.7pp over the previous year. Almost 60% of the unemployed were first-time jobseekers. Some 70% of the jobseekers were long-term unemployed in 2015. Ongoing efforts by the government and its labour inspectorate try to address the problem of high informal employment. In 2015 the share of informal employment in the non-agricultural sector was 34.1%, down by 5.3pp compared to 2014. 

Skills 

Major progress was recorded in all three domains of the OECD PISA tests in 2009, 2012 and 2015 (see table below). However, in the 2015 PISA test, still half (50.3%) of the 15-year-old students performed poorly on reading skills (below level 2), 53.3% in mathematics and 41.7% in science. Albania has also been making considerable progress, with 22% of adults aged 30-34 having attained a tertiary (i.e. university-type) education in 2015 1 , an increase of over 10pp since 2010. However, due 1 Educational attainment is frequently used as a proxy measure of the skills associated with a given level of education and available in the population, and to the labour force. Higher levels of educational attainment are associated with several positive individual and social outcomes (see also OECD Education at a Glance, 2015) ALBANIA | 04 to the specific economic and employment structures in place and weak labour demand, many higher education graduates cannot find jobs that match their formal qualifications. This results in comparatively higher unemployment rates among higher education graduates, especially women. This suggests serious skills imbalances (i.e. under-utilisation). Some better-skilled people try to find jobs abroad. 

VET

Thanks to deliberate efforts by the responsible Ministry of Social Welfare and Youth (MoSWY), enrolments in VET programmes at upper secondary level increased from 17% in 2014 to over 20% in 2015 and 2016. The VET student population is still small compared to other Western Balkan countries. VET used to be the less attractive option at upper secondary level compared to academic education. Now this image is changing, also because VET graduates find it easier to find jobs. Reforms are on a good track, but further system-wide efforts are necessary to complement improvements in pilot institutions supported by donors. See more details in Section B below. 

School to work transition 

The number of young people aged 15-24 who are neither in employment, education and training (NEETs) remains very high (32.8% in 2015, compared to the EU average of 12.5%; an increase from 30.0% in 2011). This confirms the existence of skills imbalances and serious problems with young graduates finding jobs.