The Bulgarian labour market: Strong wage growth in spite of rising unemployment

The Bulgarian labour market adjustment during the economic crisis stands out by its simultaneous significant job losses and strong average wage growth. The latter has led to a rapid rise in unit labour costs, indicating a deterioration in external cost competitiveness. Nevertheless, exports have remained strong, suggesting that other non-cost factors have compensated for the apparent loss of cost competitiveness. While wage increases do not yet seem to have caused major problems for external competitiveness, they are posing challenges in terms of rising unemployment, especially among vulnerable labour market groups. While, at first sight, the institutional features of the Bulgarian labour market seem rather flexible, the minimum social security thresholds tend to hinder wage cost adjustments, especially during a downturn.