percent in 2002 and is 22.2 percent in 2004.<sup>5</sup> At 22 percent, unemployment in BH is among the highest in the ECA region, second only to FYR Macedonia based on 2002 data drawn from Labor Force Surveys (World Bank 2005b).<sup>6</sup> On average, most unemployment rates in other transition economies are within 10-15 percent range.

The aggregate unemployment figure in BH masks considerable variations between entities (i.e., the second tier of government: the Federation of BH and the Republika Srpska), regions, and selected demographic groups. For example, unemployment rate by entity evolved differently in recent years. While the unemployment rate fell in Federation of BH (FBH) between 2002 and 2004, it increased in the Republika Srpska (RS) over the same period. Men and women also have different unemployment rates, with the women consistently experiencing higher (by 2-5 percentage points) unemployment rates over the last four years. Youth unemployment rates are very high, 2-3 times higher than the national average. Unemployment rate in 2004 is 62 percent and 37 percent for those between 15-19 years of age and 20-24 years of age, respectively. The disparity between youth unemployment and average unemployment has been relatively constant over time.

Employment rates remain low although they have increased in recent years. The employment rate for people of working age increased from about 40 to 46 percent between 2001 and 2004. Among male workers, the employment rates increased from 54 to 59 percent, among female workers, from 27 to 32 percent. The employment rate in FBH steadily increased from 34.6 to 43.4 percent in 2004 while in the RS, the employment rate was steady at about 46-47 percent. Like the unemployment rate and labor force participation rate, the employment rate for BH is at the lower end of the ECA spectrum, where employment rates are typically within the 50 to 70 percent range.

The informal sector is growing. Informal employment may be defined as employment in productive, incomegenerating activities, but without the typical obligations and benefits associated with a formal labor contract, such as pension fund contributions, health and disability insurance. The LSMS survey allows us to estimate the magnitude of informal sector activity using two pieces of information at the individual level: their employment <!-- Start of picture text --> Figure 1. The Distribution of Informal Sector Employment<br>2004<br>Agriculture<br>Informal<br>Formal sector<br>sector Manufacturing<br>Utility<br>Construction<br>Trade<br>Hotels and Restaurant<br>Other<br><!-- End of picture text -->

> 5 It is not clear what has driven the surge in unemployment between 2001 and 2002. The LSMS was the first household survey in years and subject to sampling issues. The 2001 estimate should not be treated as an exact data point.

6 An alternative measure is registered unemployment. But is this a useful concept? In 2001, only 24 percent of registered unemployed qualified as unemployed using the ILO definition. In 2002 and 2004, it was 37 and 39 percent, respectively. While there is increasing consistency over time, the numbers still suggest that registration appears to be driven by other consideration, such as health services entitlement (see World Bank 2002).

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