Annotation.This study provides a critical institutional analysis of the labor market infrastructure in Georgia, focusing on the countrys transition from a centralized economic system and its pursuit of alignment with European standards - ILO and EU Association Agreement. 

Despite significant legislative reforms over the last decade, including the establishment of the State Service for Employment Support Agency and the reinstatement of the Labor Inspection, the core institutional mechanisms suffer from critical operational deficiencies.The analysis identifies five interconnected structural weaknesses: the ineffectiveness of Active Labor Market Policies, which are hampered by an emphasis on quantitative output metrics over qualitative, long-term employment sustainability indicators;  a regulatory deterrence deficit in labor supervision, where weak sanctions fail to incentivize employer compliance; the erosion of meritocracy within the public sector due to subjective remuneration practices; weak social dialogue, exacerbated by legislative barriers to trade union pluralism; and persistent skills mismatch, where high tertiary education rates do not translate into productive, high-wage employment.

The paper concludes by outlining policy imperatives necessary for structural reform, advocating for a strategic shift towards results-based monitoring, enhanced institutional coordination, and the dismantling of legal barriers that impede effective social partnership.

       Keywords: Labor Market Policy, Active Labor Market Policies, Labor Inspection,  Trade Unions,  European Integration. 

Introduction

       The development of the institutional infrastructure governing the Georgian labor market is a complex, decades-long process rooted in the dissolution of the Soviet centralized system and the subsequent three decades of socio-economic and political transformation. The labor market inherently reflects broader societal processes and the direct consequences of state-implemented reforms (Arnania;  Jikia, 2020).

       While Georgia has demonstrated growing economic resilience and achieved notable successes in poverty reduction, the labor market itself remains structurally vulnerable and is consistently characterized as being in a perpetual formation stage. Despite the development of foundational economic structures, Georgia faces persistent labor market vulnerabilities that obstruct inclusive growth. Statistical data highlight challenges, including high youth unemployment rate of over 27% in the last years.  Furthermore, employment in the informal economy constitutes a substantial proportion of the workforce. These macroeconomic indicators suggest deep-seated structural issues that transcend cyclical economic fluctuations.The core systemic challenge encountered by the Georgian labor market is the profound discrepancy between robust legal frameworks and insufficient institutional efficacy in practice.

       Georgia has undertaken substantial international commitments, including the ratification of the UN International Covenant on Economic, Social and Cultural Rights in 1994, which obliges the state to ensure decent working conditions. Moreover, the country’s association with the European Union necessitates the alignment of labor regulations with European standards, further bolstering the legal environment.  However, this paper posits that the efficacy of the institutions designed to enforce these standards - the policy frameworks, regulatory bodies, and social partnership mechanisms, is critically undermined by operational and strategic deficiencies. This paper provides a critical institutional evaluation of the pillars governing the Georgian labor market. It systematically analyzes the implementation of Active Labor Market Policies, the regulatory capacity and deterrence power of the Labor Inspection, the integrity of meritocracy within the public service remuneration system, and the institutional resilience of social dialogue mechanisms. The analysis aims to delineate the systemic deficiencies, the gap between legal principle and practical outcome, and subsequently proposes strategic, evidence-based policy imperatives essential for enhancing institutional effectiveness and promoting sustainable, high-quality employment creation congruent with the demands of European integration. 

Institutional Analysis  of Georgia\s Labor Market Infrastructure

       The institutional infrastructure of the Georgian labor market is a mosaic of legal acts, public organizations, and mechanisms for social partnership. Collectively, this infrastructure faces several interconnected structural issues that restrict its ability to facilitate optimal labor supply-demand matching, inclusive growth, and the creation of equal employment opportunities. The weaknesses span policy design, regulatory enforcement, public administration, and social relations.  

       The central instrument for implementing Active Labor Market Policies in Georgia is the State Program for Employment Promotion of 2025, approved by Resolution №487 of the Government of Georgia on December 31, 2024. This program, executed by the State Agency for Employment Promotion, is structured around four interconnected sub-programs: the development of employment promotion services, the enhancement of professional qualifications for job seekers, the promotion of employment in public works, and the management of non-military, alternative labor service. While this institution has established critical infrastructure, such as the informational portal worknet.gov.ge, which reportedly has registered over 235,000 users and facilitated 30,000 job placements, the true impact of these services remains difficult to assess definitively.  Public access to detailed, periodic statistical reports detailing the portal’s activity and long-term placement success is limited. Crucially, the budgeting for Active Labor Market Policies has been consistently criticized for predominantly favoring social assistance functions over strategic, long-term investments in professional qualification programs (State Program for Employment Promotion, 2025).

       The primary deficiency of the Active Labor Market Policies framework is rooted in its monitoring and evaluation system. Performance indicators are predominantly quantitative, focusing on activity throughput, such as the number of consultations provided or the total number of employees employed after program entry. This output-focused monitoring fails to generate data critical for effective policy steering. For instance, the system cannot reliably answer essential questions regarding job quality, such as the average duration of employment retained by beneficiaries, the specific reasons for job termination, or the resulting increase in the beneficiary’s average wage relative to the pre-program period.  This methodological flaw hinders the accurate assessment of the program’s economic return and effectiveness.This quantitative bias leads to a structural weakness that confines the program to acting as a costly, temporary social safety net rather than an active mechanism for structural labor market transformation. When policy success is measured by the sheer volume of placements, it incentivizes the rapid, temporary placement of individuals, often channeled into the low-wage public works component. Since the remuneration in public works is often insufficient to serve as a sustained incentive for integration into the open labor market, the program risks creating dependency rather than self-sufficiency.

       Furthermore, by allocating insufficient resources to high-quality, results-oriented training, the Active Labor Market Policies framework risks perpetuating the underlying structural unemployment problem caused by the pervasive skills mismatch within the economy. Another key challenge for State Service for Employment Support Agency is managing international labor mobility. The agency is responsible for developing and implementing legal circular migration programs, such as the seasonal employment agreement with Germany (State Service for Employment Support Agency, 2019). However, the institutional capacity dedicated to managing these legal flows is vastly disproportionate to the scale of illegal labor migration; estimates suggest over 500,000 Georgian citizens are employed abroad, predominantly through irregular channels. The limited scale of official programs, coupled with the scarcity of effective reintegration mechanisms for returning migrants, exacerbates the "brain drain" phenomenon. This institutional imbalance prevents the maximization of beneficial skill transfer and intellectual capital back into the domestic Georgian economy. The necessity of shifting focus from quantity to quality in Active Labor Market Policies evaluation is illustrated in the table below, which contrasts the current indicators with those recommended for achieving employment sustainability.

       A significant political and institutional achievement in recent years was the reinstatement of the Labor Inspectorate and the adoption of the Law of Georgia on Labor Inspection in 2020. This reform followed a period of intense deregulation that had weakened labor protection mechanisms and led to the abolition of the Inspectorate service entirely. The new law was designed to harmonize Georgian legislation with International Labour Organization (ILO) conventions and the European Social Charter. The law grants inspectors comprehensive powers, including the right to enter workplaces without prior notice, demand documentation, conduct photographic/video recording, and apply administrative sanctions such as warnings, fines, and the suspension of work processes. A progressive element of the reform, crucial for building trust, is the guarantee of confidentiality for complainants, which legally prohibits the disclosure of the author’s identity to the employer, thereby significantly reducing the risk of retaliation (Law of Georgia on Labor Inspection, 2023). Despite this robust legislative mandate, the operational effectiveness of the Inspectorate is persistently compromised by a fundamental weakness in its sanctioning policy, specifically, an over-reliance on issuing warnings rather than imposing rigorous financial penalties. This tendency creates a significant regulatory deterrence deficit, impacting employer behavior on an economic level. When the probability or magnitude of the penalty for non-compliance is low, the expected cost of violation remains negligible. Consequently, employers lack the necessary economic incentive to invest proactively in preventative safety measures or comprehensive labor law compliance. This deficit transforms the Labor Inspectorate from a powerful, proactive regulator aimed at preventing violations into a reactive body that merely responds to crises after they occur. This structural flaw undermines the goal of full alignment with core ILO standards, which require demonstrably robust enforcement. The limited deterrent power may also obscure the true scale of labor rights issues, as suggested by reports indicating that the Inspectorate failed to detect any violations related to freedom of association or collective bargaining during certain inspection periods, potentially pointing to a gap in investigative depth regarding less overt labor infractions.

       The reform of public sector remuneration, underpinned by the Law of Georgia on Remuneration in Public Institutions (2017), was intended to rationalize the system. The law established a structured, coefficient-based model for determining official salaries based on functional load, aiming to promote principles of equality, transparency, and meritocracy. It also incorporated mechanisms designed to allow the public sector to compete with the private market for high-demand, deficit professions (Law of Georgia on Remuneration in Public Institutions, 2024). However, the practical application of this law reveals a critical divergence between legislative intent and operational reality. A major operational deficit is the subjective and often non-standardized use of discretionary rights in awarding bonuses and supplements. These variable compensation elements are frequently allocated without being tethered to objective, standardized performance evaluation criteria, undermining the very principles of transparency and merit the law sought to institutionalize. This pervasive subjectivity erodes trust among public servants and fuels the perception of non-objective decision-making, including risks of nepotism.

       The erosion of meritocracy acts as a significant demotivational factor for highly qualified, high-performing personnel. When coupled with the inherent difficulty the public sector faces in matching private sector remuneration, this creates an internal brain drain.

       Qualified staff, dissatisfied with subjective rewards and uncompetitive base pay, tend to migrate either from regional public agencies to central government bodies, seeking greater resources and perceived fairness, or exit the public sector entirely for more lucrative and transparent private sector opportunities. This consequence severely limits the state’s institutional capacity and compromises the effective delivery of essential public services, particularly at the decentralized, regional level. 

Institutional Barriers to Effective Social Partnership

       The foundation for modern social relations is established by Georgia\\'s Organic Law on Trade Unions, which protects the fundamental rights to association, collective bargaining, and strike, largely aligning with fundamental ILO conventions. The framework formally recognizes the importance of the social dialogue structure within the State, Employer and Trade Unions, a core requirement for establishing a European social model and achieving EU integration. However, social dialogue in Georgia remains functionally weak. The National  Social Partnership Commission often fails to meet regularly and is not consistently consulted on all policy measures that directly affect social partners. The weakness of the trade union movement is historical, stemming from a post-Soviet legacy where unions were instruments of the state rather than independent defenders of workers’ interests, resulting in persistently low public trust. Compounding this historical issue is a critical institutional defect embedded within the Organic Law: the requirement for a minimum 25-member threshold to establish a professional trade union (Organic Law of Georgia on Trade Unions, 2020). This 25-member requirement acts as an artificial, institutional barrier that significantly restricts the formation of new or alternative unions, especially within small and medium-sized enterprises.  Functionally, this barrier may be interpreted as creating a quasi-institutional cartel, which inadvertently protects existing, often institutionally weak, union structures from internal competition and revitalization.  This legislative restriction directly undermines the ILO principle of pluralism and prevents the trade union movement from developing the institutional strength necessary to represent the diverse and evolving needs of the labor market effectively. The resulting diminished collective bargaining power contributes to the persistence of major labor issues, including inadequate wages, unregulated working hours, and the lack of an effective minimum wage fixing mechanism, issues often highlighted by international organizations. When the preventive mechanism of robust social dialogue fails, labor disputes are subsequently pushed into the reactive, coercive mechanisms of the state, such as the Labor Inspectorate or the judiciary, processes which are inherently time consuming and inefficient.

       The National Strategy for Labor and Employment correctly identifies that while Georgia has seen economic growth, this growth has been primarily attributable to increases in capital and generalized productivity, rather than robust job creation, indicating a persistent structural inefficiency in the labor market. The country benefits from a relatively high rate of formal qualification, with a large percentage of the workforce holding tertiary education diplomas. Despite this high educational attainment, employers across various sectors report critical skills barriers.  These deficits are not limited to technical proficiencies but extend to essential practical, soft, and analytical skills, including communication, problem-solving, teamwork, and critical thinking.  A specific deficit is noted in highly remunerated sectors like STEM (Science, Technology, Engineering, and Mathematics).

       The coexistence of high educational qualification rates and critical skill deficits suggests a systemic misalignment within the human capital development pipeline. University and vocational education often lack sufficient practical components and are insufficiently synchronized with the immediate and future demands of the dynamic labor market. This gap constitutes inefficient human capital investment, imposing a cost both on the state and on the individual worker. The consequence is that a highly qualified workforce is often compelled to accept low-qualification employment, leading to high levels of labor underutilization and ultimately suppressing long-term national productivity growth.

       Therefore, structural reforms, such as the comprehensive implementation of the National Qualifications Framework, must prioritize employer involvement in Vocational Education and Training systems, focus on practical training, and create institutional mechanisms for continuous, lifelong skill acquisition. 

Conclusion

       Georgia has demonstrated commitment to aligning its labor market institutional structure with international and European standards, successfully implementing necessary legislative reforms, including the reinstatement of the Labor Inspection, the establishment of the State Service for Employment Support Agency, and the formal recognition of  social dialogue.

       However, this institutional progress remains constrained by critical operational deficits and strategic failures in implementation. The system is characterized by five intertwined structural weaknesses: a quantitative bias in Active Labor Market Policies evaluation; a regulatory deterrence deficit in labor supervision; the operational erosion of meritocracy in the public sector; institutional barriers inhibiting social dialogue pluralism; and a persistent, productivity-limiting human capital skills mismatch. These deficiencies collectively prevent the creation of sustainable, high-quality employment opportunities and impede the country’s progress toward economic convergence with its European partners. True structural reform requires moving beyond the adoption of de jure legislation to the determined pursuit of de facto institutional effectiveness and quality outcomes.

       Based on the analysis of institutional shortcomings, the following strategic policy imperatives are essential for structural reform of the Georgian labor market:

• Strategic Reallocation of Active Labor Market Policies Funding and Quality Measurement: The budget for Active Labor Market Policies must undergo a structural transformation, strategically shifting resources away from low-impact, short-term social assistance functions toward high-impact, results-oriented professional qualification and upskilling programs. State Service for Employment Support Agency (SSESA) must concurrently implement Results-Based Monitoring, moving entirely away from quantity-focused indicators (e.g, enrollment numbers) to quality-focused metrics that measure employment sustainability (e.g., job tenure, net wage increase, retention rates).
• Enhancement of Regulatory Deterrence: The Labor Inspectorate must fundamentally revise its sanctioning policy. This necessitates a strategic shift from the current reliance on warnings toward the consistent imposition of rigorous, well-publicized financial penalties for systemic labor and safety violations. Raising the economic cost of non-compliance is the crucial mechanism required to create the necessary market incentive for employers to invest proactively in preventative safety infrastructure and labor law adherence.
• Restoration of Meritocracy in Public Service: To halt the internal brain drain and enhance public service quality, the government must implement standardized, objective performance appraisal systems. These systems must be directly linked to remuneration decisions, ensuring that the allocation of discretionary bonuses and supplements is based demonstrably on merit and objective performance data, thereby restoring trust and motivating the highly qualified workforce.
• Mandatory Integration of Practical Skills: Educational and labor policies must mandate the rigorous integration of employer-driven practical training and vocational qualification components within educational programs. This strategic link is necessary to bridge the persistent skills mismatch, ensuring that human capital investment translates efficiently into high-productivity, high-wage employment.

References

1. Arnania-Kepuladze, T., & Jikia, T. (2022). The Impact of the COVID-19 Pandemic on the Labor Market in Georgia. International Scientific-Practical Conference. New Challenges of the Labor Market in the Context of the COVID-19 Pandemic.

2. Bedianashvili, G., Tsartsidze, M., Mikeladze, N., & Gabroshvili, Z. (2023). Contemporary Globalization, Human Capital, and Economic Growth in Georgia: A Macro Aspect. Economist, 19(3), 60–84. https://doi.org/10.36172/EKONOMISTI.2023.XIX.03

3.   Center for Strategic Research and Development of Georgia. (2020). Local Labor Market Needs Assessment. Tbilisi.

4. International Labour Organization. (2025). www.ilo.org

5. International Covenant on Economic, Social and Cultural Rights. (1994). International Treaty Ratified by Georgia on Ensuring Decent Working Conditions. Parliament of Georgia. Tbilisi.

6.  Law of Georgia on Employment. (2004).

7.  Law of Georgia on Labor Inspection. (2023).

8.   Law of Georgia on Remuneration in Public Institutions. (2024).

9.   Law of Georgia on the National Strategy of Labor and Employment Policy 2019–2023. (2019).

10. Law of Georgia on the Youth Strategy 2023–2026. (2022).

11. Organic Law of Georgia on Trade Unions. (2020).

13. State Program for Employment Promotion. (2025).

14. State Service for Employment Support Agency. (2019).

15. The Labor Code of Georgia. (2020).

16. The National Statistics Office of Georgia (Geostat). (2025). www.geostat.ge.