Rethinking Georgia’s Unemployment Crisis: A Heterodox Perspective on Labor, Policy, and Development

Authors: Tato Khundadze, Aleksandre Tsagareli, Usup Bitsadze

Introduction: A Crisis Misdiagnosed

Unemployment in Georgia is not merely a statistical anomaly or a temporary glitch—it is a structural feature of a development model grounded in flawed assumptions. Despite surveys consistently showing unemployment as the primary concern for the population, the public discourse remains trapped within a narrow, orthodox framework that fails to recognize the complexity of labor markets. The dominant neoliberal narrative—rooted in marginalist labor theories—claims that if markets are left unimpeded, full employment will result. But this view, as heterodox economists from Karl Polanyi to Mariana Mazzucato argue, ignores both empirical reality and the historical role of state intervention in creating functional labor markets.

Labor Is Not a Commodity

A central heterodox critique begins with the false equivalence between labor and commodities. As Karl Polanyi famously argued in The Great Transformation, labor, land, and money are "fictitious commodities"—they are not produced for sale on markets, and treating them as such leads to social dislocation. Labor cannot be stored, transported, or withdrawn from sale in the way goods like tomatoes can. When neoliberal economists argue that wages adjust just like prices of goods to clear the market, they forget that job-seekers are not sellers of products but people with families, debts, and time-sensitive needs. Joan Robinson added to this critique, noting that the labor market seldom clears—even in competitive economies—and that unemployment can persist even when real wages fall.

Market Failures and the Myth of Rationality

Orthodox labor economics assumes that individuals make career decisions with perfect foresight and that markets accurately signal current and future labor demand. Heterodox and behavioral economists such as Herbert Simon, Daniel Kahneman, and Richard Thaler challenge this view. Labor market mismatches are not the result of “lazy workers” or “distorting regulations,” but of bounded rationality, information asymmetries, and collective action problems. A Georgian student studying engineering today may find, after four years, that automation has decimated their chosen field. Market signals fail because they are retrospective, not predictive.

Unemployment in a Capitalist Economy Is Systemic

Keynesian and post-Keynesian thinkers such as John Maynard Keynes, Hyman Minsky, and Victoria Chick emphasize that unemployment is a normal outcome of capitalist dynamics, especially under uncertainty and demand deficiency. As Minsky pointed out, full employment is incompatible with financial stability in a deregulated capitalist system. Periodic crises and investment slowdowns result in cyclical surges of unemployment that cannot be solved by waiting for market corrections. Instead, the state must act as an “employer of last resort,” as advanced by modern monetary theorists like L. Randall Wray and Pavlina Tcherneva.

Statistical Blind Spots and the Self-Employment Illusion

Georgia’s unemployment data, based on the International Labour Organization (ILO) framework, vastly underrepresents labor underutilization. Following the ILO definition, a person who works just one hour per week in subsistence agriculture is considered employed. But as Erik Reinert argues, it is the qualitative nature of employment that matters: whether it builds human capital, generates productivity, or enables upward mobility. In Georgia, over half of the labor force is self-employed, mostly in low-productivity agriculture. This is not entrepreneurial vigor—it is disguised unemployment.

The Remittance Trap and Structural Dependency

A large portion of Georgia’s population survives not through domestic employment but via remittances from family members abroad. As Raúl Prebisch and other structuralists would observe, this reflects a dependent development model where labor export becomes a substitute for domestic industrial transformation. This remittance-driven survival economy creates perverse incentives: why seek unstable, low-paying jobs at home when one can rely on a relative’s income from Italy or Greece? The result is a palliative economy that reproduces poverty while creating the illusion of activity.

What Needs to Change: A Developmental State Vision

Mariana Mazzucato has forcefully argued that governments must go beyond correcting market failures and actively shape markets—investing in innovation, job creation, and strategic sectors. The Korean, Taiwanese, and Finnish experiences—highlighted by scholars like Alice Amsden and Robert Wade—show that full employment requires industrial policies, development banks, and public procurement aligned with long-term national goals. Georgia, however, remains a textbook case of institutional abandonment.

Industrial policy in Georgia has been piecemeal, reactive, and largely symbolic. Despite lip service to programs like “Produce in Georgia,” the country lacks a coherent employment strategy. As Ha-Joon Chang has emphasized, states must “kick away the ladder” only after they’ve climbed it; Georgia never climbed it to begin with. Active labor market policies—reskilling, job matching, public employment—receive microscopic budget allocations. According to 2016 figures, Georgia spent 0.007% of GDP on employment policies, while the EU average is 2%. This is not underperformance—it is abandonment.

Toward a Post-Neoliberal Future

To break free from this vicious cycle, Georgia must adopt a heterodox policy framework rooted in developmental pragmatism. This entails:

1. Redefining employment not just as any income-generating activity, but as meaningful, productive work that contributes to long-term development;

2. Adopting complementary employment metrics such as underemployment, long-term unemployment, and labor market discouragement;

3. Building a real industrial base, through mission-oriented investments in manufacturing, green energy, and digital infrastructure;

4. Creating a National Employment Strategy, combining both active and passive labor market measures tailored to Georgia’s demographic and geographic context;

5. Establishing a public development bank capable of providing long-term finance for employment-intensive sectors.

Conclusion: Employment as a Right, not a Residual

Heterodox economists remind us that unemployment is not a personal failure—it is a systemic policy choice. A society that leaves millions idle while vital needs go unmet is not efficient—it is dysfunctional. Georgia’s economic policies, built on neoliberal axioms, have normalized this dysfunction. A new vision must take root—one that places employment, not market purity, at the center of economic strategy. Only then can Georgia begin to build an inclusive, productive, and sustainable future.