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The optimality and overuse of labour in Estonian manufacturing enterprises

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Author Info
Jaan Masso
Almas Heshmati

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Abstract

Transition economies need labour market flexibility for successful restructuring and reallocation of the labour force, and for coping with the requirements of the European Monetary Union. In this paper we apply a novel approach to the issue of labour market flexibility in transition countries by studying the optimality and efficiency of labour usage in Estonian manufacturing enterprises. We employ a dynamic model in which both the long-run optimal level of employment and the speed at which actual employment is adjusted to the optimal are modelled as functions of several variables. Firm-level panel data of 1995-99 were used. The results showed that in the long run, employment responds most strongly to wages, followed by value added and capital stock. The speed of adjustment, labour use optimality and efficiency all show much greater variations over firms than over time. In the course of time, both labour-saving technical change and an increase in the efficiency of labour usage occur. On average, there is shortage of labour compared to firms' own optimal level, along with overuse of labour compared to best-practice technology. Capital seems to be a binding constraint on the development of employment in the Estonian labour market. Copyright (c) The European Bank for Reconstruction and Development, 2004.

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Article provided by The European Bank for Reconstruction and Development in its journal The Economics of Transition.

Volume (Year): 12 (2004)
Issue (Month): 4 (December)
Pages: 683-720
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Handle: RePEc:bla:etrans:v:12:y:2004:i:4:p:683-720

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Polona Domadenik & Janez Prašnikar & Jan Svejnar, 2003. "Defensive and Strategic Restructuring of Firms during the Transition to a Market Economy," William Davidson Institute Working Papers Series 541, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  2. Eamets, Raul & Masso, Jaan, 2004. "Labour Market Flexibility and Employment Protection Regulation in the Baltic States," IZA Discussion Papers 1147, Institute for the Study of Labor (IZA). [Downloadable!]
  3. Michael Funke & Joerg Rahn, 2000. "How Efficient is the East German Economy? An Exploration With Micro Data," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  4. Jozef Konings and Hartmut Lehmann & Jozef Konings and Hartmut Lehmann, 2001. "Marshall and Labour Demand in Russia: Going Back to Basics," William Davidson Institute Working Papers Series 392, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  5. Kumbhakar, Subal C. & Heshmati, Almas & Hjalmarsson, Lennart, 2000. "How Fast Do Banks Adjust? A Dynamic Model of Labor-Use with an Application to Swedish Banks," Working Paper Series in Economics and Finance 411, Stockholm School of Economics, revised Nov 2001.
  6. Swati Basu & Saul Estrin & Jan Svejnar, 2000. "Employment and Wages in Enterprises Under Communism and in Transition: Evidence from Central Europe and Russia," William Davidson Institute Working Papers Series 114, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  7. Kumbhakar, Subal C & Hjalmarsson, Lennart, 1995. "Labour-Use Efficiency in Swedish Social Insurance Offices," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(1), pages 33-47, Jan.-Marc. [Downloadable!] (restricted)
  8. Brown, J David & Earle, John S, 2001. "Gross Job Flows in Russian Industry Before and After Reforms: Has Destruction Become More Creative?," CEPR Discussion Papers 2951, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  9. Kenneth R Troske, 1994. "Evidence on the Employer Size-Wage Premium From Worker-Establishment Matched Data," Working Papers 94-10, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
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  10. Nauro F. Campos & Fabrizio Coricelli, 2002. "Growth in Transition: What We Know, What We Don't, and What We Should," William Davidson Institute Working Papers Series 470, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  11. Francesca Pissarides & Miroslav Singer & Jan Svejnar, 2000. "Objectives and Constraints of Entrepreneurs: Evidence from Small and Medium Size Enterprises in Russia and Bulgaria," William Davidson Institute Working Papers Series 346, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  12. Helena Hannula & Katrin Tamm, 2002. "Restructuring And Efficiency In The Estonian Manufacturing Industry: The Role Of Foreign Ownership," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 15, Faculty of Economics and Business Administration, University of Tartu (Estonia), revised 2003. [Downloadable!]
  13. George E. Battese & Lennart Hjalmarsson & Almas Heshmati, 2000. "Efficiency of labour use in the Swedish banking industry: a stochastic frontier approach," Empirical Economics, Springer, vol. 25(4), pages 623-640. [Downloadable!] (restricted)
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  14. Heshmati, Almas & Ncube, Mkhululi, 1998. "A Flexible Adjustment Model of Employment with Application to Zimbabwe's Manufacturing Industries," Working Paper Series in Economics and Finance 278, Stockholm School of Economics, revised 15 Aug 2003. [Downloadable!]
  15. Tito Boeri & Katherine Terrell, 2001. "Institutional Determinants of Labor Reallocation in Transition," William Davidson Institute Working Papers Series 384, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  16. Haouas, Ilham & Yagoubi, Mahmoud & Heshmati, Almas, 2003. "Labour-Use Efficiency in Tunisian Manufacturing Industries," IZA Discussion Papers 687, Institute for the Study of Labor (IZA). [Downloadable!]
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  17. Baltagi, Badi H & Griffin, James M, 1988. "A General Index of Technical Change," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 20-41, February. [Downloadable!] (restricted)
  18. Faggio, Giulia & Konings, Jozef, 1999. "Gross Job Flows and Firm Growth in Transition Countries: Evidence Using Firm Level Data on Five Countries," CEPR Discussion Papers 2261, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Tomasz Mickiewicz & Kate Bishop & Urmas Varblane, 2004. "Financial Constraints in Investment - Foreign Versus Domestic Firms. Panel Data Results From Estonia, 1995-1999," William Davidson Institute Working Papers Series 2004-648, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  2. Saggay, Ali & Heshmati, Almas & Adel Dhif, Mohamed, 2006. "Effects of Trade Liberalization on Domestic Prices: Some Evidence from Tunisian Manufacturing," Ratio Working Papers 96, The Ratio Institute. [Downloadable!]
    Other versions:
  3. Maaja Vadi, 2003. "Background to the organisational culture developments in transitional Estonia," University of Tartu - Faculty of Economics and Business Administration, in: Organisational Culture in Estonia : Manifestations and Consequences, volume 16, chapter 1, pages 27-46 Faculty of Economics and Business Administration, University of Tartu (Estonia). [Downloadable!]
  4. Hannu Piekkola, 2006. "Tax cuts and employment: Evidence from Finnish linked employer-employee data," Discussion Papers 1041, The Research Institute of the Finnish Economy. [Downloadable!]
  5. Almas Heshmati, 2007. "Labor Market Policy Options of the Kurdistan Regional Government," IZA Discussion Papers 3247, Institute for the Study of Labor (IZA). [Downloadable!]
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