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From the Shortage of Jobs to the Shortage of Skilled Workers: Labor Markets in the EU New Member States

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  • Rutkowski, Jan

    ()
    (World Bank)

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    Abstract

    Labor markets in the transition economies of Central and Eastern Europe underwent a dramatic transformation. Notably, this transformation took place within just a few years. Until the mid-2000s job opportunities were scarce and unemployment was high. But since then labor demand has picked up and unemployment has dropped substantially. In contrast to the earlier period of weak labor demand, it is now the supply side of the labor market that constrains job creation. These spectacular improvements can hardly be attributed to the greater labor market flexibility or to the more efficient matching of workers with jobs because no major reforms to labor market institutions were recently implemented in the region. Instead, the main cause was a strong increase in labor demand, as evidenced by the increase in the job vacancy rates and real wages. The surge in labor demand is likely to reflect successful enterprise restructuring supported by the improvements in the investment climate and access to global markets associated with the EU accession. For a long time enterprises in transition economies were improving competitiveness by shedding of redundant labor. Now they use productivity gains to invest, expand output and hire more workers. However, the emerging skills shortages may constrain firm growth. Thus the transition economies face a challenge of mobilizing effective labor supply. This requires improving labor supply incentives and investing in education. This paper documents the recent changes in labor market conditions in the transition economies, suggests tentative explanations, and finally suggests policies to address the emerging challenges.

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    Bibliographic Info

    Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3202.

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    Length: 31 pages
    Date of creation: Dec 2007
    Date of revision:
    Handle: RePEc:iza:izadps:dp3202

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    Related research

    Keywords: transition economies; labor market; unemployment; skill shortages;

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    References

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    1. Boone, Jan & van Ours, Jan C, 2004. "Effective Active Labour Market Policies," CEPR Discussion Papers 4707, C.E.P.R. Discussion Papers.
    2. Boone, J. & Ours, J.C. van, 2004. "Effective Labor Market Policies," Discussion Paper 2004-87, Tilburg University, Center for Economic Research.
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    Cited by:
    1. World Bank, 2011. "Challenges to Enterprise Performance in the Face of the Financial Crisis : Eastern Europe and Central Asia," World Bank Publications, The World Bank, number 2316, October.

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