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Why is unemployment so high in Bulgaria?

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  • Rutkowski, Jan
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    Abstract

    The author seeks to determine the main factors behind poor labor market outcomes in Bulgaria. Unemployment in Bulgaria is high and of long duration. The accumulation of the unemployment stock has been caused by relatively high inflows into unemployment coupled with limited outflows. These features of the Bulgarian labor market are typical of other transition economies in Central Europe and exploring their sources is of broad interest. The author focuses on determinants of and constraints to job creation. He uses data on job creation and job destruction from a survey of employment in all registered firms. He finds that the source of large inflows into unemployment is intensive enterprise restructuring associated with a high pace of job reallocation. However, job creation falls short of job destruction. Three main factors account for the limited job creation and hiring, and thus for low outflows from unemployment: a) The unfriendly business environment, reflected by a low rate of new firm formation, and a relatively small, small and medium enterprise sector. b) Labor market rigidities, including excessive hiring and firing costs. c) Skill and spatial mismatches brought about by enterprise restructuring, as well as low skills and marginalization of the long-term unemployed who cannot successfully compete for new jobs. The author recommends a three pronged strategy to improve labor market performance: (1) removing bureaucratic constraints to entry and expansion of firms; (2) enhancing labor market flexibility through lowering hiring and firing costs; and (3) improving the educational system so as to equip workers with broad and portable skills.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3017.

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    Date of creation: 30 Apr 2003
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    Handle: RePEc:wbk:wbrwps:3017

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    Keywords: Environmental Economics&Policies; Labor Policies; Labor Markets; Public Health Promotion; Health Monitoring&Evaluation; Environmental Economics&Policies; Labor Markets; Health Monitoring&Evaluation; Labor Standards; Banks&Banking Reform;

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    References

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    1. Bell, Una Louise, 2001. "Labour reallocation during transition: the case of Poland," ZEW Discussion Papers 01-38, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    2. World Bank, 2002. "Bulgaria : Poverty Assessment," World Bank Other Operational Studies 13868, The World Bank.
    3. Katharine G. Abraham & Lawrence F. Katz, 1987. "Cyclical Unemployment: Sectoral Shifts or Aggregate Disturbances?," NBER Working Papers 1410, National Bureau of Economic Research, Inc.
    4. World Bank, 2001. "Poland's Labor Market : The Challenge of Job Creation," World Bank Publications, The World Bank, number 13982, October.
    5. Beck, Thorsten & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2002. "Financial and legal constraints to firm growth - Does size matter?," Policy Research Working Paper Series 2784, The World Bank.
    6. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-93, August.
    7. Rutkowski, Jan J., 1999. "Labor markets and poverty in Bulgaria," Social Protection Discussion Papers 20817, The World Bank.
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    Cited by:
    1. Dimova, Ralitza & Gang, Ira N. & Landon-Lane, John, 2006. "Where to Work? The Role of the Household in Explaining Gender Differences in Labour Market Outcomes," IZA Discussion Papers 2476, Institute for the Study of Labor (IZA).
    2. Ralitza Dimova, 2006. "The Impact of Labor Reallocation and Competitive Pressure on TFP Growth: Firm-level Evidence from Crisis and Transition Ridden Bulgaria," CEDI Discussion Paper Series 06-04, Centre for Economic Development and Institutions(CEDI), Brunel University.
    3. Dimova, Ralitza & Wolff, François-Charles, 2008. "Are private transfers poverty and inequality reducing? Household level evidence from Bulgaria," Journal of Comparative Economics, Elsevier, vol. 36(4), pages 584-598, December.
    4. Michael Knogler & Volkhart Vincentz, 2004. "EU-Erweiterung : Die wirtschaftliche Beitrittsfähigkeit der Balkanländer," Working Papers 249, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies).
    5. Ralitza Dimova & Ira N. Gang, 2006. "Self-Selection And Wages During Volatile Transition," CEDI Discussion Paper Series 06-03, Centre for Economic Development and Institutions(CEDI), Brunel University.
    6. Krstic, Gorana & Sanfey, Peter, 2007. "Mobility, poverty and well-being among the informally employed in Bosnia and Herzegovina," Economic Systems, Elsevier, vol. 31(3), pages 311-335, September.
    7. Rutkowski, Jan, 2004. "Firms, jobs, and employment in Moldova," Policy Research Working Paper Series 3253, The World Bank.
    8. Rutkowski, Jan, 2006. "Labor market developments during economic transition," Policy Research Working Paper Series 3894, The World Bank.

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