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Firms, jobs, and employment in Moldova

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  • Rutkowski, Jan
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    Abstract

    Despite low open unemployment, labor market outcomes are unsatisfactory in Moldova. Employment is low and job opportunities are scarce. The author examines labor market performance in Moldova by focusing on firm dynamics. He finds that the low level of employment in Moldova is due to the low rate of firm entry and the low rate of job creation in existing firms. Although the rate of job destruction is high, this is typical of transition economies, and is a problem only because it is not coupled with a commensurate rate of job creation. Firm exit is limited and thus is not an important factor behind job losses. The only sector of the economy that creates jobs on a net basis is that consisting of de novo private and small firms. However, in Moldova this sector is significantly smaller than in the most successful transition economies. The author argues that the primary factor behind the small size of the employment generating sector is the high cost of doing business in Moldova. These include numerous administrative barriers, intrusive and costly inspections, and associated corruption. These costs-extremely high even by regional standards-lower the expected returns to business activity and thus discourage firm formation and growth. The author hence recommends improvements in the investment climate as a primary policy aimed at increasing productive employment and lowering unemployment. Priority should be given to fostering job creation through facilitating the formation of new firms and to reducing the constraints on the expansion of existing firms. The government should avoid measures aimed at forestalling the destruction of unviable jobs and firm exit as these are not conducive to long-run productivity and employment growth. Enhancing labor market flexibility is a further priority, as currently the apparently stringent provisions of the Labor Code are not complied with and enforced. Given the unsatisfactory business environment, active labor market programs are unlikely to be effective unless carefully targeted at the most disadvantaged worker groups.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3253.

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    Date of creation: 01 Mar 2004
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    Handle: RePEc:wbk:wbrwps:3253

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    Related research

    Keywords: Small and Medium Size Enterprises; Labor Management and Relations; Labor Policies; Small Scale Enterprise; Microfinance; Labor Management and Relations; Private Participation in Infrastructure; Small Scale Enterprise; Microfinance; Labor Standards;

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    1. Krueger, A. & Pischke, J.S., 1997. "Observations and Conjectures on the U.S. Employment Miracle," Working papers 97-15, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. Rutkowski, Jan, 2003. "Why is unemployment so high in Bulgaria?," Policy Research Working Paper Series 3017, The World Bank.
    3. Tito Boeri & Joaquim Oliveira Martins, 2002. "Varieties, Jobs and EU Enlargement," Rivista di Politica Economica, SIPI Spa, vol. 92(1), pages 139-178, January-F.
    4. Tito Boeri & Giuseppe Nicoletti & Stefano Scarpetta, . "Regulation and Labour Market Performance," Working Papers 158, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    5. Paloma Lopez-Garcia, 2002. "Labour market performance and start-up costs: OECD evidence," LSE Research Online Documents on Economics 20059, London School of Economics and Political Science, LSE Library.
    6. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
    7. Pietro Garibaldi & Paolo Mauro, 1999. "Deconstructing Job Creation," IMF Working Papers 99/109, International Monetary Fund.
    8. Rutkowski, Jan, 2003. "Does strict employment protection discourage job creation? Evidence from Croatia," Policy Research Working Paper Series 3104, The World Bank.
    9. Stefano Scarpetta & Philip Hemmings & Thierry Tressel & Jaejoon Woo, 2002. "The Role of Policy and Institutions for Productivity and Firm Dynamics: Evidence from Micro and Industry Data," OECD Economics Department Working Papers 329, OECD Publishing.
    10. Rutkowski, Jan, 2003. "Rapid labor reallocation with a stagnant unemployment pool : the puzzle of the labor market in Lithuania," Policy Research Working Paper Series 2946, The World Bank.
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