The labor market and the transition of socialist economies

All socialist countries of Eastern Europe but Albania are now starting to fundamentally restructure their economic and political systems -- with the clear goals of a market economy and multiparty democracy. Reform of the labor market is essential to these efforts. First, as a factor of production, labor has the most potential for increasing productivity. Second, adjustment of the labor market has been critical to the success of reform efforts in other countries undergoing drastic adjustment. The challenge of the transition will be to reallocate labor while minimizing the social costs of unemployment. This paper analyzes how the labor market functions in socialist economies (SEs), identifies the key issues of labor reform, and makes policy recommendations. It describes the East European countries'economic legacy from the socialist era. It also focuses on features of the SE labor market, and how it functions. The paper concludes with policy implications and identifies important research issues.