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Institutional Determinants of Labor Reallocation in Transition

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  • Tito Boeri
  • Katherine Terrell

Abstract

Studying the transition means analyzing the interactions between institutions and structural change, a process we still know very little about. In this paper we show that the transition process has been very different in the countries of the Former Soviet Union (FSU) and those of Central and Eastern Europe (CEE) in terms of reallocation of labor from the old to the new sector, the extent of real wage decline and responsiveness of employment to output changes. We sift through the theoretical and empirical literature to find an explanation for these diverging adjustment trajectories and conclude that the difference can be explained in part by different policy models. The CEE countries adopted social policies that upheld wages at the bottom of the distribution and hence forced the unproductive old sector to restructure or collapse. The FSU countries allowed wages to free fall and hence did not force the hand of the old sector. Why these two models were adopted is the subject for political-economy research, however we speculate that it has to do with the relative appeal of joining the EU.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 384.

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Length: pages
Date of creation: 01 Jun 2001
Date of revision:
Handle: RePEc:wdi:papers:2001-384

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Keywords: transition economies; labor reallocation; institutions; wages;

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References

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  1. Mark C. Foley, 1997. "Labor Market Dynamics in Russia," Working Papers 780, Economic Growth Center, Yale University.
  2. Tito Boeri & Christopher J. Flinn, 1999. "Returns to Mobility in the Transition to a Market Economy," William Davidson Institute Working Papers Series 217, William Davidson Institute at the University of Michigan.
  3. Jochen Kluve & Hartmut Lehmann & Christopher Schmidt, 1998. "Active Labor Market Policies in Poland: Human Capital Enhancement, Stigmatization or Benefit Churning?," William Davidson Institute Working Papers Series 215, William Davidson Institute at the University of Michigan.
  4. Richard Layard & Andrea Richter, 1995. "How much unemployment is needed for restructing: the Russian experience," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 3(1), pages 39-58, 03.
  5. Bellmann Lutz & Estrin Saul & Lehmann Hartmut & Wadsworth Jonathan, 1995. "The Eastern German Labor Market in Transition: Gross Flow Estimates from Panel Data," Journal of Comparative Economics, Elsevier, vol. 20(2), pages 139-170, April.
  6. Huitfeldt, H., 2001. "Unemployment, Labour Market Programmes and Wage Determination: Evidence from the Czech and Slovak Republics," Papers 2001:01, Uppsala - Working Paper Series.
  7. Earle, John S. & Sakova, Zuzana, 2000. "Business start-ups or disguised unemployment? Evidence on the character of self-employment from transition economies," Labour Economics, Elsevier, vol. 7(5), pages 575-601, September.
  8. Daniel Munich & Jan Svejnar & Katherine Terrell, 1999. "Worker-firm Matching and Unemployment in Transition to a Market Economy: (Why) Are the Czechs More Successful than Others?," CERGE-EI Working Papers wp141, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  9. Boeri, Tito & Scarpetta, Stefano, 1996. "Regional mismatch and the transition to a market economy," Labour Economics, Elsevier, vol. 3(3), pages 233-254, October.
  10. Sorm, Vit & Terrell, Katherine, 2000. "Sectoral Restructuring and Labor Mobility: A Comparative Look at the Czech Republic," IZA Discussion Papers 111, Institute for the Study of Labor (IZA).
  11. Boeri, Tito, 1997. "Learning from Transition Economies: Assessing Labor Market Policies across Central and Eastern Europe," Journal of Comparative Economics, Elsevier, vol. 25(3), pages 366-384, December.
  12. Garner, Thesia I & Terrell, Katherine, 1998. "A Gini Decomposition Analysis of Inequality in the Czech and Slovak Republics during the Transition," CEPR Discussion Papers 1897, C.E.P.R. Discussion Papers.
  13. Flanagan, Robert J., 1998. "Were communists good human capitalists? The case of the Czech Republic," Labour Economics, Elsevier, vol. 5(3), pages 295-312, September.
  14. Daniel Münich & Jan Svejnar & Katherine Terrell, 2005. "Returns to Human Capital Under The Communist Wage Grid and During the Transition to a Market Economy," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 100-123, February.
  15. Terrell, Katherine & Sorm, Vit, 1999. "Labor Market Policies and Unemployment in the Czech Republic," Journal of Comparative Economics, Elsevier, vol. 27(1), pages 33-60, March.
  16. Derek C. Jones, 1995. "Successor unions in transitional economies: Evidence from St. Petersburg," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 49(1), pages 39-57, October.
  17. Castanheira, Micael & Roland, Gerard, 2000. "The Optimal Speed of Transition: A General Equilibrium Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 219-39, February.
  18. Patrick A. Puhani, 2000. "Poland on the dole: The effect of reducing the unemployment benefit entitlement period during transition," Journal of Population Economics, Springer, vol. 13(1), pages 35-44.
  19. Vodopivec, Milan & Worgotter, Andreas & Raju, Dhushyanth, 2003. "Unemployment benefit systems in Central and Eastern Europe : a review of the 1990s," Social Protection Discussion Papers 26307, The World Bank.
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  21. Huitfeldt, Henrik, 2001. "Unemployment, Labour Market Programmes and Wage Determination: Evidence from the Czech and Slovak Republics," Working Paper Series 2001:1, Uppsala University, Department of Economics.
  22. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, June.
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