Employment and unemployment in transition: the legacy of the communist past

This article deals with a specific legacy, concerning the labour force, with which transition countries have been burdened while instituting systemic change. The majority of authors have concentrated on what this author calls transition cyclical unemployment, resulting from the permanent excess demand and the lack of penalty for financial failure under the communist economic system. However, another, more pernicious legacy has been the distorted skill structure in communist economies. This article explains the sources of a bias in favour of low-skilled workers in the past. In consequence, when transition began, these economies were faced with heavy excess supply of low-skilled and high demand for better skilled workers. The latter stemmed from normal requirements of economic development, that is, the need for continuous output quality improvement, technological upgrading and change in the portfolio of goods and services produced. Among the consequences of the sharp downward change in demand for low-skilled labour have been growing wage differentials and the emergence of a large pool of unemployed (and often unemployable) low-skilled labour, which may be called transition structural unemployment. In macroeconomic terms an unusually high unemployment rate was observed for about a decade following the beginning of transition.