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Job Destruction, Job Creation and Unemployment in Transition Countries: What Can We Learn?

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  • Giulia Faggio

Abstract

Sixteen years into the transition, the problem of high joblessness has not been solved. Of the three explanations commonly discussed (i.e. ongoing reallocation; finished reallocation with redundant labour; wrong choice of institutional framework), we concentrated on the ongoing reallocation hypothesis. We show that there is a negative correlation between job creation in the private sector and unemployment. We also show that long-term unemployment depends on current and past values of short-term unemployment and that this path-dependence fades away as soon as we reach time t-3. We interpret this result as an indication that the process of reallocation started at the beginning of the 1990s still influences today's labour market. We address three components of the transition debate: shock therapy versus gradualism; privatization; and political change. Contrary to Godoy and Stiglitz (2006), we do not find gradualism superior to shock therapy in terms of private sector growth. In addition, we confirm that full privatization is positively associated with job destruction in the state sector. Finally, we show that during early years of democratization the state sector was dismantled more vigorously than in other periods.

Suggested Citation

  • Giulia Faggio, 2007. "Job Destruction, Job Creation and Unemployment in Transition Countries: What Can We Learn?," CEP Discussion Papers dp0798, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp0798
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    Cited by:

    1. Gábor Kézdi & István Kónya, 2009. "Wage setting in Hungary: evidence from a firm survey," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 4(3), pages 20-26, October.
    2. Ariane TICHIT & Solenne TANGUY, 2012. "Initial reforms and dynamics of transition," Working Papers 201215, CERDI.
    3. Brixiova, Zuzana & Li, Wenli & Yousef, Tarik, 2009. "Skill shortages and labor market outcomes in Central Europe," Economic Systems, Elsevier, vol. 33(1), pages 45-59, March.
    4. R. Laynard & D. Clark & M. Knapp & G. Mayraz, 2007. "Cost-benefit analysis of psychological therapy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 202(1), pages 90-98, October.
    5. Vera Brusentsev & Wayne Vroman, 2008. "Unemployment And Unemployment Protection In Transition Economies," Working Papers 08-15, University of Delaware, Department of Economics.
    6. Vladimir Gligorov & Anna Iara & Michael Landesmann & Robert Stehrer & Hermine Vidovic, 2008. "Western Balkan Countries: Adjustment Capacity to External Shocks, with a Focus on Labour Markets," wiiw Research Reports 352, The Vienna Institute for International Economic Studies, wiiw.

    More about this item

    Keywords

    job reallocation; unemployment; transitional economies;

    JEL classification:

    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • P20 - Economic Systems - - Socialist Systems and Transition Economies - - - General

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