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Government Distributional Concerns and Economic Policy During the Transition from Socialism

  • Gordon, Roger H
  • Li, David Daokui

Before the transition governments had strong distributional objectives, which they pursued mainly by direct controls over state enterprise wage rates and hiring decisions, yielding a highly compressed wage distribution. During the reform they maintained similar controls over state enterprises, but had to take into account competition from the new non-state sector that was mostly free from these controls. Based on these distributional considerations alone, we forecast: 1) an immediate and continuing decline in the skills of workers in the state sector as the most able workers leave; 2) higher productivity in the non-state sector, which consists of the most able workers; 3) accounting losses in the state sector, reflecting the transfer of tax revenue to finance payments to the unskilled previously financed within the firm; and 4) restructuring within the state sector to reduce the distortions to relative wage rates. These phenomena are broadly observed across all transition economies.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1662.

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Date of creation: Jun 1997
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Handle: RePEc:cpr:ceprdp:1662
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