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Job destruction, job creation and unemployment in transition countries: what can we learn?

  • Giulia Faggio

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.

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File URL: http://eprints.lse.ac.uk/19716/
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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 19716.

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Length: 58 pages
Date of creation: May 2007
Date of revision:
Handle: RePEc:ehl:lserod:19716
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Web page: http://www.lse.ac.uk/

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  16. John Bennett & Saul Estrin & James Maw & Giovanni Urga, . "Privatization Methods and Economic Growth," Economics and Finance Discussion Papers 03-24, Economics and Finance Section, School of Social Sciences, Brunel University.
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