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The Optimality and Overuse of Labour in Estonian Manufacturing Enterprises

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  • Masso, Jaan

    (University of Tartu)

  • Heshmati, Almas

    (Jönköping University)

Abstract

For transition economies labour market flexibility is necessary for successful restructuring and reallocation of labour force and for coping with the requirements of the European Monetary Union. In this paper we apply a novel approach to the issue of labour market flexibility in transition countries by studying the optimality and efficiency of labour usage among Estonian manufacturing enterprises. A dynamic model is employed where both the long run optimal level of employment and the speed at which actual employment is adjusted to the optimal are modelled as functions of several variables. Firm level panel data from 1995 to 1999 were used. The results showed that in the long run employment responds greatest to wages, followed by value-added and capital stock. Speed of adjustment and labour use optimality and efficiency show much greater variations over firms than over time. In the course of time there occurs both labour saving technical change and an increase in the efficiency of labour usage. On average there is shortage of labour compared to firms’ own optimal level, while over use of labour compared to best-practice technology. Capital seems to be a binding constraint on the development of employment in the Estonian labour market.

Suggested Citation

  • Masso, Jaan & Heshmati, Almas, 2003. "The Optimality and Overuse of Labour in Estonian Manufacturing Enterprises," IZA Discussion Papers 884, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp884
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    Cited by:

    1. Piekkola, Hannu, 2006. "Tax cuts and employment: Evidence from Finnish linked employer-employee data," Discussion Papers 1041, The Research Institute of the Finnish Economy.
    2. Jan Svejnar & Joanna Tyrowicz & Lucas van der Velde, 2015. "Productivity and Inequality Effects of Rapid Labor Reallocation – Insights from a Meta-Analysis of Studies on Transition," Working Papers 2015-11, Faculty of Economic Sciences, University of Warsaw.
    3. Stanislaw Cichocki & Joanna Tyrowicz & Lucas van der Velde, 2017. "Cyclical Trend of Labor Reallocation in Poland: Transition and Structural Change," Eastern European Economics, Taylor & Francis Journals, vol. 55(6), pages 543-556, November.
    4. Tyrowicz, Joanna & van der Velde, Lucas, 2018. "Labor reallocation and demographics," Journal of Comparative Economics, Elsevier, vol. 46(1), pages 381-412.
    5. Joanna Tyrowicz & Lucas Velde & Jan Svejnar, 2017. "Effects Of Labor Reallocation On Productivity And Inequality—Insights From Studies On Transition," Journal of Economic Surveys, Wiley Blackwell, vol. 31(3), pages 712-732, July.
    6. Maaja Vadi, 2003. "Background to the organisational culture developments in transitional Estonia," University of Tartu - Faculty of Economics and Business Administration, in: Organisational Culture in Estonia : Manifestations and Consequences, volume 16, chapter 1, pages 27-46, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    7. Jelena Zarkovic-Rakic, 2015. "Employment effects of tax cuts in a transition country: evidence from Serbia," Post-Communist Economies, Taylor & Francis Journals, vol. 27(3), pages 395-410, September.
    8. Ali Saggay & Almas Heshmati & Mohamed Dhif, 2007. "Effects of trade liberalization on domestic prices: Some evidence from Tunisian manufacturing," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 54(1), pages 148-175, March.
    9. Heshmati, Almas, 2007. "Labor Market Policy Options of the Kurdistan Regional Government," IZA Discussion Papers 3247, Institute of Labor Economics (IZA).
    10. Tomasz Mickiewicz & Kate Bishop & Urmas Varblane, 2004. "Financial Constraints in Investment - Foreign Versus Domestic Firms. Panel Data Results From Estonia, 1995-1999," William Davidson Institute Working Papers Series 2004-648, William Davidson Institute at the University of Michigan.
    11. Jacek Socha, 2005. "Popyt na pracę w średnich i dużych przedsiębiorstwach przemysłu przetwórczego w Polsce w latach 1996-2003," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 7-8, pages 65-84.
    12. Heshmati, Almas & Rashidghalam, Masoomeh, 2016. "Labour Productivity in Kenyan Manufacturing and Service Industries," IZA Discussion Papers 9923, Institute of Labor Economics (IZA).
    13. Joanna Tyrowicz & Lucas van der Velde, 2014. "Can We Really Explain Worker Flows in Transition Economies?," Working Papers 2014-28, Faculty of Economic Sciences, University of Warsaw.

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    More about this item

    Keywords

    flexibility; employment; efficiency; labour; Estonia;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • P23 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Factor and Product Markets; Industry Studies; Population

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