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Can We Really Explain Worker Flows in Transition Economies?

Author

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  • Joanna Tyrowicz

    () (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland)

  • Lucas van der Velde

    () (Faculty of Economic Sciences, University of Warsaw)

Abstract

This paper employs a new rich source of data on worker reallocation in transition economies and provides a decomposition of the aggregate changes into those attributable to sectoral reallocation, those attributable to transition per se and those attributable to demographics. Aghion and Blanchard (1994) provide a theoretical framework that allows to conceptualize a reallocation from an (implicitly inefficient) public sector to a (more efficient) private sector, which is extremely useful in the analyses of economic transition. However, transition processes are not isolated from global trends such as a shift from industry to services, which is more explicitly tackled in the sectoral reallocation models of Caballero and Hammour (1996, 2001). Finally, there are also demographic processes, which exhibit in labor market exits by people with outdated or no longer necessary skills and in labor market entries by people with possibly better matched competences. The aggregate changes in transition economies are a combination of these three mechanisms. We thus test the validity of Aghion and Blanchard (1994) as well as Caballero and Hammour (1996, 2001) in the context of 26 transition economies over the period 1989-2006. We find that demographics and education can accommodate a fair share of shift from public to private and from manufacturing to services - as opposed to the actual worker flows between jobs. Whether or not this results in reduced employment at the end of the transition process stems not from the wage setting mechanism (such as collective bargaining, indexation, etc.) but rather seems to be related to the policies able to keep older cohorts in employment.

Suggested Citation

  • 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.
  • Handle: RePEc:war:wpaper:2014-28
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    File URL: http://www.wne.uw.edu.pl/inf/wyd/WP/WNE_WP145.pdf
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    Cited by:

    1. 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.
    2. 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.

    More about this item

    Keywords

    optimal speed of transition; reallocation; Aghion and Balnchard; Caballero and Hammour; demographic changes; transition economies; labour market.;

    JEL classification:

    • P31 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions
    • P52 - Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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