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Why is unemployment so high in Bulgaria?


  • Rutkowski, Jan


The author seeks to determine the main factors behind poor labor market outcomes in Bulgaria. Unemployment in Bulgaria is high and of long duration. The accumulation of the unemployment stock has been caused by relatively high inflows into unemployment coupled with limited outflows. These features of the Bulgarian labor market are typical of other transition economies in Central Europe and exploring their sources is of broad interest. The author focuses on determinants of and constraints to job creation. He uses data on job creation and job destruction from a survey of employment in all registered firms. He finds that the source of large inflows into unemployment is intensive enterprise restructuring associated with a high pace of job reallocation. However, job creation falls short of job destruction. Three main factors account for the limited job creation and hiring, and thus for low outflows from unemployment: a) The unfriendly business environment, reflected by a low rate of new firm formation, and a relatively small, small and medium enterprise sector. b) Labor market rigidities, including excessive hiring and firing costs. c) Skill and spatial mismatches brought about by enterprise restructuring, as well as low skills and marginalization of the long-term unemployed who cannot successfully compete for new jobs. The author recommends a three pronged strategy to improve labor market performance: (1) removing bureaucratic constraints to entry and expansion of firms; (2) enhancing labor market flexibility through lowering hiring and firing costs; and (3) improving the educational system so as to equip workers with broad and portable skills.

Suggested Citation

  • Rutkowski, Jan, 2003. "Why is unemployment so high in Bulgaria?," Policy Research Working Paper Series 3017, The World Bank.
  • Handle: RePEc:wbk:wbrwps:3017

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    References listed on IDEAS

    1. Abraham, Katharine G & Katz, Lawrence F, 1986. "Cyclical Unemployment: Sectoral Shifts or Aggregate Disturbances?," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 507-522, June.
    2. Bell, Una Louise, 2001. "Labour reallocation during transition: the case of Poland," ZEW Discussion Papers 01-38, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. World Bank, 2002. "Bulgaria : Poverty Assessment," World Bank Other Operational Studies 13868, The World Bank.
    4. Nikolay Nenovsky & S. Statev, 2006. "Introduction," Post-Print halshs-00260898, HAL.
    5. World Bank, 2001. "Poland's Labor Market : The Challenge of Job Creation," World Bank Publications, The World Bank, number 13982, March.
    6. Beck, Thorsten & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2002. "Financial and legal constraints to firm growth - Does size matter?," Policy Research Working Paper Series 2784, The World Bank.
    7. Rutkowski, Jan J., 1999. "Labor markets and poverty in Bulgaria," Social Protection and Labor Policy and Technical Notes 20817, The World Bank.
    8. Faggio, Giulia & Konings, Jozef, 1999. "Gross Job Flows and Firm Growth in Transition Countries: Evidence Using Firm Level Data on Five Countries," CEPR Discussion Papers 2261, C.E.P.R. Discussion Papers.
    9. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-793, August.
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    Cited by:

    1. Michael Knogler & Volkhart Vincentz, 2004. "EU-Erweiterung : Die wirtschaftliche Beitrittsfähigkeit der Balkanländer," Working Papers 249, Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies).
    2. Ralitza Dimova, 2006. "Monopolistic wages or efficient contracts?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 14(2), pages 321-347, April.
    3. Ralitza Dimova, 2008. "The impact of labour reallocation and competitive pressure on TFP growth: firm-level evidence from crisis and transition ridden Bulgaria," International Review of Applied Economics, Taylor & Francis Journals, vol. 22(3), pages 321-338.
    4. Dimova, Ralitza & Gang, Ira N. & Landon-Lane, John, 2006. "Where to Work? The Role of the Household in Explaining Gender Differences in Labour Market Outcomes," IZA Discussion Papers 2476, Institute for the Study of Labor (IZA).
    5. Dimova, Ralitza & Gang, Ira N., 2007. "Self-selection and wages during volatile transition," Journal of Comparative Economics, Elsevier, vol. 35(3), pages 612-629, September.
    6. Krstic, Gorana & Sanfey, Peter, 2007. "Mobility, poverty and well-being among the informally employed in Bosnia and Herzegovina," Economic Systems, Elsevier, vol. 31(3), pages 311-335, September.
    7. World Bank, 2009. "Bulgaria : Living Conditions Before and After EU Accession," World Bank Other Operational Studies 18898, The World Bank.
    8. Dimova, Ralitza & Wolff, François-Charles, 2008. "Are private transfers poverty and inequality reducing? Household level evidence from Bulgaria," Journal of Comparative Economics, Elsevier, vol. 36(4), pages 584-598, December.
    9. Rutkowski, Jan, 2006. "Labor market developments during economic transition," Policy Research Working Paper Series 3894, The World Bank.
    10. Rutkowski, Jan, 2004. "Firms, jobs, and employment in Moldova," Policy Research Working Paper Series 3253, The World Bank.
    11. 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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