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Labor market developments during economic transition

  • Rutkowski, Jan
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    The paper reviews labor market developments in the transition economies of Europe and Central Asia. It argues that the scarcity of productive job opportunities and the growing labor market segmentation are the two main labor market problems facing the transition economies. In the European transition economies thelack of jobs has led to persistent open unemployment. In the Commonwealth of Independent States (CIS) it has led to hidden unemployment (underemployment and low productivity employment). Unemployment in the European transition economies is supported by the developed social safety net. In contrast, in the CIS for most workers unemployment is not an affordable option. They either stick to their old, unproductive jobs in unrestructured enterprises, or work in the informal sector, or resort to subsistence agriculture. Thus, underemployment in the CIS is a mirror image of unemployment in the European transition economies. Accordingly, the high employment-to-population ratios in many CIS countries do not necessarily signify favorable labor market performance. Instead they often indicate delayed enterprise restructuring, the maintenance of unsustainable jobs in uncompetitive firms, and the existence of a large informal sector as an employer of last resort. Labor market segmentation has been caused by a sharp increase in earnings differentials and the attendant increase in the incidence of low-paid jobs, by the polarization of regional labor market conditions, and finally by the growth of the informal sector offering casual, low-productivity jobs. Labor market segmentation and accompanying inequalities are more pronounced in the CIS than in the European transition economies.

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    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3894.

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    Date of creation: 01 Apr 2006
    Date of revision:
    Handle: RePEc:wbk:wbrwps:3894
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    1. Daniel Münich & Jan Svejnar & Katherine Terrell, 2005. "Returns to Human Capital Under The Communist Wage Grid and During the Transition to a Market Economy," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 100-123, February.
    2. Rutkowski, Jan J., 2001. "Earnings inequality in transition economies of Central Europetrends and patterns during the 1990s," Social Protection Discussion Papers 23306, The World Bank.
    3. Rutkowski, Jan, 2003. "Why is unemployment so high in Bulgaria?," Policy Research Working Paper Series 3017, The World Bank.
    4. Rutkowski, Jan J., 1999. "Labor markets and poverty in Bulgaria," Social Protection Discussion Papers 20817, The World Bank.
    5. Rutkowski, Jan, 2003. "Does strict employment protection discourage job creation? Evidence from Croatia," Policy Research Working Paper Series 3104, The World Bank.
    6. repec:iza:izadps:dp893 is not listed on IDEAS
    7. Orazem, Peter & Vodopivec, Milan, 1995. "Winners and Losers in Transition: Returns to Education, Experience, and Gender in Slovenia," Staff General Research Papers 5270, Iowa State University, Department of Economics.
    8. Jan Rutkowski, 1996. "High skills pay off: the changing wage structure during economic transition in Poland," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 4(1), pages 89-112, 05.
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    14. Rutkowski, Jan, 2003. "Rapid labor reallocation with a stagnant unemployment pool : the puzzle of the labor market in Lithuania," Policy Research Working Paper Series 2946, The World Bank.
    15. Jan Fidrmuc, 2002. "Migration and regional adjustment to asymmetric shocks in transition economies," CPB Discussion Paper 7, CPB Netherlands Bureau for Economic Policy Analysis.
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    18. Schneider, Friedrich, 2002. "The Size and Development of the Shadow Economies of 22 Transition and 21 OECD Countries," IZA Discussion Papers 514, Institute for the Study of Labor (IZA).
    19. Atkinson,Anthony Barnes & Micklewright,John, 1992. "Economic Transformation in Eastern Europe and the Distribution of Income," Cambridge Books, Cambridge University Press, number 9780521433297.
    20. Newell, Andrew & Reilly, Barry, 1997. "Rates of Return to Educational Qualifications in the Transitional Economies," Discussion Papers in Economics 03/97, Department of Economics, University of Sussex.
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    22. Peter Huber, 2003. "Quantity Adjustments in Candidate Countries Regional Labour Markets," ERSA conference papers ersa03p239, European Regional Science Association.
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