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Institutional Determinants of Labor Reallocation in Transition

  • Tito Boeri
  • Katherine Terrell

Studying the transition means analyzing the interactions between institutions and structural change, a process we still know very little about. In this paper we show that the transition process has been very different in the countries of the Former Soviet Union (FSU) and those of Central and Eastern Europe (CEE) in terms of reallocation of labor from the old to the new sector, the extent of real wage decline and responsiveness of employment to output changes. We sift through the theoretical and empirical literature to find an explanation for these diverging adjustment trajectories and conclude that the difference can be explained in part by different policy models. The CEE countries adopted social policies that upheld wages at the bottom of the distribution and hence forced the unproductive old sector to restructure or collapse. The FSU countries allowed wages to free fall and hence did not force the hand of the old sector. Why these two models were adopted is the subject for political-economy research, however we speculate that it has to do with the relative appeal of joining the EU.

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Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 384.

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Length: pages
Date of creation: 01 Jun 2001
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Handle: RePEc:wdi:papers:2001-384
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  7. Daniel Munich & Jan Svejnar & Daniel Munich, 1999. "Returns to Human Capital under the Communist Wage Grid and During the Transition to a Market Economy," William Davidson Institute Working Papers Series 272, William Davidson Institute at the University of Michigan.
  8. L Bellmann & S Estrin & H Lehmann & Jonathan Wadsworth, 1992. "The Eastern German Labour Market in Transition: Gross Flow Estimates from Panel Data," CEP Discussion Papers dp0102, Centre for Economic Performance, LSE.
  9. Atkinson,Anthony Barnes & Micklewright,John, 1992. "Economic Transformation in Eastern Europe and the Distribution of Income," Cambridge Books, Cambridge University Press, number 9780521438827, Junio.
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  11. Castanheira, Micael & Roland, Gerard, 2000. "The Optimal Speed of Transition: A General Equilibrium Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 219-39, February.
  12. Daniel Munich & Jan Svejnar & Katherine Terrell, 1999. "Worker-firm Matching and Unemployment in Transition to a Market Economy: (Why) Are the Czechs More Successful than Others?," CERGE-EI Working Papers wp141, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
  13. Vodopivec, Milan & Worgotter, Andreas & Raju, Dhushyanth, 2003. "Unemployment benefit systems in Central and Eastern Europe : a review of the 1990s," Social Protection and Labor Policy and Technical Notes 26307, The World Bank.
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  15. Derek C. Jones, 1995. "Successor Unions in Transitional Economies: Evidence from St. Petersburg," ILR Review, Cornell University, ILR School, vol. 49(1), pages 39-57, October.
  16. Richard Layard & Andrea Richter, 1995. "How much unemployment is needed for restructing: the Russian experience," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 3(1), pages 39-58, 03.
  17. Thesia I. Garner & Katherine Terrell, 1998. "A Gini decomposition analysis of inequality in the Czech and Slovak Republics during the transition," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 6(1), pages 23-46, 05.
  18. Foley, M.C., 1997. "Labor Market Dynamics in Russia," Papers 780, Yale - Economic Growth Center.
  19. Katherine Terrell & Vit Sorm, 1998. "Labor Market Policies and Unemployment in the Czech Republic," William Davidson Institute Working Papers Series 216, William Davidson Institute at the University of Michigan.
  20. Flanagan, Robert J., 1998. "Were communists good human capitalists? The case of the Czech Republic," Labour Economics, Elsevier, vol. 5(3), pages 295-312, September.
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  22. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, September.
  23. Huitfeldt, Henrik, 2001. "Unemployment, Labour Market Programmes and Wage Determination: Evidence from the Czech and Slovak Republics," Working Paper Series 2001:1, Uppsala University, Department of Economics.
  24. Patrick A. Puhani, 2000. "Poland on the dole: The effect of reducing the unemployment benefit entitlement period during transition," Journal of Population Economics, Springer;European Society for Population Economics, vol. 13(1), pages 35-44.
  25. Huitfeldt, H., 2001. "Unemployment, Labour Market Programmes and Wage Determination: Evidence from the Czech and Slovak Republics," Papers 2001:01, Uppsala - Working Paper Series.
  26. Boeri, Tito & Scarpetta, Stefano, 1996. "Regional mismatch and the transition to a market economy," Labour Economics, Elsevier, vol. 3(3), pages 233-254, October.
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