Institutions, policies, and labor market outcomes

  • Do institutions matter for entrepreneurial development?

    In post-Soviet countries, well-functioning institutions are needed to foster productive entrepreneurial development and growth

    Ruta Aidis, February 2017
    Supportive institutional environments help build the foundations for innovative and productive entrepreneurship. A few post-Soviet countries have benefitted from international integration through EU membership, which enabled the development of democracy and free market principles. However, many post-Soviet economies continue to face high levels of corruption, complex business regulations, weak rule of law and uncertain property rights. For them, international integration can provide the needed support to push through unpopular yet necessary stages of the reform process.
  • Latent entrepreneurship in transition economies

    Some entrepreneurs and would-be entrepreneurs face financial and bureaucratic barriers to starting a business

    Hilal Atasoy, June 2015
    Because entrepreneurial activity can stimulate job creation and long-term economic growth, promoting entrepreneurship is an important goal. However, many financial, bureaucratic, and social barriers can short-circuit the process of actually starting a business, especially in transition economies that lack established institutional systems and markets. The main obstacles are underdeveloped financial markets, perceptions of administrative complexity, political and economic instability, and lack of trust in institutions. Gender disparities in the labor market are also reflected in less entrepreneurial activity among women than men.
  • Trade and labor markets: Lessons from China’s rise

    The China Shock has challenged economists’ benign view of how trade integration affects labor markets in developed countries

    David H. Autor, February 2018
    Economists have long recognized that free trade has the potential to raise countries’ living standards. But what applies to a country as a whole need not apply to all its citizens. Workers displaced by trade cannot change jobs costlessly, and by reshaping skill demands, trade integration is likely to be permanently harmful to some workers and permanently beneficial to others. The “China Shock”—denoting China’s rapid market integration in the 1990s and its accession to the World Trade Organization in 2001—has given new, unwelcome empirical relevance to these theoretical insights.
  • New firms entry, labor reallocation, and institutions in transition economies

    In transition economies, better property rights protection and rule of law enforcement can boost job creation and growth

    Randolph L. Bruno, September 2015
    In the transition from central planning to a market economy in the 1990s, governments focused on privatizing or closing state enterprises, reforming labor markets, compensating laid-off workers, and fostering job creation through new private firms. After privatization, the focus shifted to creating a level playing field in the product market by protecting property rights, enforcing the rule of law, and implementing transparent start-up regulations. A fair, competitive environment with transparent rules supports long-term economic growth and employment creation through the reallocation of jobs in favor of new private firms.
  • Determinants of inequality in transition countries

    Market changes and limited redistribution contributed to high income and wealth inequality growth in Eastern Europe

    High levels of economic inequality may lead to lower economic growth and can have negative social and political impacts. Recent empirical research shows that income and wealth inequalities in Eastern Europe since the fall of socialism increased significantly more than previously suggested. Currently, the average Gini index (a common measure) of inequality in Eastern Europe is about 3 percentage points higher than in the rest of Europe. This rise in inequality was initially driven by privatization, liberalization, and deregulation reforms, and, more recently, has been amplified by technological change and globalization coupled with relatively ungenerous income and wealth redistribution policies.
  • One-company towns: Scale and consequences

    One-company towns concentrate employment but their ability to adapt to adverse events is often very limited

    Simon Commander, March 2018
    One-company towns are a relatively rare phenomenon. Mostly created in locations that are difficult to access, due to their association with industries such as mining, they have been a marked feature of the former planned economies. One-company towns typically have high concentrations of employment that normally provide much of the funding for local services. This combination has proven problematic when faced with shocks that force restructuring or even closure. Specific policies for the redeployment of labor and funding of services need to be in place instead of subsidies simply aimed at averting job losses.
  • The mortality crisis in transition economies

    Social disruption, acute psychosocial stress, and excessive alcohol consumption raise mortality rates during transition to a market economy

    Giovanni Andrea Cornia, October 2016
    Large and sudden economic and political changes, even if potentially positive, often entail enormous social and health costs. Such transitory costs are generally underestimated or neglected by incumbent governments. The mortality crisis experienced by the former communist countries of Europe—which caused ten million excess deaths from 1990 to 2000—is a good example of how the transition from a low to a high socio-economic level can generate huge social costs if it is not actively, effectively, and equitably managed from a public policy perspective.
  • Institutions and the support for market reforms

    A combination of individual self-interest and good institutions determines the level of public support for market reforms

    Irina Denisova, May 2016
    Economic self-interest and social considerations are the key determinants of public support for market reforms in transition countries. However, political strategies that rely mainly on public support for pushing through economic reforms have limited relevance if the prevailing institutional environment is weak or corrupt. Poor governance and under-developed democracy significantly reduce the level of support. A good institutional framework allows the potential gains from reforms to be realized in a beneficial way, while corruption and poor governance deny the prospect of gains for individuals and for society.
  • International trade regulation and job creation Updated

    Trade policy is not an employment policy and should not be expected to have major effects on overall employment

    Trade regulation can create jobs in the sectors it protects or promotes, but almost always at the expense of destroying a roughly equivalent number of jobs elsewhere in the economy. At a product-specific or micro level and in the short term, controlling trade could reduce the offending imports and save jobs, but for the economy as a whole and in the long term, this has neither theoretical support nor evidence in its favor. Given that protection may have other—usually adverse—effects, understanding the difficulties in using it to manage employment is important for economic policy.
  • Is the post-communist transition over?

    Support for economic liberalization reforms is essential, but it grows stronger only where societies experience the effects of reversing these reforms

    An extensive program of economic liberalization reforms, even when it generates positive outcomes, does not automatically generate support for further reforms. Societies respond with strong support only after experiencing the effects of reversing these reforms (i.e. corruption, inequality of opportunity). This point is illustrated through the example of the post-communist transformation in Eastern Europe and Central Asia—arguably a context where the end point of reforms was never clearly defined, and even successful reforms are now associated with a degree of reform suspicion.
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