Poor public transport can reduce employment in
the formal sector
Public transport infrastructure has not kept up
with the demands of growing populations in cities in developing countries.
Infrastructure provision has historically been biased against less affluent
areas, so access to formal jobs is often difficult and costly for a large
part of the lower-income population. As a result, low-income workers may be
discouraged from commuting to formal jobs, lack information on job
opportunities, and face discrimination. Through these channels, constrained
accessibility can result in higher rates of job informality. Reducing
informality can be a target for well-designed transport policies.
Excessive drinking is the main cause of high
male mortality rates, but the problem can be addressed
Eastern European countries, particularly former
Soviet Union economies, traditionally have the highest rates of alcohol
consumption in the world. Consequently, they also have some of the highest
male mortality rates in the world. Regulation can be effective in
significantly decreasing excessive drinking and its related negative
effects, such as low labor productivity and high rates of mortality.
Understanding the consequences of specific regulatory measures and what
tools should be used to combat excessive alcohol consumption is essential
for designing effective policies.
Harnessing the benefits of diversity is essential for
encouraging entrepreneurship in the transition region
Entrepreneurship is an important lever for spurring transition
in the economies of the former Soviet Union and Central and Eastern Europe. Utilizing
diversity, in terms of religion or gender, can positively affect entrepreneurial development.
Programs that encourage entrepreneurial initiatives (such as business start-ups) in culturally
diverse localities should rank high on the policy agenda. Prompting women to start a business,
along with female-friendly measures (including targeted legislation), can positively affect
entrepreneurial behaviour and the performance of existing enterprises.
Reducing under-reporting of salaries requires
In transition economies, a significant number of
companies reduce their tax and social contributions by paying their staff an
official salary, described in a registered formal employment agreement, and
an extra, undeclared “envelope wage,” via a verbal unwritten agreement. The
consequences include a loss of government income and a lack of fair play for
lawful companies. For employees, accepting under-reported wages reduces
their access to credit and their social protections. Addressing this issue
will help increase the quality of working conditions, strengthen trade
unions, and reduce unfair competition.
More important than defining and measuring
informality is focusing on reducing its detrimental consequences
There are more informal workers than formal
workers across the globe, and yet there remains confusion as to what makes
workers or firms informal and how to measure the extent of it. Informal work
and informal economic activities imply large efficiency and welfare losses,
in terms of low productivity, low earnings, sub-standard working conditions,
and lack of social insurance coverage. Rather than quibbling over
definitions and measures of informality, it is crucial for policymakers to
address these correlates of informality in order to mitigate the negative
efficiency and welfare effects.
The evidence is mixed on whether and how
economic reforms benefit informal labor
The evidence is mixed on whether informal labor
in developing countries benefits from trade and labor market reforms.
Reforms lead to higher wages and improved employment conditions in the
informal sector in some cases, and to the opposite effect in others. At a
cross-country level, lifting trade protection boosts informal-sector
employment. The direction and size of the impacts on informal-sector
employment and wages are determined by capital mobility and the interactions
between trade and labor market reforms and public policies, such as
monitoring the formal sector. To guarantee best practice policymakers need
to take these interdependencies into account.
In post-Soviet countries, well-functioning
institutions are needed to foster productive entrepreneurial development and
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
Low coverage and greater fragmentation can limit
the benefits of trade unions
Countries with strong industrial relations
institutions and well-established social dialogue often perform well in
terms of economic growth and social cohesion. The weak and fragmented
bargaining and low levels of union coverage in Central and Eastern Europe
(CEE) raise concerns about these countries’ potential to maintain
competitiveness, tackle demographic and macroeconomic challenges, and catch
up with Western European economic and social standards. There is evidence
that unions in CEE continue to protect their members and generate wage
premiums, despite their institutional weaknesses.
State capture and uneven infrastructure development due to foreign direct investment can outweigh productivity gains
Firms in the new EU member states of Eastern Europe are more productive than those in other transition economies, but with a diminishing advantage. The least productive firms benefit the most from membership, although the situation is reversed in the case of foreign-owned firms. Foreign direct investment fails to promote knowledge and technology spillovers beyond the receiving firms. The dominance of multinational enterprises in the new EU member states enhances the threat of corporate state capture and asymmetric infrastructure development, whilst access to finance remains a constricting issue for all firms.