In transition economies, better property rights
protection and rule of law enforcement can boost job creation and growth
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.
Labor productivity is generally seen as bringing
wealth and prosperity; but how does it vary over the business cycle?
Aggregate labor productivity is a central
indicator of an economy’s economic development and a wellspring of living
standards. Somewhat controversially, many macroeconomists see productivity
as a primary driver of fluctuations in economic activity along the business
cycle. In some countries, the cyclical behavior of labor productivity seems
to have changed. In the past 20–30 years, the US has become markedly less
procyclical, while the rest of the OECD has not changed or productivity has
become even more procyclical. Finding a cogent and coherent explanation of
these developments is challenging.
One-company towns concentrate employment but
their ability to adapt to adverse events is often very limited
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.
Substantial skill shortages coexist with
overeducation, affecting both young and old workers
Large imbalances between the supply and demand
for skills in transition economies are driven by rapid economic
restructuring, misalignment of the education system with labor market needs,
and underdeveloped adult education and training systems. The costs of
mismatches can be large and long-lasting for workers, firms, and economies,
with long periods of overeducation implying a loss of human capital for
individuals and ineffective use of resources for the economy. To make
informed decisions, policymakers need to understand how different types of
workers and firms are affected by overeducation and skill shortages.
Knowing which workers are displaced in
restructuring episodes helps governments devise the right equity- and
Continuous enterprise restructuring is needed for
the transition and emerging market economies to become and remain
competitive. However, the beneficial effects of restructuring in the medium
run are accompanied by large worker displacement. The costs of displacement
can be large and long-lasting for some workers and for the economy. To
devise the right policy interventions, governments need to fully understand
which workers are displaced and what costs they bear.
Restructuring and upskilling prevents job
polarization but may leave countries vulnerable to routine-biased technical
Job polarization can pose serious problems for
emerging economies that rely on worker reallocation from low-skilled to
middle-skilled jobs to converge toward advanced economies. Evidence from
Central and Eastern European (CEE) countries shows that structural change
and education expansion can prevent polarization, as they enable a shift
from manual to cognitive work and prevent the “hollowing out” of
middle-skilled jobs. However, in CEE countries they have also led to a high
routine cognitive content of jobs, which makes such jobs susceptible to
automation and computerization in the future.
A range of other policies and changes are needed
for childcare expansion to increase mothers’ labor supply
In 2002, the EU set targets for expanding
childcare coverage, but most of the post-socialist countries are behind
schedule. While childcare expansion places a heavy financial burden on
governments, low participation in the labor force by mothers, especially
those with children under the age of three, implies a high potential impact.
However, the effectiveness of childcare expansion may be limited by some
common characteristics of these countries: family policies that do not
support women’s labor market re-entry, few flexible work opportunities, and
cultural norms about family and gender roles shaped by the institutional and
economic legacy of socialism.
Speaking English has its benefits in transition
countries but can it supersede Russian?
In many transition countries, the collapse of
communism ushered in language reforms to adapt to the newfound independence
from the Soviet Union and openness to the rest of the world. Such reforms
may have implications for individuals’ economic opportunities, since foreign
language proficiency may enhance or signal productivity in the labor market.
Recent empirical evidence documents positive labor market returns to English
language skills in transition countries. However, Russian language
proficiency also remains economically valuable, and nationalist language
policies may lead to future loss of economic opportunities.
Government policies can stimulate female labor
force participation if coherent and well thought-out
Increasing women's labor force participation is
important to sustainable economic development, especially in economies with
highly educated women and an aging population. Women's participation varies
across transition countries, driven by such economic and social factors as
traditional views of gender roles and limited government support for
caregivers. Still, in all countries there is clear scope for policies aimed
at increasing women's participation. In particular, in countries where
women's educational attainment is already high, policies to support a better
work–life balance and female entrepreneurship look particularly