Transition and emerging economies

The transformation of economic systems from plan to market in transition and emerging economies has significant consequences not just for labor markets in those countries. The articles in this section offer summary lessons that can guide the development of institutions and labor reform policies in such countries, while also having wider relevance for other economies.

  • Returns to language skills in transition economies

    Speaking English has its benefits in transition countries but can it supersede Russian?

    Astghik Mavisakalyan, December 2017
    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.
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  • Youth unemployment in transition economies

    Both general and age-specific policies are necessary to reduce youth unemployment in transition economies

    Marcello Signorelli, November 2017
    The 2008 financial crisis and subsequent Great Recession created a second major employment shock in less than a generation in several transition economies. In particular, youth unemployment rates, which are usually higher than adult rates in normal times, reached extremely high levels and partly tended to persist over time. Improving youth labor market performance should therefore be a top priority for policymakers in affected transition countries. Better understanding of the dynamics of national and regional youth unemployment rates and other associated indicators is particularly important for designing effective policy approaches.
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  • Political connectedness and formal finance in transition economies

    Policies to increase formal finance to smaller firms requires improving the functioning of government bureaucracies

    Kobil Ruziev, November 2017
    Although small- and medium-sized enterprises (SMEs) represent more than 90% of all enterprises and play an important role in employment generation, they lack access to affordable formal finance. Conventionally, market failures and information imperfections are seen as majorcauses of this misallocation. However, the role of social and political factors in resource allocation, including access to formal finance, has recently become more widely accepted. Firm-level evidence from post-communist economies, for example, shows that political connectedness improves access to bank credit, but is not associated with enterprise growth.
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  • Wage policies in the public sector during wholesale privatization

    Does the transition to market economies imply growing wage inequality and, if so, along what dimensions?

    Jelena Nikolic, October 2017
    Examining the implications of changes in public sector wage-setting arrangements due to privatization is a relatively new area of economics research, with few studies having analyzed the effects of public sector restructuring on relative wages in developed countries. There is, however, a growing empirical literature that measures the effects of transitioning from central planning to market-based systems on public–private sector wage differentials. Policymakers can learn from this evidence about the ways in which ownership transformation affects the distribution of wages in both the public and private employment sectors.
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  • How does international trade affect household welfare?

    Households can benefit from international trade as it lowers the prices of consumer goods

    Beyza Ural Marchand, August 2017
    Imported products tend to have lower prices than locally produced ones for a variety of reasons, including lower labor costs and better technology in the exporting country. The reduced prices may lead to wage losses for individuals who work in the production of a local version of the imported item. On the other hand, lower prices may be beneficial to households if the cheaper product is in their consumption basket. These welfare gains through consumption, on average, are found to be larger in magnitude than the wage effect for some developing countries.
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  • Firm size and business cycles

    Do small businesses shed proportionately more jobs than large businesses during recessions?

    Tulio A. Cravo, June 2017
    The discussion on how economic activity affects employment in large and small businesses is critical for the formulation of labor policies, especially during recessions. Knowing how firm size is related to job creation and job destruction is important to design effective policies aimed at dampening employment fluctuations. Recent evidence for developed countries indicates that large firms are proportionately more sensitive to cycles than small firms; however, this pattern is not confirmed for periods of credit constraint or in a developing country context, where small businesses might be more sensitive due to more extreme credit constraints.
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  • Can diversity encourage entrepreneurship in transition economies?

    Harnessing the benefits of diversity is essential for encouraging entrepreneurship in the transition region

    Elena Nikolova, May 2017
    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.
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  • Do trade unions in Central and Eastern Europe make a difference?

    Low coverage and greater fragmentation can limit the benefits of trade unions

    Iga Magda, May 2017
    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.
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  • Motherhood wage penalty may affect pronatalist policies

    If ignored, the motherhood wage penalty may threaten the effectiveness of policies targeting fertility

    Olena Y. Nizalova, May 2017
    The motherhood wage penalty denotes the difference in wages between mothers and women without children that is not explained by differences in human capital characteristics and labor market experience. As part of the gender pay gap, the motherhood wage penalty can represent a significant cost to being female and having children. If ignored, it may undermine policy initiatives aiming to increase fertility rates in post-socialist countries, such as the costly “baby bonus,” which is a government payment to new parents to assist with the costs of childrearing.
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  • The happiness gap between transition and non-transition countries

    Economic progress coupled with political and institutional stability is needed to reduce unhappiness

    Ekaterina Skoglund, May 2017
    Since 1989, post-communist countries have undergone profound changes in their political, economic, and social structures and institutions. Across a range of development outcomes—in terms of the speed and success of reforms—transition is an “unhappy process.” The “happiness gap,” i.e. the difference in average happiness levels between the populations of transition and non-transition economies, is closing, but at a slower pace than the process of economic convergence. Economic growth, as the determinant of a country’s collective well-being, has been superseded by measurements of institutional quality and social development.
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