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.

  • 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.
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  • 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.
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  • Can government policies reverse undesirable declines in fertility?

    Government policies can have a modest effect on raising fertility—but broader social changes lowering fertility are stronger

    Elizabeth Brainerd, May 2014
    Since 1989 fertility and family formation have declined sharply in Central and Eastern Europe and the former Soviet Union. Fertility rates are converging on—and sometimes falling below—rates in Western Europe, most of which are below replacement levels. Concerned about a shrinking and aging population and strains on pension systems, governments are using incentives to encourage people to have more children. These policies seem only modestly effective in countering the impacts of widespread social changes, including new work opportunities for women and stronger incentives to invest in education.
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  • 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.
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  • Relative deprivation and individual well-being

    Low status and a feeling of relative deprivation are detrimental to health and happiness

    Xi Chen, April 2015
    People who are unable to maintain the same standard of living as others around them experience a sense of relative deprivation that has been shown to reduce feelings of 
well-being. Relative deprivation reflects conditions of worsening relative poverty despite striking reductions in absolute poverty. The effects of relative deprivation explain why average happiness has been stagnant over time despite sharp rises in income. Consumption taxes on status-seeking spending, along with official and traditional sanctions on excess consumption and redistributive policies may lessen the negative impact of relative deprivation on well-being.
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  • 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.
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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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  • Migration and families left behind

    Families that stay behind when a member migrates do not clearly benefit

    Sylvie Démurger, April 2015
    About a billion people worldwide live and work outside their country of birth or outside their region of birth within their own country. Labor migration is conventionally viewed as economically benefiting the family members who are left behind through remittances. However, splitting up families in this way may also have multiple adverse effects on education, health, labor supply response, and social status for family members who do not migrate. Identifying the causal impact of migration on those who are left behind remains a challenging empirical question with inconclusive evidence.
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  • 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.
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  • Impact of privatization on employment and earnings

    Workers and policymakers may fear that privatization leads to job losses and wage cuts, but what’s the empirical evidence?

    John S. Earle, October 2014
    Conventional wisdom and prevailing economic theory hold that the new owners of a privatized firm will cut jobs and wages. But this ignores the possibility that new owners will expand the firm’s scale, with potentially positive effects on employment, wages, and productivity. Evidence generally shows these forces to be offsetting, usually resulting in small employment and earnings effects and sometimes in large, positive effects on productivity and scale. Foreign ownership usually has positive effects, and the effects of domestic privatization tend to be larger in countries with a more competitive business environment.
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