Mediating the Transition: Labour Markets in Central and Eastern Europe
Forum Report of the Economic Policy Initiative no. 4

Edited by: Lorand Ambrus-Lakatos and Mark E Schaffer

Contributors: Tito Boeri, Michael C Burda and János Kölló

Over the past five to ten years Central and East European countries (CEECs) have undergone a radical transformation of their economies from state socialism to various forms of market capitalism. During this time employment ratios plummeted from dubious ‘full employment’ levels to levels equal to, or lower than, those in countries of comparable economic development. This transformation of labour markets has left in its wake a high and persistent rate of unemployment, implying that individuals still seek work despite a dramatic deterioration of their employment chances. At the same time, low participation rates are putting a severe strain on social security systems as dependency ratios have risen and are currently significantly above those in OECD countries. Entry into Europe, with the associated adoption of standards for social security provisions will increase even further the fiscal burden on the active population unless the ratio of employment to population, and hence the tax base for social policies, is increased.

This fourth issue of the EPI Forum Report looks at the nature of unemployment in the CEECs. With contributions from experts from both East and West, the Report analyses the determinants of labour supply and demand in order to predict where market equilibrium should be in these economies. The authors also consider the role of policy, arriving at a set of proposals for enhancing labour supply in the region. These include: better integration between unemployment benefits and social assistance; the maintenance and development of active labour-market programmes; direct translation of savings in social policy spending, resulting from future declines in unemployment, into reductions of statutory contribution rates; abolition or reduction of non-negotiated restrictions on job and labour turnover via severance benefits or firing costs; increased spending on general secondary education; and investment in the infrastructure of transportation.

This is a concise yet comprehensive account of the labour-market issues facing the CEECs as their transformation proceeds and they negotiate their entry into the EU. It will be of interest to anyone concerned with the economics and politics of transition and with economic policies in the region.

Mediating the Transition: Labour Markets in Central and Eastern Europe: Forum Report of the Economic Policy Initiative no. 4 (ISBN: 1 898128 32 4) is available from: CEPR, 90-98 Goswell Road, London EC1V 7RR, UK, tel: (44 20) 7878 2900, fax: (44 20) 7878 2999, email: [email protected] (price £10). In North America, please send your order to: The Brookings Institution, Dept 029, Washington DC 20042–0029, USA, tel: (1 800) 275 1447, fax: (1 202) 797 6004 (price $14.95). In Scandinavia, the report is obtainable from SNS Förlag, Box 5629, S–11486 Stockholm, Sweden, tel: (46 8) 453 9950, fax: (46 8) 20 6206.