Labour market development during economic transition

Labour market development during economic transition

Published Jan 2006

Author

J. Rutkowski

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The impact of labour market transition in Europe and Central Asia

This paper analyses the labour market trends that have emerged during the economic transition in Europe and Central Asia (ECA). The paper identifies a lack of productive job opportunities and growing labour market segmentation as the two key labour market problems in this region.

The paper lists main key findings from this analysis, including the following:

  • the transition has resulted in a significant reduction in the number of jobs, as well as the underutilization of labour, which has negatively affects social welfare and growth prospects in ECA
  • due to a lack of job opportunities many, especially younger and older cohorts and women, have become discouraged and withdrawn from the labour force altogether
  • the Commonwealth of Independent States (CIS) have low open unemployment and high employment/population ratio,and this hides significant problems in their labour markets
  • European and the CIS transition economies also differ in the strategies that displaced workers utilise. In European transition economies many of these workers have taken advantage of relatively generous non-work benefits, such as early retirement and disability pensions, unemployment benefits and social assistance. However, because these benefits are less diffused in most CIS countries, many laid-off workers have moved to subsistence agriculture, self-employment, and casual work in the informal sector
  • there are large and persistent regional disparities in labour market conditions across ECA. These disparities are especially distinct in Russia, which is a huge and heterogeneous country. They are also large in European transition economies, where the unemployment rate in high unemployment regions is two to three times as high as in low unemployment regions
  • labour market transition has created both losers, and winners. Those who have been most negatively impacted include less skilled blue collar workers in declining industries and regions, among whom unemployment is high and wages are low, and falling in relative terms. Those that have benefited most are the well educated white collar workers who find employment mainly in the expanding services sector and who command high wages

[adapted from author]

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