## Labor Market Performance in Transition

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**Canonical URL:** [Labor Market Performance in Transition](https://www.imf.org/-/media/websites/imf/imported-publications/external/pubs/nft/op/248/_op248.pdf)

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### Overview
- More than a decade after the start of transition, the unemployment rate remains in double digits in a number of Central and Eastern European (CEE) countries.
- After a period of gradual decline, unemployment has actually increased recently in several transition economies; long-term unemployment rates are high in a number of countries, and regional variations in unemployment are large.
- The paper focuses on three interrelated issues:
  - How has the process of transition from largely centrally planned to market economies affected labor market performance?
  - What part do labor market institutions and policies play in explaining developments over time and across countries?
  - Why have regional unemployment differences persisted, and what limits the movement of labor and capital across regions?

### Methodology and Data
- New database compiled from a number of national and international sources to track labor market developments and policies across transition countries.
- Econometric analysis uses panel data for 11 countries over 10 years to explain labor market dynamics during transition and differences among countries.
- Analysis is supplemented with several country case studies (Appendix II) and simple analytical models to examine labor and capital mobility within countries.
- The paper notes severe data limitations and that data problems may obscure stronger links between labor policies and outcomes.

### Key Findings
- Faster-reforming countries have had better unemployment records, notwithstanding initial job losses. Those countries that have been able to move most quickly to an advanced stage of transition have generally proved best placed to experience job-creating growth.
- Labor market policies have some, but not a dominant, influence over labor market outcomes. Countries with more flexible policies are better able to take advantage of positive macroeconomic shocks with higher employment and lower unemployment rates.
- Policies not typically viewed as labor market policies can have a major impact on labor market outcomes; for example, difficult business climates can limit the ability of small and medium-sized enterprises to act as key employment generators.
- Market processes alone cannot be relied on to eliminate regional differences in unemployment. Agglomeration effects may reinforce initial differences in labor market performance.
- Binding constraints on mobility:
  - Labor mobility to low-unemployment regions can be limited by housing policies.
  - Movement of jobs to less prosperous areas can be limited by inadequate transportation infrastructure and other regional bottlenecks.

### Implications and Policy Directions
- Complete the structural reform process and remove remaining bottlenecks that hinder faster reallocation of resources and declines in unemployment.
- Improve labor market flexibility to help countries exploit positive macroeconomic shocks and generate employment.
- Address non-labor-market policies that affect job creation, notably business environment reforms to support small and medium-sized enterprises.
- Tackle regional constraints on labor and capital mobility:
  - Reform housing policies that limit worker mobility.
  - Invest in transportation and other infrastructure to make high-unemployment regions more attractive to capital and jobs.
- Recognize that a combination of reforms—structural, institutional, and regional—will be needed to reduce persistent unemployment and long-term unemployment.

### Limitations and Areas for Further Analysis
- Data limitations constrain the strength of econometric inferences; measurement issues may understate the influence of labor market institutions and policies.
- Persistent regional disparities require further study of commuting costs, housing, and firm location decisions; the paper supplements econometric work with country case studies and simple analytical models to illuminate these mechanisms.

*Source: Occasional Paper: Labor Market Performance in Transition — The Experience of Central and Eastern European Countries (authors: Jerald Schiff, Philippe Egoumé-Bossogo, Miho Ihara, Tetsuya Konuki, and Kornélia Krajnyák).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-publications/external/pubs/nft/op/248/_op248.pdf_