IMF Working Papers

Economic Restructuring, Unemployment, and Growth in a Transition Economy

Author/Editor:

Kornelia Krajnyak ; Bankim Chadha ; Fabrizio Coricelli

Publication Date:

March 1, 1993

Summary:

This paper develops a model of the process of reallocation of labor from the state sector to the private sector. When growth is exogenously determined, we show that in the initial stages of transition unemployment will rise over time. After a critical stage in the transition process, restructuring is accompanied by a decline in unemployment. When growth is endogenously determined, and human capital is acquired by learning-by-doing, we show that whether restructuring eventually occurs is determined by the level of human capital in the private sector and the rate of unemployment. The effects of various shocks and government policies in affecting the costs, speed, and eventual outcome of restructuring are analyzed.

Series:

Working Paper No. 1993/016

Subject:

Economic sectors Employment Human capital Labor Public sector Unemployment Unemployment rate

Notes:

Also published in Staff Papers, Vol. 40, No. 4, December 1993.