Progress and Prospects in Europe and Central Asia
Co-authors: Jan Rutkowski, Stefano Scarpetta
November 2005
Economic growth in Eastern Europe and the Former Soviet Union has not resulted in an equivalent improvement in labor market conditions. Obstacles to firm entry and job creation, such as excessive labor regulations, economic and policy uncertainty, difficult access to credit, high taxes, and mismatch in skills of the available workforce, are common across the region's 26 countries.
In their recommendations, the report urges countries to provide workers with incentives to look for new jobs as well as incentives for employers to hire workers. In addition, countries should lower the cost of mobility by developing the housing and mortgage markets as well as improving access to lifelong learning opportunities.
Main Labor Market Developments During the Transition
The transition from centrally planned to market economies entailed profound institutional reforms and far-reaching structural changes, leading to persistent disparities in the labor market. Employment shifted from requiring fewer skills to more; jobs are concentrated in the services sector rather than heavy industry; employment has moved from being secure to irregular to contingent, and the wage gap has gone from narrow to wide.
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Macroeconomic Policy, Output, and Employment:
Is There Evidence of Jobless Growth?
In recent years employment seems has been relatively unresponsive to output growth. In the near term, low real interest rates, possibly linked to euro adoption, and strong emphasis on fiscal discipline could boost job prospects in the countries of Central and Eastern Europe, but this requires discipline on the part of governments in the sub-region.
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Restructuring, Productivity, and Job Creation
This chapter provides findings from a Business Environment Enterprise Performance survey (the BEEPS), which reveals how the high cost of doing business in many countries of the Region stifles the entry of new firms and discourages existing ones from investing, expanding and hiring.
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The Investment Climate and Job Creation
There is an enormous need in the Region for better firm entry and growth. New entrants account for from one-third to half of all newly created jobs. New firms are small, so they must grow to create jobs to absorb displaced workers. Impediments to firm creation vary by sub-region.
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Labor Market Policy and Institutions:
Combining Protection with Incentives for Job Creation
Businesses are discouraged from making new hires since the cost of benefits can be prohibitively high. Income support to the unemployed can be provided more efficiently to protect displaced workers and encourage job relocation, which is especially important in the Commonwealth of Independent States' countries.
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