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mtuckprimdahl@worldbank.org WASHINGTON DC, November 1, 2005 — Most transition countries in Eastern Europe and the Former Soviet Union lack job opportunities, and employment can be spurred only by policies that enable enterprise restructuring and improve the investment climate, says a World Bank report released today. Titled Enhancing Job Opportunities in Eastern Europe and the Former Soviet Union, the report analyzes labor markets in 27 transition countries since the fall of communism some 15 years ago. It answers three key sets of questions: How has economic transformation affected the labor market? How far have countries progressed and what are the constraints to creating more and better jobs? Which policies can help promote job creation? Despite the Region's economic success in moving from central planning to a free market, one key area has seen lackluster results – the creation of productive jobs. "Unless the employment outlook improves, the substantial poverty reduction in the region since 1998 could come to a halt, which would undermine political support for reform," warns Arup Banerji, who supervised the report and is Sector Manager in the Human Development Economics Department of the World Bank's Europe and Central Asia (ECA) Region. "While some transitional unemployment was expected, the surprise lay in its persistence," explains Jan Rutkowski, Lead Economist in ECA and co-author of the study. "Many workers displaced by structural shifts failed to find new jobs, and quite a few others have either been out of a job for over a year, or are in low-productivity occupations. In some of the new member states of the European Union, as well as in some acceding countries, the unemployment rate tends to be in double digits. In the Commonwealth of Independent States countries, the jobs problem lies more in the quality of jobs – which are less productive and don't pay as much," explains Stefano Scarpetta, co-author of the report and Labor Market Advisor and Lead Economist in the World Bank's Human Development and Social Protection Vice Presidency. The report urges countries to boost their investment climates in ways that stimulate firms to invest and create productive jobs. It also calls for steps to lower the cost of labor mobility by developing the housing and mortgage markets as well as improving access to lifelong learning opportunities. Tapping a survey of over 4,000 business owners and managers, the authors analyze the factors which encourage or discourage firms from investing and hiring. Economic and policy uncertainty, corruption, high taxes, and inefficient courts are seen as key factors in stifling entrepreneurial activity. Specific sub-regional recommendations To create more and better jobs, governments and businesses in the sub-regions need to take the following actions tailored to their specific country circumstances: In Central and Eastern Europe, to tackle high unemployment, more must be done to improve investment climate conditions, despite recent progress. It is essential to lower the costs of starting businesses, ease registration of property, and strengthen contract enforcement. Reforms to pension and social security systems are also required, as a way of lowering taxes on labor. In Southeastern Europe, steps should be taken to reduce administrative barriers and cut taxes on labor, the latter in conjunction with reforms of pension and social security systems. In addition, countries need to carry out institutional and regulatory reform so as to develop an adaptable labor market, where core worker rights are effectively protected but employers are not unduly constrained in adjusting the size and skill composition of their workforce. In middle income CIS countries (such as Kazakhstan, Russia, and Ukraine), joblessness is lower but under-employment is high as many people work in low productivity jobs. Reducing administrative barriers is a top priority, as is deregulating labor relations and focusing on enforcement of key labor standards. Also, if unemployment schemes and other programs could be developed to help laid off workers, fewer people would feel compelled to hang on to dead-end jobs for survival. In low-income CIS countries in the Caucasus and Central Asia, the environment is characterized by underdeveloped institutions, poor governance, and unreliable infrastructure. Advice for the sub-region includes continued development of the institutions of a market economy and reducing risks associated with opening a new business. Poor CIS countries also need to improve the reliability of public infrastructure, remove burdensome customs barriers and trade rules, and encourage investment in human capital in agricultural regions, since jobs in the sub-region have shifted to the farm sector. "Since it's the young, small, private firms creating the jobs, governments need to push for business-friendly reforms. Jobs programs and policies to retrain workers or help the unemployed will not be enough to solve the underlying problem," concludes Scarpetta.
The report and related materials are available at: http://www.worldbank.org/eca/laborstudy |
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