Chapter

II Labor Market Developments in Transition: The Stylized Facts

Author(s):
Philippe Egoume Bossogo, Jerald Schiff, Miho Ihara, Tetsuya Konuki, and Kornelia Krajnyak
Published Date:
July 2006
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Transition economies all experienced an initial sharp contraction in output. According to official data, output declined sharply over the period 1988–93, and pretransition levels of GDP were typically not achieved again for many years. In some cases, they had still not been reached by 2002 (Table 2.1). The size of the initial shock varied significantly across countries depending, in part, on the extent of pretransition linkages with the Soviet Union. There were, in addition, dramatic structural changes in these economies, reflected in part by the rapid growth of the share in output accounted for by the private sector and, within that, the services sector.

Table 2.1.Selected Macroeconomic Indicators(In percent of GDP, unless otherwise indicated)
1988198919901991199219931994199519961997199819992000200120021
Bulgaria
Population
(in thousands)8,9818,9999,0199,0469,0739,1019,0689,0368,9828,9298,8758,8218,5428,4538,370
Real GDP growth
(year-on-year)
(percent change)2.4–0.5–9.1–10.8–8.4–11.6–3.5–1.8–8.0–5.64.02.35.44.04.0
CPI inflation
(period average);
year-on-year
(percent change)2.56.423.9333.582.072.896.062.1123.01,061.218.82.610.47.56.4
Nominal GDP
per capita
(in U.S. dollars)5,1135,1972,2868409481,1901,0711,4501,1021,1611,4351,3941,4741,6031,939
Fiscal balance–5.6–1.4–12.8–14.7–5.2–10.9–5.8–5.6–10.3–2.00.9–0.9–1.0–0.9–0.8
Current account balance–1.8–0.3–4.7–1.0–4.2–10.1–0.3–1.50.24.3–0.5–5.3–5.6–6.1–5.6
Total external debt17.819.750.6161.1160.5127.7116.877.497.094.280.788.789.078.466.1
Domestic saving36.032.731.317.910.62.57.815.19.820.016.412.912.714.314.3
Private41.634.244.132.625.618.212.119.619.421.012.89.39.911.311.7
Public–5.6–1.4–12.8–14.7–15.0–15.7–4.2–4.5–9.7–1.03.63.62.93.02.6
Investment34.433.130.422.619.915.39.415.78.19.916.917.918.320.420.5
Private28.627.627.320.617.113.47.914.57.48.914.213.414.416.517.1
Public5.85.63.12.02.81.91.51.10.71.02.74.53.93.93.4
Croatia
Population
(in thousands)4,6814,6854,7704,7894,6004,6004,7004,5004,6004,5004,6004,4004,4004,4004,400
Real GDP growth
(year-on-year percent change)–2.00.8–7.5–17.0–11.78.05.96.86.06.62.5–0.43.74.13.5
CPI inflation
(period average; year-on-year percent change)194.11,239.9583.1117.4665.51,516.697.52.03.53.65.74.16.24.93.5
Nominal GDP
per capita
(in U.S. dollars)3,3785,4368,58614,5702,1362,3703,1034,1804,3204,4694,7024,5604,3254,5984,963
Fiscal balance0.10.2–0.4–4.7–3.9–0.81.6–1.7–1.8–2.3–3.5–8.2–6.3–6.6–s6.6
Current account balance8.95.21.42.03.25.75.9–7.7–5.5–11.6–7.1–6.9–2.3–3.1–2.8
Total external debt133.374.747.926.331.527.022.520.823.231.940.343.553.151.549.0
Domestic saving41.138.832.528.312.015.323.09.916.216.017.319.321.822.524.4
Private10.713.218.38.111.611.212.018.922.523.123.3
Public1.32.14.71.84.64.85.30.4–0.7–0.51.1
Investment34.133.531.326.88.79.717.418.522.727.624.426.224.025.627.2
Private38.95.66.213.814.716.821.016.518.819.320.120.0
Public–12.13.23.53.53.85.96.67.97.54.85.57.2
Czech Republic
Population
(in thousands)10,30010,30210,30510,31010,32010,32010,33010,32010,31010,30410,29510,28310,25010,22010,200
Real GDP growth
(year-on-year percent change)2.14.5–2.4–11.6–0.50.12.25.94.3–0.8–1.00.53.33.32.7
CPI inflation
(period average; year-on-year percent change)0.21.49.556.611.120.810.09.18.88.510.62.13.94.72.7
Nominal GDP
per capita
(in U.S. dollars)5,2585,1265,1293,8202,8853,3913,9785,0425,5995,1405,5365,3475,0185,5516,954
Fiscal balance1.41.3–2.14.8–2.12.6–1.9–1.4–0.9–1.6–1.4–3.1–3.5–3.0–6.0
Current account balance1.71.2–1.61.52.11.3–1.9–2.6–7.1–6.7–2.2–2.7–5.3–4.6–5.2
Total external debt9.510.911.317.026.127.429.733.036.740.842.741.542.038.233.0
Domestic saving30.530.927.830.127.228.227.129.927.425.927.825.424.425.325.5
Private23.323.720.322.019.820.619.822.120.521.023.121.421.123.424.3
Public7.27.27.58.17.37.67.37.86.94.84.74.13.31.91.2
Investment26.526.025.223.026.327.429.834.034.232.630.028.129.730.030.2
Private22.322.424.428.529.227.126.122.323.823.723.9
Public4.05.05.45.65.15.43.95.75.86.26.3
Estonia
Population
(in thousands)1,5471,5611,5711,5801,5811,5891,5681,5471,5361,5261,4951,4741,4531,4351,419
Real GDP growth
(year-on-year percent change)5.33.0–2.3–7.9–21.6–8.2–1.64.54.510.55.2–0.17.86.47.2
CPI inflation
(period average; year-on-year percent change)0.62.017.2210.61,075.989.847.729.023.111.28.23.34.05.83.6
Nominal GDP
per capita
(in U.S. dollars)9831,0131,1865726031,0931,5402,4293,0263,2253,7243,7743,7614,1594,959
Fiscal balance–3.0–3.0–6.15.3–0.3–0.61.2–1.2–1.82.1–0.3–4.3–0.60.41.1
Current account balance11.56.8–1.959.73.91.2–6.8–4.2–8.6–11.4–8.6–4.4–5.5–5.6–10.2
Total external debt2.84.74.64.333.653.850.154.954.755.760.2
Domestic saving28.028.028.028.028.026.719.221.117.517.618.918.520.721.417.7
Private23.414.017.814.411.415.118.718.318.013.0
Public3.35.23.33.16.23.8–0.22.33.44.7
Investment19.719.719.712.125.622.723.322.124.427.527.121.825.226.129.9
Private8.324.119.919.317.719.523.423.017.722.223.026.3
Public3.81.42.74.04.44.94.14.14.13.03.03.6
Hungary
Population
(in thousands)10,42110,37510,35510,33710,31010,27810,24810,21810,17810,13810,09810,05810,0089,9579,907
Real GDP growth
(year-on-year percent change)–0.10.7–3.5–11.9–3.1–0.62.91.51.34.64.94.25.23.83.5
CPI inflation
(period average; year-on-year percent change)15.716.928.634.822.822.418.828.323.518.314.310.09.89.25.5
Nominal GDP
per capita
(in U.S. dollars)2,9953,0713,4873,2643,6473,7904,0884,3714,4394,5114,6584,7734,6575,2155,916
Fiscal balance0.9–0.81.0–3.8–7.8–9.2–8.6–6.2–3.1–4.8–4.8–3.7–3.7–3.2–4.3
Current account balance–2.6–4.50.40.80.9–8.9–9.3–5.6–3.7–2.1–4.9–4.4–2.8–2.2–3.8
Total external debt62.864.058.967.157.063.068.170.961.051.956.958.656.852.846.8
Domestic saving23.422.325.722.418.811.813.418.423.525.624.824.228.225.225.0
Private20.618.311.615.321.223.425.524.124.326.025.725.4
Public1.80.50.2–1.9–2.80.10.10.7–0.12.2–0.5–0.4
Investment26.026.825.421.718.020.722.823.927.227.729.728.531.127.327.5
Private
Public
Latvia
Population
(in thousands)2,6902,6982,6922,6852,6772,6692,6272,5012,4702,4452,4212,3992,3772,3642,346
Real GDP growth
(year-on-year percent change)5.33.0–2.3–12.6–32.1–11.42.2–0.93.88.34.73.36.98.06.4
CPI inflation
(period average; year-on-year percent change)0.64.7–1.7124.4951.2109.135.825.217.68.44.62.42.62.51.9
Nominal GDP
per capita
(in U.S. dollars)6,9087,1557,3595,3395108131,3881,9562,2622,5092,7333,0103,2503,4803,925
Fiscal balance6.56.67.69.5–0.80.6–4.3–3.4–1.70.3–0.7–3.6–3.0–2.0–2.4
Current account balance–1.9–2.5–4.0–2.6–0.413.6–4.1–0.3–3.8–4.7–9.0–9.1–6.4–8.9–6.5
Total external debt3.210.49.831.437.444.946.852.961.067.775.7
Domestic saving22.422.422.622.622.619.920.614.011.414.815.114.217.118.020.3
Private21.217.721.116.111.012.112.013.416.416.519.2
Public1.42.2–0.5–2.10.42.83.10.70.71.41.1
Investment13.013.314.013.317.110.714.814.315.219.524.123.223.426.926.8
Private14.58.713.012.713.117.020.318.919.823.423.3
Public2.61.91.81.62.12.53.84.43.73.53.5
Lithuania
Population
(in thousands)3,6423,6733,6973,7193,7493,7793,7693,7153,6023,5753,5493,5243,5003,4813,469
Real GDP growth
(year-on-year percent change)5.33.05.5–5.7–21.3–16.2–9.83.34.77.07.3–1.73.96.46.8
CPI inflation
(period average; year-on-year percent change)0.32.37.8224.7413.6410.472.139.524.78.85.10.81.01.30.3
Nominal GDP
per capita
(in U.S. dollars)
Fiscal balance7.87.26.64.10.5–5.2–4.8–4.3–4.4–1.8–5.7–8.4–2.7–1.9–1.1
Current account balance0.50.2–0.40.35.4–7.4–3.9–10.7–5.0–7.9–11.7–11.0–5.9–4.7–5.2
Total external debt0.15.110.110.311.943.936.033.741.842.743.643.7
Domestic saving37.637.336.933.825.517.414.913.812.214.914.111.713.915.916.5
Private13.813.912.012.013.315.215.614.115.814.7
Public3.71.01.80.21.6–1.1–3.9–0.20.11.8
Investment28.028.028.121.013.616.515.920.721.124.925.822.719.820.621.7
Private13.612.417.018.422.322.720.517.918.718.6
Public2.93.53.72.72.63.22.21.91.93.1
Poland
Population
(in thousands)37,80037,83838,20038,30038,40038,51538,59538,64538,67538,70538,72638,70538,66538,63738,602
Real GDP Growth
(year-on-year percent change)3.33.8–7.2–7.02.04.35.26.86.06.84.84.14.01.01.0
CPI inflation
(period average; year-on-year percent change)60.2251.1585.870.343.035.332.227.919.914.911.87.310.15.52.1
Nominal GDP
per capita
(in U.S. dollars)1,7241,6791,5441,9952,1962,2292,5533,2883,7193,7204,0914,0084,0794,5614,670
Fiscal balance–7.83.2–6.9–7.0–3.4–3.0–3.1–3.3–3.2–3.3–3.4–3.1–5.3–5.7
Current account Balance–6.7–2.91.2–3.4–1.8–3.30.74.2–1.0–3.0–4.3–7.5–6.3–4.0–3.6
Total external debt63.463.483.063.156.556.342.834.633.134.537.342.244.139.640.4
Domestic saving21.421.826.816.513.412.218.423.920.921.621.918.919.918.418.6
Private20.226.120.519.717.012.618.724.521.621.622.019.219.219.519.7
Public1.1–4.36.3–3.2–3.7–0.4–0.3–0.6–0.6–0.1–0.30.8–1.1–1.1
Investment28.124.725.619.915.215.617.719.721.924.626.226.426.322.522.6
Private25.322.223.217.011.411.714.216.418.621.623.123.323.219.119.0
Public2.82.52.42.93.73.83.53.33.33.03.13.03.13.33.6
Slovak Republic
Population
(in thousands)5,1935,2155,2375,2605,2905,3085,3385,3485,3585,3685,3785,3885,3885,3925,397
Real GDP growth
(year-on-year percent change)2.54.5–0.4–15.9–6.7–3.75.26.55.85.64.01.32.23.34.0
CPI inflation
(period average; year-on-year percent change)0.21.310.061.210.023.013.49.95.86.16.710.712.07.34.2
Nominal GDP
per capita
(in U.S. dollars)9,7619,5178,5816,3092,2242,4892,8423,5773,8273,9274,0903,7423,6713,7944,190
Fiscal balance–11.7–12.0–15.0–8.6–11.9–6.4–1.20.3–1.2–4.8–4.7–3.3–3.5–4.0–4.4
Current account Balance0.90.6–1.11.6–0.4–4.94.42.0–10.2–9.3–9.2–4.9–3.6–8.6–8.5
Total external debt5.15.86.810.924.025.630.729.737.446.354.152.154.655.853.3
Domestic saving35.035.939.337.829.4–79.025.628.625.226.525.023.422.822.922.5
Private5.95.59.312.710.4–81.022.723.820.924.924.023.022.722.923.3
Public29.130.430.125.219.02.02.94.84.31.71.00.30.1–0.8
Investment34.135.340.436.229.026.021.426.535.635.234.728.226.431.931.0
Private29.228.734.932.022.422.517.322.130.028.829.124.522.827.927.4
Public4.96.75.54.26.63.54.14.45.66.55.73.73.64.03.7
Slovenia
Population
(in thousands)1,9671,9751,9862,0002,0001,9901,9901,9901,9901,9901,9801,9901,9901,9881,986
Real GDP growth
(year-on-year percent change)–2.00.8–7.5–8.9–5.52.85.34.13.54.63.85.24.63.02.5
CPI inflation
(period average; year-on-year percent change)194.11,239.9583.1117.7207.331.921.513.59.98.48.06.18.98.47.7
Nominal GDP
per capita
(in U.S. dollars)5,5158,84514,14523,9276,2616,3687,2299,4199,4879,1499,89110,0869,10710,60511,083
Fiscal balance1.30.70.90.40.30.6–0.2–0.2–0.2–1.7–0.6–0.6–1.4–1.4–2.9
Current account Balance15.47.60.74.07.41.54.0–0.50.20.1–0.8–3.9–3.4–0.4–0.8
Total external debt13.914.815.715.821.222.925.327.434.335.438.6
Domestic saving0.10.110.618.318.822.823.624.124.824.325.225.926.4
Private6.814.616.020.120.722.922.921.923.924.124.6
Public3.83.72.72.72.81.21.92.41.41.81.9
Investment17.617.316.215.916.519.921.825.324.324.826.628.427.825.428.7
Private14.017.019.121.120.120.622.323.823.721.224.7
Public2.62.82.74.24.24.24.34.64.14.24.0
Source: IMF, World Economic Outlook (WEO).

IMF staff projections.

Source: IMF, World Economic Outlook (WEO).

IMF staff projections.

These two factors, a deep recession and fundamental structural changes, had profound effects on the labor market. Many pretransition characteristics of these economies’ labor markets—high participation rates, the lack of open unemployment, long tenures, and little wage differentiation—changed completely. Over the past decade, most of these countries experienced low participation rates, high unemployment, more mobility across jobs, and a substantial widening of wage differentials.

The speed of transition varied widely among these countries, with faster reformers generally experiencing more rapid recovery. As can be seen in the European Bank for Reconstruction and Development (EBRD) summary indicators of progress in transition (Table 2.2), Poland, Hungary, the Czech Republic, and Estonia were more successful early on in achieving a high private sector share in GDP, privatization, and enterprise reform. These countries recovered from the shock of transition more rapidly as well. In contrast, Bulgaria and Croatia lagged, while Slovenia—which started the process at a significantly higher level of income—followed a more gradualist transition path.

Table 2.2.EBRD Transition Indicators
19891990199119921993199419951996199719981999200020012002
Bulgaria1.01.11.61.71.92.22.32.32.72.72.93.03.03.1
Croatia1.51.61.71.82.02.52.62.92.93.03.03.13.13.2
Czech Republic1.01.02.02.53.03.23.23.33.33.43.43.53.53.5
Estonia1.01.11.31.82.62.93.03.13.23.33.43.53.53.6
Hungary1.31.62.22.52.83.13.33.43.63.73.73.73.73.7
Latvia1.01.01.11.92.12.72.72.93.03.03.13.13.13.3
Lithuania1.01.11.11.52.42.62.82.93.03.03.13.23.33.4
Poland1.22.22.42.52.93.03.23.33.43.53.53.53.63.6
Slovak Republic1.01.02.02.42.73.03.03.13.13.13.23.33.33.3
Slovenia1.41.71.82.02.62.82.93.03.03.23.23.33.33.3
Source: European Bank for Reconstruction and Development (EBRD).
Source: European Bank for Reconstruction and Development (EBRD).

The path and speed of reforms appear to have played a key role in explaining differences in labor market developments. However, the relationship between the pace of transition and labor market developments is a complex one. In Hungary—a relatively successful model of transition—the unemployment rate peaked in 1992 because job creation in growing sectors was initially too slow to offset job losses in restructuring sectors, but it has since declined gradually to single digits. However, the participation rate and employment are still lower than at the outset of transition. The Czech Republic has also seen lower levels of unemployment, although on a generally rising trend. In slower reformers among CEE countries, such as Bulgaria, Croatia, and the Slovak Republic, unemployment rates remained stubbornly high after initial sharp contractions in output and employment. However, at the extreme, in the countries of the Commonwealth of Independent States (CIS)(not part of our sample), which lagged badly in the reform process, employment remained stable during the early 1990s even while output collapsed.

Labor Market Participation

Participation and participation rates have typically fallen from initially high levels and are now generally below EU–15 levels (Figure 2.1).2 Countries with the largest increases in unemployment rates tended to experience the largest declines in participation rates. The decline in participation, which cushioned the impact of the crisis on unemployment, was achieved via a number of avenues, including exit from the market by discouraged job seekers; early retirement; entrance onto disability rolls; participation in subsistence farming and other informal activities; and increased participation in higher education. Emigration also played a role in labor supply developments. In Bulgaria, for example, the total population has declined by 7 percent since 1990, while the labor force has contracted by nearly 20 percent as the participation rate for the working-age population dropped sharply. The large decline in participation rates is due, to some extent, to the fact that these rates were unusually high in centrally planned economies. However, participation rates (as a share of working-age population) now fall between 50 and 60 percent for the countries in this study, on the low side relative to the EU–15 countries.

Figure 2.1.Labor Participation Rates

(In percent of working-age population)

Source: Labor Force Survey (LFS) data.

Employment Developments

Employment declined sharply in the initial years of transition as job shedding in government and state-owned enterprises more than offset job creation in the nascent private sector. This decline largely reflects the initial economic contraction that took place (Figure 2.2). The relationship between employment and output levels, however, is quite different across countries, perhaps owing to differences in the degree of hidden unemployment before transition as well as the restrictiveness of labor markets at the onset of the economic contraction. For example, in Bulgaria, where macroeconomic developments were particularly adverse and the labor code relatively flexible, employment declined by nearly a third over the period 1988–93. Employment in Hungary—where the contraction was less severe—declined by 27 percent over the same period. Employment declines in Slovenia, the Czech Republic, and the Slovak Republic were significantly smaller, while Croatia’s employment appears to have increased slightly, despite a very sharp contraction in GDP.

Figure 2.2.Real GDP and Employment

Sources: IMF, World Economic Outlook (WEO); and LFS data.

In most countries, growth resumed after several years but was initially powered by gains in productivity while employment continued to fall. As transition progressed, and productivity gains associated with job shedding were exhausted, employment in some countries rose slightly. However, employment in the Baltic countries continued to decline or stagnated during the late 1990s and early 2000s despite rapid economic growth. Furthermore, in some cases—for example, in Bulgaria, the Czech Republic, and Poland—second rounds of restructuring led to new job cuts while in others recessions constrained labor demand. By 2002, overall employment levels remained well below pretransition levels.

The transition period has been characterized by large shifts in labor between the public and private sectors. Private sector employment has grown rapidly, both in absolute terms and as a share of total employment. This reflects both the privatization of state-owned enterprises as well as the growth in the new private sector. By 2002, the private sector generally accounted for between 50 and 80 percent of total employment (Figure 2.3). It is noteworthy that the share of employment in the public sector remains higher in a number of the slower-reforming economies with higher unemployment rates, in particular Bulgaria, Croatia, and the Slovak Republic. This may reflect in part the role of government or state owned enterprises as the employer of last resort in the context of less rapid private sector job creation, although the direction of causality is not obvious. This suggests the possibility of additional pressures on unemployment rates in some of these countries as further restructuring or fiscal consolidation takes place.

Figure 2.3.Private Sector Share in Employment

(In percent of total employment)

Source: LFS data.

Transition has also seen significant movement of labor across sectors of the economy. Without exception, the share of total employment in services grew, and in virtually all cases exceeded 50 percent by 2001, while employment in industry fell as a share of total employment, and in some cases fell sharply in absolute terms (Figure 2.4). In this respect, labor markets appear to have been characterized by a significant degree of flexibility. Countries varied substantially, however, in their experience, in particular in the extent to which agricultural employment declined. Among the more rapid reformers—including the Czech Republic, Estonia, Hungary, and Poland—employment in agriculture, where productivity was relatively low, declined as a share of total employment. In other cases—Bulgaria and Croatia—agricultural employment grew in importance. This may reflect that agricultural workers were not mobile to other sectors or regions and/or that individuals have returned to rural areas where, if jobs are not available, at least subsistence farming is.

Figure 2.4.Employment by Sector

(In percent of total employment)

Sources: International Labor Organization (ILO); and World Bank, World Development Indicators.

Sharp declines in employment and intersectoral shifts by labor enabled most countries to maintain levels of labor productivity early in transition, after an initial sharp drop (Figure 2.5).3 More successful transition economies were subsequently able to raise productivity well above pretransition levels. In some countries, however, labor productivity remains lower (Croatia) or only slightly higher than pretransition levels, suggesting that additional restructuring and further spurts of unemployment are possible.

Figure 2.5.Productivity by Sector

(In thousands of constant 1995 U.S. dollars)
(In thousands of constant 1995 U.S. dollars)

Sources: World Bank, World Development Indicators; ILO, Laborsta; and IMF, WEO.

Unemployment

Despite the decline in participation rates, unemployment rates typically increased sharply in the initial years of transition and have tended to remain quite high. In Bulgaria, Croatia, Poland, the Slovak Republic, and the Baltic countries unemployment rates remain in double digits (Figure 2.6). Only the Czech Republic, Hungary, and Slovenia have managed to bring or keep their unemployment rates below 10 percent. After stabilizing in the mid-1990s, unemployment in several countries surged again after 1998, reflecting second rounds of restructuring and cyclical slumps. As a result, in 2000–01, several countries reached their highest unemployment rates since the start of transition.

Figure 2.6.Unemployment Rates

(In percent)

Sources: IMF, WEO; and LFS data.

Long-term unemployment has been a major problem in transition economies. Of the unemployed, the share who have been out of work for more than one year generally falls between 40 and 60 percent for the transition economies in 2001–02 (Figure 2.7). This is roughly in line with the EU–15 countries (Grogan and Moers, 2001) but far higher than the United States or a number of other OECD countries. This share has generally increased, in some cases—for example, Hungary and the Czech Republic—significantly. High long-term unemployment has potentially important policy implications, including because this group may find their job skills eroding—increasing the longrun equilibrium unemployment rate—and because they may become ineligible for unemployment insurance and fall into poverty.

Figure 2.7.Long-Term Unemployment

(In percent of total unemployment)

Source: LFS data.

The pool of unemployed has been stagnant. Contrary to expectations that unemployment would serve as the most important transitory state in the reallocation of workers across sectors or jobs, the reallocation has tended to happen via job-to-job moves. However, these characteristics of the labor reallocation process do not seem to be out of line with EU–15 countries. Grogan and Moers (2001) show similar frequencies of job-to-job and unemployment-to-unemployment movement in CEE and EU–15 countries.

Among the key facts gleaned from country LFS data are (Tables 2.32.11):

  • Unemployment among young and low-skilled workers is significantly higher than overall unemployment. The unemployment rate for young labor force participants (aged 15–24) exceeds 15 percent in all cases and 40 percent in several countries. Anecdotal evidence suggests that in a labor market with large numbers of unemployed, employers can afford to focus their hiring on individuals with prior work experience. In addition, the very young (aged 15–19) are generally low-skilled, which limits their job possibilities. The experience of the these transition economies is not out of line with that of Western Europe, where unemployment rates in excess of 20 percent are not uncommon.4 However, these unemployment rates are considerably higher than for youths in the United States or United Kingdom, where rates are generally in the range of 10-12 percent.

  • Older workers tend to experience rates of unemployment below the national rate, perhaps reflecting the alternative of early retirement, including via disability.

  • There is a heavy concentration of unemployment among lower-skilled workers. While definitions vary across countries, unemployment rates among those in the lowest category of educational attainment (generally primary school or less) are as high as 44 percent in Bulgaria and the Slovak Republic. The outlier is Slovenia, where the unemployment rate for those with basic education or lower is just over 9 percent. Slovenia’s more gradual approach to transition may have left intact a larger number of industrial sector jobs for which lower-skilled workers are qualified. In fact, Slovenia has maintained a larger share of employment in industry than all but one country in the sample. For those individuals with higher education, unemployment rates vary between 2 and 8 percent, rates not significantly different from the EU–15 countries.

  • There is evidence that minority groups have been especially hard-hit. In the Baltics, for example, the unemployment rate among nonnationals—primarily Russian speakers—has run more than double that of nationals, and unemployment rates among the Roma in Hungary, Bulgaria, and the Slovak Republic are also extremely high.

Table 2.3.Bulgaria: Labor Force Survey Results1(Period average-unless otherwise indicated)
1993199419951996199719981999200020012002
Working-age population (in thousands)26,8816,8876,8996,9036,9036,9246,8906,8906,7796,740
Economically active population
(in thousands)3,8093,6433,5743,5723,5733,5323,4093,3613,3633,332
In percent of working-age population55.452.951.851.751.851.049.548.849.649.4
Employed (in thousands)2,9952,9052,9843,0663,0603,0352,8752,7952,6992,740
In percent of working-age population43.542.243.344.444.343.841.740.639.840.6
Of which:3
Private sector422.425.828.231.337.043.339.653.059.562.5
Youth59.49.28.88.48.18.78.68.08.07.7
Female46.646.746.947.046.846.946.846.847.847.5
Employees88.789.488.888.686.286.186.784.984.785.2
Private enterprises12.717.219.422.727.334.530.745.252.756.5
Employers1.71.61.81.81.92.12.32.43.53.3
Self-employed8.17.68.18.19.79.99.310.89.89.5
Unpaid family workers1.41.21.11.31.91.61.31.41.61.6
Unemployed (in thousands)815737590505513497534567664592
In percent of economically active population21.420.216.514.114.414.115.716.919.717.8
Of which:6
Youth530.528.028.926.925.825.123.721.621.220.4
Female48.346.848.146.847.045.964.845.945.144.7
Long-term752.559.064.161.758.457.054.356.861.865.7
Basic education847.346.848.145.440.540.540.638.035.735.6
Secondary education945.146.045.447.651.750.951.953.253.753.6
Tertiary education7.67.26.56.97.98.67.58.810.610.8
Urban areas66.064.759.467.269.369.167.667.968.870.5
Unemployment by reasons6
Lost job1055.858.558.757.056.954.655.859.645.143.4
Seasonal or temporary job terminated5.06.47.910.19.712.413.812.17.68.9
Seeking first job21.421.021.821.421.620.819.518.823.423.8
Unemployment rates by age (in percent)
Aged 15–1966.964.757.451.549.945.950.452.958.754.1
Aged 20–2440.538.234.430.531.028.930.631.935.333.1
Aged 25–4917.717.313.912.212.512.314.015.017.716.2
Aged 50 and over15.614.711.09.29.610.211.513.816.514.5
Unemployment rates by education attainment (in percent)
Primary or lower840.135.630.132.436.737.847.646.0
Lower secondary1130.130.423.920.619.920.424.725.930.927.9
Upper secondary19.718.414.612.713.913.114.616.019.217.1
Tertiary education9.38.05.75.15.86.15.87.28.98.3
Unemployment rates by regions (in percent)
Urban areas19.518.014.712.913.613.114.215.418.116.7
Rural areas26.326.221.517.816.516.820.121.124.121.3
Economically inactive population
(in thousands)3,0713,2443,3253,3323,3303,3923,4803,5293,4163,408
Of which:12
Those who want to work12.010.49.39.19.110.813.015.216.016.1
Discouraged persons6.66.35.75.86.87.89.311.910.711.8
Source: National Statistical Institute of Bulgaria.

Survey was conducted two-three times per year up to 1999 and four times from 2000 onward.

Aged 15 and above.

Percentage share in total employed.

All nonpublic sector.

Aged 15–24.

Percentage share in total unemployed.

One year and over.

International Standard Classification of Education (ISCED) 1.

ISCED 3.

From 2001 data refer to unemployed who lost job within past eight years.

ISCED 2; and lower secondary or lower for 1993–94.

Percentage share in total inactive population.

Source: National Statistical Institute of Bulgaria.

Survey was conducted two-three times per year up to 1999 and four times from 2000 onward.

Aged 15 and above.

Percentage share in total employed.

All nonpublic sector.

Aged 15–24.

Percentage share in total unemployed.

One year and over.

International Standard Classification of Education (ISCED) 1.

ISCED 3.

From 2001 data refer to unemployed who lost job within past eight years.

ISCED 2; and lower secondary or lower for 1993–94.

Percentage share in total inactive population.

Table 2.4.Croatia: Labor Force Survey Results1(First half of the year-unless otherwise indicated)
1996199719981999200020012002
Working-age population (in thousands)22,9723,2333,2573,3213,5873,5183,528
Economically active population
(in thousands)1,6761,7681,7321,7211,8071,7241,794
In percent of working-age population56.454.753.251.850.449.050.9
Employed (in thousands)1,5061,5931,5381,5041,5341,4601,521
In percent of working-age population50.749.347.245.342.841.543.1
Of which:3
Youth410.410.410.09.910.49.08.9
Female46.545.846.00.545.444.244.4
Employees70.874.175.175.374.075.375.9
Employers and self-employed21.118.518.719.220.319.819.3
Family workers8.17.56.35.55.75.04.7
Part-time13.110.510.79.49.78.79.3
Unemployed (in thousands)170175194217273264273
In percent of economically active population10.29.911.212.615.115.315.2
Of which:5
Youth 435.237.736.635.029.334.828.9
Female48.248.046.449.349.850.052.0
Long-term650.552.049.253.052.762.456.4
Less than upper secondary education715.316.6
Upper secondary education 743.540.0
Tertiary education 74.74.0
Unemployment by reasons 5
Lost/left job47.045.148.552.151.654.266.3
Seeking first job31.735.434.533.635.934.833.3
Unemployment rates by age (in percent)
Aged 15–2427.628.431.533.833.641.239.8
Aged 15–1936.642.2
Aged 20–2424.023.4
Aged 25–498.48.09.010.613.912.816.2
Aged 50–644.96.05.68.37.99.6
Aged 65 and over
Unemployment rates by educational attainment (in percent)8
Less than upper secondary education7.810.012.312.215.216.217.2
Upper secondary education11.910.713.515.017.218.415.2
Tertiary education6.14.45.28.412.27.69.4
Unemployment rates by region (in percent)
Densely populated area11.011.212.413.916.816.0
Intermediate populated area9.27.68.810.612.514.3
Thinly populated area7.012.6
Economically inactive population
(in thousands)21,2951,4641,5251,6001,7811,7941,734
Discouraged persons93.73.13.13.03.62.3
Sources: Republic of Croatia Central Bureau of Statistics-Labor Force Survey Results 1996–2001; Republic of Croatia Bureau of Statistics website, http://www.dzs.hr/Eng/FirstRelease/firstrelease.htm; and IMF staff calculations.

1996: November data.

Aged 15 and above; 1996: aged 15–85.

Percentage share in total employed.

Aged 15–24.

Percentage share in total unemployed.

12 months and over.

Aged 25–59 only.

1996–1997: aged 25–59 only; 1998 onward: aged 15–59.

Inactive persons who are not looking for a job because they believe that there is no job available; in percent of total inactive population.

Sources: Republic of Croatia Central Bureau of Statistics-Labor Force Survey Results 1996–2001; Republic of Croatia Bureau of Statistics website, http://www.dzs.hr/Eng/FirstRelease/firstrelease.htm; and IMF staff calculations.

1996: November data.

Aged 15 and above; 1996: aged 15–85.

Percentage share in total employed.

Aged 15–24.

Percentage share in total unemployed.

12 months and over.

Aged 25–59 only.

1996–1997: aged 25–59 only; 1998 onward: aged 15–59.

Inactive persons who are not looking for a job because they believe that there is no job available; in percent of total inactive population.

Table 2.5.Czech Republic: Labor Force Survey Results(Average for four quarters)
1993199419951996199719981999200020012002
Working-age population (in thousands)18,2938,3558,4068,4488,4878,5238,5558,5868,6168,643
Economically active population
(in thousands)5,0945,1485,1715,1735,1855,2015,2185,1865,1715,173
In percent of working-age population61.461.661.561.261.161.061.060.460.059.9
Employed (in thousands)4,8744,9274,9634,9724,9374,8664,7644,7324,7504,796
In percent of working-age population58.859.059.058.958.257.155.755.155.155.5
Of which:2
Youth316.016.316.115.815.214.813.612.611.510.2
Female43.944.043.943.643.543.343.443.443.443.3
Employees87.086.886.186.086.185.184.583.984.0
Employers2.73.23.84.14.04.24.14.13.9
Self-employed6.36.97.57.67.99.09.710.310.6
Members of producers’ cooperatives3.72.72.01.81.61.31.21.10.9
Unemployed (in thousands)220221208201248336454455421377
In percent of economically active population4.34.34.03.94.86.58.78.88.17.3
Of which:4
Youth 332.534.632.430.128.630.429.426.925.724.9
Female55.953.752.952.754.656.553.553.453.854.7
Long-term517.020.228.028.228.129.536.047.345.3
Basic education29.129.034.233.530.324.722.625.527.124.3
Secondary education66.166.862.463.266.070.172.270.168.971.8
Tertiary education4.84.03.22.93.43.63.83.63.83.7
Unemployment rates by age
Aged 15–248.48.77.87.28.612.417.017.016.6
Aged 15–1911.813.213.113.316.525.131.833.637.3
Aged 20–246.36.25.65.16.49.113.614.213.8
Aged 25–493.63.63.53.44.35.77.88.07.4
Aged 50 and over3.02.62.62.93.34.15.66.05.7
Unemployment rates by educational attainment
Basic education9.09.410.811.113.415.820.622.021.6
Secondary education without GCE64.14.13.83.64.46.28.99.08.5
Secondary education with GCE 6, 73.03.02.32.43.34.96.46.15.5
Secondary general education85.15.13.93.25.06.99.29.07.9
Tertiary education2.01.71.21.11.52.23.02.82.5
Economically inactive population
(in thousands)23,1993,2073,2363,2743,3023,3223,3373,4003,445
Source: Czech Statistical Office.

Aged 15 and above.

Percentage share in total employed.

Aged 15–24.

Percentage share in total unemployed.

Duration of job search over one year.

GCE = General Certificate of Education.

Vocational and technical.

Classification of secondary education was changed in 2001; data on secondary general education are not available for 2002 onward.

Source: Czech Statistical Office.

Aged 15 and above.

Percentage share in total employed.

Aged 15–24.

Percentage share in total unemployed.

Duration of job search over one year.

GCE = General Certificate of Education.

Vocational and technical.

Classification of secondary education was changed in 2001; data on secondary general education are not available for 2002 onward.

Table 2.6.Estonia: Labor Force Survey Results(Period average-unless otherwise indicated)
1993199419951996199719981999200020012002
Working-age population (in thousands)11,0671,0451,0261,0121,001994988986985985
Economically active population
(in thousands)748.0730.9701.4687.7678.8668.6655.8658.2655.2646.5
In percent of working-age population70.170.068.468.067.867.366.466.866.565.7
Employed (in thousands)698.9675.4633.4619.3613.0602.5575.3568.3572.2579.3
In percent of working-age population65.564.661.761.261.360.658.257.658.158.8
Of which:2
Private sector368.669.469.471.772.074.1
Youth412.312.010.911.010.99.7
Female57.259.263.164.565.266.369.470.369.869.0
Part-time7.68.67.99.48.27.8
Employees92.792.092.091.692.692.9
Employers2.53.13.33.12.72.8
Self-employed4.74.74.55.34.84.8
Unpaid family workers0.80.80.80.70.90.6
Unemployed (in thousands)49.155.568.168.465.866.180.589.983.067.2
In percent of economically active population6.67.69.79.99.79.912.313.712.710.4
Of which:5
Youth 419.320.419.121.721.417.9
Female48.149.743.644.745.943.443.245.147.346.1
Long-term645.747.045.845.448.352.8
Basic education719.519.419.920.116.918.9
Secondary education862.062.863.162.462.761.5
Tertiary education16.115.414.916.018.117.6
Urban areas67.869.969.371.169.574.7
Unemployment by reasons 5
Lost job59.058.363.060.454.653.1
Quit job20.220.017.917.521.023.0
Seeking first job8.77.66.510.311.110.1
Other12.114.112.511.913.313.7
Unemployment rates by age (in percent)
Aged 15–2411.211.714.416.114.515.819.723.822.217.6
Aged 25–496.57.69.79.610.010.012.312.911.99.7
Aged 50–694.25.16.97.36.16.28.510.69.99.2
Unemployment rates by education attainment (in percent)
Primary or lower 714.917.926.518.927.426.6
Lower secondary915.916.421.024.320.420.2
Upper secondary10.610.813.314.613.610.9
Tertiary education5.15.16.17.37.45.7
Economically inactive population
(in thousands)318.9313.9324.5324.2321.7325.0331.9327.8330.1338.1
Source: Statistical Office of Estonia.

Aged 15–69.

Percentage share in total employed.

All nonpublic sector.

Aged 15–24.

Percentage share in total unemployed.

One year and over.

ISCED 1.

8ISCED 3.

ISCED 2.

Source: Statistical Office of Estonia.

Aged 15–69.

Percentage share in total employed.

All nonpublic sector.

Aged 15–24.

Percentage share in total unemployed.

One year and over.

ISCED 1.

8ISCED 3.

ISCED 2.

Table 2.7.Hungary: Labor Force Survey Results(Average for four quarters)
19921993199419951996199719981999200020012002
Working-age population (in thousands)17,7297,7637,7867,8207,8087,8007,7567,7177,7807,7727,762
Economically active population
(in thousands)4,5304,3464,2014,0954,0483,9954,0114,0964,1204,1024,109
In percent of working-age population58.656.054.052.451.851.251.753.153.052.852.9
Employed (in thousands)4,0853,8273,7523,6793,6483,6463,6983,8113,8563,8683,871
In percent of working-age population52.949.348.247.046.746.747.749.449.649.849.9
Of which:2
Youth313.813.613.813.613.313.915.214.513.311.9
Female45.645.745.244.344.244.044.844.844.844.7
Employees78.480.781.281.081.282.083.584.084.485.2
Members of cooperatives5.53.52.82.32.21.91.51.11.00.8
Members of partnerships6.35.14.74.64.23.83.62.93.43.1
Self-employed7.18.18.89.610.210.210.010.79.99.6
Unemployed (in thousands)445519449417400349313285264234239
In percent of economically active population9.811.910.710.29.98.77.87.06.45.75.8
Of which:4
Youth 326.925.327.827.426.627.528.027.626.823.7
Female40.139.139.337.239.138.639.540.039.138.5
Long-term5, 618.030.639.444.348.343.841.644.643.841.2
Basic education744.241.740.238.937.840.939.034.332.3
Secondary education52.254.956.457.058.156.257.262.563.2
Tertiary education3.63.43.84.14.12.83.73.24.1
Unemployment by reasons 4,6
Lost job71.568.065.565.563.156.955.756.655.554.8
Quit job7.96.67.78.08.08.99.311.110.312.0
Gave up own business2.02.02.11.72.62.52.32.02.92.8
Seasonal job terminated0.61.81.82.02.74.34.76.87.47.9
Left school8.38.910.311.310.68.88.410.410.88.7
Unemployment rates by age
Aged 15–1927.033.329.831.130.428.824.823.423.721.0
Aged 20–2414.017.016.014.714.513.011.110.610.49.5
Aged 60–744.310.110.55.15.46.29.01.01.82.1
Economically inactive population
(in thousands)3,1993,4173,5853,7243,7603,8053,7453,6213,6603,6703,653
Of which:8
Passive unemployed4.83.43.02.92.72.52.93.03.03.03.2
Source: Central Statistical Office of Hungary.

Aged 15–74.

Percentage share in total employed.

Aged 15–24.

Percentage share in total unemployed.

Duration of job search over one year; data for 1992 and 1993 do not include persons looking for a job for more than 25 months.

Excludes persons who will begin working in a new job within 30 days.

Includes less than eight grades of primary school.

Percentage share in total inactive population.

Source: Central Statistical Office of Hungary.

Aged 15–74.

Percentage share in total employed.

Aged 15–24.

Percentage share in total unemployed.

Duration of job search over one year; data for 1992 and 1993 do not include persons looking for a job for more than 25 months.

Excludes persons who will begin working in a new job within 30 days.

Includes less than eight grades of primary school.

Percentage share in total inactive population.

Table 2.8.Latvia: Labor Force Survey Results(Period average-unless otherwise indicated)
1996199719981999200020012002
Working-age population (in thousands)11,9791,9881,9851,9881,9921,9571,955
Economically active population (in thousands)1,1961,1671,1491,1301,1001,1071,123
In percent of working-age population60.458.757.956.855.256.657.4
Employed (in thousands)949.0990.0986.0968.0941.0962.0989.0
In percent of working-age population48.049.849.748.747.249.150.6
Of which:2
Youth312.411.911.211.110.510.210.8
Female47.948.748.148.149.049.449.0
Employees85.380.582.683.785.084.986.2
Employers3.13.23.23.74.24.23.2
Self-employed7.19.98.77.36.86.16.2
Unpaid family workers4.46.35.45.13.94.64.3
Unemployed (in thousands)247177162161159145135
In percent of economically active population20.715.214.114.214.513.112.0
Of which:4
Youth 37.48.711.210.18.69.29.3
Female20.128.540.239.033.836.339.0
Long-term520.029.818.121.117.016.817.5
Basic education68.111.015.014.312.212.813.3
Secondary education720.124.936.235.629.644.045.4
Tertiary education2.22.94.74.84.04.54.8
Unemployment rates by age (in percent)
Aged 15–2431.523.424.423.621.821.718.6
Aged 25–4917.814.013.013.414.112.410.8
Aged 50–5917.913.812.211.912.812.611.2
Economically inactive population (in thousands)783821836858892850832
Source: Central Statistical Bureau of Latvia.

Aged over 15.

Percentage share in total employed.

Aged 15–24.

Percentage share in total unemployed.

One year and over.

ISCED 2.

ISCED 3.

Source: Central Statistical Bureau of Latvia.

Aged over 15.

Percentage share in total employed.

Aged 15–24.

Percentage share in total unemployed.

One year and over.

ISCED 2.

ISCED 3.

Table 2.9.Lithuania: Labor Force Survey Results(Period average-unless otherwise indicated)
199419951996199719981999200020012002
Working-age population (in thousands)12,9102,8122,8062,8022,8002,816
Economically active population (in thousands)2,0371,8201,8431,8621,7941,7601,630
In percent of working-age population70.065.566.364.062.857.9
Employed (in thousands)1,6561,6321,6901,5021,5851,6361,5451,4861,346
In percent of working-age population58.156.458.355.153.147.8
Of which:2
Female49.445.944.546.146.251.9
Employees81.674.771.272.373.483.5
Employers and self-employed19.115.614.014.814.717.3
Unpaid family workers3.83.43.53.12.93.6
Unemployed (in thousands)347347347317257226249274284
In percent of economically active population17.017.414.012.113.915.617.4
Of which:3
Youth420.618.925.021.718.512.6
Female46.737.837.248.046.343.336.4
Basic education516.415.116.518.616.713.5
Secondary education641.366.385.283.674.356.1
Tertiary education23.36.88.57.812.49.5
Economically inactive population (in thousands)8739709441,0091,0411,186
Source: Lithuania Statistics.

Aged over 15.

Percentage share in total employed.

Percentage share in total unemployed.

Aged 15–24.

ISCED 2.

ISCED 3.

Source: Lithuania Statistics.

Aged over 15.

Percentage share in total employed.

Percentage share in total unemployed.

Aged 15–24.

ISCED 2.

ISCED 3.

Table 2.10.Slovak Republic: Labor Force Survey Results1(Average for four quarters)
199419951996199719981999200020012002
Working-age population (in thousands)24,0814,1304,1734,2144,2544,2924,3294,3664,366
Economically active population (in thousands)2,4442,4712,5092,5222,5452,5732,6082,6532,628
In percent of working-age population59.959.860.159.859.860.060.260.860.2
Employed (in thousands)32,1102,1472,2252,2242,2282,1562,1232,1452,141
In percent of working-age population51.752.053.352.852.450.249.049.149.0
Of which:4
Youth514.214.515.114.814.213.012.311.611.5
Female44.444.444.544.544.444.945.445.644.7
Private sector634.039.142.946.749.550.150.653.3
Employees93.793.593.692.991.991.191.090.690.6
Private sector (percentage share in total employees)29.634.938.943.546.446.446.849.6
Employers1.92.02.02.32.52.32.42.62.4
Self-employed4.34.44.33.94.25.25.35.56.0
Contributing family workers0.10.10.10.10.10.10.10.1
Part-time2.72.62.52.22.11.91.92.11.8
Unemployed (in thousands)334324284298317417485508487
In percent of economically active population13.613.111.311.812.516.218.619.218.5
Of which:7
Youth533.931.731.432.333.434.431.631.530.1
Female46.047.150.548.947.245.745.344.445.8
Long-term841.753.251.650.350.746.953.955.759.8
Basic education and less928.129.928.329.227.021.419.719.920.6
Secondary education1068.567.668.967.669.875.677.177.176.5
Tertiary education113.52.52.93.23.23.03.23.02.9
Unemployment rates by age
Aged 15–2427.324.721.021.723.632.135.237.236.1
Aged 15–1945.142.941.937.840.055.559.459.555.8
Aged 20–2419.617.714.116.018.024.428.531.631.9
Aged 25–4911.411.39.910.210.513.515.916.315.5
Aged 50 and over8.18.06.26.97.79.612.112.614.4
Unemployment rates by educational attainment
Lower secondary or less27.328.625.226.628.734.439.442.945.5
Secondary education12.611.810.310.511.215.417.918.517.7
Postsecondary4.12.92.83.53.84.75.75.14.7
Economically inactive population (in thousands)1,6371,6601,6631,6921,7091,7191,7211,7141,738
Discouraged persons120.80.40.60.70.60.60.60.70.8
Sources: Statistical Office of the Slovak Republic, “Labor Force Sample Survey Results in the Slovak Republic”, and IMF staff calculations.

1994–96: excludes military conscripts.

Aged 15 and above.

1997 onward: includes military conscripts-thus data differ from authorities’ presentation that excludes military conscripts from “employed.”

Percentage share in total employed.

Aged 15–24.

All employed except public sector employees.

Percentage share in total unemployed.

13 months and over.

Primary education and less.

Apprenticeship (with and without examination, secondary, and full secondary (general and vocational).

Higher, bachelor, university, and research qualification.

Percentage share in total inactive population.

Sources: Statistical Office of the Slovak Republic, “Labor Force Sample Survey Results in the Slovak Republic”, and IMF staff calculations.

1994–96: excludes military conscripts.

Aged 15 and above.

1997 onward: includes military conscripts-thus data differ from authorities’ presentation that excludes military conscripts from “employed.”

Percentage share in total employed.

Aged 15–24.

All employed except public sector employees.

Percentage share in total unemployed.

13 months and over.

Primary education and less.

Apprenticeship (with and without examination, secondary, and full secondary (general and vocational).

Higher, bachelor, university, and research qualification.

Percentage share in total inactive population.

Table 2.11.Slovenia: Labor Force Survey Results(In percent-unless otherwise indicated; second quarter)
1993199419951996199719981999200020012002
Working-age population (in thousands)11,6131,6241,6211,6441,6351,6381,6531,6691,6791,687
Economically active population (in thousands)931936952946966983963963972981
In percent of working-age population57.757.658.757.559.160.058.357.757.858.2
Employed (in thousands)845851882878898907892894914922
In percent of working-age population52.452.454.453.454.955.454.053.654.454.7
Of which:2
Youth10.811.711.013.312.311.310.39.69.7
Female46.746.746.446.746.346.346.046.245.645.9
Part-time5.25.45.76.78.27.76.66.16.16.6
Paid employment84.682.483.183.181.380.981.683.982.983.8
Self-employed12.212.212.212.511.912.512.611.211.811.7
Unpaid family workers3.25.44.64.26.86.65.84.85.34.6
Unemployed (in thousands)85857069697571695758
In percent of economically active population9.19.17.47.37.17.77.47.25.95.9
Of which:3
Youth35.330.634.331.936.233.230.925.929.627.6
Female42.443.544.344.946.446.547.847.648.748.3
Long-term64.863.460.856.560.660.059.366.966.160.7
Registered at employment exchange82.478.882.985.579.782.580.482.183.982.8
Basic education or lower31.734.233.534.039.130.628.531.633.228.0
Secondary education61.759.561.660.476.164.264.963.460.264.9
Postsecondary education2.62.33.23.73.22.04.72.83.54.0
Tertiary education4.03.32.21.85.03.31.92.23.13.6
Seeking first job21.221.224.326.127.528.626.431.927.827.6
Unemployment rates by age
Aged 15–2416.115.0
Aged 15–1940.235.727.432.720.827.428.924.722.518.3
Aged 20–2421.019.717.416.816.515.715.914.815.014.4
Aged 25-497.37.66.05.95.96.58.55.84.74.8
Aged 50 and over4.55.13.94.32.43.64.36.93.93.7
Unemployment rates by education attainment
Basic education or lower12.113.410.711.512.311.010.812.310.39.3
Secondary education10.710.28.27.69.58.68.37.86.16.4
Postsecondary education3.32.83.14.03.52.15.02.22.32.9
Tertiary education5.14.12.41.95.53.71.62.32.52.6
Economically inactive population (in thousands)680689667698669656690706708707
Economically active population by education attainment
Basic education or lower223216218203219208188178185174
Secondary education488495526546553563557561572585
Postsecondary education68697265647067888681
Tertiary education67696563626780667182
Sources: Statistical Office of the Republic of Slovenia, “Labor Force Sample Survey Results in the Slovak Republic” and IMF staff calculations.

Aged 15 and over.

Percentage share in total employed.

Percentage share in total unemployed.

Sources: Statistical Office of the Republic of Slovenia, “Labor Force Sample Survey Results in the Slovak Republic” and IMF staff calculations.

Aged 15 and over.

Percentage share in total employed.

Percentage share in total unemployed.

Regional Unemployment

Unemployment is quite regionally concentrated and there is little evidence that migration is significantly reducing this concentration. As discussed in Section IV, the initial regional variation may have reflected the impact of the initial shock of transition in the context of the centrally planned distribution of resources. However, there has been little movement in the relative position of high-unemployment regions over the course of transition, with regional unemployment moving largely in unison with aggregate unemployment in a given country. In fact, in some countries—for example, Bulgaria, the Czech Republic, and Hungary—the concentration of unemployment has increased (Figure 2.8).

Figure 2.8.Regional Unemployment Rates

(Ratio of regional unemployment rates to economy-wide unemployment rate)

Source: LFS data.

Despite the large initial variation in unemployment, geographical labor mobility within countries has been limited. Housing market imperfections may contribute to this limited labor mobility. Transition economies are characterized by extremely high rates of home ownership, owing to the housing privatization process following the fall of centrally planned economies. Home ownership is above 70 percent in these countries, and at or above 90 percent for several, including Bulgaria and Hungary. This compares with an average home ownership rate of 55 percent in the EU–15 countries. Combined with the fact that housing and mortgage markets are underdeveloped and housing costs are significantly higher in urban centers, the high rate of home ownership may make a move for employment purposes unattractive.

Wage Developments

Real wages initially declined sharply, but they have subsequently grown steadily, in particular for faster reformers (Figure 2.9). The decline reflected both the collapse in output as well as rapid price inflation. In general, in the first years of transition, real wages declined by between a quarter and a half—with the exception of Hungary, where real wages were almost unchanged in the first five years of transition, and Bulgaria, Croatia, and Latvia, where the decline was about 60 percent. By 2001, real wages exceeded 1988 levels in about half of the countries in the sample, by between 15 percent and 40 percent. In Bulgaria, Latvia, Lithuania, and the Slovak Republic, wages had yet to recover fully, while in Slovenia, real wages are virtually unchanged from pretransition levels.

Figure 2.9.Real Wages

Sources: National authorities; and IMF staff estimates.

The relationship between real wages and productivity shows considerable variation across countries. In Poland, for example, real wages and productivity have moved quite closely. In the Czech Republic and Slovak Republic, real wages initially dropped much more sharply than productivity, but since 1991 real wage growth has outstripped productivity gains. (The experiences of Croatia and Slovenia are broadly similar, but data are more sketchy.) In Bulgaria and Hungary, by contrast, wage growth has lagged productivity growth during the course of transition.

Policies and Labor Market Outcomes

To what extent have policies and institutions helped to determine the labor market performance of CEE countries? As described below, labor markets in these countries appear relatively flexible compared with those of the EU–15 countries, suggesting that labor policies may not be the sole explanation for lingering high unemployment. However, labor markets are less flexible than in the United States and in some cases high labor taxes, extended social benefits, and relatively high minimum wages may have contributed to low participation and employment and high unemployment.

Labor market outcomes can be influenced by a range of policies.

  • A comparatively high minimum wage, in particular relative to the wages of low-skilled workers, can dampen the demand for labor. There are, however, questions about the extent to which statutory minimum wages have been enforced.

  • A high overall tax rate on labor income can reduce both demand for and supply of labor, depending on the ultimate incidence of the tax.

  • Income-tested social assistance effectively increases the marginal tax rate on labor earnings, since a dollar earned will both increase taxes paid and lower benefits received.

  • Excessively generous unemployment benefits, in terms of the replacement rate, eligibility requirement, or duration, can retard incentives for job search. But the failure to provide adequate benefits can slow the entire transition process, as workers resist restructuring.

  • The structure of the pension system can influence labor market performance. For example, easy early retirement rules will tend to reduce employment and participation rates, with an ambiguous impact on measured unemployment.

  • Labor market institutions, such as the extent of centralized collective bargaining or the ease with which workers can be hired and fired, can influence the willingness of businesses to take on new workers and the overall flexibility of the labor market.

  • Active labor market policies can improve job prospects for the unemployed. However, evidence on the cost effectiveness of such programs is mixed (Martin and Grubb, 2001; OECD, 2003a and 2004a, b).

There are substantial differences among CEE countries with respect to labor policies, but all appear to have achieved a reasonable degree of flexibility. It seems clear that labor markets are not stickier compared with those in the EU–15 countries, except for high tax wedges on labor income, although they are significantly more sticky than in the United States.

The statutory tax wedge on labor income is high in CEE countries, reflecting adverse demographics and labor market developments as well as difficulties in collecting social contributions. The overall tax rates on labor—including personal income taxes and social insurance contributions—exceed 50 percent in all cases and are as high as 75 percent in Hungary (Figure 2.10). This is higher than in most EU–15 countries—whose high labor income tax burdens (about 50 percent) are often criticized as a source of high unemployment (see OECD, 2004a, b)—and well above those of the United States and other industrial countries. Tax wedges in Hungary and Romania are even higher than in developed countries with the highest tax burden, such as Sweden (about 64 percent). Such high rates can dampen labor supply, in particular when alternative sources of income, such as social assistance or subsistence activity, provide an acceptable standard of living. During the transition period, the fiscal pressure to maintain high payroll taxes has been strong (see Riboud, Sánchez-Páramo, and Silva-Jáuregui, 2002). Aging populations and declining employment rates strain public pension systems, while high unemployment rates have tended to raise spending on the unemployment insurance and social benefit system.

Figure 2.10.Statutory Overall Tax Rates on Labor Income

(In percent)

Sources: Price water house Coopers; and IMF staff estimates.

Minimum wages, while not high by international standards, may adversely affect employment, in particular of low-skilled workers. In several countries, such as Croatia and the Slovak Republic, the minimum wage approached or exceeded half of the average gross wage early in transition, suggesting that hiring of low-skilled employees could have been depressed (Figure 2.11). Overall, we observe a converging trend among CEE countries in the ratio of the minimum wage to the average gross wage: by 2002, virtually all countries were in the range of 30-40 percent, in line with the United States and Japan (about 40 percent) and significantly lower than most EU–15 countries (between 50 percent and 60 percent).

Figure 2.11.Minimum Wages

(In percent of average gross wages)

Sources: National authorities; ILO; and IMF staff estimates.

1 For Croatia, data are for 1994.

Unemployment insurance replacement ratios and durations are mainly within a range between those in EU–15 countries and the United States. In recent years, some of the sample countries—notably, Estonia and Lithuania—have had replacement ratios lower even than in New Zealand, whose replacement ratio (30 percent) is the lowest among the OECD countries (Figure 2.12). As regards unemployment benefit duration (here, for a worker with 20 years of social security contributions), some CEE countries have durations identical to those in the United States (6 months), while others are in the range of 9 to 18 months, similar to those in the EU–15 countries.

Figure 2.12.Statutory Replacement Ratios of Unemployment Benefits to Average Gross Wage

(In percent)

Source: U.S. Social Security Administration, Social Security Throughout the World

CEE countries are also in the middle of the pack, compared with the industrial countries, with regard to employment protection. Table 2.12 reports the employment protection legislation index (EPL) for seven CEE countries.5 The EPL for Slovenia is comparable with those in Southern European countries, Portugal, and Spain, which are characterized by relatively restrictive labor markets.6 On the other end of the scale, Hungary’s EPL is significantly lower than the EU–15 average, but much higher than the EPL in very flexible labor markets such as the United States and the United Kingdom. The EPLs in other CEE countries are fairly close to the EU–15 average. A key question, however, is whether such a middle-of-the-road position is detrimental in a context where resource reallocation has to take place on a large scale for economic performance to improve.

Table 2.12.Employment Protection(Legislation Index (EPL)
Czech Republic1.9
Hungary1.7
Poland2.1
Slovak Republic2.0
Croatia12.8
Slovenia13.0
Estonia12.6
EU–15 average22.3
United States0.7
Japan1.8
Source: OECD (2004a).

World Bank estimate.

Excludes Greece and Luxembourg.

Source: OECD (2004a).

World Bank estimate.

Excludes Greece and Luxembourg.

In some cases, an extensive social assistance system may be contributing to lower employment levels. In Poland, total social assistance levels have been quite close to the minimum wage, providing adverse incentives for labor market participation (Estevőo, 2003;). However, most CEE countries have cut back on social assistance payments during the past 10 years.

For most CEE countries, early retirement ages are in line with the EU–15 countries and the United States. Most of the countries have raised the retirement age gradually, in the context of pension reform. In 2002, the retirement age of most CEE countries was above 60 years—in line with the EU–15 average (about 60), Japan (60), and the United States (62).

However, retirement through the disability rolls appears to have served as a conduit for early retirement. In Bulgaria, for example, the number of pensioners exceeds by 20 percent the over–59 population, and early retirement is frequent in several other countries. Many of the early retirees are disability pensioners—in Hungary, the Slovak Republic, and Poland, 30 to 50 percent of the older cohorts are categorized as disabled.

The new EU member countries in the region appear to spend little on active labor market policies. Although data are sketchy, it appears that these countries spend between 0.1 percent and 0.8 percent of GDP annually on such policies, compared with spending in the EU–15 of 1.2 percent of GDP or more in a number of countries (OECD, 2003a).

Stylized Facts and Questions Raised

These stylized facts seem to suggest that, despite considerable variance; country experiences share some common features. This provokes several questions that the rest of the paper attempts to examine:

  • Did the labor market experience of transition countries follow a common path? If so, what are its characteristics, and how can “latecomers” learn from the experience of those countries that began the transition earliest?

  • Did labor market institutions influence the experience? If so, can different institutional arrangements explain most of the cross-country differences?

  • What factors may account for the seemingly different job-creating abilities, and labor market experiences, of the various transition countries?

  • What may account for the large and persistent interregional differences in labor market performance?

  • What policies may help improve labor market performance during transition?

The remainder of the paper is organized as follows: Section III takes up the first three questions and attempts to answer them by analyzing a panel of transition country data, as well as by trying to synthesize “what works” based on country experiences. Section IV addresses issues of interregional differences by drawing conclusions from stylized models and the available empirical literature. Section V concludes and discusses possible policies to improve labor market performance in transition.

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