Unemployment and Unemployment Protection in Transition

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Abstract

This paper examines developments in aggregate income and the labor market of the 28 countries from Central and Eastern Europe and the Former Soviet Union (CEE-FSU) in the period from 1990 to 2006. Income, employment, unemployment and labor market support services are examined in tabulations and time series regressions. Comparisons are made with developments in major countries from other regions of the world.

Introduction

Nearly twenty years have elapsed since the transition from a centrally-planned towards a market-oriented economy began in the countries of Central and Eastern Europe and the Former Soviet Union (CEE-FSU). The transition process was characterized by extensive changes to existing institutions, particularly the creation of private-owned enterprises. These changes resulted in a sizeable reallocation of labor away from state-owned enterprises, some of which was absorbed by private enterprises and some of which ended up in nonemployment. In addition, new institutions were established to measure the new phenomenon of open unemployment and to offset the dislocation that occurred in labor markets.

Open unemployment did not officially exist in the former centrally-planned economies. Hence, new measurement systems were needed to accurately gauge post-1990 labor market developments, especially among newly emerging classes of workers such as the self-employed. Across the 28 CEE-FSU countries, the adoption of new measurement systems for product and labor markets has been uneven. The majority instituted labor force surveys to measure unemployment and all but one (Tajikistan) established unemployment compensation (UC) programs. In 2008, for example, ongoing labor force surveys are still absent in about one-quarter of these countries and real Gross Domestic Product (GDP) estimates are not available for a similar fraction including Russia and Ukraine.

The objective of this paper is to document the differing patterns of unemployment in the 28 countries that constitute the CEE-FSU group and to outline how unemployment protection programs developed in response. All but one of the 28 countries have operated UC programs since the early 1990s, with some developing relatively well-functioning programs. We place the CEE-FSU countries in an international context by comparing the changes that have occurred in the region with developments in the rest of the world. Given that our goal is to assess unemployment in these 28 countries within a broader world context, the approach we take is eclectic. In addition to the descriptive analysis, we suggest some tentative explanations for the observed trends in unemployment and receipt of UC in the CEE-FSU countries.

Research on labor markets in transition economies has not addressed the development of institutions for all 28 countries that constitute the CEE-FSU group. A number of country-specific and regional assessments of the transition process have been undertaken by the European Bank for Reconstruction and Development, the International Monetary Fund, and the World Bank. Brown, Earle and Telegdy (2006) compare the productivity effects of privatization in two Central European countries relative to two countries in the former Soviet Union: Hungary, Romania, Russia, and Ukraine. Moreover, specific research on unemployment tends to be limited to individual countries or groups of countries. For instance, both Jurajda and Terrell (2004) and Faggio (2006) examine unemployment in Central Europe and the Baltic Republics; Münich and Svejnar (2006) use the western part of Germany as a benchmark to compare unemployment and worker-firm matching in five Central European countries: Czech Republic, Hungary, Poland, Slovak Republic, and the eastern part of Germany; Commander and Heitmueller (2007) focus on three Central European countries: Czech Republic, Hungary and Poland.

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The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

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