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Labor Markets in Transition
Europe and Central Asia Region
Opening address at a conference on “Social Inclusion in Eastern Europe and Central Asia-Towards Mainstreaming and Results” hosted by the Ministry of Social Affairs and Labor, Government of Hungary and the World Bank
September 25-26, 2007
Income per capita is less than half of the EU-15 average for even the wealthiest subgroup of ECA countries and a quarter of the EU-15 average for the other ECA middle income countries
Growth in GDP per capita from 1998 to 2006, the most rapid for CIS countries recovering from a deep transitional recession, owes more to growth in labor productivity (GDP/EMPL) than improved employment rates (EMPL/Working POP) or favorable demography (Working POP/POP)(Growth in GDP/POP) = (Growth in GDP/EMPL) +(Growth in EMPL/Working POP) + (Growth in Working POP/POP)
Indeed the employment rate (EMPL/Working POP) continued to fall inmany countries even after 1998. Slack labor markets are manifest in either open unemployment, falling labor force participation or low-productivity employment. While the employment rate is generally higher in CIS countries compared to Eastern Europe, many jobs in the CIS are in low-productivity occupations.
Employment Rates: Early Transition, 1998 and 2006
Note: The earliest years (blue bars) for each country are as follows:
1990:Azerbaijan, Belarus, Bulgaria and Estonia
1992: Hungary, Russia
1993: Armenia, Czech Republic, Kazakhstan, Poland and Slovenia
1994: Albania, Lithuania, Romania and Slovak Republic.
1995: Moldova and Ukraine.
Source: ILO LABORSTA database, World Development Indicators
Note: The employment rate in Moldova between 1998 and 2003 shows a decline based on LFS but an increase based on household survey data on account of a likely more restrictive definition of informal sector employment in the LFS.
Labor Force Participation Rates are lower in Eastern Europe compared even to the EU15 and are particularly low for older age groups and women
While the population is expected to decline by over 15 percent by 2025 in Ukraine, Bulgaria and Georgia on account of aging, it is expected to expand by over 30 percent by 2025 in Turkey, Turkmenistan, Uzbekistan and Tajikistan
Percentage Change in Population in ECA Countries, 2000-2025
Source: UN Population Prospects
The share of working age population to total population is expected to decline rapidly after 2015 in all subgroups of countries except Turkey and (Azerbaijan and low income Central Asia), with potentially adverse consequences for growth.
Increasingly dynamic labor markets in transition economies were reflected in rise in the sum of job creation and job destruction rates to levels broadly comparable to those in developed countries and lagging slightly below those in developing countries
Source: Bartelsmann and Scarpetta (2007); Brown and Earle (2007)
New firms played a major role in job creation in the early years of the transition – 70% to 90% in Hungary and Romania; 60% to 80% in Ukraine and 50% to 70% in Russia. This share fell later to 20% except that in Russia and Ukraine it increased when firm entry rose following the 1998 Russia crisis. This underlines the importance of the demand side of labor markets in transition.
Source: Brown and Earle (2007)