Labor Markets in the Transition Economies: An Overview

This paper reviews labor market developments in the countries of Eastern Europe and the former Soviet Union since the beginning of transition. The paper examines the relationship between aggregate employment and macroeconomic developments in these countries, emphasizing the changing interaction between aggregate output and employment, the role of wages and of labor market flexibility in determining the ability of these economies to provide suitable employment for their citizens. Attention is also given to the role of starting conditions and how the excess employment of the Communist period was either liquidated or accommodated. The second part of the paper deals with microeconomic issues pertaining to labor market performance in the region. The role of the nature and extent of privatization on employment outcomes is examined as is the role of sectoral restructuring. The role of entrepreneurship and the creation of new SMEs, capital formation and the emergence of new labor market institutions are also described.