Labour Market Segmentation in Central Europe During the First Years of Transition

The labour markets of the centrally planned economies of Central Europe (the former Czechoslovakia, Hungary and Poland) were divided into several segments. Using estimates taken from a two-regime model, we show that segmentation has persisted throughout the first years of systemic change. However, labour market segmentation has evolved to some extent. Firms that used to have priority now coexist alongside new activities within the primary segment (in particular, foreign firms and activities in the banking and financial sector). In this way, labour market segmentation results both in the appearance of new, formal institutions and the persistence of informal institutions left over from the past, owing to the growth in market uncertainty