The persistence of job security in reforming socialist economies

The quest for efficiency underlies the reform efforts of the socialist economies, but job security and overemployment (redundant jobs) still characterize these economies. The author argues that reforming socialist economies have maintained job security not through planning but mainly through a complicated bargaining among coalitions that results in a massive redistribution. This redistribution amounts to a bailing out of the ailing or less productive firms and workers at the expense of the more productive firms and workers and of the household sector as a whole. The author substantiates his argument with an empirical analysis of the redistribution associated with the soft budget constraint in Yugoslavia in the 1970s and 1980s. He shows that redistribution is the outcome of a confrontation among coalitions and explains its compensatory nature.