Labour markets, unemployment and poverty during the transition
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The transition process has profoundly affected the lives of almost everyone in central and eastern Europe and the Baltic states (CEE) and the Commonwealth of Independent States (CIS). For some people, it has given them the opportunity to acquire new skills and training, to live and work in other regions and countries, and to engage in entrepreneurial activity in the new, expanding private sector. For others, the transition has caused considerable hardship, with widespread layoffs in state-owned enterprises, rising unemployment and poverty, and a shrinking social safety net. Now that growth and stabilisation have taken root in most transition economies, the "human" dimension of transition is becoming increasingly important. There is little doubt that a wellfunctioning labour market is essential if the progress towards a market economy is to be sustained and if the level of poverty is to be reduced. Labour mobility, a skilled workforce, an entrepreneurial spirit, modern labour laws that balance employer flexibility with workers’ rights, and an adequate social safety net are all key requirements for a more successful transition.
This chapter examines how the dynamics of the transition process have affected individuals over the past decade and how people in turn have responded with a mixture of active and passive strategies. The chapter has three broad messages. The first is that informal activities, such as subsistence farming and casual jobs, have played a crucial role in providing employment and earnings for many people but the driving forces for these activities differ markedly across the region. In the more advanced reformers, the motives tend to be market-related, including tax evasion and the avoidance of bureaucratic delays and impediments. In contrast, informal activities in countries at the earlier stages of reform are driven by the lack of opportunities in the formal sector and are undertaken as a means of survival.
The second message is that the transition has created both "winners" and "losers", with the most obvious beneficiaries being owners of firms and the selfemployed. Entrepreneurship has proved to be very rewarding for some people, but the relatively low number of entrepreneurs implies that impediments remain significant. The unemployed are among those who have suffered the largest decline in living standards, although the link between unemployment and poverty is stronger in CEE than in the CIS, where poverty is more closely associated with under-employment. These findings lead to the third message, which is that labour market performance could be enhanced substantially by institutional reforms. However, the policies needed in the advanced countries of central eastern Europe and the Baltic states (CEB) are different from those required in southeastern Europe (SEE) and the CIS. A major task for all countries in CEB is to adapt their labour laws in the run-up to EU accession. Further south and east, the main challenge is to break the cycle of low productivity and subsistence levels of employment and, by doing so, bring more activity into the formal economy.
The chapter is organised as follows. Section 5.1 focuses on the increasing divergence in employment rates between countries in CEB and SEE, where total employment has risen since the early years of transition, and the CIS where it continues to fall. It also documents the magnitude of the unemployment problem across the region. Section 5.2 draws on labour force and household surveys from selected countries to show the extent to which people engage in informal activities, such as occasional or family-based work and multiple-job holding. For many people, taking steps to cope with transition, such as changing jobs or moving to new regions and becoming self-employed or starting new businesses, are playing an increasingly important role, at least in the more advanced CEB countries. These responses to the transition process are explored in more detail in Section 5.3. Section 5.4 evaluates who the main beneficiaries of the transition have been, and Section 5.5 concludes by assessing the need for both active and passive labour market policies.
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