Optimal Speed of Transition 10 Years After

Abstract:     
The adjustment of labour markets during transition has been quite different from that anticipated by the Optimal Speed of Transition (OST) literature. In particular, it has involved stagnant unemployment pools, large flows to inactivity and strikingly low workers' mobility, especially when account is made of the changes occurring in the structure of employment by sector, occupation and ownership of firms. Furthermore, the policy trade-offs embedded in the OST literature relate mainly to the alternative between a big-bang strategy and a gradual transition process. This amounts to assuming that governments can control the pace of closure of state enterprises. However, the facts discussed in this paper suggest that separations from state sector employment were, ultimately, an endogenous variable rather than a policy instrument, as they were, to a large extent, the byproduct of voluntary choices of workers.

Number of Pages in PDF File: 32

JEL Classification: J60, P21

working papers series