Institutional Determinants of Labor Reallocation in Transition

38 Pages Posted: 5 Oct 2001

See all articles by Katherine Terrell

Katherine Terrell

Stephen M. Ross School of Business at the University of Michigan; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics; Gerald R. Ford School of Public Policy

Tito Boeri

Bocconi University - Department of Economics; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 2001

Abstract

Studying the transition means analyzing the interactions between institutions and structural change, a process we still know very little about. In this paper we show that the transitional process has been very different in the countries of the Former Soviet Union (FSU) and those of the Central and Eastern European (CEE) in terms of reallocation of labor from the old to the new sector, the extent of real wage decline and responsiveness of employment to output changes. We sift through the theoretical and empirical literature to find an explanation for these diverging adjustment trajectories and conclude that the difference can be explained in part by different policy models. The CEE countries adopted social policies that upheld wages at the bottom of the distribution and hence forced the unproductive old sector to restructure or collapse. The FSU countries allowed wages to free fall and hence did not force the hand of the old sector. Why these two models were adopted is the subject for political-economy research, however we speculate that it has to do with the relative appeal of joining the EU.

Keywords: transition economies, labor reallocation, institutions, wages

JEL Classification: J0, I3, P3

Suggested Citation

Terrell, Katherine and Boeri, Tito, Institutional Determinants of Labor Reallocation in Transition (June 2001). William Davidson Institute Working Paper No. 384. Available at SSRN: https://ssrn.com/abstract=286172 or http://dx.doi.org/10.2139/ssrn.286172

Katherine Terrell (Contact Author)

Stephen M. Ross School of Business at the University of Michigan ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Gerald R. Ford School of Public Policy ( email )

735 South State Street, Weill Hall
Ann Arbor, MI 48109
United States

Tito Boeri

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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