Enterprise Restructuring and Social Benefits

EBRD Working Paper No. 22

Posted: 1 Sep 1999

See all articles by Simon John Commander

Simon John Commander

London Business School; IZA Institute of Labor Economics

Mark A. Schankerman

London School of Economics and Political Science; Centre for Economic Policy Research (CEPR)

Date Written: April 1997

Abstract

Soviet era firms provided generous social benefits, including health and child care. Despite recent cuts, firm survey data show that benefits have remained a majorcomponent of total compensation. With benefits largely firm- specific and firms dominated by insiders, continuing attachment of workers as well as widespread informal sector participation has resulted. This has impeded restructuring, in part by generating significant set-up costs for new private firms. We simulate the effects of a cut in subsidies to benefits provision. We show that while this leads to a fall in benefits, employment and an increase in wages, the outcome critically depends on the availability of alternate providers. The key to cushioning these adverse consequences is the simulation of a market in benefits provision. Given initial conditions, rapid removal of benefits supports will require transitional income support to avoid underconsumption of these goods. We provide the design of a simple scheme of transitional support and show that it can be financed from the savings from the removal of current subsidies to benefits.

JEL Classification: J23, J32, J38, P31

Suggested Citation

Commander, Simon John and Schankerman, Mark A., Enterprise Restructuring and Social Benefits (April 1997). EBRD Working Paper No. 22. Available at SSRN: https://ssrn.com/abstract=5210

Simon John Commander (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

IZA Institute of Labor Economics

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

Mark A. Schankerman

London School of Economics and Political Science ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 7518 (Phone)
+44 20 7831 1840 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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