Economic transition turns the inherited wage structure upside down. Changes are rapid and dramatic. The Polish example shows that even in the first year of market-oriented reforms, there was a marked increase in earnings inequality, a dramatic rise in the wage premium for white-collar skills, and a significant jump in the returns to education. In contrast, skills acquired under the old system lost their value. It is younger workers who are rewarded with higher wages. The changes are spearheaded by the private sector, where inequalities and the educational premium are higher than in the public sector. Privatization, thus, has its social aspects in that it strengthens the incentive for human capital investment. This paper documents these changes and sets out possible explanations. Copyright 1996 The European Bank for Reconstruction and Development.
This paper was prepared as a background paper for the 2005 ECA Labor Market Study. I would like to thank Mamta Murthi for helpful comments, and Barbara Ziolkowska for preparing the paper for publication.
Lithuania is a transition economy undergoing rapidRutkowski looks at all three dimensions of labor enterprise restructuring associated with substantial job market flexibility by analyzing job reallocation, worker turnover. At the same time, unemployment in Lithuania transitions across labor force states, wage distribution, is high and of long duration. This presents a puzzle: high and regulatory constraints faced by employers. He job turnover epitomizes labor market flexibility, while focuses on the issue of job creation and job destruction, high unemployment indicates labor market rigidities.using micro level data on all registered firms. He finds What are the reasons behind this paradox? Why do the that flexibility in one dimension can concur with unemployed not benefit from job opportunities created rigidities in the other. Specifically, employers in by high job turnover, which entails high rates of job Lithuania have a substantial degree of flexibility with creation and hiring? employment adjustment coupled with limited flexibility To answer this question, Rutkowski looks at three to wage adjustment due to a high statutory minimum perspectives on labor market flexibility:wage. The relatively rigid wage structure locks low * The macroeconomic perspective-A flexible labor productivity workers who are preponderant among the market is one that facilitates full use and efficient unemployed. The low-skilled long-term unemployed allocation of labor resources.have become marginahzed and unable to successfully * The worker perspective-A flexible labor market compete for available jobs, while the high job turnover is means ease in finding a job paying a wage adequate to accounted for largely by job-to-job transitions. As a the worker's effort and skills.result, a dynamic labor market coincides with a stagnant * The employer perspective-A flexible labor market unemployment pool. does not unduly constrain the employer's ability to adjust employment and wages to changing market conditions. This paper-a product of the Human Development Sector Unit, Europe and Central Asia Region-Is part of a larger effort in the region to examine labor market performance and its contribution to economic growth and poverty reduction. Copies of the paper are available free from the World Bank,
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