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Labor Markets in Eastern Europe


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Introduction
Labor market is one of the most important issues that engage the interest of the macroeconomists. Since the Labor market issue affects all the macroeconomic variables in every country- the treatment of that issue is of high importance and is different in every country. A hot debate arises when main topic is the labor market in the eastern European countries. Situations in the countries are different so one must be very careful when making a decision about the labor force market in a particular country. The labor market is a key factor market, which influences overall economic efficiency. In a dynamic, flexible labor market, workers are able to switch jobs relatively quickly, thus facilitating the opening of more productive jobs and the disappearance of less productive ones. This study will present some of the implication that the labor market has in the eastern part of Europe. In order to reach this, various arguments pointed out in the academic literature are used. First the labor market situations are discussed and then the unemployment issue will be monitored in the second part of the review.

Labor market situations in Eastern Europe


For better illustration on the labor force issue in the eastern European countries in this paper I will rely on some empirical evidences that will help the reader get the real image. The labor force in Eastern Europe is rather complex and sensitive topic due to issues and conflicts that had taken place throughout the years in the eastern bloc especially ex Yugoslavian republics. The dismantling of Yugoslavia, war in Bosnia and Herzegovina and Croatia and also the Kosovo conflict -which had around (roughly) 200 000 refugees scattered to different parts of the world, were the main reasons for political and economical instability in the region. Taking in account these occurrences the output recovery was slow in these countries and the state statistical office data unreliable. However (Vidovic, 2004) points out in his article, using the applied econometric method forecasting, that out of the labor markets in several countries that were examined up to 2003 the best performer in the region was Croatia with 38% GDP of the EU average. Second was Bulgaria with 32% whereas Serbia and Montenegro and Albania had digits in the interval of 1517%. This period was also marked with economic growth, especially in Croatia and Romania who reached 94% of their pre-transitional level and Macedonia reaching nearly 88% of its pretransitional level (Vidovic, 2004) Even though there was growth and higher GDP per capita in the region the unemployment rates were still considerably high. According to (Kuddo,2009) in order to create more and better jobs the eastern European countries should pursue two-prolonged strategy First, the countries need to improve the business environment and lower the costs of doing business to attract foreign capital

and second, labor market institutions need to be reformed -which would include various employment services, benefits for the employee as an incentive to work harder and encouragement to even more improve its skills. This is very good proposal and is the right path for every country with high unemployment to follow, but concerning the first argument, the Republic of Macedonia in the past 10 years continuously improves the investment climate through lowering bureaucracy and cutting taxes packages (RM has the lowest income tax in the region) and due to some reasons still has hardships attracting FDIs. In addition to Kuddos second proposal, (Cook 2010) deepens this argument and states that based on the survey sampling methods used in her research, the Eastern European countries have taken some measures regarding the labor market flexibility and made some progress. For instance: In many countries the hiring was simplified and the requirements for terminating workers were reduced. Legislative or labor code revisions in the Czech Republic, Hungary, Poland, Slovenia, Romania, and the Russian Federation extended the use of fixed-term contracts. Hungary and Poland increased the flexibility of working hours, while reforms in several states limited the administrative obstacles to dismissals. The Baltic states, Estonia, Latvia, and Lithuania, reduced regulations on hiring and liberalized procedures for dismissal, wage setting, and severance pay, producing what the OECD characterized as a considerable degree of labor market flexibility The Slovak Republic carried out the most comprehensive reform, liberalizing the use of term contracts, overtime, procedures for dismissal, and employers responsibilities to dismissed workers in its new 2003 Labor Code. These articles offer various opinions and interpretations regarding the labor force in the eastern European countries but they all conclude the same point that in order to fight the unemployment one country must improve its business climate and apply reforms in the labor market institutions.

Unemployment in Eastern Europe


The second part of this literature examines the issue of the unemployment in the eastern bloc. As mentioned above, the unemployment issue escalated, despite the rising of the economic growth and GDP. (Vidovic, 2004) finds in his paper that apart from the extreme case of Macedonia (37%) and Bosnia, where the unemployment rate ranked between 37 and 39%, in the first half of 2003, Serbia and Montenegro reported one third of the labor force being registered as unemployed, Croatia and Bulgaria recorded a decline in registered unemployment rates to 19% and 14% respectively. However, in all ex Yugoslav republics there were recorded huge discrepancies between the labor force surveys and the registered unemployment rates. (Vidovic,2004) shows that the largest discrepancies occurred in Croatia and in Serbia and Montenegro where the registered unemployment rates were by 7 and 12 percentage points higher than the Labor force survey rate.

Most common reason for employed people registering unemployed is the possibility of getting health insurance of receiving social benefits. This trend of labor market situations in Eastern Europe didnt undergo any significant differences eve up to today. Newer researches show more or less the same state. Group of authors (Heinegg at all 2007) and (Kuddo 2009) conclude that the labor market developments are heavily uneven in the region. Prior to the major economic downturn in 2008-09, Kosovo had the highest unemployment rate in Eastern Europe at 44 percent (2007), followed by FYR Macedonia, 34 percent (2008) and the discrepancies between the labor force survey rate and the registered unemployed rate were still there but with minor changes. The unemployment has several features. In this paper I will hold on two features which I find most essential at least for the Balkans - The long term unemployment and the youth unemployment. The share of unemployed who have been out of work for more than one year can be seen as a guideline indicator of the extent of structural unemployment. Data available for the countries under review show that the problem of long-term unemployment is even more severe than in the other transition countries. Highest values were reported for Albania (over 90%), Macedonia (85%) and Serbia and Montenegro (75%); in Bulgaria two thirds of total unemployment is long-term, in Croatia and Romania slightly more than half (Belke A and Hebler M, 2000). The long-term unemployment usually is highest for those who had a job in the state owned sector and is lower for people who worked in the private sector or run their own business. (Perugini C and Signorelli M, 2009) define the youth unemployment as a 1524 age group which, although quite rigid, may be considered reasonable and useful for comparisons across time and space. They conclude so, because they are relying on the assumption that up to those age, the most educated young people have finished only the first cycle studies. So with the Masters Degrees and PhDs out of the equation the calculating for the young employment rate is by far easier. In most countries in the region the youth unemployment rate is twice as high as the total unemployment rate. For instance: Macedonia has 58% recorded youth unemployment rate and Serbia has 50% which is a quite serious indication of the severe state of the youth in the respective labor markets. In the Balkans youth unemployment is growing into long term issue. (Vidovic, 2004) finds that in Albania 60 % of the people below 31 were jobless for more than one year. On the other hand in Romania (25%) the problem of long term unemployment among young people occurs due to the high concentration of the younger people in the bigger cities. This phenomenon is also observed in Macedonia (58%), Bulgaria (40%) and Montenegro (45%) - they all migrate to the bigger cities for better prospects but instead they increase the job competition only in one city and the demand for job in the smaller undeveloped cities declines which overall brings increase in youth unemployment. As one of the main reasons for high youth unemployment rate (Vidovic, 2004) names poor working terms and lack of professional experience which is entirely true but in my opinion the real

reason for this issue at least in Macedonia is the skill mismatches. In Macedonia 70 % of the students are enrolled at economic universities whereas Macedonian labor market is in a bigger need of students who hold agriculture degrees.

Conclusion
To sum up, the implementation of economic reforms in Eastern Europe initially resulted in higher growth and GDP but also in a rapid increase in the unemployment especially in South Eastern Europe. Fortunately, labor markets restructuring and efforts for eliminating the inefficiencies are under way and reduced the unemployment rate a bit in Eastern Europe by the beginning of the recession in 2008. However the level of the unemployment isnt what it is forecasted to be yet. Overall the eastern European countries are on the right path and should continue and with their hard work in attracting FDIs with lowering bureaucracies, lowering tax packages, diminishing governments interference in the private sector and similar activities which will earn the praise of the wealthier economies. Nevertheless despite the economic progress and labor market reforms in the south-eastern bloc there are still countries that are having difficulties engaging the interest of the investors due to their turbulent past.

References:

Vidovic. H (2007). Survey of economic and social challenges in south east Europe. Labor Markets and Employment Development in South East Europe pg 7-14.EBSCO Host [Assessed date 02.02.2012]

Kuddo.A(2009). Employment Services and Active Labor Market Programs in Eastern European and Central Asian Countries pg 6-36.EBSCO Host [Assessed date 02.02.2012]

Cook.L (2010) More Rights, Less Power: Labor Standards and Labor Markets in East European Post-communist States pg 1-29 EBSCO Host [Assessed date 02.02.2012]

Heinegg.A, Melzig.R, and Sprout.R(2007) Labor markets in Eastern Europe and Eurasia pg 424. EBSCO Host [Assessed date 02.02.2012]

Belke A, Hebler M (2000) EU Enlargement and Labour Markets in the CEECs. pg 1-12 EBSCO Host [Assessed date 02.02.2012]

Perugini C, Signorelli M (2009) Youth labor market performance in European regions. Pg 5-10. EBSCO Host [Assessed date 02.02.2012]

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