Article Review- Institutional Determinants of Labour Reallocation in Transition

605 Words Dec 22nd, 2015 3 Pages
Article review- Institutional Determinants of Labour Reallocation in Transition. Tito Boeri and Katherine Terrell

This paper analyses the transition process from centrally planned to market economies and focus on analysis of interaction between institutions and structural change process. Paper focuses more on reallocation of labour. It also analyses and finds explains that how central and eastern Europe is different in the transition process and reallocation of the labour.

During the initial phase of the transition, employment had to flow out of state-owned heavy industry into new, private and small-scale business sector. The extent of effectiveness in labour reallocation can assess to the success of transition in a given country
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Overall, non-employment benefits contributed to more quantity adjustment, contrary to price adjustment. This quantity adjustment implied faster structural change, which in turn allowed for stronger growth sooner in CEE than in FSU.

Boeri observes that countries from similar initial conditions and having opportunity to introduce non-employment benefit from scratch adopt two different social policy models. This might due to the variation in the size and composition of social spending differences in the degree of aversion to inequality, as historical and cultural roots of the transition economies were similar, as well as past records of income inequality.

A higher level of non-employment benefit does help to encourage structure change and to reduce income inequality, but it also generated more short and long-term unemployment. For instance, the inequality of earning in Poland is lower than in Russia (Boeri and Flinn, 1999), since the unskilled Polish workers are not working while they are “price out” of the market by non-employment benefit. Contrary to conventional wisdom, Constraining wage flexibility from below may foster structural change, rather than hinder it. While making this argument author also suggests makes it suggests that in the transition to market economy it is not always advisable to have institutions

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