Can We Really Explain Worker Flows in Transition Economies?

Joanna Tyrowicz and Lucas van der Velde

No 2014-28, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: This paper employs a new rich source of data on worker reallocation in transition economies and provides a decomposition of the aggregate changes into those attributable to sectoral reallocation, those attributable to transition per se and those attributable to demographics. Aghion and Blanchard (1994) provide a theoretical framework that allows to conceptualize a reallocation from an (implicitly inefficient) public sector to a (more efficient) private sector, which is extremely useful in the analyses of economic transition. However, transition processes are not isolated from global trends such as a shift from industry to services, which is more explicitly tackled in the sectoral reallocation models of Caballero and Hammour (1996, 2001). Finally, there are also demographic processes, which exhibit in labor market exits by people with outdated or no longer necessary skills and in labor market entries by people with possibly better matched competences. The aggregate changes in transition economies are a combination of these three mechanisms. We thus test the validity of Aghion and Blanchard (1994) as well as Caballero and Hammour (1996, 2001) in the context of 26 transition economies over the period 1989-2006. We find that demographics and education can accommodate a fair share of shift from public to private and from manufacturing to services - as opposed to the actual worker flows between jobs. Whether or not this results in reduced employment at the end of the transition process stems not from the wage setting mechanism (such as collective bargaining, indexation, etc.) but rather seems to be related to the policies able to keep older cohorts in employment.

Keywords: optimal speed of transition; reallocation; Aghion and Balnchard; Caballero and Hammour; demographic changes; transition economies; labour market. (search for similar items in EconPapers)
JEL-codes: J11 J21 J23 P31 P52 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2014
New Economics Papers: this item is included in nep-lab and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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http://www.wne.uw.edu.pl/inf/wyd/WP/WNE_WP145.pdf First version, 2014 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:war:wpaper:2014-28

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