The Armenian labor market in transition: issues and options

Milan Vodopivec and Wayne Vroman

No 1193, Policy Research Working Paper Series from The World Bank

Abstract: Reform of the labor market in the former Soviet Union (FSU) is essential to increase productivity. The transition of the FSU economies to a market economy must involve a massive displacement of workers, and will entail labor shortages for certain skills. A key challenge will be to reallocate labor at the lowest social costs. The authors identify key labor market issues in Armenia, reflecting on the dilemmas and options policymakers face both in Armenia and elsewhere in the FSU. Armenians are ardent advocates of radical reform and have already made progress in several areas (including successful privatization of land in 1990). But the Armenian transition is taking place in particularly unfavorable circumstances - including a severe energy crisis because of an economic blockade imposed by neighboring Azerbaijan. In Armenia, current labor policies represent a step in the right direction because they leave primary responsibility for finding a job to the individual. The state's role is simply to provide a social safety net and to create an environment that generates jobs. Tangible progress has been made but the adjustment process has just begun and is hindered by inconsistent labor policies - in some areas too radical and in others smacking of the old interventionism. The authors offer several general policy guidelines. Undertake several initiatives, not just one - possibly worker training as well as job search assistance, self employment grants, and temporary public employment. Use some resources to monitor and evaluate interventions to find out what works. Coordinate active policy interventions and the interface between active and passive instruments. Be prepared to change as the macroeconomic environment changes, and take advantage of the current climate. Under high inflation, for example, consider widening the wedge between wages and various cash and in-kind transfers. When inflation abates, consider paying cash benefits on the basis of prior earnings. Above all, be flexible and sensitive to signals and changes in signals. Among policy options, one size does not fit all.

Keywords: Environmental Economics&Policies; Banks&Banking Reform; Municipal Financial Management; Labor Standards; Health Monitoring&Evaluation (search for similar items in EconPapers)
Date: 1993-09-30
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