Government Distributional Concerns and Economic Policy During the Transition from Socialism

Roger Gordon and David Daokui Li

No 1662, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Before the transition governments had strong distributional objectives, which they pursued mainly by direct controls over state enterprise wage rates and hiring decisions, yielding a highly compressed wage distribution. During the reform they maintained similar controls over state enterprises, but had to take into account competition from the new non-state sector that was mostly free from these controls. Based on these distributional considerations alone, we forecast: 1) an immediate and continuing decline in the skills of workers in the state sector as the most able workers leave; 2) higher productivity in the non-state sector, which consists of the most able workers; 3) accounting losses in the state sector, reflecting the transfer of tax revenue to finance payments to the unskilled previously financed within the firm; and 4) restructuring within the state sector to reduce the distortions to relative wage rates. These phenomena are broadly observed across all transition economies.

Keywords: Economic Transition; Government In Transition; labour productivity in transition; policy during transition; Redistribution; Wage Structure (search for similar items in EconPapers)
JEL-codes: H10 H20 H30 O52 P50 (search for similar items in EconPapers)
Date: 1997-06
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Citations: View citations in EconPapers (4)

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