Why is unemployment so high in Bulgaria?

Jan Rutkowski

No 3017, Policy Research Working Paper Series from The World Bank

Abstract: The author seeks to determine the main factors behind poor labor market outcomes in Bulgaria. Unemployment in Bulgaria is high and of long duration. The accumulation of the unemployment stock has been caused by relatively high inflows into unemployment coupled with limited outflows. These features of the Bulgarian labor market are typical of other transition economies in Central Europe and exploring their sources is of broad interest. The author focuses on determinants of and constraints to job creation. He uses data on job creation and job destruction from a survey of employment in all registered firms. He finds that the source of large inflows into unemployment is intensive enterprise restructuring associated with a high pace of job reallocation. However, job creation falls short of job destruction. Three main factors account for the limited job creation and hiring, and thus for low outflows from unemployment: a) The unfriendly business environment, reflected by a low rate of new firm formation, and a relatively small, small and medium enterprise sector. b) Labor market rigidities, including excessive hiring and firing costs. c) Skill and spatial mismatches brought about by enterprise restructuring, as well as low skills and marginalization of the long-term unemployed who cannot successfully compete for new jobs. The author recommends a three pronged strategy to improve labor market performance: (1) removing bureaucratic constraints to entry and expansion of firms; (2) enhancing labor market flexibility through lowering hiring and firing costs; and (3) improving the educational system so as to equip workers with broad and portable skills.

Keywords: Environmental Economics&Policies; Labor Policies; Labor Markets; Public Health Promotion; Health Monitoring&Evaluation; Environmental Economics&Policies; Labor Markets; Health Monitoring&Evaluation; Labor Standards; Banks&Banking Reform (search for similar items in EconPapers)
Date: 2003-04-30
New Economics Papers: this item is included in nep-cwa and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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