The presentation will be based on the recent book by Sandrine Cazes and Alena Nesporova Labour markets in transition: Balancing flexibility and security in Central and Eastern Europe (International Labour Office, Geneva 2003). It discusses to what extent persistent high unemployment in the countries of the former Soviet bloc is to be explained by the rigidity (non-flexibility) of their labour markets similarly as it is suggested by neo-liberal economists for Europe as opposed to the United States with generally lower unemployment.
After defining the concept of labour market flexibility, the presentation will analyze the incidence of flexible forms of employment, such as self-employment, labour contracts with limited duration, part-time employment, multiple-job holding and work agreement between two parties for a certain task/activity. Statistical data show that part-time employment is not widespread in the region, mainly because of the low level of wages. Non-agricultural self-employment has sharply increased in the initial period of economic transition but later its share has more or less stabilized at (or below) 15 per cent. Also the use of temporary labour contracts has increased but still their share in total employment is much lower than in the economically developed countries. The major form of flexible employment after 1989 then seems to be multiple-job holding or second jobs, formal but more often informal, performed besides main formal employment, registered unemployment or formal inactivity.
Apart from flexible forms of employment, the level of labour market flexibility is reflected in the speed of movements in the labour market, measured by labour turnover (the sum of recruitments and separations from enterprises divided by employment). The analysis shows that labour turnover has increased considerably after 1989. Indeed, in the initial period of economic transformation, economic reforms stimulated restructuring connected with massive job destruction and reallocation of labour. Economic stabilization and recovery was expected in the transition countries to increase moves of people among jobs to capture better jobs with higher earnings, and stimulate recruitments of people from the unemployment pool or previously inactive, while causing less redundancies and resignations, similarly as in the economically advanced countries. However, workers in transition countries behave differently and, even in an improved economic situation, many seem hesitant to quit their jobs voluntarily and move on to other jobs. The main reason is the heightened perception of employment and income insecurity contrasting with much higher confidence in the labour market and in assistance provided by labour market and social welfare institutions enjoyed by their colleagues in industrialized countries. Reluctance to voluntarily quit the current job for a better one is justified by the fact that labour demand is in general weak, many large and medium-sized companies are still or again cutting staff, small firms are often fragile. A decline in income due to a failure to find a new job resulting in unemployment is critical and for the majority of unemployed persons it means a fall into poverty. High insecurity thus hinders labour market reallocation despite flexible labour markets. This was confirmed by our findings of a tendency towards a counter-cyclical movement of labour turnover in transition countries, which is opposite to developments in industrialized countries.
This analysis shows that without competitive enterprises, which are able to adjust their workforce in numbers, structure and quality to market conditions, employment performance will be poor. However, high labour market flexibility per se cannot solve the unemployment problem and may in fact have a counter-productive effect unless workers enjoy reasonable employment and income security to be motivated to accept higher mobility and flexibility, to increase their productivity and to lower their opposition to change. Under employment and income security we understand a good access to re-employment assistance provided by public employment services, access to active labour market policies improving employability and/or temporarily placing disadvantaged jobseekers in subsidized employment before regular employment, and decent income support during the period of job search. Labour market flexibility and employment security thus have to be properly balanced.
The econometric analysis finds no statistically significant impact of employment protection legislation on the aggregate, long-term and youth unemployment rates in transition countries. However, it identifies significant correlation between the level of employment protection on the one hand and the employment rate and the labour market participation rate on the other but with opposite signs for the Central and Eastern European countries and for the economically advanced (OECD) countries. While in the OECD countries stricter employment protection tends to have a negative effect on employment and labour market participation, in transition countries the results indicate that more protection could contribute towards an increase in employment and higher economic activity of people in the formal sector of the economy. This is reinforcing the earlier conclusion on the need for balancing flexibility and security.
Finally, the analysis has shown that all the analyzed labour market indicators – labour market participation, employment, unemployment, youth unemployment and long-term unemployment – are positively affected by collective bargaining and active labour market policies, while unemployment and in particular long-term and youth unemployment tend to rise with higher payroll taxes. Therefore, policies promoting social dialogue and stimulating employment promotion and unemployment reduction while ensuring increased labour market stability, rather than pure deregulation, should clearly be on the political agenda of the transition countries.