Labor Reallocation in Transitional Economies - Twenty Years Later

by Pauna, Catalin
Published in Romanian Journal of Economic Forecasting
, 2009, volume 12 issue 4, 180-194

 Requires a PDF viewer such as Xpdf or Adobe Acrobat Reader


The paper investigates labor  reallocation across main economic sectors  between 1989 and 2007 in the CEE2 countries, now  all members of the EU, using a methodology presented in Jackman and  Puna (1997). Defining a series of  indices aimed at capturing the speed, magnitude  and efficiency of employment  reallocation, the work assesses the extent to which  these countries have succeeded in  converging towards distributions of sectoral  employment similar to those in the old EU  members. The work shows that, overall, the CEE  countries have made progress towards reallocating jobs from the oversized  labor intensive sectors, characteristic  of the early years of transition, such as agriculture  and heavy industries, towards the  services sector. However, convergence has been  relatively slow and its pace has been different from country to country.  Bulgaria emerges as the country where the  fastest restructuring has taken place, and in the  right direction. Romania, in particular, appears to have made least progress,  although it is also moving in the right  direction. The still large agricultural sector,  which continued to hire around 30% of the  occupied population in 2007, remains an area which  will require further and massive restructuring. As of 2007, in the case of  Romania, around 40% of the jobs expected  to be created in the growing sectors,  computed by benchmarking actual job  destruction and job creation against the comparator  economy, have occurred. The figure increases to over 50%, when the  distortive effect of agriculture is  removed. At the same time, over 90% of the job  destruction and creation took place in  the appropriate direction, towards the comparator EU  employment distribution.

Keywords: labor reallocation, labor  market convergence, job creation, job  destruction
JEL Classification: