 |  | | Audio Interview |  | Stefano Scarpetta, Co-author of the Report (2m22s MP3) |
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November 01, 2005 — When countries in Eastern Europe and the former Soviet Union began their historic transition from centrally planned to market economies some years ago, job losses were expected. The common belief though was that high unemployment would be temporary - the high rates would decline once the emerging private sector started creating jobs. However a new report by the World Bank dispels that perception. It emphasizes that some 15 years on, unemployment remains a persistent problem in the region Titled Enhancing Job Opportunities in Eastern Europe and the Former Soviet Union , the report analyzes employment outcomes in 27 transition countries since the fall of communism. Stefano Scarpetta, co-author of the report, explains that, while all the countries of the region have made impressive reforms over the past decade and a half, job opportunities are lacking in most countries. Major Implications “This region has seen enormous improvements in economic outcomes since 1990,” says Arup Banerji, the report’s supervisor and sector manager in the Human Development Economics Department of the Bank’s Europe and Central Asia region.(ECA) “But unless there are more and better jobs created in the region, the poverty reduction we have seen in recent years could grind to a halt. And this in turn would really undermine the political support for reforms,” he warns. A Variable Problem The report stresses that the problem with the labor market varies considerably among countries in the region. “In the new member countries of the European Union and the accession countries, the problem in the labor market is really unemployment and long-term joblessness,” says Stefano Scarpetta, report co-author, labor market advisor, and lead economist in the Bank’s Human Development and Social Protection Vice-Presidency. “In these countries, unemployment is in double digits and about 50% of the unemployed spend more than one year looking for a job.” According to the report, even in faster restructuring countries such as the Poland and the Slovak Republic, unemployment was 19 and 18.2 percent of the labor force in 2004, respectively, despite high rates of economic growth. “In other countries, in the low income countries of Central Asia, the problem is actually the quality of jobs. People do have a job but in general it’s a very low productivity job that offers low pay,” explains Jan Rutkowski, lead economist in ECA and co-author of the study. The report finds that in the slower reforming countries of the Former Soviet Union such as Azerbaijan, Moldova and Ukraine, many people in the workforce are stuck in low income jobs or have had to move back to subsistence agriculture. Changing Nature of Jobs Overall, the report says the greatest change since transition has been the shift from secure, though not highly rewarding employment, to less stable jobs with greater earning potential. But it points out that in the low income countries in the former Soviet Union, it’s the casual and informal jobs which have risen dramatically – so much so they’re now around the levels seen in developing countries. Changes in the nature of jobs have – on the whole – affected men more than women. Many jobs were lost in sectors dominated by men such as heavy industry. By contrast, women have tended to have easier access to the new activities created in the services sector. Strategies for the Future The report calls for a two-pronged approach to create more and better jobs, stressing that
politically, creating viable and lasting jobs will strengthen support for further market reforms.
Scarpetta says the first prong revolves around improving the investment climate – providing an environment in which firms of all types have the right incentive to invest, expand their activities and hire more workers. While most countries in the region boosted their investment climates in recent year, serious constraints remain. For example, operating a business in low income countries of the former Soviet Union carries high risks because of insecure property rights, weak contract enforcement and unreliable infrastructure. In the middle income countries of the former Soviet Union – countries such as Belarus, Kazakhstan, Russia and Ukraine - some of the constraints include too much red tape, inefficient regulations and the need for numerous permits. In Central and Eastern Europe, doing business is hampered by high direct costs such as taxation and onerous labor market regulations. He explains that the second prong of the approach is “improving the adaptability of the labor market – a market in which the employer has the right incentive to hire more workers, but also one where workers are helped in their transition from one job to another.” Overall however, Scarpetta explains that, because it is the young, small private firms creating the jobs, governments need to push for business friendly reforms – the jobs problem won’t be solved by just spending money on active labor market measures. “Jobs programs and policies to retrain workers or help the unemployed will not be enough to solve the underlying problem,” he says. | 
