Labor Market Flexibility in Central and East Europe

I explore the extent to which insufficient labor market flexibility is an important factor causing Central and East European (CEE) economies to perform worse than they could and hence slowing down their readiness to enter the European Union. My conclusion is that labor market flexibility is an issue but that it is not a major factor in comparison to imperfections and regulations in other areas such as the housing market, transportation infrastructure, capital market, corporate governance, legal framework, and business environment. In particular, my assessment is that transition labor markets have been as flexible and functional as labor markets in the market economies and that the observed differences across transitional labor markets do not account for cross-country differences in economic performance.http://deepblue.lib.umich.edu/bitstream/2027.42/39881/3/wp496.pd

Structural Reforms and Competitiveness: Will Europe Overtake America?

http://deepblue.lib.umich.edu/bitstream/2027.42/39930/3/wp545.pd

Investment, Credit Rationing and the Soft Budget Constraint: Evidence from Czech Panel Data

Strategic restructuring of firms through investment is key to a transition from plan to market. Using data on industrial firms in the Czech Republic during 1992-98, we find that (a) foreign owned companies invest the most and cooperatives the least, (b) private firms do not invest more than state-owned ones and (c) cooperatives and small firms are credit rationed. Given the large volume of non-performing bank loans to firms and the high rate of investment of large state owned and private firms, our findings also suggest that these firms operate under a soft budget constraint. Estimates of a dynamic model, together with the support for the neoclassical model, suggest that firms started to behave consistently with profit-maximization.http://deepblue.lib.umich.edu/bitstream/2027.42/39747/3/wp363.pd

The Effects of Ownership Forms and Concentration on Firm Performance after Large-Scale Privatization

We analyze the effect of ownership on post-privatization performance in a virtually complete population of medium and large firms privatized in a model large-scale privatization economy (Czech Republic). We reject the hypothesis that domestic or foreign private ownership, in either moderate or high ownership concentrations, leads to increased sales. However, private domestic and foreign majority and significant minority owners, as well as dispersed owners, increase profitability relative to state-owned firms. Firms with dispersed ownership register higher positive effect on profit than firms with more concentrated ownership, thus giving support to theories stressing managerial autonomy and initiative. Foreign owners with high as well as moderate concentrations of ownership uniformly reduce financial leverage, as do majority domestic owners. Domestic banks and portfolio companies as single largest owners (SLO) are incapable of carrying out major restructuring. Foreign industrial company SLOs carry out strategic restructuring in production and financing without deviating from the state ownership benchmark in terms of the labor cost. The effect of SLO does not vary with the SLO's concentration of ownership. Overall, private ownership tends to be associated with superior performance in terms of some indicators but not others, and dispersed ownership results in better or equal performance than more concentrated forms of ownership.http://deepblue.lib.umich.edu/bitstream/2027.42/39855/3/wp471.pd

Spinoffs, Privatization and Corporate Performance in Emerging Markets

We use new firm-level data to examine the effects of spinoffs and privatization on corporate performance in a rapidly emerging market economy. Unlike the existing literature, which analyzes spinoffs almost exclusively in advanced economies, we control for accompanying ownership changes and the fact that spinoffs and ownership are endogenous variables. We find that spinoffs increase the firm’s profitability but do not alter its scale of operations, while the effect of privatization depends on the resulting ownership structure – sometime improving performance and sometime bringing about decline that is consistent with tunneling (looting) by managers or (partial) owners. The effects of privatization are hence much less clear-cut than suggested in earlier studies. Methodologically, our study provides evidence that it is important to control for changes in ownership when analyzing spinoffs and generally to control for endogeneity, selection and data attrition when analyzing the effects of spinoffs and privatization.http://deepblue.lib.umich.edu/bitstream/2027.42/40071/3/wp685.pd

Ownership and Firm Performance after Large-Scale Privatization

We analyze the effect of ownership on post-privatization performance in a virtually complete population of medium and large firms privatized in a model large-scale privatization economy (Czech Republic). We find that concentrated foreign ownership improves economic performance, but domestic private ownership does not, relative to state ownership. Foreign firms engage in strategic restructuring by increasing profit and sales, while domestic firms reduce sales and labor cost without increasing profit. Ownership concentration is associated with superior performance, thus providing support to the agency theory and evidence against theories stressing the positive effects of managerial autonomy and initiative. We find support for a version of the hypothesis that firms restructure by first lowering and later increasing employment. The state as a holder of the golden share stimulates profitable restructuring while pursuing an employment objective, which is understandable in a period of rising unemployment. Our results hence portray the state as a more economically and socially beneficial agent than do some other recent studies.ownership; performance; privatization; panel data; industrial organization

Ownership, Control and Corporate Performance After Large-Scale Privatization

We analyze the effects of ownership type and concentration on performance of a population of firms in a model large-scale privatization economy (Czech Republic). Using specifications based on first-differences and unique instrumental variables, we find that few types of private ownership improve dynamic post-privatization performance. Concentrated foreign (but not domestic) ownership improves some measures of performance relative to state ownership. Foreign investors engage in strategic restructuring by increasing the rate of change of sales, while domestic private owners reduce the rate of change of sales and labor cost without increasing profitability. The effects of concentrated foreign ownership support the agency theory and go against theories stressing the positive effects of managerial autonomy and initiative. Our results are also consistent with the thesis that large domestic stockholders are not improving performance because they loot the firms. We find some support for the hypothesis that firms restructure by first lowering and later increasing the rate of change of employment. The state as a holder of the golden share has a positive effect on employment, while stimulating profitable restructuring. The state hence appears as a more economically and socially helping agent than in some recent studies.http://deepblue.lib.umich.edu/bitstream/2027.42/40038/3/wp652.pd

Unemployment and Worker-Firm Matching Theory and Evidence from East and West Europe

The paper tests three hypotheses about the causes of unemployment in the Central-East European transition economies and in a benchmark market economy (Western part of Germany). The first hypothesis (H1) is that unemployment is caused by inefficient matching. Hypothesis 2 (H2) is that unemployment is caused by low demand. Hypothesis 3 (H3) is that restructuring is at work. Our estimates suggest that the west and east German parts of Germany, Czech Republic and Slovakia are consistent with H2 and H3. Hungary provides limited support to all three hypotheses. Poland is consistent with H1. The economies in question hence contain one broad group of countries and one or two special cases. The group comprises the Czech Republic, Hungary, Slovak Republic and (possibly) East Germany. These countries resemble West Germany in that they display increasing returns to scale in matching and unemployment appears to be driven by restructuring and low demand. The East German case is complex because of its major active labor market policies and a negative trend in efficiency in matching. In some sense, East Germany resembles more Poland, which in addition to restructuring and low demand for labor appears to suffer from a structural mismatch reflected in relatively low returns to scale in matching. Finally, our data provide evidence that goes counter to one of the main predictions of the theories of transition, namely that the turnover (inflow) rate in the transition countries would rise dramatically at the start of the transition, be temporarily very high and gradually decline and approach the level observed in otherwise similar market economies such as West Germany.access to information; Active Employment; Active Employment Policy; active labor; active labor market; active labor market policies; active labor market programs; Active Labour; Active Labour Market