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

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

Reducing labor redundancy in state owned enterprises

This paper focuses on what determines labor redundancy in selected modes of transport (rails, ports, and buses) in six countries: Brazil, Chile, Ghana, Mauritius, Sri Lanka, and Yugoslavia. It also analyzes different approaches for solving the problem, and concludes that analysis of the labor redundancy problem in public transportation enterprises has been neglected because conceptually it is not a simple, easily identifiable phenomenon and because its treatment is often politically controversial, as it affects social welfare. Governments tend to approach the problem only when circumstances are extreme (budget stress or near-complete breakdown of the transport system). Solutions are then hammered out in a tense environment, with no longer-term vision of the optimal employment and pay practices. This paper also presents a framework for identifying labor redundancy within different countries whose social welfare functions vary in the relative weight given to efficiency and equity . Redundancy-reduction schemes can have a high rate of return and still be socially acceptable. But, cash flow problems may necessitate the assistance of international donor agencies. Attention must be paid to how this compensation is administered, as it can make a difference to the workers'welfare.Banks&Banking Reform,Municipal Financial Management,Health Monitoring&Evaluation,Environmental Economics&Policies,Labor Management and Relations

The Czech Transition: The Importance of Microeconomic Fundamentals

We examine the case of the Czech Republic, which has been frequently cited as one of the most successful cases of transition economies in Central and Eastern Europe (CEE). Despite the costs related to the break-up of Czechoslovakia in late 1992 and 1993, the immediate consequences were quickly absorbed and the country implemented the most important market-oriented reforms relatively successfully and faster than most other CEE countries. We first identify the initial conditions in the Czech Republic in 1989 and the development strategy adopted at the beginning of the transition. We then address the importance of international factors, including the role of trade opening, foreign direct investment, and external borrowing. We analyse the achievements and failures of the strategy with respect to both economic performance and progress with institutional reforms, as well as the reasons behind the resulting outcomes. This leads us to outline future challenges, including unfinished areas of reform. We conclude with lessons for other developingtransition economies, development policy, economic strategy

How industry - labor relations and government policies affect Senegal's economic performance

Senegal is in a long-term economic crisis. Senegalese industry suffers from a highly adversarial system of industrial and labor relations, excessive government regulations in some areas and inadequate government support in others, and many misperceptions about the ethnically diverse labor force and enterprise ownership. Since the late 1970s, the Senegalese government has recognized the need to embark on a sustained and long-term adjustment program and has searched for appropriate policies to pursue this goal. The main aim of this paper is to provide an understanding of the functioning of the industrial labor market and evaluate the effects of the employment and wage setting practices on enterprise efficiency. In undertaking this task, the paper pays particular attention to: (a) government wage and employment regulations; (b) the role of trade unions and the organizational characteristics of firms; (c) the national and skill composition of the labor force and the corresponding labor productivity and wage differentials; (d) the existence of training schemes and skill bottlenecks; (e) the effects of education, experience, and training on worker earnings; and (f) the relationship between a worker's income and the migration of family members from the countryside.Environmental Economics&Policies,Health Monitoring&Evaluation,Banks&Banking Reform,Labor Standards,Labor Management and Relations