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

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