Labour Market Flexibility in Estonia: What More Can Be Done?

In mid-2008, high employment and low unemployment rates characterised the Estonian labour market in comparison with the average of the EU15 countries. While aggregate outcomes improved during 2000 07, large inequalities persisted across regions, ethnic groups, and workers with different skill levels. As Estonia entered recession in 2008, the unemployment rate almost doubled between the 2nd and the 4th quarter, and is expected to rise further in 2009 and 2010. More flexible labour markets will be a key adjustment mechanism during the recession as well as in the medium term if Estonia is to become a knowledge based economy. Given the currency board arrangement and low synchronisation with the euro area, flexibility is also needed to cushion asymmetric shocks. In December 2008, parliament adopted the new Employment Contract Act, deregulating employment protection while increasing income security of the unemployed. This paper discusses options for removing the remaining barriers that impede worker reallocation across jobs, sectors, and regions into more productive activities.http://deepblue.lib.umich.edu/bitstream/2027.42/64375/1/wp964.pd

Labor Market Trends and Institutions in Belarus

In most countries of Central and Eastern Europe and the Commonwealth of Independent States, the transition to market led to the emergence of a private sector and open unemployment. The Belarusian labor market is characterized by low official unemployment, combined with a low share of the private sector in the aggregate employment. However, the cumulative fall in employment since 1990 has been similar to other transition economies, leading to a sharp reduction of labor force, and the youth unemployment remains high. The mismatch in skills between the unemployed and the vacancies and the geographical mismatch suggest that policies aimed at improving skills and increasing mobility are needed. At the same time, the low vacancy-unemployment ratio calls for policies aimed at encouraging private job creation. An immediate policy concern for the government is to launch a labor market reform that would balance providing adequate protection for workers with the need to design the incentives for the unemployed workers to search for new jobs.http://deepblue.lib.umich.edu/bitstream/2027.42/40163/3/wp777.pd

UNLOCKING PRODUCTIVE ENTREPRENEURSHIP IN AFRICA’S LEAST DEVELOPED COUNTRIES

Utilizing the flow approach to labor markets, this paper complements the empirical literature and numerous surveys on small and medium enterprise (SME) constraints and develops a theoretical framework that examines the main obstacles to entrepreneurship in Africa’s LDCs. The paper posits that given the persistent frictions in product and labor markets as well as skill shortages that characterize these economies, development of productive entrepreneurship cannot be left to markets alone. The policy analysis suggests that the state has an important role to play. Well-targeted government interventions including training of potential entrepreneurs and workers can help establish more modern and highly productive SME clusters that Africa’s LDCs need.http://deepblue.lib.umich.edu/bitstream/2027.42/133003/1/wp990.pd

Working Paper 116 - Unlocking Productive Entrepreneurship in Ethiopia: Which Incentives Matter

Twenty years after the launch of market reforms, productive entrepreneurship and vibrant small and medium-sized enterprises (SMEs) in Ethiopia remain limited, the recent growth acceleration notwithstanding. This paper first develops a model of entrepreneurial start ups in an economy with frictions in the product and labor markets and a large informal sector, which characterize the Ethiopian institutional landscape. It then examines several mitigating policies that could improve the suboptimal outcomes. The main findings are that search subsidies would be more effective in encouraging entrepreneurial start ups than wage subsidies, although fewer entrepreneurs may choose to operate in the formal sector than under the latter. Regarding the reform agenda, priority should be put on removing rigidities and establishing property rights. To be effective, both types of subsidies should have a time limit and be phased out with reforms of the business environment, strengthened property rights, and improved labor markets.

Unlocking Productive Entrepreneurship in Ethiopia: Which Incentives Matter?

Twenty years after the launch of market reforms, productive entrepreneurship and vibrant small and medium-sized enterprises (SMEs) in Ethiopia remain limited, the recent growth acceleration notwithstanding. This paper develops a model of entrepreneurial start ups in an economy with frictions in the product and labor markets and a large informal sector, which characterize the Ethiopian institutional landscape. It then examines several mitigating policies that could improve the suboptimal outcomes. The main findings are that search subsidies would be more effective in encouraging entrepreneurial start ups than wage subsidies, although fewer entrepreneurs may choose to operate in the formal sector than under the latter. Regarding the reform agenda,priority should be put on removing rigidities and establishing property rights. To be effective,both types of subsidies should have a time limit and be phased out with reforms of the business environment, strengthened property rights, and improved labor markets.Model of skills and start ups, labor markets, frictions, informal sector, Africa

Skill Acquisition and Private Firm Creation in Transition Economies

This paper studies relation between availability of skilled workers and creation of private firms in transition economies using a dynamic general equilibrium model. It shows how the lack of skilled workers lowers the rate of Creation of private firms by increasing wages and hence lowering profitability of these firms. The lower number of private firms leads to a shift of the labor force into the informal sector and slows the recovery of the aggregate output and labor productivity. The paper also demonstrates how policies that discourage skill acquisition by workers, such as excess wage taxation and ad hoc cuts in expenditures for education, have a negative impact on the economy.

Labor Market Trends and Institutions in Belarus

In most countries of Central and Eastern Europe and the Commonwealth of Independent States, the transition to market led to the emergence of a private sector and open unemployment. The Belarusian labor market is characterized by low official unemployment, combined with a low share of the private sector in the aggregate employment. However, the cumulative fall in employment since 1990 has been similar to other transition economies, leading to a sharp reduction of labor force, and the youth unemployment remains high. The mismatch in skills between the unemployed and the vacancies and the geographical mismatch suggest that policies aimed at improving skills and increasing mobility are needed. At the same time, the low vacancy-unemployment ratio calls for policies aimed at encouraging private job creation. An immediate policy concern for the government is to launch a labor market reform that would balance providing adequate protection for workers with the need to design the incentives for the unemployed workers to search for new jobs.labor markets, institutions, transition