Department of Economics

University of Delaware

Working Paper #2008-15

Unemployment And Unemployment Protection
In Transition Economies

Vera Brusentsev and Wayne Vroman

ABSTRACT

Nearly twenty years have passed since the transition from a centrally-planned towards a market-oriented economy in the countries of Central and Eastern Europe and the Former Soviet Union (CEE-FSU). This paper documents the differing patterns of unemployment during the period 1990 to 2006 in the 28 countries that constitute the CEE-FSU group and outlines how unemployment protection programs developed in response. We also suggest some tentative explanations for the observed trends in unemployment and unemployment compensation. Our approach is novel in that we compare the performance of the CEE-FSU group to the worldwide average and to other major economies. In addition, we demonstrate important contrasts across the CEE-FSU sub-regions.

Similar to other research in the area, this paper demonstrates significantly below-average income growth between 1990 and 1995 but then significantly above-average growth in the years since 1995 when compared with the worldwide average. We also show a significant link between output growth and employment growth for many individual countries from the region. The transition economies developed new institutions to measure and offset the effects of the new phenomenon of open unemployment. The majority instituted labor force surveys to measure unemployment and all but one (Tajikistan) established unemployment compensation (UC) programs. Our analysis of unemployment rates finds that they have been high in many of these countries but, when placed within a global context, the CEE-FSU averages during 1994-1996 and again during 2004-2006 were only somewhat higher than the average unemployment rates in other major countries with labor surveys.

JEL Classification: C33, J4, J6, P2

Keywords: transition economics, economic growth, unemployment, unemployment compensation