1
Ana Androsik
The Role of Labor Market Institutions for the Socio-Economic Position of Women in
Central and Eastern European Countries during the Economic Transition
1. Introduction, Main Definitions and Overview
All countries of the Central and Eastern Europe (CEE) had changed their previous
economic order in the 1990s and embarked on an economic transition. Economic
transition is defined in this essay as “the move to markets, which became an explicit
policy and proceeded rapidly.” (Barr, p. 7) Different choices for transitional reforms of
labor market institutions were shaped by initial economic conditions, which existed in the
country at the time of transition, the timing and phasing of the key reforms” and the
influence of the EU accession process.1
In this paper countries of the CEE will be divided into three groups based on the
degree of the transformation of their labor markets in accordance with the EU
requirements.2 I will set the old EU countries as a benchmark and define the success of
the transition as the EU accession.3 Differences in the models of the transformation of the
labor markets will only be mentioned for the countries of Eastern and Central Europe
1
Barr, 2005, p. 34, ref. to Cornia, G. and V. Popov, 2001
2
The World Bank defines Macedonia, Albania and Bosnia and Herzegovina as “lower middle-income
economies,”2 Bulgaria, Croatia, Hungary, Latvia, Lithuania, Montenegro, Poland, Romania, Serbia and
Slovak Republic as “upper-middle-income economies” (ibid), Slovenia as the “high-income economy” and
Czech Republic is among “high-income OECD members.”(ibid) However, for the purpose of this essay I
will divide countries based on the outcomes of their labor markets in transition and their impact on
women’s socio-economic position
3
Czas and Nesporova, 2007 and Barr, 2005
1
2
(CEE) and the CIS (Commonwealth of Independent States, former USSR excluding
Lithuania, Latvia and Estonia). However, a specific emphasis will be placed on the
difference between the new EU countries (Poland, Czech Republic, Hungary, Slovenia,
Slovakia, Latvia, Estonia and Lithuania, i. e new EU-8 and Bulgaria and Romania+ 2,
which joined the EU later, in 2006) and countries striving for the accession to the EU
(countries of the Southern Eastern Europe (SEE), i.e. Albania, Macedonia, Montenegro,
Serbia, and Bosnia and Herzegovina).
I will limit my indicators of changing women’s socio-economic position to their
participation in employment as well as their withdrawal from the labor market and will
observe the effects of the labor market institutions on the changes in their socio-economic
position based on the new forms of employment women choose
I will argue4 that the “flexicurity” concept is a relevant one for the assessment of
the labor market outcomes for Eastern Europe. “Flexicurity” will be further defined and
debates of pros and cons for either more flexibility5 or security will be provided.
Moreover, I will extend this concept toward analyzing socio-economic position of
women in light of labor market outcomes in transition.
2. Economic Transition
Economists who focus their research on countries in transition debate whether it is
possible to analyze the impact of the transition on labor market institutions in clusters of
4
following Sandrine Cazes and Alena Nesporova, Czas and Nesporova, 2007
5
Labor market flexibility is the degree to which “employment and/or working time (quantitative
adjustment) or wages (price adjustment) adjust to economic changes.” (Nesporova, 1)
2
3
countries. Some suggest that the impact of transition if country specific6 and others7
claim that initial geographic and socio-economic conditions as well as pre-communist
and communist-period experience “with market mechanisms” became determining
factors in the success of transition. For instance, among the new EU members, the Czech
Republic had better developed market institutions before the communist period. Some
other countries already had an experience with market reforms in the 1980s (Hungary,
Poland and the former Yugoslavia) (World Bank, 2002). For instance, Yugoslav
economic system during socialist times appeared to be in between capitalism and Soviet
central planning system.8 Between 1988 and 1991, the Yugoslavs “embarked” (ibid) on
the reforms which abandoned their unique system and started moving towards westernstyle capitalism, although economic questions were interfering with the ethnic tensions
and beginning of the armed conflict.
The degree of the advancement of transition in terms of institutional change of the
labor market institutions through the 90s and the beginning of 2000 also varied among
groups of countries. However, at a later stage of transition and by the time of the EU
accession of the first group of transitional countries (2004), different policies chosen by
various governments had played a decisive role in its advancement (put classification by
economic performance by country here, Barr, p. 37)
In the beginning of transition (1990), output fell in the economies of all the CEE
countries, which led to the fiscal crisis. However, the scale of the decline was different in
Szelenyi, Ivan and Eric Kostello “The Market Transition Debate; Toward a Synthesis?” (The American
Journal of Sociology, vol 101, no 4, Jn. 1996: 1082-1096) and Stark, 1992
7
Yugoslavia: the case of Self-Managing Market Socialism” Journal of Economic perspectives, vol 5, no. 4,
1991 (187-194)
7
Nesporova, 2007
8
“Yugoslavia: the case of Self-Managing Market Socialism” Journal of Economic perspectives, vol 5, no. 4,
1991 (187-194)
6
3
4
various countries of the CEE. For instance, in Poland and Hungary, the countries “least
affected” by the transition (Barr, p. 7), measured output fell by 18 percent over the first
three years of transition while in the Baltic countries (Lithuania, Latvia and Estonia) the
output fell by up to 50%. In comparison, the output across the CIS countries averaged
75% of its pre-transition level (ibid). By 2004 new EU members had shown strong
growth rates (however, still not the Baltic States/former USSR) and made up for the “loss
of early transition”(ref. to table 2.1 Growth Rate of Accession Countries, in Barr, p. 33) .
Czech Republic, Poland, Slovakia, Slovenia and Hungary managed to exceed their 1989
level of growth domestic product (GDP)9. In comparison, reforms in Bulgaria and
Romania (which joined the EU in 2006) did not start until late 1990s and they lagged
behind more advanced new EU members (figure 2.2 Accession countries’ classification
by economic performance during transition, in Barr, pp. 35-37). Other SEE and CIS
countries by 2004 did not reach their pre-transition levels by 2004, although, with the
exception of Macedonia, they recorded higher growth rate (table 2.1, p. 10 Nesporova).
However, economic growth had not been translated into employment recovery.
Only Bulgaria, Croatia, Estonia, Hungary, Latvia, Slovakia and Slovenia achieved
modest net employment growth (figure 2.1, p. 11 Nesporova). This economic growth in
the CEE region is characterized by “jobless growth” (Nesporova, 11) because of the high
employment losses in the early stages of transition. Even though labor markets in most of
the new EU countries stabilized around 2000, and a “defensive restructuring”10 had come
to an end. But even though enterprises stopped dismissing workers around 2000, they
9
Nesporova, 2007, Barr, 2005
(Cazes and Nesporova, 2007, p. 11“defensive restructuring is within-enterprise reform and rationalization,
resulting largely in labor shedding, while “strategic restructuring” should lead to the revival of the firm through
innovations, with positive new recruitments
10
4
5
have not opened new positions, as indicated by “the continuing poor employment
performance.” (Nesporova, 29)
In the SEE countries, which were affected by the armed conflict (connected to the
collapse of the former Yugoslavia), i.e. Bosnia and Herzegovina, Macedonia, Serbia and
Montenegro or by the impact of the civil war (Albania), the labor markets were still weak
by 2004.
3. Labor Market Outcomes
One of the main features of the labor market during socialism (pre-transition) was
the low level of wages. In addition, “wages were supplemented by universal benefits,
including subsidized basic goods and many benefits provided by state enterprises” (Barr,
p.4). Full employment was guaranteed by constitutions of all countries of the former
socialist block. All of the above mentioned facts imply that in all counties of the CEE
there was no official unemployment or unemployment benefits. In the transition,
institutions of the labor market had undergone a substantial restructuring.
The transition process from planned economies to market oriented ones involves a
substantial reallocation of labor. Prior to transition, “a strong business sector was lacking,
and private initiative had been tolerated almost exclusively in agriculture.”11 For instance,
Bulgaria and Romania had experienced an increase in employment in agriculture and
significantly smaller increases in the share of service employment than in Czech and
Slovak Republics, Hungary and Poland.”12 Most economies in the countries of Central
and Eastern Europe experienced a U-shaped patterns of GDP and employment fell
11
Boeri, Tito and Katherine Terrell, “Institutional Determinants of Labor Reallocation in Transition,” The
Journal of Economic Perspectives, 16. 1 (Winter 2002: 51-76), p. 51
12
Ibid, p. 56
5
6
substantially at initial stages of the transition process, with consequently lowered labor
productivity.”13
Possible explanations for the different paths in reallocation of labor in transition
involve the impact on wages and labor force participation on the broad package of what
is called “non-employment benefits.”14 This category includes not only unemployment
benefits but also all other income support provided by the state to those without jobs,
such as early retirement and liberal access to disability pensions, together with openended social assistance.15 “Optimal speed of transition models”(Boeri, 2000), predict that
the speed with which economy moves from the old pattern of state-produced goods and
services to producing new private-sector goods and services is a function of the pace at
which state sector jobs are destroyed by the government.”16
Four institutional features-unions, tax-based income policies, minimum wages
and employment protection legislation have a limited influence on the labor market in
transitional economies (Boeri, 2002) and the degree of its flexibility. However, the fifth
institution, “the programs for the unemployed”17 have a decisive role in wage setting in
the transitional economies by affecting search behavior and “the reservation wage of
workers flowing from one sector to another.”18 This has a direct impact on the security of
workers.
13
Ibid, p. 52
Ibid
15
Ibid
16
Ibid, p. 57
17
Boeri, 2002
18
Boeri, 64
14
6
7
4. Flexibility
There are no single criteria of labor market flexibility. Labor market flexibility is the
degree to which “employment and/or working time (quantitative adjustment) or wages
(price adjustment) adjust to economic changes.” (Nesporova, 1)
Cazes and Nesporova (2003) explored in details to what extent the labor markets
of CEE countries adjusted and became flexible in the 90s. A result of their analysis was
the finding of countercyclical behavior of labor turnover, in contrast to the pro-cyclical
pattern of economically advanced countries. The authors explained it by “depressed
demand for labor and also by workers behavior.” (ibid)In the CEE the weakening of
workers rights, the reduction of employment and income protection, and more “generally
high perceived insecurity” meant that workers were reluctant to quit their jobs
voluntarily, “even during an economic upswing.”19
Cazes and Nesporova built on the economic analysis done by Nickell (1997),
Layard and Mickell (1999) and the OECD (1999), and conducted econometric analysis
while looking at the impact of employment protection legislation (EPL), unemployment
benefit system, wage-setting institutions, active labor market policies and payroll taxes
on labor market outcomes. Results of their research indicated that the strictness of EPL
had no significant impact on unemployment (aggregate, youth or long-term) in CEE
countries, but had a significant correlation with the labor force participation in the formal
labor market. The explanation for this, according to the authors, could be found in the
“widespread non-observance of labor legislation as well as in the large informal
employment.” (Nesporova, 2007)
19
this finding was also supported by a strong correlation between economic cycle and labor market flows data,
such as moves from employment to unemployment or inactivity for the majority of the CEE countries studies
by Cazes and Nesporova, 2003)
7
8
In the beginning of transition such “classical flexible forms of employment
(Nesporova, 18) as part-time employment, fixed-term contracts or self-employment were
almost non-existent (with the exception of Poland and Romania)(ibid)
The changes in the pattern of employment with the advancement of transition by forms of
ownership had been important. The private sector in transition had played a major role in
increasing labor market flexibility and by providing opportunities for part-time
employment, self-employment, employment under temporary contracts and “multiple job
holding.” (Nespororva, 89)
5. Security
Non-employment benefits contributed to “more quantity adjustment, as opposed to
price adjustment, in transitional countries of Central and Eastern Europe.” (Boeri, 72)
Moreover, in contrast to the government policies of the countries of the former Soviet
Union, Central and Eastern Europe were more driven to the European Union social policy
model (ibid). In general, the conformity of states’ law and practice with the standards
accepted in old Europe20 is being verified in accordance with the norms of the European
Social Charter (ESC). The criterion is high for the employment and wage protection. For
instance, the European Committee of Social Rights (ECSR)’s benchmark for the
minimum wage is set at 60 percent of the median average wage. According to ECSR’s
judgment, only Slovenia (out of all new EU countries) secures the right to fare
remuneration.21 Moreover, new EU countries fall below the thresholds established by the
ESC judged by the level of their employment protection. (Barr, 73) (table 4. 1, Barr, p.
20
21
monitored by the European Committee of Social Rights. (Barr, 73)
In accordance with the Article 4 of the European Social Charter (Barr, 73)
8
9
110, Social Protection in Europe in 2000 and as a Share of GDP, 1996-2000). Social
protection expenditure in PPS per capita in 2000 (measured in comparison to old EU
states, i.e. EU-15 being equal to 100 percent). For instance, Slovenia and Greece equally
show 66 percent.
Unemployment benefits were introduced in all CEE countries at the start of
transition to protect workers against the fall in income associated with the job loss. (Barr,
69). Original programs in the beginning of the transition had a generous benefit
programs. When unemployment proved to be long duration, social assistance programs
for the long-term unemployed who had exhausted unemployment benefits were
introduced. The introduction of generous social protection programs in the early
transition facilitated the transition and protected individuals against falling into poverty
(Boeri and Terrell 2002). However, the number of beneficiaries had increased as the
transition advanced as well as the fiscal costs had led to the “eventual contraction of
social support packages, such as unemployment benefits.” (Barr, 69) The level of benefits
and their duration were reduced and eligibility restricted.
Economists in favor of more flexibility of the labor markets in transition state that
unemployment benefits contributed to the high unemployment rate in the CEE
countries.22 However, the opponents emphasize that benefits of these countries were
much lower than the ones offered by the old EU member states and it is highly unlikely
that they contributed to the increase in unemployment in transition countries.23
22
23
Riboud, Sanchez-Paramo, and Silva-Jaregui 2002
Vodopovec, Worgotter, and Raju 2003
9
10
Decisions of the national governments in the CEE region regarding the level and
duration of the unemployment benefit were crucial in the beginning of the transition
process. Design options varied between the flat rate systems based on the proportion of
the average wage or, for instance, on minimum wage, to more complex systems based on
past earnings (Barr, 99). Both systems were complicated to administer in the environment
of the high unemployment, inflation and stagnant growth. For instance, the minimum
wage was often close to average median wage in the beginning of transition and it was
difficult to maintain the baseline data. (ibid). The wage-related alternative was also
complicated because of the problems with the definition of previous wages and
administering of benefits. In most of the cases a compromise was reached in which “prior
wage experience was used for initial calculations with the cap on payments.” (ibid) Initial
duration varied from 6 months to two years in the overall CEE region, with longer
duration for individuals with longer work history and in countries where social assistance
schemes were not operational. (ibid)
In some cases new social assistance benefits, which replaced unemployment benefits
were called “income replacement benefits for the unemployed” (ibid) and usually were
lower than unemployment benefits. Poland, Hungary and the Czech and Slovak Republic
passed new legislation in early 90s and their social assistance schemes were targeting
most vulnerable groups, most of which involved an income test combined with other
criteria on household assets, employment status, household size and composition, and
health. (Barr, 100). Means-tested social benefits were paid in combination with
traditional family benefits in most of the CEE countries. During the early transition, the
number of children was one of the most important factors leading to poverty (Milanovic
10
11
1998) and family benefits (especially the ones that differentiated by the number of
children) were effective in supporting impoverished families. Even though most of the
CEE countries introduced high income thresholds to exclude rich families, there were
some drawbacks in the implementation of the social assistance benefit schemes. For
instance, in Hungary the package ended up excluding only the richest 10 percent of
families instead of originally planned 20 percent. (World Bank 2002)
Another alternative was a severance payment approach: workers received a lump sum
based on years worked (for instance, “one month wages per year worked, up to a limit of
ten years.” (Barr 99) Severance payment approach was a problematic one because as
enterprises were liquidated, employers were not able to pay displaced workers. This
option was mainly used in the beginning of transition to facilitate mass lay offs during the
downsizing of specific sectors (ibid).
The non-employment benefit system did not evolve much as the transition advanced.
Two parameters of unemployment benefit system in the new EU members countries,24
i.e. the unemployment benefit replacement rate (measured as a ratio of average
unemployment benefits to the gross average wage) and the duration of payment of
benefits, did not show a significant change. The slight increase was only reflected for
older workers in the Czech Republic and workers in depressed regions of Poland.25 Both
parameters of the benefit systems of the new EU member countries remained lower than
the OECD average. The main reason for that is identified as the following:
unemployment insurance schemes in the new EU countries are not generous in terms of
benefit replacement rates (“they do not reach he level of 40 percent of the average
24
25
compared between end of 1999 and 2003, Nesporova and Cazes, 2007, p. 42)
Ibid, p. 43
11
12
national wage in these countries.” (Cazes and Nesporova, 45) In addition, a share of
unemployment benefit recipients among all job seekers, including those not covered by
unemployment registers is very low.26
Even though less competitive workers became victims of the increased flexibility, the
social insurance schemes and unemployment benefit in particular were not
counterbalanced by increased employment and income security through longer paid
unemployment benefits. In general, the unemployment benefit was much lower in all new
member states (Slovenia- 4.3, Slovak Republic- 4.6, while EU-15 equals to 6.3, table 4.1,
Barr, 110).
Moreover, the duration of unemployment benefits has negatively affected all labor
market indicators except for the aggregate employment (Nesporova, 54). This might
indicate that even though the unemployment benefit system is less generous in the CEE
than in the OECD, persons with less skills for the new labor market and in the
environment of the overall low demand for labor (difficulties in finding a job and poor
quality available employment) might prefer to stay on the unemployment benefits as long
as possible. Moreover, many of these people accept informal employment in order to
supplement their low income.27
26
ref. to footnote 20, p. 46, Cazes and Nesporova, the difference between the numbers of registered
unemployed persons and those identified as unemployed by the LFS is small in the Czech Republic,
Hungary, Poland and Slovakia, but high in Croatia and Slovenia (where registered unemployment exceeds
LFS unemployment), as well as Estonia, Latvia and Lithuania, where LFS unemployment is much higher
than registered unemployment).
27
Cazes and Nesporova, 2007, p. 54
12
13
6. Flexicurity Debates and Its Relevance to CEE Countries in Transition
Labor market institutions of the new EU countries and candidate countries of
Southern Eastern Europe have undergone significant changes since the beginning of
transition. Employment protection legislation had been liberalized to reach OECD levels,
and protection of workers through collective bargaining had weakened as a result of
declining unionization and the decreasing coverage by collective agreements. (Cazes and
Nesporova, 53)
There are different models between new and old EU member states with regards to
the protection they provide to their workers. Older member states have more protective
labor market institutions.28 According to the OECD ranking, Southern European
countries have stricter employment protection arrangements and provide greater
protection to the unemployed (including unemployment benefits) than Northern
European countries. On the contrary, the UK, the US and Japan have lower protection
than almost all continental European countries. (Barr, 78)The new EU countries as well
as the ones striving for the EU accession (SEE) have to decide about the degree of
protection they would like to provide to their workers. The variations in protection, which
had an impact on the “flexibility”(ibid) is determined partly by history (as mentioned
above, Balkans countries of the former Yugoslavia, have high worker protection as a
result of worker management system existed during socialism) and in part by the
government policies of various states in providing protection against income insecurity.
The “flexicurity” approach comes originally from Denmark and it became a part of
the Dutch law( ref. to Wet Flexibiliteit en Azekerheid dated 1999). It combines a more
28
Riboud, Sanchez-Paramo, and Silva- Jaregui 2002
13
14
flexible market with good social protection. There are several institutional settings that
influence the combination of flexibility and security as well as the interaction between
“the main national labor market institutions, such as labor market legislation,
unemployment benefit schemes, active labor market policies (ALMP) and wage-setting
institutions.” (Cazes and Nesporova, 4) It might offer an answer to the question of how to
“improve competitiveness while at the same time preserve an effective policy framework
for social inclusion” in countries in transition (ibid). Increasing flexibility alone is not
able to improve labor market efficiency, as workers need “some degree of stability and
security.”29
Advocates of less protection argue that the emphasis on the security rather than
flexibility through having restrictive employment protection legislation makes it difficult
to fire workers as reduces job prospects for new entrants or outsiders. In addition,
employment protection reduces economic competitiveness of new firms and
compromises economic growth. Proponents of less security also argue against the
provision of generous unemployment benefits. (Barr, 79). They believe that
unemployment benefits should protect workers from poverty, but not reduce their
incentive for job search (as well as impose fiscal burden on the state). The World Bank
researchers30 argue that in order to meet EU employment targets, the new EU members
have to put more emphasis on flexibility rather than security “because they have poorer
business environments, lower employment rates” (Barr, 59) and great disparities in
employment.
29
30
Auer and Cazes 2003; Casez and Nesporova 2003; Auer, Berg and Coulibaly 2005
Mansoora Rashid, Jan Rutkowski, and David Fretwell in Barr,2005, p. 59
14
15
On the other hand, proponents of high security believe that worker protection (voice
in trade unions and bargaining power, inability of employers to fire workers without prior
notice and would invest less in their training or improving health and safety conditions on
the work place) allows for the higher investment in workers and their families as well as
it contributes to higher worker’s productivity and economic growth. Proponents of
security also believe that unemployed should be entitled to generous unemployment
benefits to reduce poverty. In addition, they argue for more efforts to be made by the
states to invest in particular in training and counseling to help individuals to re-enter the
work force. “Stemming the depletion of skills and helping the unemployed reenter the
work force reduces loss of human capital for society and reduces social costs associated
with unemployment.” (Barr, 79)
Both proponents of security and advocates of flexibility agree that the chosen
“flexicurity” combination that the new countries are going to eventually decide on will
require trade-offs. If greater protection is chosen, higher employment objectives could be
compromised. The lower security will compromise workers welfare. (Barr, 75) Which
balance are the CEE countries going to find in order to balance the flexibility and
security?
7. Responses of Women to Institutional Changes
The gender dimension of flows from unemployment to employment and from
unemployment to employment can both indicate the change in the supply and demand
sides of the labor market. “Women may be leaving work voluntarily to seek better jobs,
either with more flexibility or higher pay. It is also possible that societal roles for men
and women, supported by government policy, may be putting women at a disadvantage
15
16
on the demand side of the labor market.” (Boeri, 2001, p.60) For instance, such
government policies as the ones that oblige employers to provide women with generous
maternity leave and child care leave can discourage private sector employers from hiring
women by making them “more costly employees than men at the margin.” (Boeri, 61)
a. Employment and Unemployment
Low employment (manifesting itself in either high unemployment or low
participation) is one of the main outcomes of transition (Barr, 59) in the process of the
transformation of the labor market institutions. All of the CEE countries have on the
average significantly lower labor market participation rates compared with the EU 15
(old member states). However, the difference is more pronounced for male workers. (ref.
to Annex 5, KILM, Labor Force Participation rate, figure 1b, Labor Force Participation
Rates by Sex, 2006). In the new EU member states male participation rates are higher
than females during a transition (Annex 6, figure 2.2, p. 12, Nesporova). The difference
in participation rates ranged from 6.4 to 13.8 percentage points. Employment situation
did not improve substantially even during the accession of the new members with the
exception of the Czech Republic (Annex 7 and 8, ILO, Cazes and Nesporova, p. 15 and
KLIM). Cazes and Nesporova (2003) point to the generally countercyclical movements
of labor market flows in transitional economies. “Poland displays a particularly worrying
picture, as high economic growth coincides with high outflows to inactivity and shrinking
employment (ref. to Annex 9).”31
31
Cazes and Nesporova, 2007 Felxivurity. A Relevant Approach in Central and Eastern Europe, ,
table 2.14, main characteristics of labor market institutions and policies in the CEE countries, 2002-2003,
Nesporova, 45
16
17
Transitional economies of the CEE recorded the overall rapid increase in men’s private
sector employment, from about 20% in 1990 to 30% in 2001. In contrast, only 13% of
men were employed in the public sector in countries for which the data is available, and
14 % in 2001. However, women are heavily represented in the public sector. In this
sector, the pay is low and the pay gap (at about 80%) is widening.32
The unemployment rates for women, including long-term unemployment rates,
are higher for women than for men in the CEE countries. (KLIM unemployment data).
One of the explanations might be that women have less incentive for the job search
(especially if they are married and are secondary earners).
Numerous studies have identified the types of individuals that are more likely to
become unemployed and to experience more difficulty in moving out of unemployment
into a job; for example, Jones and Kato (1997) for Bulgaria, Sozm and Terrell (2000) for
Czech Republic and King and Adamchek (1999) for Poland use data from quarterly LFS,
and show that among other groups women are more likely to become unemployed in
transitional economies, especially when marital status and gender are interacted in the
regression analysis, married women fare worse in terms of job loss and length of
unemployment than single women. “(Boeri, 60) More than 40 percent of the unemployed
women are long-term unemployed in almost all groups of transitional countries.33
32
Pollert, Anna and Eva Fodor. Working Conditions and Gender in an Enlarged Europe. European
Foundation for the Improvement of Living and Working Conditions Ireland, Dublin. Luxemburg: Office
for Official Publications of the European Communities, 2005.
33
UNIFEM, “The Story Behind Numbers,” 2006
17
18
b. Income Inequalities and a Pay Gap
It was impossible for workers in the former communist system to work different
number of hours and have a difference in the wage rate. Thus, the transition to a marketoriented economy “generated an explosion of earnings differentials at all levels,
“especially within firms and across regions. (Boeri, 63) Differences between high
educated and low educated workers became substantial in Poland, Hungary, the Czech
and Slovak Republics already between 1992 and 1994 and could explain between 12 to
16 percent of all income inequality in these countries. (Bailey 1997).
Some of the major institutional differences across groups of transitional countries
were a result of the widening gap in the distribution of income and earnings. Disparities
between upper and lower income levels (based on education and experience)
characterized all transition economies during the 90s. (Barr, 44). Table 2.6 (in Barr, p.
45) illustrated income inequality in the EU accession countries in comparison to the
European Union. In most of the new EU countries Gini coefficient for income rose to
between 0.25 and 0.35 in the late 1990s (table 2.6) in comparison to the EU average of
0.3. However, in the Czech Republic, Poland and Latvia, the distribution of income
remained more equal than the EU average, even though inequality rose substantially.
(Barr, 44). Researchers point out that it is difficult to measure the extent of inequality
because of the high level of informal activity and inability to measure exact incomes in
the informal sector. (ibid). Earnings from wages and self-employment are estimated to
account for between 60 and 80 percent of all “observed income inequality.” (World
18
19
Bank, 2002). In Poland, Hungary and Slovenia, wages and social transfers increased as a
share of GDP in the early years of transition and, as a result, they have experienced a
lesser increase in inequality than other new EU countries. (Barr, 47, footnote: the average
increase in the Gini coefficient for these countries was 0.2 points while in other new EU
countries the social transfers did not compensate for declining wages, the Gini coefficient
grew on average 0.1 to 0.12 points.)
The pay gap between men and women in CEE countries is larger than in old EU
member states. In addition, between 1990 and 2001, the pay gap widened in selected
countries of CEE (Czech Republic and Slovakia) and narrowed slightly in other countries
(mostly in Bulgaria and Lithuania). Four countries still have women earning only around
three quarters of men’s gross monthly wages (Bulgaria, Czech Republic, Estonia and
Slovakia). In other new EU countries women earn around 80% of men’s monthly wages
(with Slovenia standing out at 89%).
Among top professionals women in 2001 earned less money relative to men
compared to the beginning of the transition and mid-1990s. This indicates the segregation
of women within the professional category and suggests that the transformation of labor
market institutions negatively impacted women’s progress towards equal pay during the
time of transition. The fact that women in most of the CEE countries are present in
“male” industries and manufacturing points to positive outcomes of the transitional labor
market. However, this fact might be due to the legacy of the socialist past and greater
women’s participation in the overall labor market.34
34
Pollert, Anna and Eva Fodor. Working Conditions and Gender in an Enlarged Europe. European
Foundation for the Improvement of Living and Working Conditions Ireland, Dublin. Luxemburg: Office
for Official Publications of the European Communities, 2005.
19
20
There had been an increasingly high level of educational attainment among
women in CEE countries during the economic transition. However, an examination of the
pay gap within occupations indicates that occupations themselves are becoming
increasingly vertically segregated (men taking better paid positions). There is a question
whether education is helping women gain better jobs, where new high paid occupations
and sectors are being created (for instance, banking and finance). A sectorial analysis of
the CEE countries is showing a reverse trend of de-feminization of high paid sectors.
Financial and banking sectors were feminized during socialism because of women’s high
education in economics, banking, etc. However, with the increase of pay in these sectors
during the economic transition, women are being crowded out. Women are increasingly
pushed into lower paid clerical jobs, public sector jobs and informal sector employment.
Because women are pushed into low paid jobs and informal sector employment, there is a
strong chance that their health is deteriorating (ibid).
c. Self-Employment
A dramatic increase in self-employment has marked the transition process in former
centrally planned countries of Europe. In the 1990s, own-account workers made up onefourth of total employment in Poland, one-fifth in Romania and one-tenth in the Czech
Republic, Hungary and Slovenia. The reasons for developing own-account activities
vary, as does the quality of newly created jobs in small enterprises, ranging from highly
qualified and lucrative jobs to those at (barely) subsistence level (usually in farming and
services). Employers also often push workers to accept own-account status, particularly
20
21
in the small firms economizing on social contributions. Most transition countries have
introduced programs promoting small enterprise development. Their success has also
varied, depending on the overall business environment, which is more favorable in
Central Europe, but much less so in South Eastern Europe and the CIS. Accordingly, a
strong correlation can be demonstrated between the share of self-employed workers (see
Nesporova, 2002, Table 8, see if I have the source), a country’s economic performance
and its labor market situation, which again differentiates Central Europe from South
Eastern Europe and the CIS.35
The break-down of self-employment by sex indicates that with the exception of
Romania, men are more involved in self-employment than women (table 2.4, p. 18,
Nesporova) Researchers find this to be the case for countries with low proportion of the
population being employed in agriculture. Moreover, in countries such as Czech
Republic, Estonia, Romania and Slovakia, male self-employment increased fast from 90s
to 2004 while female’s self-employment had shown a slower rise or decline (Nesporova,
19). The pattern indicated for the countries mentioned above contrasts with the rest of the
new EU countries facing a decline in the overall share of self-employed persons in total
employment (with the reduction for men being more pronounced than for women).
(Nesporova, 19). However, both groups of countries had experienced a significant gap in
males’ and females’ self-employment in favor in male’s self-employment. The
explanation for the overall reduction could be found in the lack of competitiveness on
behalf of the small local firms at the time when multinational corporations are entering
their countries. However, the development of the new information and communication
35
21
22
technologies contribute positively to the increase in the self-employment of highly skilled
workers, as they are able to start their profitable businesses. (Nesporova, 22)
d. Part-time Employment
Part-time employment had been low in almost all new EU countries. The share of
part-time employment in the old EU member states is twice as high as in the new ones
(table 2.6, p. 21, Nesporova). New EU countries with relatively higher levels of part-time
employment include Latvia, Poland and Romania. The only country, which registered a
significant increase in part-time employment (in comparison to the beginning of
transition) was Slovenia “followed at some distance by Hungary.”(Nesporova, 21)
Workers interviewed by the ILO researchers (Nesporova, 22) state that because of the
increased cost of living they can not afford a loss in their working hours (ibid). (table for
working hours, KLIM here)
In the OECD countries where governments implement programs only for the poor
and where child care facilities are not available at a low cost, mothers have a choice
between part-time work combined with the use of private childcare, or leaving the labor
market (Del Boca, 146). This happens to hold for the CEE countries as well. Low birth
rates on one hand and availability of long maternity and parental benefits in a situation of
expensive child care facilities contribute to low part-time employment, as women (rarely
men) in the CEE region prefer to stay home with their children for longer rather than
working shorter hours. The incidence of part-time employment is higher for women than
for men in the new EU countries. (Nesporova, 22)
22
23
e. Informal Employment
In most of the CEE countries the incidence of informal employment increased
dramatically.36 Some of this shift was a result of the creation of the new small firms,
which were trying to avoid paying taxes and other legal issues associated with the formal
sector. However, some of them reflected increased productivity. “The informal sector
was a mix of productive new firms and low productivity jobs.” (Barr, 64) “Informal
employment provides a buffer for inadequate job creation in the formal economy, but
most income support, unemployment and social benefits are linked to formal
unemployment status.” (ibid) Thus, the official statistics does not capture the true
standard of living because citizens of the CEE countries conduct informal employment
while being on official unemployment. Thus, “actual employment is understated and
unemployment is overstated.” (Nesporova, 99)
In addition the distinction between the shadow and informal economy is
blurred.37Macedonia has the largest shadow economy labor force (in percentage of
working-age population), i.e. 35.1 percent, followed by Bulgaria with 26.3 percent. The
lowest numbers are for the Czech Republic (12.6percent) and Slovakia (16.3
percent)(ibid)38
36
Nesporova, 97
37
One working definition of the shadow economy is as follows: “all currently unregistered economic
activities, which contribute to the officially calculated (or observed) GNP.” Belev, Boyan (ed.), 2003.
38
Ibid, ref. to figure 1.2, Belev, p. 28 and table 2, p. 27
23
24
4. Conclusion:
The study had compared groups of transitional countries based on the success of their
transition, i.e. EU accession, by discussing differences and similarities in their labor
market outcomes. It became obvious that it is important to consider pre-socialist and pretransitional economic conditions of selected countries of Central and Eastern Europe
while analyzing their labor market outcomes. The essay highlighted the point that the EU
accession requirements both in terms of labor market flexibility and security (social
policy aimed at supporting a worker) imposed additional constraints on the states’ labor
market institutions. The question is still open: “Are workers (and women in particular)
better off after 18 years of transition?
The phenomenon of the “jobless growth” in the CEE region had been highlighted
in the study. Even most advanced reformers (such as, for instance, Poland, which shows a
high GDP growth as the transition advanced) still reply on social assistance schemes and
non-employment benefits. Based on the analysis of the connection of employment and
growth levels, my research did not find that unemployment in fast growing transitional
economies (especially 5 new EU countries, i.e. Czech Republic, Slovakia, Slovenia,
Poland and Hungary) compromise economic growth. Unemployment benefits in the CEE
countries are overall less generous than in the OECD and thus, they are not able to
contribute to the increase in unemployment (except for selected cases such as, for
instance, of secondary earners: when there is a choice for women of either taking a parttime job or stay home, in the environment of the lack of child care facilities, they would
prefer staying home).
24
25
On the contrary, all of the countries had developed new forms of employment
(self-employment, part-time employment and informal employment), which contribute to
the growth of the Gross National Product. In addition, the high volume of activity in the
informal sector (if measured as a part of GDP) contributes to these countries’ growth as
well. A country that stands out in terms of the unemployment level is Macedonia. At the
same time it has a large shadow economy sector. It would be interesting to conduct
research about Macedonian state regulations in regards to this sector and in connection to
the “flexicurity” debate. The future research might very well show that inadequate social
protection as well as a lack of developed non-employment benefit schemes leaves
workers to find their own means to supplement their living.
Transitional countries of the Southern Eastern Europe have inherited a strict
employer protection schemes and they seem to be closer in their labor market
performance indicators to the old Southern European EU members (Greece, Portugal and
Spain). However, non-employment benefits have to be analyzed on a country by country
basis. In many cases unemployment benefits act as a buffer between the formal and
informal sectors. For instance, some of the state socialist enterprises that undergone
restructuring are not able to provide social assistance to workers. In this case receiving a
form of non-employment benefit (especially for long duration unemployed) will
supplement workers income in the informal sector of the economy. In addition, social
assistance schemes target vulnerable and the poor.
The private and informal sectors are playing an important role in increasing labor
market flexibility. In the private sector there are less women own account workers (with
the exception of Romania). There is a distinction between countries with the larger share
25
26
of the agricultural sector and more industrialized ones. Countries that are more
industrialized have more men in the category of self-employed. Researchers emphasized
in this study suggest the lack of competitiveness of the local firms might serve as a partial
explanation for the exit of workers from the self-employment jobs. Labor in all CEE
countries had experienced different path of re-allocation in the beginning of transition in
the 90s and non-employment benefits had a direct impact on both wages and labor force
participation. One of the major institutional differences across groups of transitional
countries was a result of the change in the distribution of incomes and earnings. The
degree of inequality (especially among high skilled workers and lower skilled workers)
had increased in most of the CEE countries. Some highly skilled workers are definitely
better off in terms of their incomes and earnings. However, there is a gap between men
and women in the category of professional jobs (for instance, women are being crowded
out of the highly profitable finance and banking sectors). The pay gap between men and
women had narrowed only in Czech Republic and Slovakia and increased in the rest of
the countries. Even though women still break the numbers in acquiring high degrees, the
gap in earnings between men and women with the same qualifications is increasing. The
gap is most likely increasing between high education and low educated women as well.
However, there is a gap in existing research data to support this finding.
It would be interesting to compare women’s and men’s status in the informal sector in
specific countries. The level of their education would be interesting for providing a
comparison of differences in earnings.
26
27
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