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New study: Balancing flexibility and security in Central and Eastern Europe

A new study published by the ILO says that for many workers in the new Europe, post-Communist era reforms have meant more work and less job security. " Labour markets in transition: Balancing flexibility and security in Central and Eastern Europe" says that while labour market flexibility is increasing in the countries of Central and Eastern Europe, workers also often face a sharp increase in open unemployment. As a result, these transition economies need to find a way to balance between more open labour markets and job and income security.

Article | 04 March 2004

GENEVA – "Central and East European labour markets have increased their flexibility, but forms of flexibility are different from those to be found in OECD countries", says Alena Nesporova, co-author with Sandrine Cazes of the study. "While less than 10 per cent of East European workers hold temporary contracts, work part-time (with the exception of Romania) or are self-employed, many employees have two or more jobs, both, in the formal and the informal sector of the economy."

While the unemployment rate declined from 10.7 to 5.8 per cent in Hungary and from 9 to 6.4 per cent in Slovenia between 1994 and 2002, it increased from 14 to 19.9 per cent in Poland and from 4.1 to 7.3 per cent in the Czech Republic. In 2000, unemployment reached 13.4 per cent in the Russian Federation as compared to 8.1 per cent in 1994. With 20 and 42 per cent respectively, the 2001 rates in countries like Bulgaria and Macedonia are even higher.

In the Czech Republic, some 28 per cent of the economically active population declared a "second job" in 1998 according to a special survey conducted by the Czech Academy of Sciences. The Russian Tax Inspectorate estimated the share of the adult Russian population working a second job at around 35 to 40 per cent.

While turnover in jobs has increased in the transition countries - indicating a newly mobile workforce which can be hired or move on at will unlike the old system where workers tended to stay in the same jobs for life - the study found striking differences in labour turnover between the transition countries and the OECD countries.

In the OECD, turnover increases in periods of economic boom as higher demand for labour encourages people to leave their jobs for better ones, while during recession labour turnover declines due to low labour demand.

This contrasts with the transition countries where people do not trust the economic health of many companies offering new jobs. They know that when they become unemployed income loss would be dramatic while support provided by labour market and social welfare institutions is poor. People therefore prefer to stay in their current jobs even during an economic upswing. A strong feeling of employment insecurity felt by workers hinders their move to more productive jobs - with negative effects on labour productivity for the whole economy.

According to the authors, employment protection legislation - that is all regulatory provisions relating to "hiring and firing" - cannot be blamed for unfavourable employment and unemployment trends, although more employment protection in transition countries would foster economic activity and higher employment levels as workers would be encouraged to move from the informal sector to more secure jobs in the formal sector.

In order to find a new balance between adjustment flexibility for enterprises and employment and income security for workers, the authors suggest that countries should first review their national labour legislation and amend those provisions which hinder necessary workforce adjustments for enterprises or leaving workers, in particular those in irregular forms of employment and unprotected workers.

"The problem is not so much that legislation is too strict or too liberal, but that it is weakly enforced, so that workers' rights are not respected in the workplace", says Sandrine Cazes. The authors also recommend that transition countries spend more money on labour market policies and strengthen social dialogue between governments, workers and employers.

Note 1 - Sandrine Cazes and Alena Nesporova, Labour markets in transition: Balancing flexibility and security in Central and Eastern Europe, International Labour Office, Geneva 2003.