Social Consequences of Transition

Vladimir Gligorov

Content

• Risks and skills

• Flexibility and social safety nets

• Migration

• Inequality

• Public finances

80

100

120

140

160

180

200

220

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

GDP BY GDP RU GDP UA EMP BY EMP RU

EMP UA GDP NMS EMP NMS

GDP and employment growth in NMS and NIS Index 1995 = 100

Source: INDEUNIS research results

GDP, employment, productivity 2000-20062000 = 100

90

100

110

120

130

2000 2001 2002 2003 2004 2005 2006

Employment, LFSGDPProductivity

Source: wiiw Database

With approximately five years delay, developments similar to those in the NMS

Candidates countries (HR, MK, TR)

GDP, employment, productivity 2000-20062000 = 100

90

100

110

120

130

140

150

2000 2001 2002 2003 2004 2005 2006

Employment, reg.GDPProductivity

Source: wiiw Database

With approximately five years delay, developments similar to those in the NMS

Potential candidate countries (AL, BA, ME, RS)

Employment trends in SEE1990=100

50

60

70

80

90

100

110

1990 1993 1996 1999 2002 2005

AL HR MK ME RS

BG RO

Unemployment in SEEunemployed in % of active population, average, LFS

0

10

20

30

40

50

60

1996 1999 2002 2005

Bosnia & Herzegovina Croatia KosovoMacedonia Montenegro Serbia Bulgaria Romania

Long-term unemployment in SEEunemployed - 12 months and more, in % of total unemployed

0

10

20

30

40

50

60

70

80

90

100

HR AL BA MK RS ME Kosovo RO BG EU-15

2000 2005

Youth unemployment rates in SEE, LFS 15-24 years, in %

Notes: Note: Albania registration data.

0

10

20

30

40

50

60

70

80

90

1996 1999 2002 2005

Albania Croatia KosovoMacedonia Montenegro Serbia and Monten.Bulgaria Romania

Flexibility

• Relatively flexible labour markets

• Declining social safety nets

EPL index, employment, unemployment in the SEE and peer countries

Country EPL index males females total reg. temp. coll. (1) (2) (1) (2)

Albania 2.6 2.1 3.0 2.8 61.4 12.9 38.3 18.2

Bosnia and Herzegovina 2.6 1.8 3.1 3.3 42.3 28.9 20.8 34.9

Croatia 2.7 2.7 2.8 2.5 60.7 12.8 46.3 15.6

Macedonia 2.8 2.0 3.1 4.0 45.6 37.0 31.3 36.3

Serbia and Montenegro 2.9 2.2 3.1 3.8 54.6 15.1 40.6 17.2

Bulgaria 2.0 2.2 3.4 2.6 56.0 14.1 49.0 13.2

Romania 2.8 1.7 3.0 4.8 63.8 7.5 51.5 6.4

Slovenia 2.7 2.7 2.3 4.8 67.4 6.3 57.6 7.1

(1) - employment rate, (2) - unemployment rate, in per cent respectively. Sources: see above.

Inequality

• Diverse

• In Central Europe similar to average in the EU

• In others higher inequality

• Effects of market power

• Effects of crisis

20

25

30

35

40

45

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Gin

i coe

ffici

ent

Central Europe CIS

SEE BalticsPolynomisch (Transition countries)

Source: UNU-WIDER: World Inequality Database Version 2.0c, w iiw calculations.

Transition countries (polynomial trend)

Development of income inequality in Central Europe, Baltic States, SEE and CIS, 1989-2006unweighted averages of Gini coefficients (income based)

Income inequality in world regions unweighted averages of Gini coefficients (income based), 2003

SEE

CIS

East AsiaRussia

USAMiddle East

& North Africa

South Asia

Sub-Saharan AfricaLatin America

Central Europe & Baltics

Western Europe

China

25

30

35

40

45

50

55

Gin

i co

eff

icie

nt

Source: UNU-WIDER: World Inequality Database Version 2.0b , own calculations.

Distribution of income & source of income

Correlation of functional distribution and inequality in transition countriesCE & Baltics, SEE and CIS

y = -0.40x + 48.752

R = 0.27

15

20

25

30

35

40

45

50

15 20 25 30 35 40 45 50 55

Compensation of employees, in % of GDP

Gin

i co

eff

icie

nt

2002

Sources: AMECO database, CIS STAT database, UNU-WIDER: World Inequality Database Version 2.0c .

y = -0.15x + 36.80

R2 = 0.44

10

15

20

25

30

35

40

45

0 20 40 60 80 100

coverage rate of collective agreements

Gin

i co

effi

cie

nt

2001

Correlation of coverage rate of collective agreements in transition countries, 2001

Sources: Schroeder (2004), UNU-WIDER: World Inequality Database Version 2.0a.

Central Europe, Baltics & BGR, ROU, HRV

Role of labour market institutions

Migration

• Very high outflow from some countries

• Significant numbers of refugees in some regions

• Brain drain and return migration

• Functionings and capabilities

Public sector

Public sector

Pensions spending

Pensions

Health

Education

Conclusions

• Social impact large but often positive after the initial transitional recession

• Social differentiation increasing, but not unusual for development

• Crisis effects may be significant